No “strong and sharp rebound” for Aussie housing market

LaTrobe Financial has optimistically tipped a “strong and sharp rebound” for the Australian housing market once the coronavirus outbreak passes:

Amid the doom and gloom over coronavirus, LaTrobe Financial says it expects the housing market to surge following a temporary slowdown.

In a message to investors, LaTrobe Financial senior vice-president and chief investment officer Chris Andrews said he anticipates the housing market to have a “strong and sharp rebound”, highlighting the “immense resilience previously seen in the Australian housing market”.

According to Mr Andrews, there is “little doubt that housing sales activity will slow dramatically” beyond April, something made worse by the recently announced restrictions on open houses and public auctions.

“Fundamentally, as we’ve said before house prices tend to be less volatile than equity markets because of course housing is not just an investment, it’s also an instant essential consumption item,” Mr Andrews said.

He then went on to reference the housing market’s response to other broad economic challenges, such as the 2008 global financial crisis (GFC) and the credit squeeze of 2017-19.

“In both cases, there was an initial drop of around 10%, where the largest peak to trough observation in that period was Sydney in the 2017 to 19 period at 14.9% retracement,” he said.

“That was followed by a sharp rebound, as more normal market conditions re-emerged.

“So that is a really good baseline for our thinking around the house prices.”

This is panglossian thinking by LaTrobe.

With widespread business closures anticipated, unemployment is likely to remain high well into 2021.

According to Westpac chief economist, Bill Evans:

“…the unemployment rate holds at 11% in the September quarter and then moves a little below 9% by the end of 2020 and then towards 8% by end 2021”.

Bloomberg Economics economist, James McIntyre, noted similar:

“The labor market dislocation will be substantial, and is likely to linger for an extended period, even though economic growth may ‘bounce back”…

How will the Australian housing experience “a strong and sharp rebound” with mass unemployment and falling wages? It won’t.

Remember too that prior downturns saw sharp reductions in mortgage rates. This time around, mortgage rates are already at their lower bound and no further reductions will be forthcoming to rescue the housing market.

Perth provides a useful insight into what is facing Australian property amid chronic high unemployment and falling income:

Perth’s house prices are down around 21% from peak over 5.5 years.

And this is with an unemployment rate that peaked at only 6.9%.

Join the dots for yourselves.

Leith van Onselen

Comments

  1. SnappedUpSavvyMEMBER

    i’m seeing houses that would of got 1.8 now asking 1.5 around Hurstville, uncle of mine in Sylvania waters said non waterfront was asking 2 sold for 1.6 on the weekend.
    some houses are getting savagely discounted, others are sitting there, probably all down to the position of the owner – over a barrel or boomer in denial

  2. All those d!ckheads that are trying to compare this to the GFC or 2018, when prices “only” fell 10-20% – or better yet the 1987 stock market crash “when house prices actually rose!” – are conveniently forgetting –

    – none of those were during a massive recession with Centrelink queues full of coughing people around the block! Oh noes!

    Panic time, fvcksticks.

    • Good. I want fear. This has destroyed my marriage because the wife wanted it all. I got kicked out a week before this hit. Karma’s a bitch.

      • Goldstandard1MEMBER

        Look after yourself man. That’s tough.
        Try to move through the anger as best you can and get to how to best set yourself up from this catastrophe.
        Cheers

      • Someone ElseMEMBER

        I feel you. I ditched the missus, and gave her all the assets in exchange for the toddler in Perth 2014.

        It was tough, but the best thing I ever did. I got a lot of support from my family, and oddly her’s too, but it was tough for a few years.

        I gave everything away to buy time with my littleun and would do it all over again without hesitation.

        If you need help, I’ll give it.

    • And where is the money going to come from? We have spent an enormous amount of money to contain the medical and financial fallout of this virus. It’s going to take years to pay back as it is.

      • More good money after bad? That’s standard practice with the ponzi.
        I’m just saying, 6 months of lockdown and the bastards will try to turbo charge the recovery with moar migrants and household debt.
        MMT Australian style…

  3. government is too stretched already so it will have to let someone down
    if it lets businesses down unemployment will go to 20% crashing everything including house prices,
    their best hope is to save as many jobs as possible so house prices don’t suffer as much

    remember, in 2018 prices fell almost 20% and unemployment didn’t even rise

  4. Sydney and Melbourne both down today according to Corelogic. In fact all majors down today for the first time in nearly a year. And Melb is down an astonishing 0.33 points.

    The next few weeks will be interesting for Aussie housing.

  5. Colleague 1: $1.3m debt, hanging onto each paycheck, will be screwed if has to stand down for a month, fortunate the Chef renting will get some Government handout
    Colleague 2: Sold dads property for $2m 8 months back, I told him to sit on the cash until after 2020, went and bought dilapidated house in shire for $1.7m, was about to go ahead with the demolition and rebuild but has put it on hold…can’t rent it…now reckons property prices to fall 40%
    Colleague 3 (my manager): bought Afterpay shares at the peak haha

  6. Hard to see prices falling too far with this wage subsidy system in place

    Unemployment might not get anywhere near 10% too given this

    • It’s already 10% and when the wage subsidy goes unemployment will rise unless they kick the can again to extend and pretend

  7. LaTrob Financial is running at 30% redemption (by their investors YoY). I suspect their loan book is 100%+ of their investor’s monies. They will have to secure 30% funding from investors this year to keep the boat afloat, which I dont think they can in the current economic conditions and stock market. Hence, I believe they might fold within the next 2-6 months.
    If someone has more ‘inside’ information please correct me.

    • Michael JohnsonMEMBER

      Hi Virus, I am keeping an eye on these guys too. Very little cash on the books and 64% LVR. I know someone trying to get money out and hope he is OK. Looks like a disaster with classic mismatch between a right to withdraw liquid funds (1 year TD) and insufficient liquidity to deliver.