White to red hot

Australian property prices finished July 1.6% higher to be 14.9% higher than at the end of July 2020. House prices (17.7%) have outperformed units (7.1%) by a significant margin, with lifestyle preferences for more space amid WFH/lockdowns coinciding the with general shortage of detached housing relative to units.

Yet the rate of growth looks to be slowing in recent months. Even with current stimulus, increases at the rate of circa 30% per annum appear unsustainable. Now with interest rates anchored (as opposed to falling) and strong building relative to population growth (see my recent post on Housing Demand v Supply), the impetus has eased. There’s a strong psychological component driving prices at the moment, with many feeling the prospect of buying a home for under seven figures is rapidly disappearing. Could that change? Possibly. But it would likely need to come from a material shift higher in interest rates.

Most analysts’ (me included) outlook is for price growth to moderate as we approach the end of the year. That still leaves a gaping affordability gap and major pain for non-property owners at the time of fiscal/monetary stimulus in 2020. And no policymakers seem willing to tackle that problem. The social implication is increased social bifurcation and a gap between the wealthy (with multiple properties) and the rest. Younger adults without property-owning parents will struggle to attain home ownership it looks like, at least in ‘desirable’ locations or dwelling types.

Until next time.

White to red hot

2008 redux?

The Australian share market is sitting right on post-2008 financial crisis t/l support. Next few days will be interesting.

Is it the big one? 2008 was (obviously) serious – we haven’t seen any major/systemic corporate failures, or broader economic stress (excepting supply chain/cashflow issues) – at least yet. By that I mean a jump in unemployment or major hit to economic growth.

Unlike 2008, there has not been a significant prior tightening cycle either. It’s true there was a tightening cycle, but the Fed was much more gentle than 2004-06. To wit, 225 basis points of hiking versus 425 basis points.

There certainly is a fair degree of panic out there if supermarkets are any indication.
More broadly times like this remind of the need for prudent position sizing, diversification and some degree of caution.

Having invested through 2008-09 (and taken a proverbial bath), I took some lessons – primarily psychological, it’s tempting to panic and sell dips and buy rips on the way down (or lose your nerve completely).

Charts:

And more importantly, it’s only money – it comes and goes…
Cheers.
(Not financial advice).
2008 redux?