A classic letter by the famous interest rate strategist Rory Robertson that was published yesterday in the venerable Financial Times (I would add that Aussie house prices started rising again in June in raw terms according to RP Data-Rismark's world-class daily index data):
Sir, Steven Keen, whom you quote in “Mine, all mine” (Analysis, June 18), notes that nominal house prices in Australia have risen by “a factor of six since 1986”, and forecasts a dismal road ahead for Australia’s housing markets. He overlooks the fact that household disposable income rose five and a quarter times over the same period, and that the collapse of inflation in the early 1990s means that mortgage rates since then have averaged about half their 1980s levels.
Readers might be amused to know that Prof Keen is famous in Australia because in 2008 he took a high-profile bet that house prices would fall by 40 per cent from “peak to trough”. It was agreed that the loser would trek across 230km of dull roads from Canberra, the nation’s capital, to the top of Mt Kosciuszko, the nation’s highest “peak” (only 2,228m), wearing a T-shirt saying: “I was hopelessly wrong on home prices! Ask me how”.
In the event, home prices in that episode fell by 5 per cent, not 40 per cent. Wrong by a factor of eight but still a good sport, Prof Keen enjoyed a nine-day holiday trekking the tar to Mt Kosciuszko.
Awkwardly, average home prices today remain 10 per cent or so above the level at which “Australia’s Chicken Little” sold his home in favour of renting in 2008. The bet now is that pensions will grow faster than rental costs over the next four decades.
Rory Robertson, Sydney, NSW, Australia
