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:
If you follow the track of the green (demand) and red (supply) lines, it shows you that demand is currently running ahead of supply, as it has done for most of the past 15 or so years.
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.
Neil Bonser says
You say that in 6 months the house prices should increase by 13 percent.
Does this also apply for houses in Perth over $1.5m
gerrie bowden says
My experience is that it depends on what pocket your looking at I would say, and how far from the CBD you house is. cheers Gerrie
Neil Bonser says
Gerry that doesn’t answer the question.
Are properties over $1.5m going up as well as the $500,000 to $700,000 ones.
The property in question is North of Perth in Harbour Rise 600m from Hillary’s marina about 25minutes from the city.
Thanks Neil
Keith Ward says
Once again you were right with your prediction. I will follow the flow and not sell for a little longer.
Keith
prudent property investor says
These charts and words are eerily similar to what was being published widely in the USA in 2007. I saw properties sold for 400k+ later sit on the market for a long time, with no offers received, even at a list price of <200k. The 13% in 6m may come true. All booms come to an end. This very long Australian real estate may well have a last flurry. Booms usually do.
Central banks are fighting a losing battle. Despite them artificially buying their own bonds to keep rates low (i.e. USA $85,000,000,000 per month), bond rates are rising. It's a losing battle. Actually, a battle they cannot win. My prediction – interest rates above 10% and increased unemployment much sooner than we think. Be careful. Allow a safety margin for your cash flow.
Note – I own a lot of investment properties – I am not anti-property at all. I just think we're coming to the end of a 20 year party and a lot of people will get badly hurt. Maybe Jon is right and the next 6m will be glorious…
Vin says
The charts, facts & figures are all pointing to another mini boom. But where is affordability coming from? The employment figures, change in wages etc are still far behind the expected price increase Or a so called property boom. Are we looking at all the price increase due to foreign investors? Confusing.
prudent property investor says
Yes it is strange. I would like to buy a property in Melbourne only because my kids live there. The extraordinarily high prices stop me. Instead, I have bought a much cheaper property in London and will be buying more US and UK properties. I think Melbourne Real Estate 2013 = USA Real Estate 2007. Back then USA investors were saying “EVERYTHING points to much higher prices”.