Goldman Sach busts some of the doomsday hype
Sentiment matters. It’s just one of the realities of the market. Sometimes mood just matters more than fundamentals.
Right now is a classic case in point. Sentiment is low. Ordinary investors are a bit bummed. People are worried about a crash…
But how much of that is based in reality?
Not much, according to Goldman Sachs.
The Australian arm of the old Vampire Squid reckons that market sentiment is currently running miles ahead of reality.
Exhibit one in that argument is this chart here. This is the number of Google searches for the term ‘housing crash’ in Australia.
As you can see, they spiked towards the end of last year. There’s unprecedented levels of searches for that term…
(Though, are people really getting their read on the market by punching ‘housing crash’ into Google?!? I think it says more about how sophisticated most property owners and investors are than anything. The fact that you are reading this blog puts you miles ahead of the crowd.)
Goldman Sachs is calling this phenomenon “doomsday chatter” and they reckon it’s just a bit silly.
“In our view, while there is a kernel of truth to many of the popular narratives, a close inspection of the data suggest most are overly negative.”
Their read on the data still suggests that things are tracking along ok. They are also keen to put to bed the idea that there is some kind of ‘credit crunch’ in effect.
“The evidence that supply-side credit tightening is significantly worsening is not compelling to us…
“The value of finance approvals to investors in NSW and Victoria continues to fall sharply, but is little changed elsewhere; while the number of finance approvals to owner-occupiers remain fairly elevated in NSW and VIC (albeit a bit weaker) and mixed in other regions…
“In our view, this remains broadly consistent with our earlier view that the primary driver of softer loan approvals over 2018 has been lower demand from investors – driven by a normalisation in expectations for capital gains in Sydney and Melbourne.
“Tighter scrutiny of mortgage applicants' expenses was slowing approval times, but the effect was likely to be temporary…
“This slower processing period may well take a few months to wash through and cause some temporary distortions in the interim…
What is interesting to me is that given all the dark clouds supposedly hanging over the property market – the credit crunch, APRA, the interest only reset, the Hayne Royal Commission etc., the only one they’re really worried about is…
… immigration.
Yep. That’s right. The only downside for the property market is potential cuts to immigration.
“In our view, the much more material risk to both the underlying supply/demand balance and the level of construction activity would be a significant reduction in population growth.
“We note Prime Minister Scott Morrison recently proposed to reduce Australia's annual permanent migration quota by up to 30,000 per annum (or about 15 per cent) and redirect new migrants away from Sydney and Melbourne.
“But while formal changes are yet to be made – and the impact on population growth of this proposal would likely be negligible given (i) actual permanent migration is already below the current cap, and (ii) the measures don't address the large amount of temporary migration – the increasing political focus raises the possibility of a more substantial policy shift in the future.”
So they’re kind of saying that immigration is the only possible downside risk for property, but there’s very little chance of anything substantial happening on that front…
So what? All good then? That’s what we’re saying?
Yep. That’s what we’re saying