Headwinds for the housing markets especially Sydney/Melbourne

I don't think more debt is what we need when wage inflation has been non existent in the past 3-4 years. Unless APRA and the RBA think that loosening credit might bring some sort of Wage inflation

 

Just that if regulators get this wrong they will end up having very little lever left to steer the economy, hence my question to @Redom was, in-spite of all the tall claims about strength of economy and all, are regulators really this desperate to fire so much of, whats little left of, all the ammos?

 

Its more so wage deflation doesnt happen. Latest figures have shown a rise in unemployment for 2 months now as well as big slowdown in GDP which really are the big triggers for a rate drop.

We are well on course to a negative rates environment IMHO. No one looks at bond yields much here but aud 10yr is at 1.6% now , almost half of what it was half year ago.

 

Almost fell off my chair laughing. If you don’t sound so serious I almost thought you’re joking.
The truth is the rate cut is reflective of how worry the rba of the economy and unemployment.
We will be lucky not to end up in recession and end up like Ireland let alone seeing new peaks

 

@TheSackedWiggle - I should be more specific on 'economy' comments, it certainly is slowing and has slowed fast from a slowdown in consumption mainly in Q4 last year and Q1 this year. IMO the RBA had underestimated the impacts of housing on the broader economy and consumption slowed faster than expected. Nonetheless, the local jobs market in Syd and Melbourne are still both very very strong relative to their average performance over time. I.e. the numbers indicate strong local employment. This massive stimulus will help too (rate cuts, assessment rate changes, tax cuts). Jobs what drives people to buy housing. If jobs are booming, unemployment is at near 50 year lows in your local domestic economy, there's generally a trend to housing demand.

@Younginvestor2 - I agree that its an outlier viewpoint, so appreciate that it can sound crazy. Time will tell. I generally think prices move up relatively quickly in housing and then stabilise (a little bit volatile). My opinion on these combined changes (if they all happen) is that they will bring demand back that outstrips supply growth for a while. I've also said a lot crazier things in the past that have come true (in January noting that the RBA/APRA may panic in 2019 and have exactly this response to lending conditions was a far bigger outlier comment).

 

Sounds just like my stockbroker friend. He recommended 10 shares last year. 9 are flops , the moment the only decent one rises, he starts singing his own praises.

 

https://www.smh.com.au/business/the...k-running-out-of-bullets-20190528-p51rty.html

 

https://www.smh.com.au/money/invest...-but-the-boom-s-not-back-20190524-p51qus.html

 

Some poor retail figures coming out of NSW.
Retail sales tumble as households continue to feel the pinch

The retail retreat was felt acutely in New South Wales, where turnover was down 0.4 per cent in seasonally adjusted terms — its biggest drop in more than seven years.

Sales also slowed rapidly in Victoria, although picked up in Queensland and South Australia.

 

Australian consumer struggling for sure. RBA has no choice, rate drop today. Probably another one coming soon. Recession inevitable.

 

And Telstra cutting 10,000 contractor jobs.

 

Falling house prices and construction drag economic growth to lowest level since 2009

Excluding the impact of population growth, GDP growth was marginally negative for the third consecutive quarter, further extending the so-called GDP per capita recession. Australia has not had 3 consecutive negative per capita quarters since the recession of the early 1980's.

 

Population growth has stopped us having technical recessions at different points over the last 28 years in this long 'no recession' cycle - now is one of those times.

 

US has population growth of around 2-3 million a year from immigration and nature birth it hasn't stopped them from going into recession every so often.
China has a decline birth rate and population not growing and they are booming

There is no specific factors that stop recession, it is a combination of everything and it many and varies and know one know exactly what it is, one thing lead to another and flow on affect etc.. it just a natural cycle of human quest to push forward

 

Recessions happens when central banks and gov unable to achieve a 'beautiful' deleveraging after a boom period that sees a lot of leveraging up and credit excess.



Unfortunately imho rba has almost run out of ammo and what's left is not going to do much. And the pollies are not going to cut spending, reduce debt, redistribute wealth (hey that's what shorten was trying to out forward!).

We will very probably see negative rates soon in the next couple years. When a 28year super cycle of leveraging starts going into deleveraging phase, it's going to take a lot to dig out of it. A lot of it is just math, can't escape from it.

 

with this latest rate cut and gdp data are you still standing by your assertion that the down turn is over ?

 

And exactly so Australia should not have relied on population for economic growth. Adding value to products would have been great but I haven't seen Australia doing this.

 

Definitely. In that particular post I mentioned that the first condition required for housing confidence was rate cuts. Slow GDP figures help make that a reality as that’s what’ll trigger another rate cut. Homebuyers bidding at auction don’t care for abs data releases. If they feel like they’ve got job certainty, they are far more sensitive to their monthly mortgage repayments than GDP data.

I think there may be a misconception about a slowing GDP figure and it’s impact on local housing markets. It’s specific features of the economic conditions that matter to local housing conditions. That is, jobs and employment certainty are far more important than macro GDP figures to housing market conditions. Sydney employment conditions, relative to the rest of the country and history, are pretty solid.

A large reason (perhaps the largest) why housing confidence is back is because of rate cuts and an overall push by government regulators to spur on demand/credit flow. There are definitely other factors too (also noted in that post).

The economy has slowed and people have stopped spending as much. The response? The RBA and APRA have gone out and created nominal asset price growth to spur on activity. Similar to what they did post mining boom and in 2016.

 

I just meant that there would have been a ‘technical’ recession at different points over the past 28 years if we had developed economy average population growth rates. Ie two quarters of negative growth. Our outlier story to standard business cycles is because we’ve used population growth rates at different times to spur on growth (post mining boom for example).

 

thanks for the detailed reply.