My house price bet with Tony Locantro: An update

Wed, 19 Dec 2018  |  

This article first appeared on the Yahoo Finance website at this link: https://au.finance.yahoo.com/news/35-house-price-crash-unlikely-201301480.html 

------------------------------------------------------ 

Why a 35% house price crash is 'very unlikely'

Australian house prices dropped again in the September quarter to be 2.8 per cent below the December quarter 2017 peak, based on the Australian Bureau of Statistics dwelling price series. In many respects, the data is old news – the comprehensive Corelogic house price series for November has already been released and they show further price falls in the last two months.

House price bet

Why the ABS dwelling price series matters, to me at least, it that it forms the basis of the bet on house prices I made in September with Tony Locantro, Investment Manager with Alto Capital in Perth.

Tony and I had a bet that at any stage between now and the time the December quarter 2021 dwelling price data are published by the Australian Bureau of Statistics, the price index for any of Sydney, Melbourne or the aggregate eight capital cities prices is down 35.0 per cent or more, I will give Tony $15,000 cash. Conversely, if by the time the December quarter 2021 data are published and the peak to trough decline is 34.9 per cent or less in Sydney, Melbourne and the eight capital cities, Tony has to give me $2,500.

These generous odds and benchmark for the 35.0 per cent price fall that I offered Tony reflected the absurd nature of a forecast from DFA’s Martin North to the effect that his forecast was for house prices to “drop 40 to 45 per cent over the next three years or so”.

For the record, North rejected my offer for a wager on the terms accepted by Tony.

While house prices are weak and remain weak, a decline of 35 per cent is unlikely. Very unlikely. 

The reasons are straightforward

Demographic factors continue to favour the housing market. Population growth is strong and this unrelenting addition to underlying demand will put a floor under the housing market. Also important over the medium term of a year or two is the slump in new dwelling approvals. This slowdown in the number of new additions to the housing stock will, with a lag, lower the risk of an oversupply on housing. If new construction falls sharply, there may even be pockets of shortages into 2020 and 2021.

There is also an apparent build up in pent-up demand from first home buyers who dropped out of the housing market several years ago when prices were rising strongly. The recent housing finance data showed that the proportion of new loans taken out by first home buyers rose to a six year high, suggesting a lift in opportunistic buying as prices weaken. Suffice to say, cashed up first home buyers are set to provide a key source of fresh demand for housing over the next couple of years, a point which is likely to limit the decline in prices.

There are still a little over three years before the bet is settled on the 35 per cent house price fall.

A more realistic scenario

While the tightening in bank credit and still tight monetary policy settings will see house prices drop some more, probably through to the middle of 2019, a realistic scenario is for a peak to trough decline of around 15 to 20 per cent. When this happens, buyers will emerge from the woodwork, demand will lift and the floor in prices will be achieved. 

It would take an obscure event to see price falls get anywhere near the 35 per cent Tony Locantro is betting on.

comments powered by Disqus

THE LATEST FROM THE KOUK

CLIMBING THE COVID MOUNTAIN

Wed, 29 Jul 2020

TEN ECONOMIC STEPS THAT FORM A PATHWAY TO THE TOP

THEKOUK and EVERALDATLARGE OUTLINE A WAY FOR THE PEOPLE OF AUSTRALIA TO CREATE AND MAINTAIN SUSTAINED PROSPERITY

Covid19 has opened a door for Australians to positively accept significant changes that will lead to a shared good. This rare opportunity enables us to achieve sustainable economic and social goals that create a new ‘normal’ as our way of life.

These Ten Steps are presented as non-partisan recommendations to the Australian Parliament in the firm belief that, if they embrace them, the Australian economy and society will be greatly enhanced after the Covid19 pandemic has passed.

*A job for you if you want one.
A significant increase in part time and casual employment can be created that will enable you to enjoy a more creative and peaceful lifestyle and to live longer and better. The traditional age at which you would have been expected to retire will become obsolete as a result. An access age for pension and superannuation will become your choice. This will enable you to remain in paid work for as long as you want to, on a basis that you choose, while boosting the productivity and growth of Australia.

*You will get wage increases that will be greater than your cost of living.
A demand for enhanced innovative skills at all levels of employment will be created as the economy grows in strength, thereby enhancing your stature in the workforce and enabling executive salaries and bonuses to drop to levels that are accepted as justifiable by employees, shareholders and customers.

The misplaced objective of the government of delivering a surplus, come hell or high water, has gone up in smoke

Tue, 07 Jan 2020

This article first appeared on the Yahoo Finance web site at this link: https://au.finance.yahoo.com/news/the-governments-test-in-2020-220310427.html   

---------------------------- 

The misplaced objective of the government of delivering a surplus, come hell or high water, has gone up in smoke

For many people, the cost of the fires is immeasurable. 

Or irrelevant. 

They have lost loved ones, precious possessions, businesses and dreams and for these people, what lies ahead is bleak.

Life has changed forever.

As the fires continue to ravage through huge tracts of land, destroying yet more houses, more property, incinerating livestock herds, hundreds of millions of wildlife, birds and burning millions of hectares of forests, it is important to think about the plans for what lies ahead.

The rebuilding task will be huge.

Several thousands of houses, commercial buildings and infrastructure will require billions of dollars and thousands of workers to rebuild. Then there are the furniture and fittings for these buildings – carpets, fridges, washing machines, clothes, lounges, dining tables, TVs and the like will be purchased to restock.

Then there are the thousands of cars and other machinery and equipment that will need to be replaced.