Property prices falling earlier than expected

The expectations that Labor and friends are going to do wonders for equality etc seem way overdone to me. I think i'm a relatively honest broker on this, in that i'm a swing voter who was on the winning side this election. But the idea that either party will have a massive impact on anything seems over-optimistic. Neither party really came in with any serious policies at all for starters.

but even looking past that, in practice what is labor going to do to improve equality? Cancel the 3rd round of tax cuts? Ok, so what? Housing affordability? I'd be amazed if they do anything to have a big impact. The parties are far more similar that most admit.

It always amazes me on election night when one side is celebrating like they individually just won the lottery, and the other side is literally in tears. We have a 3 year cycle, so you are never without a chance to win for long, and in any event the govt never gets that much done, nor the opposition lose that much, in any given term.

Climate action is the one big one this time perhaps, but the idea that a labor govt means a completely different world for the working class is way outdated imo.

Sorry, #sundayrant.

 

That's right they are very similar

 

Climate action is a very over-hyped topic in our country. Most people that talk about it don't even know what's in it exactly, including most of us. I laugh when people who replace trees with concrete or fake grass in their own backyard talk about climate action. Our own cities have heaps of suburbs with the most cluttered planning with no space for trees on the streets whatsoever, leaving suburbs dry as desert and we talk about climate action. Never heard such activists or parties doing plantation drives.

Not saying that climate action isn't a pressing need but it would be hypocrisy at best if we have big talks when the smallest and most doable of the actions required to address it are not seen coming from us. Just start with freakin' plantation in your own dry streets and constituencies first to start with, me thinks. Look at the new suburbs and their tree cover - it's only an appropriate example since we are discussing property here. My 2c for the political parties who love to politicise climate change/ actions without taking ANY action on ground.

 

It's pretty rare for federal governments in Australia to be voted out after one term.

If history is anything to go by we are likely to see 2 or 3 terms of labour before liberals have a chance of getting back in.

When you consider how few seats the LNP won this election it's extremely unlikely they will be able to win the next election.

 

Why do you say labor policies won't be ideal for aspirational home buyers, @Redom? Thanks in advance for elaborating.

 

They have strict income limits to their policies.
Unsure whether they’ll increase caps to 50k for 5% deposits too.

If you were buying and on a 120k+ family income, there would have been 1000s that would have benefited from access to super. Instead they don’t have that, or any support. Worse still for some, Labor are funding 30-40% of a home for those on a little less income then them. Ie they will push up prices in the sub 950k market by introducing 10000 no home buyers as first home buyers by buying 40% of the home for them.

While great for those people, the Liberals policy was broader and didn’t penalise households for earning more. It was much more in line with standard behaviour of how to actually achieve home ownership - if you earn and save more, we’ll help you help yourself VS if you earn less and can’t get in, we’ll buy it for you.

 

Thanks. Will labor's policy have any significant impact on $1.4m-$2m price brackets in your opinion? That's where most of the Sydney suburbs are at this point at least for any decent sized house (apartments being an exception).

 

No nothing positive for these markets. Potentially negative.

If they go about recklessly spending and promoting inflation chasing wage rises, which their agenda involves, then it could impact inflation and interest rates at the margin.

Overall there is a risk that these markets fall further, all else equal.

Reckless = isn’t about spending where they want to, it’s just currently the economy is fighting inflation, with a very obvious need to reduce spending. Spending more is like having the flu and deciding to get drunk to try and counter it. I.e. it’s economically irresponsible now. Labor or Liberal would have faced this, but Labor have gone out promising a bit more spending particularly on the balance sheet. It may be best to wait a little bit before implementing some of the spending programs they want.

That’s not enough either. The current situation, means that being responsible to the Australian public, is about doing what you can to counter inflation. For governments that’s about reducing spending at the moment (not just not increasing). The last budget was quite good here - with very modest spending rises given election contest and big savings banked. More required.

We have to hope that the experts will guide them here and they listen. I’m sure Treasury will be singing to this tune (and the RBA) too.

 

I remember you mentioned your *best* guess of the market is most falls will concentrate in the rest of this year and early 2023 a few weeks back - any change in your view now?

 

Hmm unsure exactly.
The general view point was that this year would be in the red. That is, price falls are happening earlier then expected. A few months ago this would have been unlikely. I do expect the adjustment to significantly accelerate in coming months and last for a little while.
Projecting beyond the next quarter or two is a bit tricky.

 

Is this because Labor win? Do you think RBA will react by stopping interest rate hikes, if house prices fall too much? Accelerated by Labor win offcourse.

 

The RBA’s two core mandates are keeping inflation in the target band and unemployment.

We have sky high inflation and record low unemployment. Rate hikes won’t stop until early next year

 

No not because of Labor winning, but as @Dmash suggested with regards to achieving their goals.

I personally think it wont be long before their rate rises impact more meaningfully than they may model, both to house prices and sentiment. Employment market goes from a runaway train to starting to move backwards.

Labor governing (not campaigning) will be all about managing this problem. Liberals would have pivoted to this if they won.

Basically Labor will need to spend this term fighting deficits and running contractionary fiscal policy...while trying to fulfil their mandate (modest).

Its taken until SUNDAY night for Labor to come out and recognise inflation fighting is the no1 agenda for any government coming in when it comes to the economy. Head of Treasury apparently in Logan at Chalmers house giving him the run down of what needs to be done. Aussie wellbeing relies on containing the potential risks with inflation running wild.

Election 2022: incoming Labor treasurer Jim Chalmers says inflation is ‘almost out of control’

Its funny, the Liberals spent the last few years running the economy like a Labor like government (spendathon!) and the Labor government have come to power with the need to run a Liberal-esque economic agenda.

Obviously both governments stick to their biases in the way they direct the resources of the country. Liberals spendathon was a BOOM for businesses and jobs, rather than equity or climate. Perhaps there was an opportunity for a direction of national resources to these pursuits had Labor been in charge.

Labor are not proposing any tax rises on anyone really, but want to do some small notional Labor things on the economy like using taxpayer balance sheet to buy homes for people and directly subsidise wages for aged care. Those are both economic policy ideas from 1970s that are the opposite of productivity enhancing. They are tiny though.

Its the reverse of the GFC spendathon by Labor and the cleanup by Liberals. This time around Labor will need to be fiscally disciplined when it comes to economic management given the spending over the last few years.

 

Housing market is now entering a broad–based correction phase that will be largely shaped by the speed and extent of the interest rate tightening. We expect RBA to lift the cash rate to 2.25% by May 2023, a much earlier and more aggressive tightening than we envisaged.

‘time to buy a dwelling’ index has fallen a further 8.7% since Feb to 77.5 in May. The new cycle low is the weakest read since the GFC 14 years ago, worse than 82.1 registered when the COVID pandemic first hit in 2020, the 90 recorded during the 2017–18 price correction.

90 recorded during the 2017–18 price correction and the 88 recorded at the peak of the 2009–10 IR hiking cycle. 41% drop since the Nov 2020’s is the second steepest 18mth decline since beginning of the series in the mid–1970s. The long run avg is 120…

-Westpac

 

ParraEels, what's your expectations for the duration of this correction? I know there are markets within markets etc, so let's say Sydney and Melbourne?

 

Thanks. Link here: Westpac: crashing buyer sentiment pulls house prices lower

 

Nutin' with labor winning...but I am in a selling mood.

The property market is about to get very interesting....at least in Sydney, Hobart, Brisbane, and Melbourne...and not for the better.

Watch what the RBA does in June....if it move 40 basis points...we are 2/3 of the way to the 1% increase...another say in Sept and we are almost there...another in Nov and it is done...

 

So if you are selling someone will be buying?
I have no crystal ball but like to predict. I think with promised spending interest rates will be rising, how high, time will tell, but probably to at least 2% by end of next year. Will also be interesting to see if too fast too much rise will not cause recession, then I see reversal of the trends again. Government to come to rescue with even larger incentives to RE and the cycle starts over again. APRA has asked lenders to evaluate if they can handle negative interest rates in the future (these can be implemented via fees not just negative rates).
I think from past if rates fall from 2% to 1% that usually relates to at least 30% increase in asset prices (stocks too). This is assumed looking back at last two years during covid.
Either way it will be interesting times ahead and anyone being able to hold on to their assets would benefit then again?
QE reintroduced would enable new credit liquidity so asset prices IMHO are no longer economically influenced rather politically, would do you think?

 

I think the appetite for QE is over..... this is global thing.

The US is interesting.... they are looking at raising business taxes...and globally they are closing loopholes for companies and want them to pay 15% minimum on profits. Things like transfer pricing will be curtailed.

As for OZ...I think we will not see a large increase in property prices unless it is tied to a commodities cycle like Perth/Darwin. This again is being driven by policy globally to move away from fossil fuels and also less reliance on China.

 

Agree, until things get so bad when they will need to reintroduce it, say end of 2024? Either way will be interesting.