Good news: Aussie house price losses stabilise, albeit at a 16% annual rate...

Christopher Joye

Coolabah Capital

The good news is that there is evidence that the great Aussie housing crash is stabilising in the vanguard cities of Sydney and Melbourne. As the first chart below shows, the quarterly pace of house price declines in Sydney have stabilised at a 22% annualised rate based on CoreLogic's indices (observe how the red line has started moving sideways). Dwelling values in Sydney have already slumped by about 9% on a peak-to-trough basis. 

In Melbourne the news is even better with the quarterly pace of house price losses steadying at a circa 14% annual clip (again, see how the black line is now moving horizontally). This has helped the price declines registered by the wider 5 capital city index (grey line) stabilise at a 16% annual rate. Both the Melbourne and national capital city markets have suffered peak-to-trough losses of just shy of 6% since this correction began. 

The bad news is that only a portion of the RBA's 225 basis points of rate hikes have been passed on to borrowers, and there are likely more hikes to come. In a recent speech, the RBA noted that "a 200 basis point increase in interest rates – which increases mortgage payments and so the cost of owning – would lower real housing prices by around 15 per cent over a two-year period". The RBA further highlighted that if this 200 basis point increase was considered permanent (ie, not temporary), "then [the RBA's housing model] suggests that housing prices would end up being around 30 per cent lower than if interest rates had not changed". 

We continue to expect a peak-to-trough decline in Aussie house prices of 15-25%, which has been our central case since October 2021. This would be the largest correction on record. Understanding the nature of these risks---and forecasting them accurately---is crucial given housing represents about half of all household wealth.

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 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.

Christopher Joye
Portfolio Manager & Chief Investment Officer
Coolabah Capital

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...

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