Forecasting Home Price Falls Is A Mugs Game… But…

The airwaves are full of property doom and gloom. It is interesting to see the narrative turn from property investors had no real impact on home prices, to now, prices will drop. In my earlier show I explained why this is good, despite the horror being expressed by many. And we are getting a spray of forecasts about the future trajectory of home prices. And frankly they are all over the shop, from no change, on average to falls of 10% or more. Of course, the truth is that individual markets and property types will behave differently, and it is clear that stand alone houses, in particular are likely to be more resilient than apartments, and the risks to the downside are greater in the more overleveraged markets of Sydney and Melbourne, that some others. Remember the gap between home prices and capacity to pay has never been greater. And these days standard affordability calculations are based on two full incomes, not a single one, plus a bit. My surveys reveal a consistent rise in disposable income to mortgage payments towards 40% or more, and renters are in the same boat. Another signal about the trajectory of home prices is sales listings. Ahead auction action will be interesting to parse, as we see a tussle between some vendors desperate to sell, while prospective purchasers may well stand on the sidelines, and of course the long weekend may not help either. Borrowing power is falling, thanks to the higher rates and budget changes so credit will be less available, and some may end up in negative equity, or unemployment, which could force them to sell. On the supply side, new construction is not keeping up, as more builders go bust, and migration which is now forecast higher is still below recent peaks, which may lift demand a little. But there at least three other factors to consider. The first is behavioural economics which relates to how households may respond to the economic changes, will they sit on the sidelines, or sell, and how does this vary by location, household type, and demographic segmentation. What will first time buyers, and investors do? How will down-traders behave? I could go on. Many economists appear to ignore these factors. The second element is the assumption about growth in money supply, because more dollars printed leads to the devaluation of the dollar, meaning you need more of them to buy compared with last month or last year. Currently, broad money supply is rising fast, supported by higher Government debt, high household debt, and of source central bank bouts of money printing. Just remember that the price to income ratios are corrected for inflation, so it is certainly not the only element driving asset price growth, but it remains a significant element, and possibly a one-way street. The third element is the scope and intent of Government intervention and response. In previous episodes of weakness, they came in with big tax-payer supported programmes to assist specific sectors of the property market. Will they do that again? Or will they pump migration higher to stoke demand or provide additional support to the construction sector to build more. You can probably imagine that trying to put all these factors into a model and project future price movements state by state and property type by property type is difficult. Indeed, good luck with that. You will be wrong. But for now, those generic property price forecasts are worth about as much as say half a kilo of air. Their projections may get views and clicks, but generally I think forecasting home prices is a mugs game. But if we talk scenarios instead, this can provide more insights and sensitivities. But scenarios are not the same as a forecast! http://www.martinnorth.com/ Details of our one to one service are here: https://digitalfinanceanalytics.com/blog/dfa-one-to-one/ Go to the Walk The World Universe at https://walktheworld.com.au/ Find more at https://digitalfinanceanalytics.com/blog/ where you can subscribe to our research alerts Please consider supporting our work via Patreon: https://www.patreon.com/DigitalFinanceAnalytics The full detailed set of post code data is available as a subscription service. Or make a one-off contribution to help cover our costs via PayPal at: https://www.paypal.me/MartinDFA We also can receive bitcoins at: 13zBL1oRib9VJu8Uc9zUGNhxKDBBgUpDN1 Please share this post to help to spread the word about the state of things.... Caveat Emptor! Note: this is NOT financial or property advice!! 🚨BEWARE OF SCAMMERS🚨 As there are accounts impersonating Walk The World in the comments on YouTube, note that our comments will have a distinguishable verified symbol. And remember that we will never message you asking you to give us money or talk to us on other platforms such as WhatsApp or Telegram