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