Housing slide predicted to be short-lived?

CoreLogic-Moody Analytics latest Home Value Index Forecast says that the strength of the economy will push up Australian home prices soon (The Australian Financial Review, 22 June 2018).

Don’t count on it!

“Employment is growing around 3.1 percent year-on-year, which is comfortably above its 1.9 per cent long-term trend” the report says.

Not any more!  The annual growth to May 2018 was actually 2.5% and slowing rapidly.  Over the six months to May, the annualised growth rate was 1.5%.  Over the four months to May, the annualised growth rate was 0.8%.

Wages growth is barely keeping up with inflation.  Consumer spending growth is anaemic.  How are people going to be able to push home prices up if their incomes are stagnant?

Interest rates are accommodative, but mortgage interest rates can only go up from here due to rising global interest rates.

There are also two demographic factors which suggest that demand growth will slow in the next few years.

None of this is to say that there will be a crash in house prices.  But the house price boom is well and truly over for some time.

My updated analysis will be available in late July.

Charlie Nelson

 

A recurrent pattern of errors by economic forecasters

chancellor 004crop

This sequence of optimistic economic forecasts was discussed in the New Scientist magazine in 1992 (“Why the chancellor is always wrong”, 31 October 1992).

All these years later, these sequences of economic forecasting errors are still happening.  It is a case of the tail trying to wag the dog!

More examples in “Forecasting: the essential skills” a book aimed at improving forecasting accuracy.

 



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Charlie Nelson