The author has been described by News Ltd as an "iconoclast", "Svengali", a pollie's "economist muse", and "pungently accurate". Fairfax says he is a "Renaissance man" and "one of Australia’s most respected analysts." Stephen Koukoulas concludes that he is "85% right", and "would make a great Opposition leader." Terry McCrann claims the author thinks "‘nuance’ is a trendy village in the south of France", but can be "scintillating" when he thinks "clearly". The ACTU reckons he’s "an enigma wrapped in a Bloomberg terminal, wrapped in some apparently well-honed abs."

Thursday, May 6, 2010

Clearance rates surprisingly strong

So it is a bifurcated asset-class: the Melbourne, Canberra, Darwin and Sydney housing markets have all been booming during the last 12 months. In contrast, Brissie, Adelaide, and Perth have experienced relatively subdued performance. By subdued, I mean capital growth rates in line with disposable incomes (6-8 per cent pa).

I have enclosed last weekend's auction clearance rates from RP Data for your interest. Melbourne, Sydney and Canberra are holding up remarkably well. But one would expect to see a deceleration in capital growth rates back to single-digit territory in Q2 and Q3, or possibly even some flat-lining as the market consolidates. This, of course, will all be influenced by how far the RBA moves interest rates.

In this context, I was recently asked by a leading property magazine how we felt being characterised as one of the country’s most vocal “bulls”. I responded as follows:

“I think the fact we’re regarded as bullish is very interesting because it actually says much more about the bears than the bulls. We’ve never made any forecasts for “double-digit” house price growth; we’ve never made any public pronouncements along the lines that prices would rise very rapidly. We’ve just been a figure of balance and levity in the highly polarised and emotive housing debate...

Because we never bought into the poorly-justified doomsday statements that the likes of Steven Keen were making during the GFC, and because we were quite relentless in arguing that we thought the market would be resilient given the underlying integrity of the demand and supply fundamentals, in contrast to those high-profile folks preaching 40 per cent house price falls, yes, we may have appeared relatively bullish compared with these extreme predictions. But by any independent measure, we weren’t. And empirically, we were proven right over and over again.

We’ve only ever argued that we think dwelling prices should rise in line with nominal GDP or disposable incomes over the long-run given the current constraints. So I would actually put that as a conservative position. It is not unreasonable to expect the nominal price of a scarce asset to rise broadly alongside purchasing power, all other things being equal.

In relation to the outlook, our view remains, and we’ve been saying for four to six months now, that we expect conditions to cool as mortgage rates normalise. We’ve probably been a little bit surprised on the upside by the strength of the recovery, but we remain confident in that view.

In the longer term, the fundamentals are very strong for well-known reasons. Again, the fact that some might claim that we’re bulls says a lot more about their own extreme positions than ours. It’s really quite absurd.

If you had an equity market strategist claiming that share prices were only going to rise in line with disposable incomes, he’d be an unambiguous equity bear, but for some reason if you say the same thing about house prices you’re a bull. Go figure.

As Macquarie's Rory Robertson has said, those that most enthusiastically apply the "bubble" moniker to housing tend to know the least about the market, or are pushing some other agenda.”