{"id":27971,"date":"2012-03-06T00:30:33","date_gmt":"2012-03-06T05:30:33","guid":{"rendered":"http:\/\/countingpips.com\/fx\/2012\/03\/06\/the-australian-property-market-and-the-conversation-nobody-wants-to-hear\/"},"modified":"2012-03-06T00:30:33","modified_gmt":"2012-03-06T05:30:33","slug":"the-australian-property-market-and-the-conversation-nobody-wants-to-hear","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/fx\/2012\/03\/06\/the-australian-property-market-and-the-conversation-nobody-wants-to-hear\/","title":{"rendered":"The Australian Property Market and the Conversation Nobody Wants to Hear"},"content":{"rendered":"

By MoneyMorning.com.au<\/strong><\/p>\n

I’m probably the last person you want to get stuck sitting next to at a dinner party. <\/p>\n

At least that’s what I reckon the people sitting next to me on Saturday night were thinking. <\/p>\n

<\/span>
\nTo be fair, my social skills weren’t at their sharpest. My wife has just had a beautiful baby girl. After two weeks of sleepless nights, this was my first outing into the world. So I was a bit rusty. <\/p>\n

Of course, as an immensely proud father, I was beaming about the latest addition to the clan. I have a ’10-photo rule’ in this situation. I probably have 2000 photos of my kids on my iPhone. Apart from my family – and that includes our two year old who navigates the iPhone better than me – no one wants to see them. So … after 10 photos, that phone goes back in my pocket. And that’s ‘the 10-photo rule’. <\/p>\n

So after a selection of cute pictures, in my exhausted state my conversation fell back to default mode – resources<\/a> and mining<\/a>.<\/p>\n

Note to self: Most sensible people don’t want to hear about how tight the short-term fundamentals of the copper market are. At least not on a Saturday night! <\/p>\n

When the people sitting around me gave me that ‘I don’t give a rodent’s rectum about Chinese copper inventory levels’<\/em> look, I thought hmmm … maybe it’s time to switch to a more inclusive topic: Aussie property. <\/p>\n

Turns out, everyone at the dinner party had a view on the Australian property market<\/strong>. And they were fighting to be heard. I was happy to have a chance to catch my breath and sip on my first beer in a fortnight. But after listening to five minutes of an ‘Australian property will go up forever’ chorus, I bludgeoned my way into the conversation…<\/p>\n

Maybe I should have stuck to the baby photos!<\/em> <\/p>\n

Why the Property Market is Running Out of Gas<\/H3><\/center><\/p>\n

It seems almost no Australian property owner wants to hear anything negative about the property market – even if it is the truth. <\/p>\n

So when I started throwing about a few iffy statistics I’d had my eye on, I felt about as welcome as a fart in a spacesuit. <\/p>\n

Do you think they wanted to hear that annual housing credit growth is at a 35-year low?<\/p>\n

Not particularly. <\/p>\n

But it is.<\/p>\n

Housing credit is the ‘gas’ that inflated the property bubble<\/a>. As investors and home buyers take out more loans, it facilitates property demand, which leads to higher prices. A month ago, annual housing credit had fallen to a record low of 5.4% year on year. Last week, this fell again to set a new 35-year low of 5.3%<\/u> year-on-year growth.<\/p>\n

The result? At best – housing holds its ground. At worst, gravity finally catches up with the Australian property market<\/a> in earnest, and we see it fall significantly as it has in every other Western property market. <\/p>\n

Housing credit is the lifeblood of rising property prices. Housing credit growth levels spent most of the last 20 years in the double digits. With levels of only 5.3% year-on-year growth today, it is impossible to see property prices staying at their ‘laws-of-physics-defying’ high levels. <\/p>\n

We have also just got news that new homes sales in Australia crashed<\/u> by a record monthly fall of 7.3% in January. The monthly fall in new sales was not a one off, and is part of a trend. Multi-unit sales have been smashed 25.1% if you compare sales over the last three months to the same period in 2011. <\/p>\n

So where do we stand now? <\/p>\n

The chart from the Reserve Bank of Australia<\/a> gives us an idea. <\/p>\n

Australian Property Prices Are Clearly Trending Down<\/H3><\/center><\/p>\n
\"Australian<\/div>\n<\/p>\n
\"Australian<\/div>\n

<\/p>\n

Source: RBA<\/div>\n

<\/em><\/p>\n

Australian property prices did actually pick up 0.8% in February, and these charts don’t show this. I’m not reading too much into this. One month’s figures are meaningless on their own, and this is likely to be just a blip. The trend is still clearly down, which suggests prices have further to fall just yet. <\/p>\n

The Aussie economy<\/a> has just had more bad news. Data released yesterday on the Aussie retail sector<\/a>, painted a bleak picture for the economy.<\/p>\n

The Australian services index contracted in a big way last month. Anything under 50 means the sector is shrinking – and in February it was at 46.7, plummeting down from a barely expansionary 51.9 in January. The ‘employment measure’ figure dropped from 51.2 to 47.5. Sales and new orders also fell by a similar amount. <\/p>\n

This matters to Australian property owners because the retail industry directly employs around 15% of the Australian workforce, and indirectly employs far more. When such a large chunk of the Aussie workforce is starting to do it tough, you should expect a slowdown in the Australian economy<\/a> and a further fall in property prices<\/a>. <\/p>\n

Betting on Australian Property Prices Falling<\/H3><\/center><\/p>\n

Many large hedge funds overseas are betting on Australian property prices to crack<\/a> sometime this year. They don’t tend to reveal how they are doing this, but I expect they are shorting property funds, the Aussie dollar<\/a>, or possibly interest rate futures.<\/p>\n

The easiest way for most everyday investors to do the same is to sell their homes. However, RP Data-Rismark are now launching an index that allows investors to trade Australian property prices on a daily basis<\/u>. It is not up and running yet, and it’s not clear yet whether it is possible to short sell the index to profit from falling prices. <\/p>\n

If it is possible to short sell this index, it may have started just at the right time for property bears. <\/p>\n

It looks increasingly like Australian property could face the same dose of salts that has affected nearly every other property market in the world in the last few years.<\/p>\n

But … do you think the other dinner guests wanted to hear all that?<\/p>\n

After retreating to some banal small talk about how nice the food was, I politely moved seats to sit next to the birthday girl who wanted to see those baby photos. <\/p>\n

She’d just bought an apartment as well. <\/p>\n

So … I tactfully broke my 10-photo rule, and kept those cute baby pictures coming. <\/p>\n

Dr. Alex Cowie
\nEditor, Diggers & Drillers<\/strong><\/p>\n

Related Articles<\/em><\/strong><\/p>\n

The Conference of the Year for Australian Investors<\/a><\/p>\n

Why the Australian Economy is Much Weaker than the RBA Thinks<\/a><\/p>\n

Sydney – Hero or Villain of the Aussie Housing Market?<\/a><\/p>\n

\n<\/img><\/a> <\/img><\/a> <\/img><\/a>\n<\/div>\n


\nThe Australian Property Market and the Conversation Nobody Wants to Hear <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

By MoneyMorning.com.au I’m probably the last person you want to get stuck sitting next to at a dinner party. At least that’s what I reckon the people sitting next to me on Saturday night were thinking. To be fair, my social skills weren’t at their sharpest. My wife has just had a beautiful baby girl. … <\/p>\n

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