In the last post I sent out, one of the charts just wasn’t viewable for some reason. It’s tempting to blame a conspiracy of the big banks and university economists, but it’s more likely that it was one of those technology bugs.
But it’s an interesting chart, and for my money one of the best snap-shots of where the property market’s at right now. So I thought I’d repost it here.
ANZ pulled this one together. As I said last time, it compares auction clearance rates and the year on year change in house prices. It’s a pretty tight fit, hey? They’ve been moving in lock step since the GFC.
They also let clearance rates ‘lead’ house prices by 6 months. That makes sense. It says it takes about 6 months before everybody cottons on to what’s happening. Clearance rates are increasing, but prices are a bit slower to follow.
And so it allows us to look 6 months into the future. And what does that future look like? Well, as it shows on the chart, it’s saying that in 6 months, expect to see year on year house prices increases of around 13 percent, and moving higher.
Which, as I said last time, is what I’ve been saying for a while.
But the other point I made in my last post is that it’s interesting that ANZ is now out there making bullish calls on property. That’s a turn of events.
But they’re not running loan wolf, sorry… lone wolf on that one. A lot of the big houses have changed their tune. Take CBA, for example.
They put out a chart on the demand / supply balance in the housing markets last week, and it was one the most interesting I’ve seen in months.
You’ll remember that last week I was looking at supply and demand in the market, and arguing that demand had been outpacing supply for a while now. Mostly because the rate at which we build new houses has been falling for decades, even though our population keeps increasing at a faster and faster rate, and we have smaller average household sizes.
This is what this chart picks up. It’s CBA’s estimate of where the demand and supply balance is at:
And if you look at their estimate of the demand supply balance (the blue bars), it shows that we’re currently experiencing the biggest imbalance since at least 1990, with demand massively outweighing supply.
And this means, that from the most basic and fundamental level of the housing market, we’ve got huge upward pressure being applied to prices. And that’s their central conclusion. Expect to see more price increases.
I’d even suggest that this estimate is a little conservative, if anything. I don’t remember there being a huge excess of supply in the years before the GFC – growing prices certainly didn’t suggest that there was.
But as I said in my last post, the big guys have some good reasons to be conservative. If you make a big call, put yourself out there, the reputation costs of getting it wrong far outweigh the small bragging rights associated with being proven right.
And this, as much as anything, tells you what’s going on in the market right now. That the big banks like ANZ and CBA are now out there talking up property, publishing charts like these that clearly show the amount of pressure on prices right now… that tells you just how far the market has turned.
These guys wouldn’t be taking positions like this if it was still a 50/50 call. They need a lot more certainty than that before they man-up and put themselves out there.
And so when the big investment houses turn, as they have done in past few months, then it’s as close to an iron-clad guarantee as you get in this game. You can bet the house on it.
House price increases, somewhere north of 13 percent, are now the baseline scenario. That’s the conservative position. It could very easily be a whole lot more than that.
It’s exactly what I’ve been saying all year. These are exciting times.