RBA's Craziest Claim: House Prices are 30% Undervalued

Christopher Joye

Coolabah Capital

In The AFR I interrogate one of the craziest claims to ever emerge from the RBA's Martin Place headquarters: the proposition that Aussie house prices are now "30% undervalued" having been "fair value" 12 months ago. With careful analysis I show that according to the RBA's own modelling the "fair value" estimate in April 2014 was more correctly interpreted as 20% to 30% overvalued. And given an 11% jump in house prices in the period since while wages have improved by only 2.3%, the magnitude of overvaluation has increased. I reveal that the basis for the RBA researcher's silly "30% undervalued" statement today is a once-in-a-century decline in interest rates that is an artefact of governments' spending more than $10 trillion to bid up bond prices. It is therefore even less credible than the belief that Chinese equities are good value because the Community Party is spending billions trying to prevent them from falling. If you accept rates are going to one day normalise, Aussie housing remains very much overvalued. Read my AFR story for free here (VIEW LINK)

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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