TOL - 6th Feb, 2023
Aussie house price crash about to pass through all-time record of an 11% peak-to-trough loss...
We forecast Aussie house price declines would breach the 10% threshold by Q1 2023, and that looks like it is playing out right now...
In October 2021 we projected that Aussie house prices would fall by a total of 15-25% as a result of this RBA hiking cycle. This was partly based on applying a refined and upgraded version of the RBA's Saunders/Tulip housing model. We revealed in June 2022 that we arrived at similar predicted losses if we assumed a 100 basis point permanent increase in the RBA's cash rate or a temporary jump from 0.1% to 4.25% followed by interest rate cuts.
As this started to play-out after the RBA commenced its tightening cycle in May 2022, we forecast that the first 10 percentage points of house price losses would likely materialise by February/March 2023.
It appears that this central case is on track: CoreLogic's 5 capital city index has now lost 9.9% from its May 2022 peak through to 2 February 2023 care of the RBA's interest rate increases (with more hikes expected in February and March).
We should, therefore, pass through the crucial 10% draw-down threshold this month. And by the end of March 2023, we would expect the Aussie capital city market to record its worst-ever loss---exceeding 11%---since CoreLogic began collecting data in 1980.
Home values in Sydney and Melbourne are now off by almost 14% and 11%, respectively, from their peaks in 2022. Dwelling prices in Melbourne are not far behind with a 9.4% correction. Canberra is faring similarly to the other east coast cities. While Adelaide and Perth remain the outperformers with cumulative retrenchments of only 2.3% and 1.0%, respectively, there is evidence that the house price declines in Adelaide have been accelerating over the last few months (see second chart below).
Over the last three months, the annualised pace of these house price falls has been fairly stable at somewhere between 12% and 17%, which is something we have been keen to underscore since late last year. There is no evidence currently that the great Aussie house price crash is bottoming-out or slowing, as many have been keen to suggest. And with 1-in-4 home loans switching from fixed to floating this year, which will result in their interest rates soaring from circa 2% to 6% (exacerbated by additional RBA rate hikes in February and March), this housing pain is set to continue for many months to come.
Across the five biggest capital cities, home values have been melting at a 12.3% annual pace over the last quarter (see chart below). The worst performing market has been Brisbane, where prices have been plunging at a record 16.5% annual rate followed by Sydney (14.3%) and Melbourne (11.8%).
Remarkably, when it started hiking in May last year, the RBA was forecasting that an increase in its cash rate from 0.1% to at least 2.5% would precipitate little change in house prices using the same Saunders/Tulip model that we were refining back in 2021. As prices immediately started sliding quickly in May 2022, it was forced to downgrade this view to a much more pessimistic (and record) 11% draw-down a few months later. We have previously argued that the RBA would be eventually forced to once again dump this assumption and embrace our even more negative central case of a 15-25% loss, which now seems likely to be Martin Place's modal expectation...
Access Coolabah's intellectual edge
With the biggest team in investment-grade Australian fixed-income and over $7 billion in FUM, Coolabah Capital Investments publishes unique insights and research on markets and macroeconomics from around the world overlaid leveraging its 14 analysts and 5 portfolio managers.
Never miss an update
Enjoy this wire? Hit the ‘like’ button to let us know.
Stay up to date with my current content by
following me below and you’ll be notified every time I post a wire
Chris co-founded Coolabah in 2011, which today runs over $8 billion with a team of 40 executives focussed on generating credit alpha from mispricings across fixed-income markets. In 2019, Chris was selected as one of FE fundinfo’s Top 10 “Alpha Managers” based on his risk-adjusted performance throughout his career across. He previously worked for Goldman Sachs in London and Sydney, the Reserve Bank of Australia, and founded the award‐winning research/investment group, Rismark. He has regularly advised governments, developing unique policy proposals. Chris graduated with the University Medal (Economics & Finance) from Sydney University. He studied in the PhD program at Cambridge University in 2002/03, leaving to set up his funds business.
........
Investment Disclaimer
Past performance does not assure future returns. All investments carry risks, including that the value of investments may vary, future returns may differ from past returns, and that your capital is not guaranteed. This information has been prepared by Coolabah Capital Investments Pty Ltd (ACN 153 327 872). It is general information only and is not intended to provide you with financial advice. You should not rely on any information herein in making any investment decisions. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. The Product Disclosure Statement (PDS) for the funds should be considered before deciding whether to acquire or hold units in it. A PDS for these products can be obtained by visiting www.coolabahcapital.com. Neither Coolabah Capital Investments Pty Ltd, EQT Responsible Entity Services Ltd (ACN 101 103 011), Equity Trustees Ltd (ACN 004 031 298) nor their respective shareholders, directors and associated businesses assume any liability to investors in connection with any investment in the funds, or guarantees the performance of any obligations to investors, the performance of the funds or any particular rate of return. The repayment of capital is not guaranteed. Investments in the funds are not deposits or liabilities of any of the above-mentioned parties, nor of any Authorised Deposit-taking Institution. The funds are subject to investment risks, which could include delays in repayment and/or loss of income and capital invested. Past performance is not an indicator of nor assures any future returns or risks. Coolabah Capital Institutional Investments Pty Ltd holds Australian Financial Services Licence No. 482238 and is an authorised representative #001277030 of EQT Responsible Entity Services Ltd that holds Australian Financial Services Licence No. 223271. Equity Trustees Ltd that holds Australian Financial Services Licence No. 240975.
Forward-Looking Disclaimer
This presentation contains some forward-looking information. These statements are not guarantees of future performance and undue reliance should not be placed on them. Such forward-looking statements necessarily involve known and unknown risks and uncertainties, which may cause actual performance and financial results in future periods to differ materially from any projections of future performance or result expressed or implied by such forward-looking statements. Although forward-looking statements contained in this presentation are based upon what Coolabah Capital Investments Pty Ltd believes are reasonable assumptions, there can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Coolabah Capital Investments Pty Ltd undertakes no obligation to update forward-looking statements if circumstances or management’s estimates or opinions should change except as required by applicable securities laws. The reader is cautioned not to place undue reliance on forward-looking statements.
3 topics
Chris co-founded Coolabah in 2011, which today runs over $8 billion with a team of 40 executives focussed on generating credit alpha from mispricings across fixed-income markets. In 2019, Chris was selected as one of FE fundinfo’s Top 10 “Alpha...
Expertise
Chris co-founded Coolabah in 2011, which today runs over $8 billion with a team of 40 executives focussed on generating credit alpha from mispricings across fixed-income markets. In 2019, Chris was selected as one of FE fundinfo’s Top 10 “Alpha...
Expertise
Comments
Comments
Sign In or Join Free to comment
most popular
Equities
Why "buy and manage" is the better way to invest in stocks
Livewire Markets
