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

Comparing the 2008-09 crash

Yep, the feeling is undeniable. Big downward moves, heightened volatility, it’s 2008 again right? I mean, surely we’re due for another big one.

It does feel like that, but not so fast. Let’s take a step back and look at the data.

2008 crash

The Dow Jones peaked at 14,165 points on the 9th October 2007.

Its eventual low would come almost 18 months later, 9th March 2009 (6,547 points) – a fall of around 54%. Ouch.

2008

That was a big one, and one many of us remember vividly. For myself, fledgling share portfolio was poleaxed, lost my casual university job in finance and (coincidentally?) a lady friend at the time took off shortly after.

Traumatic stuff.

And trauma isn’t forgotten. It’s maybe for that reason people are expecting another repeat in the current market mayhem.

But how similar is it?

Comparison

Looking at the price action, the answer is ‘not very’. 2008 saw a slow and gradual decline from the October 2007 peak before a deep capitulation from late 2008 to early 2009. Contrast 2020, where we have seen a violent ~30% sell-off in 20 trading days. Post the October 2007 peak we were 96.44 at t+20. Hardly comparable. It wasn’t until t+250 (October 2008) that we had fallen by the same 30% magnitude.

Does that mean we have nothing to worry about? No. But it does mean you shouldn’t be caught up fighting the last war, patiently wait to buy at -50% in the indices and make a killing.

Good luck with that.

 

Comparing the 2008-09 crash