Friday, August 15, 2014

Australia is different

Advice to a new Australian:
Australia is different.
Our housing prices never go down.
Never ever.
And you have got to believe that.
Otherwise you will have nothing to talk about at dinner parties.


Anonymous said...

if house prices go down much, there won't be any dinner parties :)

Anonymous said...

So how do you short it?

Eric said...

I was once told that prices would hold up no matter what, and that the Reserve Bank would drop the exchange rates to keep it up.....

So so tempted to sell, but where would we live then?

Anonymous said...

Most Canadians seem to have the same mentality regarding housing prices now. I'm sure this will end badly, but much of the financial pain will be socialized by the CMHC. The obvious short candidates (HCG,EQB,the large Canadian banks, etc.) have been a painful experience over the last few years for short sellers.

Anonymous said...

Short Genworth Australia only a matter of time...

Pereg25 said...

Soo easily fixed if our politicians were not soo committed to the Ponzi scheme.
Rising unemployment will be the trigger at some point.... if the bubble doesn't self implode sooner. We probably need the final stage of 'irrational exuberance' before the crash; but to me it seems that we've been irrational for at least a decade if not much longer.
Any chance of our pollies having some more firewood to throw on the Barbie? They've dumped negative gearing, FHBG, and we're trapped in a low interest rate enviroment. No way will they dream of pulling back any of this stimulus for fear of it imploding on their watch.

Oh and now they are thinking out aloud of granting access to Super for FHB's!! Just when you thought that there was no more firewood, they've found another forest. Such clever little chaps down under! (and in Canada as pointed out by Anon, another commodity currency country).

Anonymous said...

According to the RBA it makes sense to buy if house prices increase by 2.5% over inflation. Extrapolating over 100 years house prices will have gone up by 12 times inflation. Sure will be expensive then.

armx said...

It's amazing that the same arguments used in the US, and then in Ireland and also Spain and UK are being used in Australia with no regard to how that argument held up in the other cases.

PSC said...

- It very possible that we'll see -1 to 1% (nominal) house price inflation across the country for years. In the context of say 2-3% maintenance costs on resi property, it may not be an excellent investment.

- Prices in some areas certainly seem a bit high, and I would not be at all surprised if particular areas get smashed hard:,+wa+6707/list-1

- But for a good 10-15%+ (nominal) fall across the country - which is what I read in the subtext of your post - we need a hard sharp recession.

So John, where's the hard sharp recession?

Anonymous said...

Familiar from so many markets!

In Russia (where I am now) there is a simple solution to the evidence - no matter what happens to prices, change the base of calculation!

There's always some currency in which prices didn't go down...

(The usual suspects are ruble, dollar and euro).

And when you are complaining that your raise was not enough to keep with inflation, use the reverse calculation to confirm your belief that you have somehow been screwed.

GB said...

Falling house prices could give us a hard, sharp recession. Reversion to the mean of terms of trade would do likewise. China bust also. Use your imagination.

Absalon said...

In Canada the rise in prices seems to be focused in Vancouver and Toronto. Prices are being driven in part by restrictive zoning and in part by an influx of money (probably stolen) from China.

wilfried said...

House prices will not fall until there are forced sellers. Just figure out why, when and where forced sellers will emerge and you got the answer. To do that you ought to map how the economy will perform, the level of interest rates, how easily credit will be available and the vulnerability of homeowners towards these parameters.

Of course most of us cannot do this reliably. So all the talk is pointless speculation.

Anonymous said...

Simple solution if you're worry about a clash in housing prices, sell your home and rent.

Seb said...

I agree with Wilfried. Due to loss aversion of home owners prices should not fall significantly unless there are forced sellers.

Anonymous said...

So much talk of overvaluation relates to price to income metrics or similar. But what if the marginal pricer of property doesn't earn their income in Australia? The $5m Visa scheme (ie A$5m investment in Australia for permanent residency) is likely to have a similar effect to the recently discontinued scheme in Canada which had a lower threshold of C$800k.

It is a well reported trend that many people from China are keen to find a hedge in case they need to leave the country. There is a good article in the AFR reporting on this (

The rules are different for these kind of migrants when thinking about pricing of housing. Wealthy people from countries where the legal framework does not provide the same kind of asset protection as you would see in most developed countries (eg China, Russia). Therefore, it makes sense to move some capital out of these countries to hedge your wealth. Even if it means buying overvalued assets, it will be worth something, versus potentially losing it all. Some of this money obviously makes it into housing.

We see this anecdotally with Chinese in Australia, Canada etc. And London is well known as a place for Russian money. Usually they have a penchant for the trophy properties.

So what does this mean to the common man who will not be buying the trophy properties? Well there is a cascading effect with the locals who could formerly buy the trophy properties, now moved down one rung but able to pay the old price for the trophy property. Rinse and repeat rung by rung.

Australian politicians are long on average 2.5 properties - self-interest would dictate favorable policies to be continued.

It would take an event beyond the control of the politicians' schemes and the RBA to see any impact.

This does not imply I am bullish on Australian housing. However for all the shorters out there this could continue to be a a widowmaker trade for quite some time while waiting for all the moons to align.

Anonymous said...

John is right again.
The banks hold the aces.
I can remember back to the 1980's and the 17% interest rates.
The bank wrote to me and said your 20 year loan has been reconfigured as a 30 year loan [ at no charge ]
so your repayments have reduced and you are not in default for underpayment.
Just keep up the payments.
It also meant the loan was not in default [ handy that ]

dearieme said...

London = Australia, then.

Anonymous said...

Readers of this blog need to understand that John is Sydney based. The incessant need to talk about property prices is an affliction which is mostly limited to our biggest city, rather than a national affliction. People who attend dinner parties in my city (Brisbane) can go an entire evening without even broaching the topic.

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