Chris Joye Predictions Tracker

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I agree with his analysis and have built my macro model on similar assumptions.

When actual variable home loan rate increase from 3% today to 4.5% - 5% in 12-18 months then no doubt the property prices should retrace by 15%-25%. Still above 2019 level.

 

Assuming no government intervention.....

 

Always a possibility. The only thing is, not sure if this time around Oz government have any ammo left

 

I've been looking at this model myself - replicated the result in excel.

I'm unsure if he's actually factored in rental increases? Vacancy rates are low and expected to stay that way.

 

I reckon Chris Joye is spot on. All the issues I have discussed before.

What I was surprised about was he thinks that the market could correct 15-25%! Wow! My figure was 10-20%

He also points out the equilibrium point.. he certainly does have a point when he says house prices are rising despite no real population growth. So it would seem to indicate it is not a supply issue but type of product issue (house vs high densty products like units).

Very interesting....

 

35 year loans?

 

During late 2019 and early 2020,
RBA used cashrates cuts from 1.5 to 0.1%,
and APRAs lowered assessment rates,
This resulted in both RBA/Apras collectively pumping borrowing capacity of JoeTheFOMO by 30+%, without any real wage rise for the 2020-21 period.
The end result of this increase in BC resulted in australia wide house price rise by 35+%, without real wage increase and real population increase.
I think CJ is referring to this.

I guess he is saluting the consistency of JoeTheFOMO who can always be banked on, to do the STRAYAN thing whenever BC increases
ie "Joe shall borrow till the hilt, so thou can flipp"

 

Think big
We are already close to zero cash rate with highest ever housing debt to gdp.
A seasoned junkie needs ever increasing hit to remain high.

 

Self promotion here, I uploaded my own model which include a rental increase vs purchase adjustment factor. Search for Crystal Ball thread, more then welcome to critic the model so I can make it better

For 2023, even with 20% rent increase the property fall range will be 15%-20%. Big assumption here is rate only go up 2%.

If it goes up by 3% as markets is predicting by end of 2022.... we could see 30% fall. I do not believe this will be the case as it will be a catastrophy.

 

One point of note is that the RBA's regression on this only has a coefficient for the yield/user cost balance of 0.023. It's not meaningful enough to shift the forecast to anywhere like Chris has.

Is this the model you're running?

 

I do too

However, impact on housing prices will be dependent on how fast interest rates rise. If RBA goes slow with this we may see 10-15% drop, otherwise it may fall harder

 

I am in the slow camp....but 25% will upset quite a few people in Sydney...Melbourne...Hobart...Brisbane where it will be most affected.

 

I built my own little macro level model. Playing with rates, rental, wage growth, inflation. From a perspective of an average Sydney upgrades.

Rental increases will help cushion falls, but max 5%.

@MTR I'm with you too. But kind of scary because if rate go up fast like market is predicting... the impact would be unprecedented in most people's living memory.

Surely governments and central banks will step in.

 

But remember some investors have enjoyed 35%+ growth.

My strategy is to take some money off the table. Mitigate risk, keep debt level low and increase cash flow so impact is minimal.
Its not IF but WHEN

 

Yep... that is what I have done.... but 95% of the people will not do this and will regret this.

 

Remain to be convinced we’ll see anything like market predicted base rates in 2-3 years. More likely capping out below 2.0%. Why?..

1. inflation mainly cost-push in Aus, rather than demand pull (from material wage rises at/above inflation rate)

2. inflationary factors (global supply constraints) likely to be short-term for mostpart, rather than structural

3. price of money supply in Aus from lenders whose cost of funds already well above RBA due to relatively higher offshore MM pricing for their issuances (hence sudden hunger for deposits by banks)

4. item (3) maps against more conservative APRA serviceability, weighing hard on borrowing capacity now = 10% drops seen already in key capitals

5. above factors acting to quickly diminish previously buoyed consumer sentiment

In spite of pockets of wage inflation we hear about (eg IT), Australian wages don’t react as fast (or as much) as offshore - US notably - with more mobile, agile labour markets.

I can see the inflation damping potentially over-correcting if RBA goes above 1.75-2.0%, leading back to the stubbornly low inflation levels in the decade pre-Covid.

 

Another little chestnut….. If Labor wins …. Watch property prices tumble

 

Adding to deflationary pressure as that flows through to consumer sentiment

 

10 year bond yield is also often used as discounting factor for asset valuation.

It was as low as 0.50% during COVID but now at 3.8%.

A house that is renting gross at $1,000 = roughly at $50k p.a. $50k ÷ 3.8% = $1.31m

This house is probably valued at $3m today with gross rental yield of 1.66%

Something have to change.