Historic drop in house prices will hit within three months
With central banks showing no signs of ending interest rate increases there is terrible news ahead for asset prices, at least in the short term.
Christopher JoyeColumnistJan 6, 2023 – 1.24pmThe new year is playing out as expected. ..........
On our estimates, Aussie housing should register its worst cumulative loss in 42 years within two to three months. In Sydney, home values have plunged more than 13 per cent while Brisbane is not far behind, chalking up a 9.7 per cent decline. Those modest Melburnians have only slightly outperformed the other capitals with an 8.5 per cent correction thus far.
I was recently asked how the housing market’s evolution is tracking against our October 2021 forecast for a total peak-to-trough correction of 15 to 25 per cent............The bottom line is that the market is behaving as expected: we are now 60 per cent along the road to hitting the lower bound of our projected loss.........Our central case unveiled in October 2021 was notably more optimistic than the outlook presented by the Saunders-Tulip model because we adopt a “quantamental” approach. Pretty much every bank in the country has since embraced this view........This forecast is likely to be redundant within a few months, and the RBA has doubtless since replaced it with a new projection that is more in line with our larger, 15-25 per cent draw-down...........While we did not publish a specific forecast for house prices in 2022 (since we were only interested in the total correction), a substantial price fall was, by definition, our central case for 2022 along the road to our expectation for a cumulative 15 to 25 per cent decline.
Another very interesting AFR article by Chris Joye, someone whose opinions I greatly respect and follow.
Notice there are THREE references to Chris's bear case of a total of a 15%- 25% fall in Ozzie house prices. Note there is not a single reference to a dumb dumb claim of minus 50% anywhere in Joye's outlook. Never has been, never will be. A lot closer to my own view of roughly minus 10-15%, especially if we take the midpoint of his bear case as being minus 20%.
After the 25 year run we've just had a 20% fall would be a blip on the long term radar, a minor, and actually in the longer term, a very healthy correction.
