MB Fund Podcast: Housing roars upwards, with Dr Cameron Murray

MB Fund’s Chief Economist Leith van Onselen, Head of Investments Damien Klassen, Head of Advice Tim Fuller and Economist Dr Cameron Murray discuss the drivers behind Australian Housing’s recent upwards roar.
You can find Cameron at Fresh Economic Thinking
On the agenda:
Strongest growth in property prices since 2003
Mortgage & Auction markets are booming
Lack of supply
How long can the boom run?
Investment outlook

 

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Tim Fuller is Head of Advice at the MacroBusiness Fund, which is powered by Nucleus Wealth.

The information on this blog contains general information and does not take into account your personal objectives, financial situation or needs. Past performance is not an indication of future performance. Tim Fuller is an authorised representative of Nucleus Wealth Management, a Corporate Authorised Representative of Nucleus Advice Pty Ltd – AFSL 515796.

Tim Fuller

Comments

    • Bear, because that is unsustainable will end at some point. How price growth like this is not sustainable long term. I’m particularly bearish around regional property that has gone ballistic, people paying way overs what a property is worth. Part of me would like to see decentralisation, but I suspect the lure of the inner city will be too great for many and they will eventually return.

      However I am also a bit bullish because what I think is happening more so than property prices inflating is that purchasing power of fiat currency is diminishing. That to me is why property is growing and IF we do get some actual wage inflation along with more broad inflation I can see a situation where the debt will be inflated away, however that also depend on the RBA and other Central Banks not raising rates inline with inflation – basically their old trick of “looking through it”. Which they have been doing for some time in relation to asset prices like housing.

      I purchased my home in Oct 2019 and I was expecting prices to either remain flat or go backwards when I did so, but instead it’s probably increased by 10% over the last year based on what neighbours houses have been going for. People are not earning 10% more than last year. It just seems to be a bubble that gets bigger and bigger. At some point it will pop. I thought Covid was going to do it, but I think it will eventually happen, but I defer to member Bcnich (aka. Sun Boy) for clairvoyance here.

    • FUDINTHENUDMEMBER

      Short/medium term bull. Due to govt. Subsidies and market manipulation. Long term bear/catastrophe, due to govt. subsidies and market manipulation.

    • agree with gav and fudy.

      disaster awaits. but better to be on the side of the bailouts than bail ins

      • desmodromicMEMBER

        This! Agree entirely and in no hurry to extinguish my debt at these interest rates.

    • Intensive care bear hear, but more and more disheartened about everything that is happening. I’m considering very strongly pulling the pin and buying a place (there, I said it!)…

      Also, Tim, I have not forgotten our talk some months ago… had bugger all time to do anything for myself for the past 4 months … it’s already March … FML! 😕

  1. Damien in this episode… so many great rebuttals of straw man arguments that no one was making :S

  2. Bear, Waiting to see what the bond yields are going to do as I think the interest rates on them are the main story. I can not see a “V” shape recovery for Australia due to the ending of the stimulus measures and the flow through effect of a lot of SME,s not surviving/insolvent etc especially in the service and like industries and the jobs that are going to go with them.
    Too many Black Swans to avoid and one of them have to hit.

  3. MathiasMEMBER

    Why are Australian REITS going nowhere? If Property was making people so much money, then wouldnt REITs be higher?
    https://gyazo.com/fb712344a17eb9d746bf24950083faa6

    That chart Leith showed a while ago had me confused. I have no doubt that Owner Occupiers are buying houses and getting into the market. It makes sense as. We all need a roof over our head. As for the returns, Im not so sure.

    It looks like lots of people are buying and the Transactions are going off the charts… but… when you look at one of the Charts Leith Posted, it doesnt look like Credit Growth Rates are rising all that much. To me, it looks like money is just being recycled from one place to another.

    Leith says, ” The reason Credit Growth isnt growing as strong is because people are paying down there mortgages faster given to much higher incomes “. Eh… ok. So at a time in Australias History when Unemployment Rates are seeing people work fewer hours and JobKeeper is slowly being phased out across the Country, people suddenly, have more money then ever to spend? So why are REITs on a downward slide?

    Far be it that I would question reputable economists as Leith and Cameron, but it looks to me as though Australias got Interestate migration going on ( the fear of lockdowns and covid has been insane ) as moneys being recycled from one place to another. Yeah, the Housing Transactions are off the scale but the actual money changing hands doesnt seem to be changing all that much.

    When you consider the Governments practically thrown everything it has at this damn thing to keep the Housing Fire alive, you’d expect it to be rising to the moon… but it doesnt look like it to me. Given the entire Countrys Incentives are geared around this, it looks a lot weaker then you’d expect it to be.

    Yeah. I suspect the Government will likely run Immigration Programs to death after Vaccinations and Print the wheels off its Money Printers but the Housing Market just doesnt look all that strong to me.

    I think the markets going sideways and the moneys just being recycled. Yeah, we might open the migrant floodgates and print which could give this dead horse a year or maybe two of a small rise, but I really dont think Real Estate is as strong as people keep making it out to be.

    It also concerns me that now as I drive around Queensland, at least 1 in every 10 cars Im seeing on the road is a Van. Now either 1 in every 10 Queenslanders has suddenly got a Courier Job with Australian Post… or we are witnessing the beginning of people starting to live out of there cars. Its funny that Fairfax is labelling all these Van Homeless as ” Surfy Hipsters ” when Television did a segment on woman living out of there car. I think Fairfax is wrong ( god forbid ) and I think we are legitimately seeing a rise of homeless living out of there Van. Its not surfers. Vans are now becoming cheaper to live in then houses.

    Bear or Bull? I think we’re going sideways. Government will inject more into it to maybe give it another bull run for a year or so but I think the money is starting to fall out from underneath it. I think we’re running out of steam and we arent far from turning Bearish.

    Migration hmm. We’ve got rape saga’s going on. We’ve got a loss of faith in the system. People living out of cars. Crime rates starting to soar. Politicians are likely to kick off Migration but I think your going to start seeing some throw back real soon. They’ll probably, quietly, sneak them into Sydney and Melbourne but I think we might start to see some social consequences real soon.

    The other thing nobodys talking about is all these Interstate Migrants from Sydney / Melbourne have sold up and moved interstate with the hopes/dreams of a better life elsewhere. What happens in a year when half these people realise that there move to Queensland ( to use but one example ) comes with a massive pay cut and there’s hardly any jobs around for them? Will they decide, ” screw this “, sell up and move back to where the money is again? My meager research into property showed Income had a big impact on Location. So what happens when there is less Income? Will those places still be desirable? What happens if in 6 months to a Year, we see a Reverse Interstate Migration as people sell up again and decide to go back to where the money is.

    I dont think the property market is as strong as people are saying it is. I think its definitely got a little bit of puff left in it but its starting to look to me as if thats running out.

    Sideways … Maybe a little rise over the next year or two… but I think its getting close to wanting to take a fall.

  4. MathiasMEMBER

    Cameron Murray says, ” People are happy owning Property and getting 4% . They are happy sitting on that and know if they sell up, they’ll have all this cash with really nowhere to go “.

    Well yeah… great point… but when you compare REITs to other Stockmarket Indices, Property isnt doing that well.
    https://gyazo.com/6c717b05c2fe9435e1f7c8f01e211b8c

    I think its the incentives that make property… but given to how many incentives are being thrown at property right now, you’d expect it to be a lot better then it really is. Even WITH Incentives, Australian Property is actually doing pretty crap. If Rent was so great then why arent REITs going through the roof?

    • AREITs have little to no correlation to residential property. Please research what they are before waving your hands in the air and comparing apples (AREITs) to oranges (residential property).

    • What the other guy said. REIT’s normally invest in commerical and industrial property – we don’t have a lot of buy to let here yet. They are a completely different class of zoning often with different investment characteristics as a result (i.e. they are artificially different commodities). Residential property is seen at least to me as the lowest risk one, hence the price typically is higher. Commercial property can be tanking (think COVID CBD’s) while people still need homes.

      Zoning values typically go per sqm : Farmland < Industrial < Commercial < Residential depending on the district. Its why a farmer can say his property has doubled/tripled from an industrial development but the local households can still see a price fall (think airports, warehouses, trucking depot's, train lines, and other developments with negative externalities). This effect is typically more pronounced when the infrastructure has little use for households or families or impacts their lifestyle.

  5. MathiasMEMBER

    Stockmarket REITs where doing great… UNTIL… Covid hit.

    Look where REITs are today? I have doubts but time will tell, I guess. So basically, any Stockmarket Company that buys property with the potential to ‘Rent for Profit’ is doing very poorly. So an experienced and professional Company who specialises in the buying of and renting of property, cant turn a profit, yet Owner Occupiers and Sole Investors can? How does that work?
    https://gyazo.com/02801df7fbb581e78537389730707209

    • They hand out debt to buy housing but not to rent housing.
      Theres no actual demand housing right now, onky debt fuelled prices rises. Before at least there was immigration to back stop actual demand for the product.
      It is going to crash big time now.

      • MathiasMEMBER

        So thats like owning a Stock who’s price keeps rising yet it makes no money, has no Cashflow and pays no Dividend.

        So everyones buying the ‘perceived’ future value and people are saying this should last for many years? I see.

        Waiting for ScoMo to open Immigration and fill up Sydney and Melbourne with new people… and create a host of National Security Issues at the same time.

  6. BoomToBustMEMBER

    The trap is set, luring in as many people as possible. With the end of JK etc, winter fast approaching, the next BS variant of CV-19 around the corner and markets accelerating at a crazy rate and interest rates appearing to start rising soon its only a matter of time before we see a large implosion.

  7. working class hamMEMBER

    Bear turned Bull.
    Was waiting patiently for a bust, Covid couldn’t do it, so we bought in Dec 20′. Picked up a house that was only for sale because Covid had the investor scared they would lose too much, too close to retirement.
    Eventually figured out that it’s a totally rigged game, market forces don’t apply when negative. The rules/numbers just get changed to achieve the the desired result. Was also afraid that if inflation hit hard, to get rid of the huge debt, only the players would be rewarded.
    Still think that RE in Australia is beyond stupid, but the point about big city incomes not being tethered to inner-city homes anymore, has a lot of merit. Highway upgrades along the eastern coast of Australia has opened up huge numbers of undeveloped seaside villages to city salaries.

    • This

      Plus remote working and decent internet and desire for a life

      Bull long term after being bear 2005-2011

    • Yup. We live in Port Macquarie and saw the huge demand for houses with a bit of land on the Mid North Coast. We were renting a 4/2/2 on 800+ sqm and the owners put the house on the market so we bought it in Dec 20. Paid a ridiculous price, but loan is still under 3x gross income and repayments are just above what we were paying in rent, but below market rent..

      I would be confident that since we bought the house in December, it would sell for ~5% more on the market today. That’s after 1 qtr! Crazy!

      Demand for 4 bedders with nothing to do but move in here is nuts and there are hardly any on the market.

      Of course the game is rigged. It would not survive otherwise, but there are too many demand side factors – particularly in regional towns like Port Mac – that mean this thing has a while to run yet. The amount of “big city money” flowing in is phenominal.

  8. The big lie is that there are limits to the stock of housing on the market. We have had over 50% above average sales for the past 6 months. That’s 26 weeks and counting where the sales in Queensland have been 1200 or above. How does that equate with there being a lack of sellers?
    As said above, its a manipulated market. The government are getting worried. I suspect the social policy vis a vis women is a smokescreen to keep the plebs amused.

  9. Alaster Hains

    A bit of disagreement here in the discussion. I can certainly add my perspective as a FHB.

    Long term renter here, turned buyer partly because I am sick of renting but mostly because I am now paying 30% lower interest+principle+costs compared to the rent I’d be paying. So as long as I can afford the deposit (easily) then it just makes sense. Interest rates need to double, or rents need to reduce by 30% for the equation to change.

  10. Bull & Bear for me!
    What I don’t understand is how Australian house prices can be so high compared to many other countries that have a more sophisticated economy? It doesn’t add up that our incomes are flat for years and yet property prices are so high compared to other places & incomes?