admin-ajax.php

What’s ahead for on inflation, interest rates and house prices?

Over the last few months every man and their dog has been changing their forecasts for interest rates house prices inflation etc.

Their going up, no they’re not, they’re heading down. Who knows?

Interestingly one economist who I highly respect hasn’t changes hiss views. It’s not because he’s stubborn or because he’s missing the big picture. It’s because he foresaw much of what’s unfolded recently.

In a recent blog Christopher Joye, of Rismark RPData explains his views about what’s ahead. He says:- 

1. I believe Australia has an inflation problem that is only going to get worse over time. In fact, the inflation risks have significantly escalated following recent statements by leading developed world central banks that they intend to keep rates lower for longer, and will entertain further quantitative easing. The fact that the RBA’s Board has forced the staff to drop or fudge its inflation target in 2011 only loads the dice in favour of more inflation in 2011, 2012 and 2013. I could go on about this, but I will save you the pain.

2. I think the next move in interest rates is up, and I think there is a decent chance that the RBA hikes after the Q3 inflation numbers come out in late October. The RBA staff and the (few) sane Board members believe they should have hiked in May. We know that they would have hiked in August were it not for the US debt ceiling crisis and problems posed by a majority of conflicted Board doves.

3. We have been bearish on 2011 house prices since early 2010. If my interest rate case proves out, I remain bearish on housing until the RBA starts normalising rates again, which I think will happen in the second half of 2012. If I am wrong, and the RBA starts cutting rates, I would be bullish on housing. Unlike almost any other housing market in the world, Australia is unique insofar around 90% of all mortgage debt is purely adjustable-rate and priced off the RBA’s target cash rate (most other countries, such as the UK, US, and NZ, have a preponderance of fixed-rate mortgage debt). Even the tiny minority of fixed-rate debt that exists out there is fixed for short periods of time (eg, 1-5 years). In sum, this is a very interest rate sensitive sector of the economy. Wages and incomes in 2011–unlike the December 2009 ABS disposable income data reported by some yesterday–are growing rapidly. Unemployment is low. Interest rates are not high. If the RBA gets all dovish on us and cuts rates, house prices are gonna rise.

4. The most interesting dynamic in the housing market right now is that consumers are acting as if they are getting slugged by rate hikes, even though the last change was in November 2010 (admittedly a double hike).In August they still expected two more hikes according to the Westpac-Melbourne Institute survey, with an amazing 29% of all people budgeting for more than four hikes. It is this ‘hawkish Australian consumer’ that is depressing housing demand, for the time being. As soon as that attitude changes, housing conditions will promptly improve.

Source: Chris Joye’s Blog 



icon-podcast-large

SUBSCRIBE & DON'T MISS A SINGLE EPISODE OF MICHAEL YARDNEY'S PODCAST

Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.

icon-email-large

PREFER TO SUBSCRIBE VIA EMAIL?

Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.


Avatar for Property Update

About

Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


'What’s ahead for on inflation, interest rates and house prices?' have no comments

Be the first to comment this post!

Would you like to share your thoughts?

Your email address will not be published.
CAPTCHA Image

*

facebook
twitter
google
0
linkedin
0
email

Michael's Daily Insights

Join Michael Yardney's inner circle of daily subscribers.

NOTE: this daily service is a different subscription to our weekly newsletter so...

REGISTER NOW

Subscribe!