This Housing Downturn is Over

@Befuddled - agree, if theres no rate cuts, this all goes out the window. I think its the largest demand driver to it all.

@euro73 - I'm not so sure I think there'll be a boom, just a pretty standard recovery in prices where most of the losses are pared back. Depends how a boom is defined I guess.

Thanks for your thoughts, thats also completely reasonable and also a very possible outcome.

Thinking about it more, I think premium Sydney and Melbourne (the 1-2mill market) is in for some noticeable demand increases. These markets have very little supply additions available to them, are always in demand and will benefit from an affordability increase. A Sydney household that earns $100k each with a couple kids and a 20% deposit will be able to buy beautiful terrace houses within a few kms of the CBD now and operate a budget with $6k+ per month to spend on living (while paying down that mortgage on P&I terms). 80k incomes with 20% deposits also allow for similar dwellings a bit further away. Appreciate these are both above average households, but for a long time, these type of dwellings were both unaffordable & out of reach for these type of households (20% higher prices + interest rates 100-200bps higher).

If/Once these go through, affordability will be at a relative high point.

 

I think if the argument is that the 15-20% lost over the last 18-24 months is pared back in 18-24 months, that would probably meet most peoples definition of boom ... or boomish...

I just repeat - we are still a long way from rate cuts + actuals + henderson poverty index living expenses , so dont expect that rate cuts + sensitised assessment rates + HEMS , can produce the same explosiveness in borrowing power. And we also shouldn't forget that the last series of cuts was much bigger than the anticipated ( but yet to happen) 25 or 50bpts , started at a much lower debt level and there's been no wage growth for years...

But yes...if there are big rate cuts - and I mean 50 bpts at least, but more like 75 or 100 bpts - and if the banks pass it through , it is at least possible with a 2.5% floating assessment rate and some tax relief and FHB being brought forward by Morrissons 5% deal, that some movement will happen

But when those buyers are done... whats next? How is a recovery sustained? Bringing future buyers forward creates a sugar hit, just like every FHOG or stamp duty exemption before it.

 

There seems to be a lot of energy willing the downturn to be over I think Sydney and Melbourne finding some broad based support will be a key first step.

 

I think this is a very very good question. Other than a 12-24 month mini-recovery, I'm not so sure whether we'll land in a different position in the medium term (goes up initially, but comes back down once monetary stimulus wears out).

 

I think the bottom has been politically and structurally reached, but the practical and emotional recovery will be slower given the time it takes for banks to actually change practice and time needed for servicing limits to modify in practice in the market (and then for buyers to collectively realise what has happened and start asking for more) - I think a gradual pick up throughout this year but hopefully we can at least see "normal" market conditions soon. I don't see any immediate rush to bull markets in Sydney and Melb I rekon they will stabilise now, but it will take longer for them to grow strongly again...but I could be wrong. Regional markets that were already doing ok just got a shot in the arm. I saw 3-4 properties on a shortlist for my client sell in 48 hrs early this week in a small regional with good infrastructure growth prospects, it was already stable/growing, likely to have a 5-10% run 2nd half 2019 now.

 

Giving that world may be just at the start of long drawn trade battle with a real chance of multi year slowdown,
Firing shots with multiple guns at the very beginning in-spite of very limited IR ammo left, makes me wonder what do they know that spooked them so much?

 

What’s next?
They can simply keep Amending and providing sugar hits to the cows come home.

Let’s not forget a lot of you on here we’re saying we will never see credit loosened again...nek minute.

It’s naive to think the powers that be can’t keep shifting levers to keep the sugar hits coming.
And I know people will argue APG or ARG or whatever it is and that some things like living expenses are here for good but again....the goal posts will move where they need to.
Let’s not make the same mistakes of going all in with “the new norm” sentiment. There is no such thing.

 

P.S - Who else on here likes reading the finance titans @Redom & @euro73 go head to head.
Might go get the popcorn

 

rate cuts == weaker currency == increased funding costs for banks and capital outflows... How much of a 50pt rate cut can/will the banks pass on?

At best rate cuts and reduced assessment rate might arrest the continued downtrend in prices.

 

Why though, rate cuts aren't exactly a sign the economy's doing well.

In Ireland, most of the crash happened after rates were cut, and they were supposed to bring back the boom. They didn't, for all Bertie and every media outlet and economist insisted they would turn things around, because we couldn't unbuild all those flats and semi-d's we'd gone nuts building through the boom. In Ireland rates were cut in 2008, when the crash had barely begun (prices were down a few percent, in a minor slump at worst). It was the same in the States. Rate cuts did nothing to stop the bust, or at least it took a couple of years and several deep cuts to get there.

Rate cuts can't just create demand out of thin air. Demand is tied to supply, not rates. Rate cuts help make debt affordable if people are willing to take it on, and it should help prevent defaults, but they can't do much if demand isn't there. It just seems like people are getting far too excited here too quickly. I'm with euro73 on this one. I think people need to calm down and see how this pans out.

 

Till it turns zero, and then we go negative,
Regarding your concern of funding cost, RBA can QE and start buying what it prints, technically this can go on forever.

 

This is about the 3rd or 4th bottom I've heard called by REA industry in the past 6 months.

 

This time it’s different.

 

Once there's any significant evidence, it will be different.

 

Aussie funding costs just hit record lows over the past 24 hours.

Both 3m and term are where Aussie banks hedge, fund, & borrow, and deposit flows have been huge.




I follow a few fixed income gurus, and as far as I can tell the ability to predict where it goes next is pretty sketchy (at best!), with all sorts of different drivers: issuance, deposits, synthetic demand for AUD, loan demand, basis etc.

No idea what happens next, but all of that DFA stuff about surging funding costs because of rates in the US isn't right: they're at record lows.

Margins have been under pressure for some banks, granted, and there have been some quite painful costs from the banking commission.

Either way, bet you're right and the banks will find some reason or other not to pass on the full cut(s).

 

Those countries were in severe economic stress with very high unemployment amidst one of the worst global economic crisis of the last few decades. Not really what is happening in Australia right now.

 

No they absolutely weren't. This is a total misconception.

When rates were cut (late 2007 for USA, mid 2008 for Ireland), neither economy had even entered a recession. Housing markets in USA and Ireland were barely down, we're talking 10%, just enough to make people start whispering "crash"... The atmosphere (feelings the boom would return any day) was still hopeful, especially when rate cuts were announced, and the real estate industry lobbied very hard for them and promised the Celtic Tiger had life in him yet.

Unemployment in Ireland had risen only slightly before the first rate cut. It went from 5% or so to about 5.6% in the 6 months before the rate cuts began, and it was well under 6% when the ECB cut rates. So yes it was rising, in the context of a recent housing downturn, and some economic indicators were looking shady, but we hadn't had a whiff of recession in years. (Sound familiar?) Other countries in the EU were also struggling with rising unemployment, but it was pretty mild at that point.

Following the rate cut, the unemployment rate in Ireland rose very frighteningly quickly... It was over 12% within a year, even as the ECB continued to slash rates. Recession hit after the rate cuts. The housing crash didn't really pick up speed till late 2008 right after the rate cuts. Everything went to the dogs after the rate cuts.

In USA rates were cut in late 2007, when the economy was barely struggling. Right after, the housing market crash began falling much faster. Recession happened after the rate cut. US unemployment was about 5% before the rate cut, and it went to about 10% within the year after the rate cut. And I can't help viewing these upcoming rate cuts, and the idea they'll bring back a boom, with some healthy skepticism.

 

The fall may be over but i don't see much short term growth prospect for buy & hold.

 

The changes aren't exactly wide open throttle like, Pre-:

• Assessment Rate buffers.
• Being assessed at IO only (Actual).
• Forensic expenses analysis.

I'd expect the climb could take longer than the fall.

 

Lol. Many hopeful assumptions baked in there.

Buy Buy Buy says the mortgage broker and gets 20 likes on this forum