House prices … Keen says “dead cat bounce”, Joye says house price to rise 30%

November 4, 2019 |
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House prices … Keen says “dead cat bounce”, Joye says house price to rise 30%

If the RBA continues cutting through conventional and unconventional means, which is our central case, I expect this economic cycle house prices will likely increase by about 30%” Chris Joye, AFR, November 2019

Irresponsible lending will see properties rise for a while, however Australia is the Mount Everest of household debt” Professor Steve Keen , Switzer TV, October 2019

Joye argues that the typical mortgage rate has fallen by 77%, since the 1990s, and that debt serviceability is more important than the household debt to GDP ratio, on which Professor Keen fixates. Joye says “there is not a snowballs chance of property prices falling”, and argues that property strength is guaranteed as debt serviceability remains very low and in the absence of a Global recession (which he doesn’t see any time soon) the outlook is bright.

Joye explains that between 2017 and 2019, Aussie housing prices fell 11%, and he now expects they will rise 10% over the next 12 months , and 30% over the economic cycle.

Sydney’s recent property market correct has been labelled “the longest and steepest on record” Katrina Ell from Moodys Analytics. So it seems the worst is over, with Sydney’s auction clearance rate hitting 80%.

While Professor Keen has always had strongly bearish views, not all are as optimistic as Joye,  and the likes of ANZ are predicting house prices will edge up between 3 and 5% next year.

Tim Lawless also seems more cautious than Joye, and has explained there has been a shortage of new listings for several years and “pent-up-demand” is the source of strength.

Deloitte has explained the current rebound with “the mood among buyers has recovered faster than sellers have re-joined the market”. As a result, the consensus view is that Sydney is not looking for a repeat of the 2011 to 2017 period, where prices rose 70%, however a continued recovery is likely.

The other thing interesting about the rebound, is Corelogic has noted that it is the premium end of the market that is driving the rebound. This is in part due to the fact that the largest decline was seen in the prestige end, with  Sydney being 13.6% below the previous peak.

Now bear in mind that Corelogic defines the “prestige end” of the market, as the top quartile, namely the top 25%.

Either way, Corelogic’s data shows the bottom quartile has shown the least recovery, and it does remind me of the old saying “last to boom, and first to bust”, which tends to be directed at lower quality property.

So my view is Chris Joye is hard to disagree with (listen to the Joye v Keen October 2019 Switzer TV debate), he articulates the position very well and as a result the current residential recovery will continue.

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