Did the RBA find its house price foghorn?

Just askin’. Recall a few days ago:

In April, economist Nick Garvin wrote to colleagues warning them the bank should stop analysing the housing market as if it were operating normally and calling for a halt — as happens to stock trading in emergencies.

“I think it’s dangerous for regulators to be reporting on housing prices as though the market is currently functioning,” he wrote.

Sharp rise in unemployment could trigger house price crash

The spread of coronavirus across Australia could see unemployment reach about 10 per cent and house prices drop 20 per cent, says one economist.

“I’d suggest we classify the market as paused and treat the prices observed before the pause as the current prices — like how equity markets operate, but on a larger scale.”

Because real estate agents could not operate normally at the time — auctions and viewings were banned or highly restricted — the economist argued “so, ‘paused’ would be a fair classification”.

He went on: “We should also tell private sector data providers to follow this rule. If people start mistakenly thinking that we’re experiencing a housing market crash, it’s not going to help things.”

After the information was picked up by other outlets including the Australian Financial Review, the new emails show the bank’s head of communications Judy Hitchen tried to find a journalist to “write about the challenges of measurement in an unsettled market — so people understand the point [Dr Garvin] was making”.

Senior communications officer Ian Chua suggested some names, redacted in the release, of friendly journalists who might write about the topic.

“In any case, to achieve what you’re aiming for, you’d need to pitch the idea to a receptive reporter and offer an on-the-record interview as incentive,” he wrote.

“If that is on the cards, we could try to say [REDACTED] at [REDACTED] or the wires reporters.”

The bank did not go through with the plan.

No? Jess Irvine  today:

One of the biggest risks hanging over Australia’s fragile COVID economy is the prospect of a property market bust. Right now, despite rising joblessness, most affected Australians are able to keep making mortgage repayments thanks to expanded government support and generous bank repayment holidays.

But what will happen when those pillars of support are unwound, as they inevitably must be?

If large numbers of homeowners are unable to keep up on loan repayments, they could be forced to sell. If they all sell at once, that could accelerate the decline we’re already seeing in home values.

Of course, young would-be home buyers might cheer falling home prices. But if it’s associated with a larger collapse in the economy – as a negative wealth effect deals a body blow to consumer spending – young buyers will also find it harder to save a deposit.

So everyone should be a bit worried about the future for Australia’s debt-fuelled property market.

What happened to this Jess Irvine from a few moths ago:

For those of us fortunate enough to have them, our homes are our sanctuary. Shelter from both the elements and prying eyes, our homes are places where we can grow roots, drop our bundles, and just be ourselves.

If, that is, we’re lucky enough to have access to a safe, secure and affordable home to begin with.

Another likely impact of this crisis is that it will be some time before home owners see any capital appreciation in the value of our homes, given the hit to incomes and jobs.

We’ve all seen the headlines of potential falls of around 30 per cent − on a worst-case scenario − in home values, according to the nation’s biggest lender

…But then I wonder: is that such a bad thing? Do we really want to go back to normal on housing?

…take this opportunity to fix that broken housing tax system. To reduce concessions for negative gearing and capital gains on housing. To abolish stamp duty in favour of a broad-based land tax.

…we could have a real chance at halting – for decades to come – the runaway growth in housing prices we have come to expect.

It could give young Australians the chance to jump the hurdle into ownership, and the security of tenure it brings. And while we’re at it, we could also rethink the way we treat renters.

Quite. A 20% reduction in a $600k home delivers it for $480k. That’s $12k less deposit needed.

If the LVR falls 5% owing to conservative banks, you will need an additional $12k deposit but so long as prices are staying down or keep falling then the deposit equation gets better every single minute thanks to wider inflation.

As well, you will have to borrow only $408k versus $540k leaving you far better off in the long run, a time for wealth trade-off well worth making.

I’m not worried about house prices. I’m excited that the greatest rip-off of Aussie youth in history may end.

Then again, the Lunatic RBA never calls me.

David Llewellyn-Smith
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Comments

  1. Goldstandard1MEMBER

    Isn’t it funny how rational people who just can’t get the numbers to add up on property for years, get beaten to a pulp into the market (by their spouses or friends or peers) with the “if you can’t beatem, joinem” mantra. Then they FLIP completely to support ever rising prices because thats the side they are on.
    Actual turncoats.
    It is a game of musical chairs indeed. Pretty sure music just stopped.
    Sell and suck it up I say, or don’t-but don’t complain when the ponzi is over.

  2. But what $600,000 ‘home’ would that be?

    An ‘investment grade’ 2BR dogbox with spiralling repair/strata levies on the Great Western Highway between Wentworthville and Blacktown, or a 3BR free stander in Tarneit West?

    Almost everything in the $600K bracket in an eastern capital is pure unmitigated crap. You would have to go a rural centre to get decent build quality for that price.

    I would not touch this stuff if it were going at $150,000

    • You’d need to be in the absolute boonies. Anywhere drivable from Syd / Mel. is already there. Go look at Bowral, hell, go look at Goulburn. You still need the better part of $1m for something decent.

    • ChristopherMEMBER

      You say that but we bought 20km west of Melbourne in 2012, both my wife and I on good incomes own our house outright and enough money in the bank to not work for 3+ years. COVID sucks but I am not worried about my long term future because of it.

      The concept of having to live in certain areas I believe is long dead with the prevalence of online services and delivery.

  3. Most of the hacks at the Sydney Morning Morrison are like this. They have two settings, Morrison Propaganda, and Occasional Journalism. Usually, it’s not that hard to spot the difference.

  4. Sunlord BCNMEMBER

    Just go stand in front of a home say the one Haroldus posted in Newton this morning

    It is not TIME that has made it go up…….

    It’s what has taken place in a set period of time.

    It’s the same shxx hole it was 40 years ago……absolutely no change

    The reason it has gone up in value are for the reasons we all know
    population growth
    excessive access to credit that wasn’t available 50 years ago….deregulation of banking in 1980’s
    more and more tax breaks to encourage investors
    constantly falling interest rates since Paul Volcker jammed them up 10 %to combat the oil shock inflation

    The list goes on

    Every market goes in cycles, shares gold…..look at gold it was for many years at $200 up to $800 back down again to $200

    Nothing ever goes up in a straight line for ever….go back and look at 100 year charts on all financial instruments

    All above are reversing

    Population is now going to be reducing in the big cities
    Interest rates are now going to rise after 30 years of falling to zero
    You think they won’t change the taxation to suit themselves as prices are falling, you are a fool…..just work out what tax politicians can earn from falling prices, OO land tax, remove the 50% CGT, (I can’t see them bringing in CGT on sale of OO, that’s political suicide but they would if they could get away with it
    Bank’s are going to contract as prices fall and lend less on lower LVR’s they aren’t stupid

    These factors are in reverse …

    Add in structural increase in unemployment via AI, Robotics, Online ….just look at the NASDAQ….and Tech companies on ASX

    These structural changes in the composition has changed and displaced many existing industries

    The printing press created a huge loss of jobs
    The steam engine
    The combustion engine…there are many more

    House prices in Australia will be falling for the next 10 years…..

    I am happy to bet my house on it, (if I had one)

    That shxx hole in newtown will be more than 50% lower in 3 years

  5. I guess this is what happens when the regulators responsible for maintaining sanity within markets drink too much of the koolaid. They can’t suddenly stop being cheering fanbois nor can they refuse another cup of the koolaid just because the last glass made them puke.
    Bottoms-up everyone and waiter please bring another koolaid round for the RBA table, my shout.

  6. Jess Irving – Australia’s Bridget Jones searching for that daytime TV spot and prepared to dress as a bunny and attend the media tarts and vicars party as required – not even adverse to flirting with Uncle Rupert should that be a fat wallet in his pocket. Shoulders back, shoulders back…