Wild swings in sentiment around house prices tell us little about the numbers

House prices falls in Sydney are not a national disaster.

Softer prices are looming but doomsday as prophesied by so many remains unlikely. (AAP Image/Dan Himbrechts)

Timing is everything: Imagine if The Block TV show from the Nine Network was filmed as house prices were falling? Those renovating couples might not look so appealing if they were losing money. What if they were teary eyed before the cameras? Openly pondering how they were ever going to clear their mortgages.

Comedian Dave Hughes — who paid almost half a million over the reserve price for the show’s top house this season — might need to double his stand up bookings next year.

Certainly, the prospect of softer house prices is upon us. This week’s CoreLogic research report showed prices had fallen over the last month in Sydney creating a drop of 0.6 per cent for the three months to October 31.

But hold it! Is this a disaster? Sure, softer prices are looming but doomsday as prophesied by so many — who should know better — remains unlikely.

It’s as if Sydney represents the national market ... it doesn’t.

The same set of figures showed Melbourne house prices continued to rise. Perth prices continued to fall and Brisbane prices continued to drift sideways.

Few of these facts seemed to have infiltrated the Sydney-centric view of very well established institutional researchers.

UBS came out with a report that said a 55-year boom in house prices was over. “There is now a persistent and sharp slowdown unfolding,” said UBS.

Credit Suisse topped the claim with a report which suggested the RBA will now have to consider a rate CUT. The Credit Suisse note returned to the highly contestable notion that money flows into Australia from China had slowed dramatically and in turn have forced house prices lower.

And of course the biggest apartment developer in the country Harry Triguboff of Meriton also felt compelled to issue more dire warnings to government agencies that he needs help at this challenging time or he will build less rental units: But if Meriton builds less apartments surely that buoys Sydney prices?

The truth — as always — is somewhere in the middle. The most likely scenario is that rates don’t move up or down, house prices in some pockets fall and apartment prices on a much wider basis will see price declines.

Hey, prices can go down: it is after all … a market.

Past the peak?

Just to look at the issues a little more closely — the two gloomiest reports came from UBS and Credit Suisse which are both multinational institutions — global operators such as Swiss banks or international agencies such as the IMF have been calling doomsday on our house prices for years. They need to fit Australian house prices into their models, but it just does not work that way. Those models do not account for negative gearing, the endless tax advantages granted from first homebuyer grants or the mean test exemptions on pension access.

Sure, there is the prospect that prices will drop — but this is not Greece, or Ireland for that matter. Oxford Economics — a specialist in global residential housing research — put out its forecasts earlier this month on housing — it suggests that over the next three years apartment prices will fall in many areas but house prices will not fall in any city — except Sydney. The official forecast from 2017-2020 is: Houses in Sydney are expected to fall — by 0.2 per cent — while Melbourne houses are expected to gain 10 per cent. In the apartment market, where there is clearly oversupply, the survey said Sydney units will fall 3.8 per cent and Melbourne units will fall 4.8 per cent. I would take Oxford Economics (which is the new brand name for what used to be BIS Shrapnel after a recent takeover) much more seriously than global banks.

As for making a call on rate cuts just now or for that matter making your prognostications on the most nebulous of data surrounding Chinese lenders and buyers to the Australian residential sector — it has to be taken with a pinch of salt.

Perhaps the chief economist at a major lender to the local market — Bill Evans at Westpac — would be a better guide. Evans believes there is no need for a rate move — downwards or upwards for the rest of the year and all of next year too.

Of course speculation has been present in our market. That is to be expected when you have had a long and unbroken run of steadily improving prices.

But there have also been brakes applied: Crucially, the regulator APRA has introduced macro-prudential moves which limit the lending of the banks especially to investors and to interest-only borrowers.

You don’t need a rate hike to cool the market these days, that’s exactly what has been happening through the macroprudential moves, and you don’t need to fire off reports suggesting all hell will break lose because house prices fell by 0.6 per cent in one city in one quarter.