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."

Friday, December 16, 2011

Rory Robertson smashes the house price doomsayers--again!

Classic comments from Rory Robertson over at Business Spectator...

"Yep, "bubble deniers are as plentiful as kangaroos" Down Under (Blowing away the bubble deniers, December 16). And from under just about every third rock there seems to be a know-it-all preaching doom and gloom. For all their confidence, many of the doomsters don't actually know very much about local housing and homelending markets, don't own their own home or - commonly - both. Meanwhile, most everyday people choose to buy a home they can afford to fund with a mortgage, then show up to work and happily pay their mortgage for the next 25-30 years. Over time, they enjoy a secure home within which to raise kids, and later on have a buffer that protects them from poverty in old age.

Ask the dopey bubblemen about how much of their old-age pensions will be left for living expenses (including tasty dogfood?) once (expensive) rent is paid. If they had a clue, the know-it-alls would realise that the relative tightness of rental markets - capital-city rent increases have averaged 5.8 per cent per annum over the past five years - is a hint they are barking up the wrong tree.

Yes, the ship has sailed on the easy capital gains that flowed via (a) the big structural downshift in inflation and nominal interest rates in the early 1990s and (b) the big structural increase in credit availability as banks were deregulated. But, even now, only about one-third of households have a mortgage (one-third own outright and one-third rent); that's excessive gearing?

In any case, the fact that average home prices are unlikely to surge higher from here does not mean they are destined to collapse. With the one-off structural shift higher now complete, average home prices will tend to rise and subside in cycles over time. The most-likely scenario is that real home prices will trend gradually higher over our lifetimes as real incomes rise, and two-thirds of our population continues to compete aggressively to live on the best-located bits of ground near the CBDs of our seven coastal capitals and Canberra.

Good luck to those sitting "short" and renting while waiting for home prices to collapse. Just make sure you don't hold your breath."