Updated Aussie house price crash to 22 July: Sydney prices now down almost 5%

Christopher Joye

Coolabah Capital

It is fascinating watching a record asset price correction in real-time. Enclosed is the latest data from CoreLogic's daily hedonic indices. Dwelling values in Australia's largest city, Sydney, have now fallen almost 5% from their peak this year. 

In the month of July to date (to the 22nd), Sydney prices are off a staggering 1.5%. Home values in Melbourne have slumped almost 3% in a few months, and are down 0.9% over the first 22 days of July. As we have flagged for a while now, Brisbane prices are also rolling over after remaining resilient for several months: they have declined 0.3% in July MTD and are off 0.5% from their recent high watermark. 

The first chart is my quick parsing of the CoreLogic index data. The second chart is a screenshot from Bloomberg using the same information. 

Observe the striking structural break in the first chart in early May when the RBA raised rates: it is breathtaking how quickly this first hike - and the speculation of much more to follow - quickly KO'd the Aussie housing market. 

Across the five largest capital cities, prices have fallen 2.3% in recent months. Assuming the RBA keeps blindly hiking by 50 basis points in August and then by 25 to 50 basis points a month thereafter, we might hit our October 2021 forecast of a 15-25% draw-down in Aussie house prices a little more quickly than I was expecting. 

One interesting question is what happens to regional markets. Whereas regional areas were a source of strength during the pandemic, we could find that they are even weaker than metro markets in this new cycle. So what's the trade? You cannot short housing and it is very difficult to short residential mortgage-backed securities (RMBS) - trust me, we've tried. 

The biggest beneficiary from RBA hikes is cash or very high-grade floating-rate assets, which we've argued for more than a decade will be one of your best inflation hedges. This episode is once again proving that point out. I also don't mind interest rate duration here having been super negative on duration late last year. 

Home values in Sydney have slumped 1.5% in July alone
Home values in Sydney have slumped 1.5% in July alone
Sydney and Melbourne are on track for record losses
Sydney and Melbourne are on track for record losses

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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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