CoreLogic Home Value Index: National home values up 0.6% in March, breaking a 10-month streak of falls - March 2023

[johny111]

After remaining virtually flat in February (-0.1%), CoreLogic’s national Home Value Index (HVI) posted the first month-on-month rise since April 2022, up 0.6% in March.

Dwelling values were higher across the four largest capital cities and most of the broad ‘rest-of-state’ regions, led by a 1.4% gain in Sydney.

Article and link to download full report: https://www.corelogic.com.au/news-r...in-march,-breaking-a-10-month-streak-of-falls

 

[dmit5487ivan]

@johny111 CBA economics team commentary:

Any conventional model of home prices indicates further falls should be expected. But in many respects these are unconventional times. New housing starts are declining at the same time as population growth has surged due to net overseas migration. As a result, the rental market is red hot and vacancy rates are at very low levels across the country. This is no doubt supporting dwelling prices and complicates the forecasting process.

March is a seasonally strong month for home prices. Indeed according to Corelogic home prices rose by 0.4% on a seasonally adjusted basis in March (less than the headline change). So we are reluctant to call today’s outcome a turning point in the cycle. But our forecast for a national decline in home prices from peak to trough of ~15% looks a little pessimistic in light of the March result.

We retain our forecast for now. But another lift in prices over April coupled with the expectation that the RBA’s tightening cycle is almost complete will see us send that peak to trough forecast to the shredder. Here we would note that our ~15% peak to trough forecast is on the less pessimistic side of the fence compared to the rest of the forecasting community.

 

[johny111]

@dmit5487ivan the biggest single worry about hiking interest rates was about what it would do the housing market. with CPI currently at 8% the RBA's cash rate should in theory be up around 10-11%. i doubt the housing market would withstand that.

EDIT:

The Taylor Rule is a formula tying a central bank's policy rate to inflation and economic growth. Developed by economist John Taylor in 1993, it assumes an equilibrium federal funds rate 2% above the annual inflation rate.

https://www.investopedia.com/terms/t/taylorsrule.asp#:~:text=The%20Taylor%20Rule%20is%20a,above%20the%20annual%20inflation%20rate.

 

[dmit5487ivan]

@johny111

the RBA's cash rate should in theory be up around 10-11%

Lolz, no. Come off it.

 

[johny111]

@dmit5487ivan by the taylor rule the equilibrium rate should be 2% above inflation, so actually bring inflation down it should be higher than 10%

https://www.investopedia.com/terms/t/taylorsrule.asp#:~:text=The%20Taylor%20Rule%20is%20a,above%20the%20annual%20inflation%20rate.

 

[dmit5487ivan]

@johny111 If you want to get sensible answers from it, you can use inflation expectations instead of actual inflation.

To do a little sanity check, have a look at credit growth. This look like an economy where interest rates are 7% below what they should be? Are businesses borrowing like crazy because they're guaranteed a return because of a mismatch between borrowing rates and inflation?

We still have business spending incentives expiring this year, and despite that business credit growth is slowing, and expected to slow further with the current settings.

 

[johny111]

@dmit5487ivan

This look like an economy where interest rates are 7% below what they should be?

in some ways yes, in others not. if the property market keeps rising and wages increase to meet CPI interest rates will have to go much higher. hopefully that won't happen.

 

[dmit5487ivan]

@johny111 Wage growth is in the low 3s, and RBA doesn't target house prices. They matter as far as financial stability, effect on construction, spending and a whole bunch of other reasons, but a gradual recovery from the large recent falls isn't going to be a concern.

If the economy at large suddenly starts expanding strongly, rates will go up. But after a large fall, an uptick in house prices because of pockets of wealth and tight rentals isn't going to suddenly make people spend more.

 

[iseetheunseen]

@johny111 Wasn’t the last reading for inflation 6.4% YoY ? Which would mean it’s dropped by 1/3 already

 

[cantgetright]

@johny111 LOL, in what theory?

 

[johny111]

@cantgetright https://www.investopedia.com/terms/t/taylorsrule.asp#:~:text=The%20Taylor%20Rule%20is%20a,above%20the%20annual%20inflation%20rate.

 

[thechristianhippie]

@johny111 There are many limitations with the Taylor rule, the biggest of which, you can't apply it to Australia because we are not the US (ie we don't have 30 year fixed mortgages).

This is like trying to fix a Ferrari with the manual of a Lamborghini. Sure, the same general principles apply because they are both cars (ie: adjust rates), but you can't apply any hard rule that is applicable to the Fed to the RBA.

 

[johny111]

@thechristianhippie i don't expect interest rates will get that high but they might get much higher than where we are now, especially if the property market recovers somehow.

don't forget that strongly negative real interest rates are highly stimulatory.

that's not the taylor rule, that's just basic economics.

 

[cantgetright]

@johny111 I'm guessing you haven't actually run the formula for this rule. When I run the formula I get absolutely nowhere near 10-11%. In fact I get a range from 5-6%.

 

[cantgetright]

@johny111 With respect, without seeing the inputs whoever this is used I can't comment on their values. From what I can see at the moment this is just a random graph from an unknown source with unknown input variables being used to calculate the Taylor rule.

If I comment on this graph, you can see the absolute irrelevance of the Taylor rule in Australia. From 2012 to 2018 you can see inflation dropping, yet what they've calculated posits that the cash rate should've been higher to maintain the 2-3% band. A rule that roughly worked for 6 years and then didn't work for 9 years is not a rule I'd be putting any faith in for policy decisions. Even the author of this graph notes this in the image.

Here is another economist running the taylor rule - https://www.mpamag.com/au/news/general/economist-predicts-terminal-interest-rate/435507

Here's a good article around the issues and deviations in Australia with the taylor rule - https://www.tandfonline.com/doi/abs/10.1080/00036846.2017.1346367?journalCode=raec20

 

[johny111]

@cantgetright your calculation of the taylor rule interest rates coming to 5-6% was incorrect.

anyway i'm not arguing for or against the taylor rule specifically. the main point i am trying to make is that interest rates might have to go higher to kill inflation. maybe much higher. historically periods of high inflation have always required positive real interest rates to defeat the inflation. anything less has just prolonged the pain.

i'm not saying interest rates are definitely going higher, i'm saying plan for the possibility.

 

[jesusinthedark]

@johny111 That was it kids, Did you buy the dip?

 

[blackandwhite101]

@jesusinthedark Noooooooo, AusFinance told me to hold! That 50% crash is coming, just you watch. Interest rates have to be 10+% soon! Then I can finally buy in.

I read Investopedia so I'm pretty on th ball with this stuff guys

 

[preciousheart]

@blackandwhite101 That was me about 4 or so years ago. Could’ve bought with a 130ish K mortgage, had to buy in 2021 with a 350k mortgage lol

I was so sure I was going to beat the game and buy outright with cash, listening to everyone’s advice about “look at the boom and bust history of property of stocks! It’s going to crash any day now!”