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Not another doom prediction for house prices!

Peter Switzer
21 November 2023

The experts on house prices are at it again, tipping another slump in what we pay for property. I’m wondering if the people who speculated on a 30% slide in house prices will join Louis Christopher from SQM in predicting doom for homeowners? To date, the 30 percenter doom merchants have been wrong, with house prices actually rising not falling since the Reserve Bank u-turned and started raising rates in May last year.

Respected property watcher Michael Yardney of propertyupdate.com.au summed up our recent house prices experience this way:

  1. Property prices have kept rising for 10 months in a row, despite 13 rate rises, high inflation and reduced borrowing capacity for borrowers.
  2. The peak-to-trough change (fall) in Australian house prices was 9% according to Corelogic, and only 4% according to PropTrack, which is confusing those analysts who were looking for prices to drop by 15%, 20% or even 30% on the back of rate increases.
  3. But now it’s clear that our property markets have bottomed, and we have moved into the next phase and our combined capital cities have increased in value by 8% year-to-date. That's very different to the pessimistic forecasts made by the RBA and many of the bank economists only 12 months ago.

One of my mates who’s a big call merchant and often right (though he hasn’t reach infallibility status yet) is Coolabah Capital founder Chris Joye, who’s a revered scribe in the AFR. Chris was in the camp of those warning of a 30% fall in house prices but he did have a proviso that has now been achieved and that was the cash rate had to go to 4.25%. In fact, it’s 4.35%!

This is what he wrote in June 2022: “Aussie house prices could fall by more than 30 per cent if the Reserve Bank of Australia fulfils uber-aggressive market expectations for an increase in its cash rate from the post-pandemic nadir of 0.10 per cent all the way to 4.25 per cent. This would translate into an increase in the cheapest discounted variable mortgage rate from around 2.25 per cent to 6.50 per cent, or possibly higher, given bank credit spreads (or funding costs) have widened sharply.”

He went on and added: “This newly published research represents an effort to further refine our Australian house price forecasts, which since October 2021 have anticipated a 15-25 per cent decline in dwelling values if the RBA lifts rates by more than 100 basis points.”

Forecasting anything is hard, but Chris and his team look to be off the money, unless 2024 kicks in as a shocker for home sellers and real estate agents.

One guy who always expressed doubts on the big call falls was Simon Pressley, founder of Propertology.com.au, whose constant watching of 550 different property markets in Australia just wouldn’t let him jump on board the ‘big sell-off’ train. I too doubted the magnitude of the big fall calls, but I never imagined the combination of 390,000 new immigrants in the year to September and looking like 520,000 will be here by year’s end, along with a terrible lack of supply of homes for sale, would actually lead to price increases as interest rates headed towards 4.35%. Unbelievable, but we Aussies do love bricks and mortar!

Today, the Daily Tele featured new forecasting from SQM in its Housing Boom and Bust report 2024. This is what the research house is tipping:

  1. The headline was “Sydney home prices set for a downward spiral”, thanks to big interest rate rises, but in fact, SQM says the price fall could be, wait for it, 6%!
  2. It expects a rise in distressed selling.
  3. There are more aggressive scenarios looked at but with SQM’s more moderate future situation of a “cash rate between 4.1 per cent and 5 per cent, population growth of 460,00 or less and unemployment between 4.5 per cent and 5.5%, it could lead to a fall in prices anywhere up to 4%!
  4. Louis Christopher, who has been a good forecaster in the past, did admit this to the Tele: “If I am wrong and the housing market has another strong year, it will be because employment growth has continued to be firm and/or migration has once again grown more quickly than expected and homeowners once again have managed to withstand the higher lending rate environment”.

In summary, there’s not much to worry about here, though I have to say if national house prices fall by 4%, some markets could fall by a lot more, while others could still rise.

Personally, I do believe that when you add the 13 rate rises to the time that all borrowers go over the mortgage cliff in 2024 (when they go from low fixed rate loans to high variable rate loans), the economy will slow faster than the RBA is thinking. However, it would then mean it will cut rates faster than expected, which would put a floor under the house price slump.

Of course, if the RBA raises too many times and is slow to cut rates, we’d see bigger house price falls and a surge in the unemployment rate, which would be bad news for the new RBA Governor, Michele Bullock and also the PM, Anthony Albanese, who’ll cop a lot of the blame for the big jump in the cost of living.

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