Peter Switzer Daily

Housing bubble talk is bull dust

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by Peter Switzer

Today we get the latest installment on the drama that has become: HOUSE PRICES!  And a group of desperate journalists in need of media attention will keep carrying on the myth that we have a housing bubble.

Using Australian Bureau of Statistics data up to the end of the June quarter, the annual rise nationally has been 10 per cent, but Sydney has been the hot spot, up 15.6 per cent for the year.

Melbourne was 9.3 per cent higher, but up only 1.3 per cent in the June quarter. Brisbane was up 6.8 per cent and 1.8 per cent, while Adelaide was up 5.6 per cent and one per cent. Perth was up 3.6 per cent for the year but actually down for the quarter, off 0.2 per cent! Hobart was up 4.3 per cent and 0.3 per cent, while Darwin was up a weak 3.4 per cent and 0.7 per cent, after being a big price surger for a couple of years, much like Sydney is now.

Canberrans would be cynical about housing bubble talk, with the annual rise being 2.2 per cent and 0.8 per cent for the quarter.

Sure, Sydney is red hot, with its quarterly rise being 3.1 per cent. Even if we annualise this number, the next annual rise might only be 12 per cent or so. Experts like the founder of Residex, John Edwards, say the price rises in Sydney are easing up. Edwards expects the annual rise to be less in the year ahead.

Economists like Dr. Frank Gelber of BIS Shrapnel, who was on my TV show this week, say there’s no housing bubble. He sees it as an excessive media beat up, which has forced the RBA to show some interest in the issue.

As the statistics above show, the only problem area is Sydney. However, have a look at the average price rise for Sydney over a 10-year period, before prices started to spike.

Source: RP Data

Up until 15 months ago, Sydney’s average price rise was, wait for it if you can’t read a chart, 2.5 per cent. Look at Perth and Darwin, where they were at 8.4 per cent and 9.8 per cent respectively.

And look at them now, at 3.6 per cent and 3.4 per cent, proving house prices can go up quickly and then pullback without causing the kind of economic disaster that the bubble boys in the media are trying to infer when they talk about Sydney’s price rises.

Sure, if Australia heads into slow growth and high unemployment, there could be some house price slumps. But there will be buyers at lower levels and normal economic life will go on.

Given the fact that it’s only Sydney that has gone gangbusters with house price rises, the RBA doesn’t want to choke off the economic recovery by raising interest rates too soon. By the way, the delay in the drop of the dollar hasn’t helped the Big Bank, as a lower dollar stimulates growth and means rates can rise a little.

Some time next year, interest rates will rise and that will stop Sydney in its tracks, but so will the current price rises, which cut a lot of people out of the market.

On Wall Street, no real news to report with consumer confidence down and a softer Chicago Purchasing Managers Index, but the Dow only lost 28.32 points to end at 17,042.9. The market there can’t wait to see the jobs report out on Friday.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Watch more from Peter on SWITZER TV.

Published on: Wednesday, October 01, 2014

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