Macquarie: 100% chance of house price bust

The Silver Donut pumped up the gloom yesterday:

And how about this for an honest clanger:

Chief financial officer Alex Harvey said the company’s base case – with a likelihood of slightly more than 50 per cent – was for a 9 per cent fall in GDP by mid-year sparking an surge in unemployment to 9 per cent and a 15 per cent slide in house prices.

There was slightly less than even chance of a less optimistic scenario – a jobless rate of 11 per cent and a 30 per cent crash in the property market – occurring.

Mr Harvey said the company wasn’t betting on an economic snapback. “I’m not saying it’s zero [per cent chance] – it’s unlikely,” he said. The company said it was “unable to provide meaningful guidance” for its earnings over the coming year.

In short, the Donut sees a 100% chance of a major property price correction, which strikes me as about right.

David Llewellyn-Smith
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Comments

    • Johnny Big Boy

      Didn’t Callum Pickering suggested that property prices may go up? Thought I read that on these pages

      • Prices might still go up. Economic fundamentals say they should drop, but this is Australia, where the government and the RBA change the rules so it can’t happen.

        The RBA already has a plan to halt property market transactions if prices fall by more than 10%

        Shorting Aussie property is a “widow-maker” trade because it is far from a free market.

    • By how much is an interesting question. The important question is how position yourself to maximise your benefits from the bust.
      So, if I were you, I wouldn’t wait to see by how much. Borrow as much as you can and make a generous offer today, whatever your budget may allow, for your dream home. The price won’t make a difference in a decade or two.

      • boomengineeringMEMBER

        The war between deflation and money printing will determine the winners and losers.

      • “Borrow as much as you can”
        Sounds good. But that’s IF you can borrow as much as you’d need, or anything at all.
        With % rates where they are, like as not most borrowers have already assumed whatever debt they can take on AND lenders have already lent to those who are creditworthy.
        Those who haven’t borrowed yet are likely to be up against an economy in free fall (job security) and asset price declines (LVR caution) and may find – lender won’t give them much, if anything.

        • frag outMEMBER

          this 100%.

          The talk of it now benefiting FHB to lower entry price is a half truth, yes it will be lower, but now it will be harder. Once the message from MSM is that banks NEED to make “tough decisions” for everyone’s benefit, it will be on like Donkey Kong.

      • reusachtigeMEMBER

        This is great advice. Always borrow as much as you can possibly sneak through and now is always a great time to buy!

      • Goldstandard1MEMBER

        Wow that is terrible advice for the present situation. Worked well up until a year ago for 20 years.
        For those that can actually get credit, there is a very real chance they’ll be underwater at settlement and keep going backwards, and that’s even if they stay employed through all this.
        Terrible advice.

        • But you wouldn’t believe if I told you how many fools have fallen for those lines. Most of them from the pear-shape monarchy.

    • DominicMEMBER

      Did someone mention a competition as to who will get the fall magnitude right?

      30%, 50% … does it even matter what the magnitude is? Will life go on if it’s more than a certain level. I’m keen to find out if anyone has the answer.

      • Ireland’s Morgan Kelly studied housing busts and suggests the average bust is 70% of the rise, give or take 10%.

        So depending where you base the start of the boom – let’s say 1993 to use Core Logic data:

        Since 1993, median house and unit values have increased by 412% and 316% respectively, providing homeowners with a significant wealth boost. The capital gain over the past 25 years equates to an annual growth rate of 6.8% for houses and 5.9% for units, in dollar value terms, the median value of the typical Australian house has risen by $459,900 since 1993 and unit values are $392,000 higher.

        so take 70% off those numbers and consider your popcorn supplies

        • Strange EconomicsMEMBER

          Think you should use a time period of the last 7 years for a 100% boom with no fundamentals (yields are less than 2 % now).
          So a 35 % fall (or a Fibonacci 68% retracement if you are an astrologer (chartist), pretty close to the Irish 70%)
          Over how many years ? Slow, as it may take 3 years to make the sellers concede.
          So -15%, -10%, -10%.

          Where is some actual chart analyis of house prices, when there are millions of charts of stock markets?

          • DominicMEMBER

            House prices are less easy to chart (at least, the data is less reliable) because you’re not dealing with a generic product / commodity. In addition, what happens to money supply growth has the ability to obfuscate the true picture.

          • Rorke's DriftMEMBER

            House prices are following an Elliott Wave pattern. I put the start at 1983, the float of the AUD and financial liberalisation, Hawke started it all. EW still works if start earlier but that date is most clear. EW is the pattern of bubbles. It works exceptionally well on stockmarkets as they are liquid. Housing though illiquid can still be seen on the longer term scale. Roughly:
            Start 1983
            EWave1 peak 1989
            Ewave 2 low 1991
            Ewave 3 peak 2007
            Ewave 4 low 2012
            Ewave 5 peak 2015.(momentum peaked, notwithstanding prices peaked 2017)
            Ewave A initial fall 2016 (rba 2 x Int Rate cuts to pump up)
            Ewave B peak sept2017
            Ewave C decline:
            – subwave1 low Apr 2019
            – subwave2 rally May19 to Feb20
            – subwavw 3 fall Mar20 to current?
            – subwave 4 rally -?
            – subwave 5 final low -?

    • Strange EconomicsMEMBER

      Meanwhile MacBank massively expands its mortgage lending book (to people with a high deposit).
      Lots of Wagyu and Shiraz mortgagees gonna cut back to baked beans.

    • billygoatMEMBER

      And the donut punchers get paid how much to make this call now??? Hilarious
      Covid black swan right over the target doing exactly as planned crashing housing under guise of pLandemic:)
      Go con piracy nutters

  1. There’s no such thing as unemployment (in the sense of what economyists have soldered onto their brains as the theoretical effects it causes) in Australia. JS and JK fixed that.

    Macquarie..
    50.1% chance of 15% “slide” or
    49.9% chance of 30% “crash”.
    Hilarious. How much do these people get paid?

    • Um I hate to burst that bubble but the liquid asset test will apply from end of Sept. That means anyone who was getting ready to buy, like midge aged me, who had saved up a deposit that would have been significantly over 20% is now out of the game. The state has shut my employer down due to lockdowns and because my employer is a local gov owned business we don’t get JobKeeper so I’m on jobseeker. Because I have been saving like crazy for a house deposit I’ll be chucked of jobseeker come the end of September.
      https://mobile.abc.net.au/news/2020-07-31/jobseeker-liquids-assets-test-sees-applicants-with-savings-hit/12508686

      • Feel for you Poppy. I know that feeling well, where you deny yourself to get ahead only to be told you are better off than most and therefore don’t qualify.

        • Thanks for the sympathy Joe, I appreciate it. I’ve been furious and sad today but I’m going to maintain my positivity. It’s best in this unfair world to be as well informed as possible so you canmake the best quality decisions and maybe with a bit of luck you get what you need. I could always buy outright in a dead rural town on the hot side of the great dividing range where there is no workand go into jobseeker permanently, but that’s giving into a life of poverty and I’m not ready to capitulate just yet!😉

          • Never give up. I was thrown onto the human scrap heap in my early 40s. Two kids in private school, wife just quit her job because she was a victim of bullying. It was tumultuous. Took me a year to get FT job at half previous pay. Things turned around slowly but the take home message was perseverance pays. Getting a reasonable job was a full time job plus I worked as an on call casual for these labour hire firms doing the most menial jobs. What I learnt was the sh!tier the job the less the pay and I came to loathe labour hire companies. I know this is a little off topic but you will reflect on this as a learning and growing opportunity. I know 8 think quite differently to all my friends now. They lack empathy- probably like I used to. Just don’t give up.

      • Ugh, sounds sh!t and unfair, once again the prudent and responsible get screwed in this country. Can you hide the money so it’s not in your name (or not in a bank account at all) Poppy?

  2. Yes depressed from here, but over what time horizon?
    Owners wont sell for ages cause they have Govt and bank support. Protection from asset falls kills ingenuity and individual incentives. Is not capitalism.

    • FUDINTHENUDMEMBER

      Capitalism is long since dead. This is full scale financialization abetted by central bank and govt. intervention. And it aint ending well..

      • Ulrike Meinhof

        It can’t end well because labour no longer has an intrinsic value.
        Crack open a copy of Das Capital and see what the great man had to say about this operational corner.
        Capital derives its entire long term value from the advantage it (capital) delivers in the organization of labour. If the value of organized labour decreases than the value of Capital must also decrease.
        All recent maneuverings to avoid capital devaluation are simply reinforcing the diminished value of Labour organization and thereby undermining the very foundations of Capital valuation.
        Fun times ahead.

        • Yes good comment. I feel like we have gone from functioning organic to the current synthetic and thus the false is temporary.

        • bolstroodMEMBER

          You mean young Joshie is mistook about the Iron Maiden and Old Ronnie ?
          Capital actually needs labour ?
          Who Coulda node ?

    • Strange EconomicsMEMBER

      See the Perth property market of the last 5 years for the future – minus10 % a year for 5 years (as people refuse to sell)

    • Had a missive from he Nelson alexander agent who does house selling off market, informing me how strong the property market was, how prices up, that buyers like after the housing commission, and how quickly places were renting…one took 3 days. Brunswick east and north fitzroy etc.

  3. reusachtigeMEMBER

    15% oh fark. Means we’re back to last year or so prices. Sh1t hey. Crash. LOLOLOL.

    • 2016 prices, considering the up and down past few years. Next year it will be 5 years of sideways movement.

      -30% takes us to early 2015. All those IO loans written then are supposed to turn P & I. All that interest paid and no capital gain, capital losses if purchased in 2016-2017.

      • BoomToBustMEMBER

        The biggest issue in my mind is not going to be negative equity, its going to be the ability to keep repaying the loan. If your loan is underwater and you cannot make repayments and want to sell, you are now lined up to be bankrupted in short order.

        • Bankruptcy is the smart option when you have negative equity on a home that is 10 times you’re income.

    • Being 15% down with a job and super in tact vs 15% down without a job and decimated super is different. However you do point out the risiculousness of it. Which is why this time with higher unemployment and lower immigration, you can pretty much ignore a 15% down forecast. There arent the same support barriers at that price level that were before.

      • DominicMEMBER

        The point is that the situation pre-Covid was pretty marginal anyway — there was fairly widespread mortgage stress back then.

        Covid will just tip the whole edifice over — Just stimulus (and rent / mortgage holidays) that is suspending reality (for now). Can’t go on forever though. Tick tock …

      • BrentonMEMBER

        Plus many.

        Last time the macroeconomic environment was nothing like now and they were able to slash rates to put a floor under the 15%.

        What are they going to do that they are not already doing? Rates cuts long gone. Government intervention? Have already done the largest deficit spending in a century and it’s barely slowing this thing down. QE? Mortgage rates can only go so low before you kill the banks. If they had any excuse to continue doing QE, they already have it now. IMO they’re holding off as a break glass moment for a banking crisis.

        If I was a specufestor, I’d be sh!tting bricks right about now.

        • There will not be a banking crisis. The Gov’t has given the banks 3 years unlimited funding at 0.25% – and taken no equity or board seats in exchange for bailing them out!

          • BrentonMEMBER

            Yeah, you’re right, the banking crisis already happened when funding spiked in the March liquidity event. More appropriate to say, save the next bout of QE for rising loan losses.

        • A banking crisis is a bit irrelevant because it is a certainty they will be bailed out.
          A bank or two here or there might be gone if they dont wake up soon enough but by and large the banking system itself will be bailed out. It’s not right, but it is what it has been. It’s the tried and tested playbook.

        • The smart money was out by last September to 720s then gold now little aussie battler

  4. funny how 10% falls are being predicted with certainty … while prices are already down more than 10%

  5. BrentonMEMBER

    100% chance of 15-30% price falls and 9% unemployment.

    Seems like a reasonable base case for a major bank.

    • DominicMEMBER

      Funny comment from a bank that was furiously growing its mortgage book these past few years.

      Further cements the suspicion that they were pushing hard to get into the Too Big To Fail group of financial institutions.

      • BrentonMEMBER

        It’s not as high as that now, that was when JobKeeper was thought to be larger than it was. Still, the point is well made.

        I think it is going to be much worse, just interesting that it is a base case for one of the majors.

        • No, it’s now.
          Just weeks ago (months after numbers debacle) there were 1.6m on jobseeker and 3.5m on jobkeeper, 700k left labour force since. Labour force was 13m in February. You do the math

        • 1/10 businesses (ABS Data I think? Citation required) stated they would shut shop when JK ends.
          Not sure what that means for increase in unemployment rate.

        • OK
          if you assume those quitting workforce are on some other kind of welfare (pension, family support,disability …) – why they wouldn’t be to be when on jobseeker one doesn’t even need to apply for jobs
          than number goes to 45%

          anyway … that’s quite different than 9% unemployment painted here

      • Kohler had a brilliant chart on it a few months back, it was either 48 or 58%. Staggering.

  6. Whats interesting is that they are not backing away from rhis call and infact stating that it is actually going to their forecast
    ——
    On Thursday, Ms Wikramanayake said the economic situation was “broadly playing out as we estimated”.

  7. DominicMEMBER

    You’re obviously not a parent — in such an instance said item would find its way into the bin!

  8. Arthur Schopenhauer

    The honesty of the comments suggest a depression, or something that feels like a depression to many Aussies.

    • Will the hardship be genuine poverty like in the 30’s or some woke lack of welfare for smokes and booze. Being really poor will come as a great shock for many. I am lucky I have been hungry.

  9. The only way it’ll keep rising is if Government starts actually buying houses for us…..beyond the ways they have for 20 years. It won’t be off the back of trading labour for it.

    Case in point – I’ve got six trades quoting for two jobs. Only one has bothered turning up. The others have completely disappeared. I ask the bloke how business is and he says the building industry is laying people off and accountants, in concert with owners have trimmed revenues by 30% to access JK. So, the other five who haven’t bothered are either at home, out in the boat fishing or flat out trying to meet demand because the supply side is suddenly 50-70% of what it previously was.

    We’ve created a physical shortage of trades because we’re giving them money for nothing. I’m not sure how the 30-50% who are opting to bludge off the back of JK are buying property.

  10. Mike Herman TroutMEMBER

    I see the mounting for lease signs, the falling rents, the CoreLogic and SQM data heading south….and then I had a conversation yesterday with a property consultant in Melbourne who is busy with enquiries from people wanting to buy. He said dropped right away in March and April and has bounced back strongly since. What are these people thinking? House prices only go up I’m sure…

  11. What’s in it for Macquarie to call this out about the housing market? I can’t see the play here. They are a part of the mainstream. This runs counter to the usual solidarity among banksters.

      • Maybe. I find it curious. The propertocracy chorus in Australia is typically abolsutely pitch perfect. No one is (usually) off key. And yet here’s Macquarie????

    • I don’t see why they wouldn’t want to crush the market

      – they offloaded junk mortgages to RBA, paying RBA 0.25% interest to hold all of the risk while collecting 2-3% from people until they default – banks are safe – bailout was done preemptively under coronascare
      – they are loaded with cheap cash from central banks looking for a discount to invest that money (as blackrock, morgan stanley, … did in USA post GFC)
      – they are looking for a major delevering event so they can soon start a new property boom cycle off low prices and low debt , that would give them a decade or two of the same golden age

      if they prevent the crash what they can hope for? disappearance of both volume and margin …

      • mikef179MEMBER

        “bailout was done preemptively under coronascare”

        Sorry I’m a bit dense, but could you expand a bit on how this worked? I’m genuinely curious.

        • RBA purchasing “investor grade” RMBSs (mortgages) from banks that off course include the riskiest they have all stamped with AA or AA+ rating

  12. The value of an asset is linked to the income it produces. Take the weekly rent and multiply by 1000. Compare this result to the current “value”. This will tell you how much any given property will fall. You also need to take into account the likelihood of rezoning (but, only a fraction of properties can really be rezoned). Capital city properties will fall more than regional areas, but that’s only because this is where prices got totally out of whack with rental return.

    • On this, our rental is worth 580k. If it went to market, right now, they’d get 700 for it, easily. 3/4acre, high site, 3BR, 1bath(!).
      Another place we’ll be looking at on Monday, I am told price range 670-700. This is a 4BR, 2.5bath on 1100sqm, brick, iron roof, no solar, no solar HW, great shedding. Needs paint, carpet, solar HW/PV, new kitchen, blinds. There’s 70k. Capitalised with that let’s say 740-770 (assuming they get that, I’m going to go in with an offer of 640 assuming no asbestos. Built 1991, on a slab).

      Current rental 565pw.
      Last sold 1996 120K. Current owner had it 26years.
      Rental lease ends Sept.

      This implies, on your metric, 565k. They will get 670 for this, IMV. So, a near 20% drop to reach your metric.

      Places like this, in this town, sell fast. Place on 1087sqm same street, massive 2 storey corner block, 645k in a week in Dec. They’ve spent I reckon 100k on it at least. Complete renno. Kitchen, carpet, paint inside and out, some brick work / new kitchen window slimline, downstairs fit out. 4BR, 3Bath. Another place on a double block 2000sqm 2 storey, 5BR 3Bath, downstairs studio, needed 100k spent, sold 640k during Corona. All during Corona.

      • Yeah, that all sounds about right. In the case of a large, double or corner block you also need to consider future potential for subdivision, dual occupancy or granny flat.

    • Ulrike Meinhof

      This is true if and only if organized labour has a value greater than that of dis-organized labour (every man doing something for themselves). The true value of Capital lies in its ability to create greater end value through capital’s ability to organize labour. If the output (end product) (however you want to see it) for organized labour is less than the sum of the individual labour inputs then Capital has a zero or negative value.
      With this in mind look at most organized labour in Australia and tell me with a straight face that you couldn’t do the job better on your own.
      When we move into the operational area where organizing labour has no natural advantage it follows that capital has no natural advantage except in its ability to repress the people.
      Feudalism is an example of a system under which capital assumed the role of repressing labour by neither properly educating nor creating businesses that thrived on organization of skilled labour.

      • Awesome! They should use this place for a scene in Mission Impossible 6, or Charlie’s Angels 4.

      • The hardwood floors and rockwork are spectacular. Those views. Imagine the lingering sunsets in summer.

        • Indeed, things of stone and wood. Trade crafts are not lost, just expensive. Western facing so it gets a belting in summer late afternoons. The city view is much clearer than depicted, bay views though the spine from Box Hill through to Mt Waverley obscures a lot of the eastern side of the bay through to that spine, roughly Brighton to Docklands. Views from Mt Macedon, Western bay foreshore sands gleaming, You Yangs, Port Arlington and on a clear day, the Heads,

    • Ah yes, good old Bangallow prahperty maaate! There’s gold in them hills apparently. Not a lot of f*cken jerbs, but sure enough every w*nker wants a piece! At a cool 4 mil + no less…

      • IKR. I can’t work it out. Don’t forget approx 4000 Health Service employees in the area.
        That place does have a maca income though, and macas are practically gold. Unless you have one, and then it seems you plough it into paddocks for bovines. Unless you’re on cane, in which case you rid yourself of that for avos or macas.

        [I wouldn’t live in Bangalow m’self]