No, House Prices are not ‘Recovering’

The Dodo (Raphus cucullatus) now extinct.



A storm of triumphant prose rolled out to greet yesterday’s release of the authoritative ABS Eight Capital Cities House Price Indexes.

Normally-sober Bloomberg told its global audience: “Prices climbed 0.3 per cent in the September quarter from a year ago.”

They did – in nominal terms.

Sadly this was a fraction of Australia’s inflation experience and only Darwin (+8.2%) and Perth (+4.4%) house prices beat the ‘All groups CPI, seasonally adjusted’ of 2.0 per cent year-on-year.

RP Data says median house prices are $563,000, on which that 0.3 per cent annual gain is a mouth-watering $1,689. Meanwhile, the purchasing power of that $563,000 went backwards by $11,260. The RBA prefers the ‘CPI weighted mean’ which sits much higher at 2.6 per cent, in which case one can subtract $14,638 plus holding charges before celebrations commence.

For 1.2 million Negative Gearers, this is the ninth quarter where their tragic strategy – ‘Stragedy’ – of converting current taxable income into concessionally taxed capital gains has lost them money. Their rental returns, gross or net, are pitiful as well.

The RBA has kept house prices stable in nominal dollar terms with its persistent interest rate cuts. The smart money has exited low returns, risk and debt by selling down, while the majority of vendors, in a magnificent display of unity like The Charge of the Light Brigade, persist with the fantasy that prices can only rise. The last nine quarters are an aberration, of course.

Government’s persistent interventions to protect citizens from the consequences of their actions by propping up land prices can only end with zero interest rates and an exhausted Treasury. The folly of this becomes apparent when one looks at the matter clearly: Australian land – space, dirt, territory – is so abundant it ought be nearly free.

5 Comments

  1. Michael O07-11-2012

    Well this data certainly defies the law of gravity.

    Increasing unemployment, stricter borrowing rules, properties flooding onto the market, record bankruptcies.

    I’m sorry but I don’t buy anything that the ABS, Government, media or banks tell us, let alone the Real Estate Industry.

    Australians are being set up for the greatest hustle in history.

  2. Bobby Fischer07-11-2012

    Those inflation adjusted figures are just so damn inconvenient to the property “rags to riches” narrative that the RE sector is still trying to sell in this slowly deflating market.

    This is occurring despite near record low mortgage interest rates going back to 1960, except for the GFC ’emergency low’ that we have nearly reached. In non-RBA speak, this is called a broken interest rate lever, because credit growth in housing is still DEAD.

    Mortgage rates 1960-2010:

    http://macrobusiness.com.au/wp-content/uploads/2011/01/Long-Run-Variable-Mortgage-Interest-Rates.jpg

    The ABS stat tables (F5) tell us that the standard variable interest rate has further dropped to 6.65% as of Oct 2012.

    Another commentator has noted those 17% rates in the 80s didn’t apply to owner-occupiers though:

    “I think it is important to point out that, in the period from 1980 to 1989, by law the banks had to charge owner occupiers only 10% interest, while investors were being charged the rates shown in the graph (ranging up to 17%). This was a time when the laws actually favored owner-occupiers over investors (unlike today). Ironically, it also gave a big boost to separated couples.”

    Housing credit growth – DEAD:

    http://historysquared.com/wp-content/uploads/2012/10/image1.png

    In short:

    – the interest rate lever is broken;
    – the people have wised up and gotten defensive in their spending/debt patterns;
    – intimate links between credit growth and house prices will drive this market down; and
    – expect a plethora of calls from the vested interests of a housing bottom in the next 6-12 months. This is a classic ‘bull trap’ scenario

    The downwards trend in prices is clear, stock is bloated, credit growth muted and it is simply game over.

    Don’t buy now or soon (or ever unless you enjoy debt serfdom).

  3. George Rousos08-11-2012

    RP Data reported in September that annual growth in housing credit continued to fall to record lows, but then we hear from your typical property spruiker about a sudden recovery with property values now increasing around Australia. And who is the one reporting all this nonsense, that’s right none other than RP Data for October – talk about a mass contradiction !

    http://propertyupdate.com.au/property-market-recovery-under-way-a-b-s/

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