Is the end nigh for the 25-year bull market in property prices?

AMP Capital’s chief economist Shane Oliver believes that the end may be near for Australia’s 25-year housing bull market:

“The puff is coming out of the property market,” Dr Oliver says. “We may be getting closer to the end of the 25-year bull market in property prices: the 30-year decline in mortgage rates is likely over so this tailwind for property prices that’s enabled people to keep borrowing more to pay more for houses is likely over.”

It is easy to see how Shane Oliver has come to this conclusion given the RBA cash rate has plunged to a record low 0.1% with seemingly little room to go lower:

RBA cash rate

My prediction is that negative interest rates will be implemented by the RBA mid decade, most likely after the next housing correction.

The RBA will very likely follow the pattern of the past 25 years and attempt to stimulate the market/economy by lowering borrowing costs.

One only needs to look across at Europe to see how the rates story is likely to unfold.

The European Central Bank (ECB) began with 0.1% funding for banks in 2014. By 2016 the rate had fallen to -0.4%. And then to -1.0%. So basically, the ECB is paying commercial banks up to 1% for every dollar they lend.

Denmark is already offering homeowners 20-year loans at a fixed interest rate of zero percent.

Eventually, the RBA will use a mechanism like the Term Funding Facility to do similar. The writing is on the wall.

Unconventional Economist
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Comments

  1. There is a revolution on the way. People have realized that lower interest rates are not in their interest. Power to the people!

    • ErmingtonPlumbingMEMBER

      I disagree for owner occupiers.
      Denmarks “offering homeowners 20-year loans at a fixed interest rate of zero percent” is good policy if you believe in getting working class people into home ownership.

      Of course we also need to see investor/speculators have THEIR rates jacked up, in combination with heavily increased stamp duties for them and foreigners alike (as in Singapore) and the withdrawal of tax concessions for these “investor” landlords half of who would rather Air B&B their properties than rent them out as family homes.

      We need More flexible green field land release and Rezoning opportunities for land owners, without having to go into partnership with rapacious developers, who because they are Prepared to front end load all services, get to behave like a cartel and keep prices artificially high and block sizes unacceptably small. This is Not a free market! And is the main reason Australian free standing houses are among the worlds most expensive.

      • If govt allows huge numbers of tourists into our country then govt has a responsibility to zone enough tourist accomodation to match.

        Our idiot/evil govt failed to zone enough tourist shelter and instead allowed investors to repurpose ordinary housing into tourist shelter via AirBnB. Ordinary housing was already in shortage and so it got worse.

        What is so hard to understand about that Ermo?

  2. Not convinced they will. As you stated it requires more and more debt to keep house prices rising. Deposit requirements already require decades of saving. I can see a time when young people just give up completely.

    • Unless you’re backed by the Bank of Mum and Dad young people have already given up. When the RBA said that if you’re under 40 the chances of you owning a home without existing wealth behind you is practically zero – why haven’t the young risen up in disgust?

      • Totes BeWokeMEMBER

        The young have been scammed into fighting for excess rights for women, giving away their opportunity to migrants, and globalisation.

        Along with fighting CC as the biggest issue they have.

        The young have been emasculated. Scammed. Manipulated. Tricked. Ripped off. Depleted. Deleted. Gathered to fight ridiculous causes. Fed to the lions. Juvenile, naïve weak minded morons.

        There won’t be any fight from them.

        • … excess rights for women …

          W T A F

          If you weren’t completely loony before Totes you are now. I didn’t realise taking on a culture of entrenched discrimination was “excess”

          • Totes BeWokeMEMBER

            “culture of entrenched discrimination”

            lol

            And there you have it.

            99% of it is BS. 1% of it is serious.

            What discrimination? Wage disparity? In the family courts?

            You can’t be serious.

            Mark my words, putting women in charge will be the end of the west. Too soft. Too caring. Too kind.

          • ErmingtonPlumbingMEMBER

            @kierans777
            (not Totesy who I disagree with more. The sex of our bosses and leaders is irrelevant)

            kierans777 what other society, in the history of civilisation, can you say was more progressive towards the empowerment of women than “the West” of today?
            Sure we can always do better but why all the BS about our supposed “culture of entrenched discrimination“.
            To me the intensity of this identity politics stuff is a clear divide and conquer strategy that appeal’s to our consumer society crafted Narcissism where everything is about ME ME ME ME and nothing is about Society.

            Very little Solidarity in any of it. Much to the pleasure of our true Plutocratic masters and oppressors.
            Weather in possession of a pussy or a prick our overlords laugh at how easily we are divided along the lines of small differences.

          • Totes BeWokeMEMBER

            Best comment Ermo.

            Time for you to take over the Labor party, and fix it from within. They’re killing Australia wiht this stuff that you understand well.

            Kierans…We didn’t evolve to be the apex animal by elevating (potentially) less capable people on quota’s into leadership roles.

            Or even worse, putting people in roles that are just not meant to be there, as we’re seeing right across industries.

            The west will do it, and the strong countries will just walk in and take over.

          • @Ermo because Totes can go FRO,

            To me the intensity of this identity politics stuff is a clear divide and conquer strategy that appeal’s to our consumer society crafted Narcissism where everything is about ME ME ME ME and nothing is about Society.

            I respectfully disagree, however we may be thinking of different specific issues because Tote’s ignorant denunciation of “excess rights for women” is such a broad statement. Consequently we might actually be in agreement and not realise it.

            What I’m referring to is the institutionalised discrimination that keeps capable women from achieving positions of authority and power in order to protect the entrenched power of incompetent men. The workplace culture in Parliament is also something that needs some serious “deep cleaning”. When you hear the stories of people like Julia Banks (who is still at heart a Liberal and is someone I have significant policies differences with), or others their disempowerment is to the detriment of society in my opinion. Where I disagree with the quoted sentence is because I believe that these issues are about the betterment of society. I personally agree with MLK who said that all justice begins with economic justice, and where I think movements whether it’s BLM or MeToo go seriously wrong is that they don’t engage with that basic foundational issue. The is where the ALP has lost its way. It needs to get back to fighting the Tories on economic grounds.

            Where I think the “Plutocratic masters and oppressors” have succeeded is that they have buried the substance and made it “just another case of identity politics” because they don’t want people to dig far enough and realise that their economic oppression is the root of all evils.

          • ” I personally agree with MLK who said that all justice begins with economic justice,”

            So, is this is a way of you saying you ascribe to the notion of a Gender Pay Gap?

          • Totes BeWokeMEMBER

            kieran

            “keeps capable women from achieving positions of authority and power in order to protect the entrenched power of incompetent men”

            No one wants to see that. Parliament should change.

            2 points.

            1. I said to my wife…”why should there be quotas in gov?”…..she said because half of us are women…she’s right, then again, we vote for the person we want don’t we, including female voters.

            2. Why should a party be forced to present candidates of a certain gender? Don’t like the candidate? Don’t vote for them.

            Parliament doesn’t reflect what I see in the corporate world (from the outside). Women are given a rails run and have been for a long time. Go and listen to JPeterson a bit about this issue. He’s honest and impartial. The rest are full of hate, vested interest, and don’t consider any of the counter information.

          • Kieran,

            I look at this issue from a biological lens, men and women are wired differently. Aggressive, disagreeable and ambitious traits are generally a male biological realm. Females focus on the group (agreeableness and networks) and will happily pivot to the next best option if it makes life easier. Men will shag 80% of women and 80% of women want to shag and partner up with 20% of men.

            Women can be big political and corporate figures but it does go against their biological imperative because equality means they have to deal with the aggressive male traits at senior levels and hold their own. Ambition that shapes the world (good and bad) has been a male pursuit historically and biology has a big part to play in that.

            Believing that men and women are equal goes against all biology. Men and women are different and gender roles/stereotypes exist because they are true. Both are needed and valuable but saying equal is the wrong frame.

          • Totes is correct. You asked the question but did not like the answer. This woke cultural marxist garbage is a ploy to fool and distract. It has worked. Hence the younger generation have been easily controlled …. and older folk too.

          • Kierans,

            If you want to fight for a perceived lack of rights for women why don’t you stick up for women who are trodden on
            by the men in our nearest nation.
            No, I don’t mean Indonesia, East Timor, or New Zealand. I am talking about Papua New Guinea. This nation is the
            recipient of over a third of our Foreign Aid budget but our Gov’t. allows a level of discrimination against women
            on an unbelievable scale. They have a parliament of 80 representatives but NOT ONE of them is female.

            They used to have a few women in Parliament but the male members openly threatened them with violence, rape, and murder IN THE PARLIAMENT and nobody in charge was game to charge them or otherwise bring them to heel. Women members and candidates pulled out “en masse” as a result and nobody in good old Aussie could GAF.
            Aussie women like to refer to countries like Sweden etc as countries we should emulate but are blind to what happens
            to our north.
            PNG sport officials wonder why we will not invite a team to join the NRL or AFL. They should tell them that there is no way Australians want to go back a couple of hundred years thanks very much.

    • Some young uns will give up, many have already. Most however will just load up on debt and more debt. Many will get big financial leg ups from the bank of mum and dad. I know quite a few boomers who have recently sold their old family home for millions, then relocate to the regions (cheaper) so they can gift big wads of cash to their offspring so they can “get onto the housing ladder.”
      More and more debt is not necessary to keep house prices ridiculously high. Just a continued imbalance between supply and demand, something that Australia is very good at.

      • More and more debt is not necessary to keep house prices ridiculously high. Just a continued imbalance between supply and demand
        Is that right? And here I was thinking that demand=debt (unless you suddenly gain/loot/inherit $).

      • working class hamMEMBER

        Totally agree. A lot of people had 2 or 3 houses in Syd/Melb, which they can cash out anytime they want, move to regions and continue the drive of prices to capital city levels.

  3. Display NameMEMBER

    Denmark is already offering homeowners 20-year loans at a fixed interest rate of zero percent.

    How does this eventually end? Clearly this is not an indefinitely sustainable position. Mose well nationalise the banks. What service are they actually offering when this happens?

    • My guess is all these efforts are just attempts to provide support until the economy (insert country name here) recovers or the market holds up long enough for those responsible to have moved on and can deny blame.

    • “How does this eventually end?”

      When the weight of the problem overbears all that can support it.

      “Clearly this is not an indefinitely sustainable position. ”

      It’s not meant to be sustainable, it’s just meant to be “not on my watch”, which usually translates to “it’s will be more severe on the younger generation”

      “Mose well nationalise the banks. What service are they actually offering when this happens?”

      What are they offering now? They job of a banker is to determine credit worthiness.

      If all they do is rubber stamp loan requests, to the point of assisting fraud, they why have bankers at all? Why not have the borrower just walk into a vault and sign an IOU?

      • What is the purposes of a borrower? To sign a paper.

        Why don’t the banks just cut out the borrower and buy all the property themselves with their own coin?

        • “What is the purposes of a borrower? To sign a paper.

          Why don’t the banks just cut out the borrower and buy all the property themselves with their own coin?”

          Well there’s only one thing with a more favourable LVR than residential property, that’s Basel III reserve standards….

          That’s why.

      • Display NameMEMBER

        The question was somewhat rhetorical. As we head down this path, where others have been before, it is clear that as you proceed, continued and more intensive intervention is required as time goes on. We have the pretence of markets now. Do we end up with a centrally planned economy? Where government sanctioned businesses such as banks are absolutely unable to go bust (unless they are not politically well aligned).

        I think we are already in BS mode. Capital markets no longer function as intended and 15+% of the Russell 3000 are Zombie companies. Unable to meet their tiny interest payments from cashflow….But they cannot fail….

    • ErmingtonPlumbingMEMBER

      Why should anyone profit or “make an earn” of a family trying to pay off a home.
      That stuff in the bible and Koran saying usury is a cnt of a thing is correct.
      All owner occupiers should be able to borrow directly from the RBA at their cash rate or less.
      No individual or institution in our democracy Should be able to access a cheaper interest-rates than owner occupiers.
      If Denmark can do it why can’t we

      • “Why should anyone profit or “make an earn” of a family trying to pay off a home.”

        Because for better AND for worse, we have to put a price on behaviour. In this instance, poor behaviour comes with excess interest payments, and reduced consumption.

        “That stuff in the bible and Koran saying usury is a cnt of a thing is correct.”

        Well is the Koran right about women too?

        Seriously, why look to the Quaran for any guidance? If it meant anything, Islamic nations would be something other than regressive failures where their population are dependent on Western nations.

        The real answer is “Usurers CAN be cnts”, and often are.

        “All owner occupiers should be able to borrow directly from the RBA at their cash rate or less.”

        Anything above the risk free rate is a risk premium.

        So if you ask yourself “is there a risk in borrowing to residential property market borrowers” and you come back with an answer of “YES”, then you need to apply a premium in excess ofg the risk free rate.

        Additionally, are you going to employ people to give these loans to borrowers? If so, to what degree? Risk assessment? Annual reviews? Etc.

        if yes, you need to fund these staff wages. Now I don’t know about you, but I find it very reasonable to fund these wages from the person applying for the loan… which would again be a likely premium attached to the borrowing rate.

        Do you propose these be civil servants funded from the ATO’s tax revenue?

        “No individual or institution in our democracy Should be able to access a cheaper interest-rates than owner occupiers.”

        I would suggest people who borrow for an endeavour of less risk than residential property, have access to rates cheaper than residential property.

        “If Denmark can do it why can’t we”

        I suspect you need to look more into Denmark’s situation.

        By they way, what are the tags for grey quote boxes?

          • Quoted?

            {blockquote} Quoted? {/blockquote}
            Used curly brackets instead of angular the second time

            my favourite way – italics

            {i}my favourite way – italics{/i}
            Used curly brackets instead of angular the second time

            In other words, you should take my examples that use curly brackets }{ and replace them with angular brackets >< to get the actual effect.

  4. The show will not be over until the young have been granted access to their super for first home deposits

      • Hardly… I have argued against voting red or blue for years. FHB access to super for home finance deposit is the last big demand draw forward card in the deck… so far only flashed in times of emergency and briefly talked about but never yet played.

    • RobotSenseiMEMBER

      NGL, the day this happens I am saying “fvck it” and cashing the whole lot out and leveraging to the hilt. If the economy is going down the torrret, I’m at least going to enjoy my best years in relative luxury.

  5. Yeah, nah.

    Interest rates are rising. Describing the resultant movement of house prices as a “correction” is like describing the emotional state of a skydiver who’s leapt from the plane without packing a parachute as “concerned”.

    It’s not normal or sustainable to be able to buy a sh1tty fibro house no one has been interested in for the past thirty years and on sell it a few months later at a 100% mark up. After a dozen potential buyers have clawed each other’s eyes out for the privilege no less.

    All parties come to an end.

    • Someone ElseMEMBER

      Clearly you don’t know many skydivers. I would describe their emotional state as “If conceit could fly”.

      Q: How do blind skydivers know when to open their ‘chute?
      A: The guide dog’s lead goes goes slack.

      *Disclosure: I have ~800 jumps.

      • The Traveling Wilbur 🙉🙈🙊

        Q: Why should you never tandem skydive with a blind person?

        A: Older guide-dogs can have very poor bladder control under stress.

  6. Yes, quite likely, they will do anything to keep house prices up & increasing. In Sweden they are already offering first home buyer mortgages of 50yrs to people who statistically have no chance of living for another 50yrs, but when banks can get negative interest rate of 1% & prices are rising, who cares. And they will tweak LVRs, deposits etc also to keep this baby going.

    • Excellent link BJ. The combination of rigid urban growth boundaries, land banking, poorly designed precinct structure plans, free and easy money/debt and mass migration has got us to a point where greenfield plots at the outer edge of our cities are as undesirable as they are expensive. This sad dynamic is playing out across the country, in towns and cities big and small. Utterly hopeless situation.

    • “The whole thing is gamed”

      OK, but this isn’t a mystery anymore. The rules of the game are now transparent. As I’ve said here countless times, we had similar immigration rates after WW2, and it wasn’t this way.

      -> It doesn’t have to be this way. It’s not an immutable outcome <-

      Philbest said a lot of things here, but one thing he said as is bordering on prescience, if not more by now.

      Compliance with the way things are is not going to benefit you.

      It helps when the populace is smart enough to understand why all civilized nations should have gun rights similar to the US, but this is Australia… so we'll have to start from the back foot.

  7. Mike Herman TroutMEMBER

    Here in Melbourne FOMO may have had his last drink and is about to catch an uber home I reckon. Places in the area Ive been looking at were going under offer almost immediately it seemed like…. not so anymore…. I don’t like FOMO so I’m glad they are going… bit highly strung for me…

  8. It wont end by our own hand, it will be forced by as yet known unknown circumstances.

    A massive credit collapse, a step change in climate / natural disaster and/or the sheer cost to enact it, a general tipping point / acceleration in social collapse, possibly war to some degree. Its out there somewhere
    But one thing is for sure, the filthy fvckers steering the good ship Property Ponzi will do what ever it takes to keep it going, and a good many will try and ride along with them even if they are down in the bilge eating rat sh!t.
    The general level of scams and corruption dictates its outcome to some extent.
    Civilisations average 400 yrs,…… where are we in the time line, cos i dont think we’re gonna break any records.

    • I like the bit about the rats on the ship ponzi.

      I’m hopeful that a tipping point will be reached when the number of renters and housepoor exceed the numbers of owners, rorters, houserich and dreamers. Nothing is more powerful than an idea whose time has come. The idea being that LOWER IS BETTER for house prices and rent and we will vote accordingly.

  9. from an accompanying article.
    “found consistent evidence that declining affordability, driven by increasing house prices, decreases support for interventionist housing policy, especially among homeowners”
    No sh!t sherlock …… it tooks a professor to figure that ??
    see above !! rats ………….

  10. – Rising long term rates ? Agree !!!!!
    – Rising short term rates ? Disagree !!!! And the RBA (like the FED, RBNZ, etc. ) won’t – in my opinion – raise interest rates any time soon.
    – “End of the 25 year bull market in property” ? fully agree. it still surprises me that the bull market has been “running” for this long.

  11. – Rising long term rates ? Agree !!!!!
    – Rising short term rates ? Disagree !!!! And the RBA (like the FED, RBNZ, etc. ) won’t – in my opinion – raise interest rates any time soon.
    – “End of the 25 year bull market in property” ? Fully agree. It still surprises me that the bull market has been running for this long.
    – No, I don’t see a relationship between the end of the housing boom and the RBA lowering rates.
    – Shane Oliver is always (very) cautious when making predictions. That’s why I always appreciate his views, especially the bearish ones. “We may getting closer” ? We are much much closer to the end of the property bull market than anyone thinks. If even premium suburbs are going through a price correction of up to 10% then that’s for me he canary in the coal mine.