Aussies brace for “record housing crash, 100% triggered by rate hikes”

Australia’s house price bust is gathering pace, with CoreLogic’s daily dwelling value index plummeting 1.2% over the first 26 days of July, led by heavy losses across Sydney (-1.8%) and Melbourne (-1.1%), with Brisbane also posting a decent fall (-0.6%):

CoreLogic July dwelling value changes

Big house price losses in July.

Indeed, house price losses accelerated after the Reserve Bank of Australia (RBA) commenced its monetary tightening in early May, as illustrated clearly in the next chart:

Peak-to-trough falls in Australian dwelling values

Sydney and Melbourne lead house price falls.

Dwelling values across the five major cities have so far fallen 2.6% from peak, led by Sydney (-5.0%) and Melbourne (-3.1%), with Brisbane values down 0.9% after joining the correction later.

For Sydney, it represents the sharpest house price correction since the late-1980s, as noted by AMP Capital’s chief economist, Shane Oliver:

“We haven’t seen Sydney prices fall this rapidly since the mid-80s, and at this rate, the 20 per cent peak to trough price drop forecast seems like an underestimate,” said Shane Oliver…

“There’s also quite a sharp acceleration in the decline in Melbourne, and Brisbane is now in negative territory”…

“This really reflects the sensitivity of the household sector and the housing market to higher interest rates.”

CoreLogic’s research director, Tim Lawless, is also take aback by the speed of decline:

“Six months ago I would have been surprised at the pace of decline that we are seeing now, but considering the worsening outlook for interest rates, plummeting consumer sentiment and the impact of such high inflation on household balance sheets, the more rapid than expected rate of decline isn’t all that surprising”…

“The reality is housing price declines are gathering momentum, and it’s likely the decline phase will worsen before it gets better”…

Oliver also warned that Sydney dwelling values could fall at a 3% monthly pace if the RBA persists with its aggressive monetary tightening:

“The risk is that monthly price declines will accelerate, particularly if the Reserve Bank continues at this pace”…

“That could really speed up the rate of price falls, higher than what we’re seeing now”.

Finally, Coolabah Capital’s Chris Joye warned via Twitter that “this will be record housing crash, 100% triggered by rate hikes – it has only just started”.

Whether it is or isn’t depends on how aggressively the RBA hikes interest rates. If it follows ANZ’s, Westpac’s and the futures market’s forecasts, and hikes the official cash rate above 3% by the end of the year, then Australia will likely experience its biggest house price crash in living memory.

Will the RBA really be that stupid? Only time will tell. Pass the popcorn!

Unconventional Economist
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Comments

    • pfh007.comMEMBER

      Indeed!

      Especially when it is responding to inflation in an environment of 3.5% unemployment.

      As unemployment inches closer to full employment, monetary and fiscal policy must tighten. Anyone who says otherwise is smoking weed.

      As much as the housing hysterics howl about paper gains evaporating for asset speculators most of the population are more concerned about having a job and when unemployment is at 3.5% almost everyone who wants one has one and is in a good position to secure a better one and/or better wages and conditions at their current one.

      The best response / defence to falling asset prices is even lower unemployment.

      Keep the borders tight and bring on 3%.

      • Jumping jack flash

        The curious recent dip in unemployment is just the market’s response to service the spike in demand from the global multi-trillion dollar stimulus and its “transitory inflation”

        But i think in any case it isn’t too significant what causes reality, reality is reality.
        But as soon as the immigration gates open the stimulus will be shared around between more pockets and lose its inflation momentum. Unemployment will naturally increase as demand reduces as well.

        And then all we will be left with is the inflation from constrained energy supply. I wonder if they’ll still follow their Central Bankers’ Handbook to deal with that problem? I’m guessing they will.

        • pfh007.comMEMBER

          What stimulus are you referring to? The monetary and fiscal stimulus has been spent and is being withdrawn as both arms of policy are tightened.

          No need for new immigrants to “absorb” stimulus. Rising interest rates will do that as they encourage deleveraging and inhibit new credit creation. A smaller budget deficit will do the same.

          What opening the borders will do is increase the supply of labour and weaken the bargaining position of low income earners. They will also increase demand for housing and services and goods.

          That is how they will help cool inflation and make Australia safe again for asset speculation.

          • kiwikarynMEMBER

            In the year to date, there has been an 82,000 net loss of people from NZ. I suspect the immigration tap is already turned on. You just wont see it in the visa statistics.

            The WA Govt has been running a big advertising campaign for workers in NZ for a couple of months now. Real estate agents are reporting that a lot of their vendors are selling to move to Australia.

      • “when unemployment is at 3.5% almost everyone who wants one has one and is in a good position to secure a better one and/or better wages and conditions at their current one.”

        And I fail to see why it s a bad thing,

        • Absolute BeachMEMBER

          I know, right. For a normal Aussie, after years of 4’s or 5’s, it would seem GOOD to have unemplyment at record lows. This is particularly so if the inflation rate is falling, which it will be once the transitory supply chain issues resolve.
          So WHY hammer assets with big IR increases? Maybe the RBA wants house prices to get back into the realm of just expensive, as opposed to insanely expensive? Hidden agendas perhaps? They would be well aware the previous emergency lows were, er, very bloody low.

          • Not like the IR are going to do anything to imported inflation anyway. When I borrowed last year, the RBA was stating they would not raise before 2024. Truly appreciated (fortunately I fixed 3&5 for most of it)

  1. Well the 30% plus rise over last couple of years was 100% due to interest rates so what’s the difference now that it’s on the way down? All the squeals now from all these forecasters or palm readers or whatever they are but what were they saying about the ridiculous unsustainable way up?

  2. Just checking…so since the inception of MB until about 3 months ago interest rates were not really the cause of insane house prices …it was loose MP regulations. Right?

    And now things have gently dipped ever so slightly….it’s 100% the fault of interest rates. Is that about it?

    Hahahahahahaha.

    • PalimpsestMEMBER

      With respect, I understood the MB thesis to be that: Low interest rates were absolutely driving the house price madness – therefore – macroprudential was absolutely one of the main, proven tools to limit the madness in a low interest world. Other tools included reducing the tax incentives driving property investment, at looking at more effective FHB support.

      • pfh007.comMEMBER

        Correct but it was pointed out on many occasions that if macroprudential is a LOL and the other measures have been abandoned (GST and NG) then the cheap easy credit is going to go straight to housing….and that is exactly where it went.

  3. If you don’t lift interest rates inflation will destroy the economy.An out of control inflation like the 54% experienced in Sri Lanka is far more dangerous for everyone in the country than lowering highly inflated house prices.

    • Sorry, disagree on this.

      Your ‘increase IR to cure inflation’ comments makes sense when its too much money chasing too little supply. We don’t have a consumption boom backed by rising wages. We have supply bottlenecks causing supply chain cost increases which are being passed onto consumers without rising wages (of note) according to all ABS and bank based data.

      People are going backwards in real terms because some of the highest cost increases came from food, oil and energy. Oil is oil, energy is energy, food is the only place people can curb their habits (cue the wagyu and shiraz comments). Bolt on that Australia is a very indebted nation on every metric (households, vs GDP, per capita) and by raising IR you also cut a hole in someone’s wallet which they now have little control on.

      Australia can do little to affect the Chinese lockdowns and Covid supply bottlenecks. Australia can do little to affect the war in Ukraine and international oil prices but if we had a govt that cared about citizens we would have local control on energy prices.

  4. Of course it’s only started
    Rates are eventually heading to 1989s level but as usual no one sees it
    The Ponzi scheme has finished
    When is someone going to write an article that like 08 the banks will need to be bailed out
    Why doesn’t MB discuss this
    Anyway let’s see what CPI is today
    If a big number we may get a RBA panic 1% hike in Aug like Canada just did
    Let’s see

    • boomengineeringMEMBER

      Well people can’t say they weren’t warned. It’s all over the MSM. The thing is it doesn’t mean anything to them as they are sre doing ok atm. No warning in 1989 it surprised the uninformed. This time plenty of warning but it won’t happen to them so carry on regardless.

    • Jumping jack flash

      Definitely a 1% or 0.75 before the end of the year. My guess is November. But its still not going to do anything to solve the 2 main inflation drivers that are currently operating. Maybe one of them, maybe a bit, but certainly not both of them.

    • Can you please provide your list of predictions so we can tick off one by one and see what is going to happen next maybe over the next 12 months?

    • happy valleyMEMBER

      Which of Straya’s big 4 (unquestionably strong – LOL) banks will be the first to go belly up?

    • Quantitative FleecingMEMBER

      Gee… that’s a puff piece if I ever saw one. He was so soft on the banks he was practically working for them!

      Can’t wait to see all the dodgy loans crawl out of the woodwork like termites as rates rise to 3%+. Nothing says a healthy banking sector, healthy economy and healthy household balance sheets like the head of APRA running for the exits before things have even gone pear shaped.

      Pass the popcorn indeed 🍿 🍿 🍿

  5. Vivian DarkbloomMEMBER

    I’m just going to leave this here…

    “There is one other reason that the RBA isn’t worried about house prices. That’s not its job. The responsibility passed implicitly to APRA in the last cycle when it deployed macroprudential tools to end the price boom. APRA’s intervention was triggered by exactly the same conditions we face today, the combination of weak economic growth and an overly high currency pushed up by other central bank easing.

    Again the AFR can’t bring itself to discuss this fundamental change and tenet of Australian monetary policymaking, preferring the dated and silly game of RBA-watching, even though it now has a total of 25bps left to cut (until it goes negative, as it eventually will).

    It’s freakin’ ridiculous. There are so many unanswered questions about APRA’s new role in monetary policy it’s crazy. Why wouldn’t a journalist ask them? Should it be rejoined with the RBA? Why has APRA been allowed to exist in such secrecy? Why has it survived the Hayne RC humiliation without a scratch? What are the new tools that it will eventually deploy? What are the triggers to deploy them? How do other central banks do it? What is the endgame of this new monetary structure?”

    Source: https://www.macrobusiness.com.au/2020/10/why-the-rba-doesnt-care-about-the-property-bubble/

    • pfh007.comMEMBER

      “….But Turkey’s President Recep Tayyip Erdoan believes this is a myth.

      He has fired three central bank governors in four years for attempting to raise interest rates, and described anyone who draws a link between rates and inflation as “illiterates and traitors”.

      “Don’t pay attention to the ramblings of those whose only quality is in viewing the world from London or New York,” he said in May….”

      At least he doesn’t call them lunatics.

      Just illiterates and traitors.

      Chortle.

      • pfh007.comMEMBER

        If that was the only source of inflation they have nothing to fear as it will be transitory. A one time in prices and then inflation returns to zero.

        But that is not how inflation works.

        It may start with a supply shock but it can quickly spread into inflationary expectations and that is a much more difficult beast to fight.

        If you are close to full employment it is even more difficult as employers start to compete to acquire and hold labour.

          • pfh007.comMEMBER

            High unemployment does not prevent inflationary expectations as it depends on how much unemployment can drag down wages. If the employed wages are protected by awards etc (especially if unions are able to secure raises to cover inflation) unemployment may have less impact than in economies where there are fewer protections. But yes in principle higher unemployment should inhibit inflationary expectations at least as far as wages are concerned.

            We shall have to watch Edogan’s experiment play out.

      • Arthur's Poodle

        And, as Putin is ostentatiously demonstrating, ‘Energy is Wealth’.

        Energy inflation is everything inflation.

        (Property valuations and money are simple proxies.)

  6. I will say it again.Inflation will touch every single person in this country if left unchecked.It will destroy our standard of living and could cause severe poverty and famine.Lowering house prices will only affect those who over committed.
    That’s why we need to lift rates greater than the CPI .
    When are people going to understand this.

    • Rates don’t need to go up over CPI. Over half of the inflation we are seeing is company profits. The solution lies in coal and gas prices, and making a fool out of any opportunists.

    • Most dont care if IR rises rapidly assuming wages keep pace. If it doesn’t, all we have done is make people substantially poorer. Forget about houses, this is a savings and wage destruction issue at its heart.

    • Turkey dropped interest rate to combat inflation and the result was inflation rose to 80%.
      So a perfect example of what happens if the RBA don’t rase rates.

  7. From the back to the middle and around again
    I’m gonna be there ’til the end
    100% pure dove

    • Recently you posted some lyrics from Fastball’s “The way” and its been an ear worm for like 3 weeks now.

      • Atom Heart MotherMEMBER

        The Australian housing market and economy has about that level of surrealism to it…..

        Their children woke up
        And they couldn’t find ’em
        They left before the sun came up that day
        They just drove off and left it all behind ’em
        But where were they going without ever knowing the way?

      • Aaron, lend me your Brittany Spears as I set the scene and go a bit Boom here…

        It was January 1998. I was 16 years old. To earn some bucks we used to ‘chip cotton’. Up in Central Queensland you didn’t need a dirty hoe because the most common weed in the crop was Sesbania which is relatively easy to pull by hand. Start at 3.30am. Finish round 11am when it got too hot. Have lunch and rest. Then back into it at 2pm till dark. Forty plus degrees days, every day. 100% humidity in the crop. 30% above.

        When you’d close your eyes to go to sleep all you can see is rows of cotton and weeds. Then you’d dream about it. Before you knew it, you were back out in the furrows at it again.

        At night, in the donga, we kept the wireless on low volume as it would help deaden the racket that the old wall banger AC would make when the compressor kicked in. The only radio station that played music we had reception of was Hot FM. It was shite. I have a strong aversion to commercial radio.

        Anyway, the first time I heard the ‘The Way’ was in the early hours one night just past midnight. It roused me enough to listen to and I thought, ‘What a great tune! I hope they play that one again.’ Needless to say Hot FM played it hundreds of times over the next few weeks, then thousands of times over the next couple of decades.

        It is one of the very few songs I can say I genuinely never tire of hearing.

        • It’s a great song and you inspired me to give it a listen on YouTube. That’s when I discovered the story behind it probably has more to do with dementia and an insistence to not read a map than it does with youth and freedom.

        • Arthur's Poodle

          🤩 Nice story Spunky. 😆 The joys of teenage years in Queensland.

          The good old days of erecting the tent for the Roma B & S Ball on Friday in 40c heat. And taking it down on Monday in 40C, after doing a first pass on the vomit 🤮 !!!

          • Thanks Arthur. Good old B&Ss. I remember my brother rolled his swag out blind on an ants nest. Lucky he was conscious enough to move before they did too much damage. haha

          • I went to a B&S Ball in Rockhampton in the late 90’s with a mate from work who’s family lived up there. I remember (vaguely) they had lined up horse troughs full of Bundy and coke and everyone got a plastic cup on a string which you put around your neck and filled your cup as you pleased.

            Jeez, that was one of the messier weekends of my yoof. Haven’t touched Bundy since then LOL.

  8. RBNZ released its June monthly/quarterly data for New Zealand yesterday. Pages of numbers without the associated headlines .Mortgage deficiencies fell to 156 million , the fourth consecutive quarterly fall,,and the lowest since the pandemic start .Excess quarterly repayments the highest since the start of records. Surprisingly 1885 First Home Buyers took on 1.1 Billion in lending, maintaining their market share , with an average mortgage of 588000. A total of 14952 new commitments, the lowest June quarter since data collection began late 2013., with average mortgage of 405000. Scheduled quarterly mortgage repayments rose above 5 Billion for the first time, with the average mortgage interest paid across the book at 3.3 percent

  9. reusachtigeMEMBER

    Thank you so much for your continuing intense efforts to protect the Great Australian Property Market. You are a true patriot of the cause. We will remember you and you will always have an invite to the parties, even the accidental ones if you want!

      • reusachtigeMEMBER

        They have been awesome all along. Their incessant but righteous calls to Lower teh interest rates, that will fix thing, helped create the last extreme massive intense boom that gave us all our riches and now they are doing everything to protect our gains. Good on these champions of housing!!! They have achieved what Doc Wilson could only have ever dreamed of.

        • Spot on buddy but I’m finding it impossible to swallow the line that the bust/neg sideways movement will be 100% triggered by rising rates. Would’ve thought years of cutting teh rates to fix thing might have played a role there.

          Maybe they’re doubling down on cut teh rates plus MPLOL, smack the dollar strategy again? Imagine the intense mega boom that’d cause.

  10. Goldstandard1MEMBER

    At some point MB started playing the “Houses to the moon game because government support” and it seems they’ve been blind sided.

    Property is a symptom of cheap money and FOMO (due to inflation). Once that can’t be sustained it’s over. So now that it’s over, you blame the game. Strange.

    • Hill Billy 55MEMBER

      Yes this cycle of protecting the housing ponzi has been very unedifying. They obviously have something to protect.

  11. When I find myself in times of trouble
    Mother Mary comes to me
    Speaking words of wisdom
    Let it burn
    And in my hour of darkness
    She is standing right in front of me
    Speaking words of wisdom
    Let it burn
    Let is burn, let it burn
    Let it burn, let it burn
    Whisper words of wisdom
    Let it burn

    • With the thoughts from a militant, militant mind
      Hardline, hardline after hardline
      Landlords and power whores, on my people, they took turns
      Dispute the suits, I ignite and then watch ’em burn
      Burn, burn, yes, you’re gonna burn
      Burn, burn, yes, you’re gonna burn
      Burn, burn, yes, you’re gonna burn
      Burn, burn, yes, you’re gonna burn

  12. NelsonMuntzMEMBER

    Ha-ha! -1.2% Youse guys are so funny, I bet you jump at your own shadows. It’s just a bit of negative sideways movement before the next boom. Time to preposition to maximise profits and keep looking sexy.

  13. The Corelogic daily for Sydney has been falling pretty fast over the last few days. Quarterly down 4.5% now. Looks like we’ll see a 2% down month.

    • Hill Billy 55MEMBER

      Funny that they are squealing that such is a “crash” etc, yet on the same page Adelaide and Brisbane are shown at 24% up over the year, and nary a word was said.

  14. So all the realistic models suggest at least a 15% price fall based on the forecast rate path. The RBA is well aware of it, rates markets are slightly more aggressive and unless there is a huge disconnect between equity and debt markets the equity market has made a call on that already.

    Outside of negative equity for a small cohort, as long as employment and wages hold up is it not just a volatile business cycle? That’s what the market is current pricing no?

    Bottom line, wake me up when it blows past 15% falls, until then, daily price movements for a deliberately opaque and illiquid market is all filla no thrilla

  15. Dahls ChickensMEMBER

    Can we please start calling this “an inverse housing boom”? The c-word makes me feel rather queasy

    • GonzificusMEMBER

      With any luck we’ll get an inverse squared housing boom, I want to see some sexy exponential decay.

  16. Seriously bro i dont know what you guys are so upset about…surely all it will take is APRA to loosen lending standards, that will fix thing.
    As a wise man once said APRA for gods sake APRA!

  17. MB should do an updated article on the implications of the housing crash on bank crashes and associated mitigation/bailouts.