When The House Stops Winning
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Hello, I'm Alan Kohler, editor-at-large of Intelligent Investor and finance presenter and columnist and podcaster for the ABC.
And I'm Stephen Mayne, contributor at Intelligent Investor, founder of Crikey and shareholder activist. And we are the Money Cafe.
Money Cafe. G'day, Stephen.
Lovely to talk to you. Alan, where do you want to start? I just read your column on the ABC this week about the budget. That was quite a sweeping, interesting piece. Why don't you start with telling us, as the dust settles on the budget, what do you reckon the government is doing and how's it going?
Well, I had two points to make in the column. It's always difficult to do a column where you're saying two things. But anyway, I think I managed to weave it together, which is the first thing was that I'm starting to feel like we will see more affordable housing that all the things that are being done, including interest rates rising, which is not being done for housing purposes but interest rates are going up, will all combine to cause house prices not to rise for a while. But the problem with that is that there is a dark side to that, which is what I pointed out, which is that a whole lot of people who bought houses recently in the last few years, and in particular we're talking young families using a whole lot of debt, they did so on the understanding that they would acquire equity over time because house prices always go up.
And so they are going to be disappointed, I think, if the government succeeds. And this was always going to be the case. I mean, you can't actually make housing affordable while house prices continue to go up, obviously. So, therefore, all the people who have bought in the last sort of five to ten years at very high prices using a whole lot of debt are going to find themselves not building equity as they expected.
Particularly those in the government's new 5% scheme, which was one of those last little encourage, leverage, you know, borrow up to 95%, we'll cover your mortgage insurance tax.
Yeah.
But aren't we all having conniptions? Isn't the response been, oh, my God, auction rates are down a bit. Oh, volumes are down 15%. I mean, are we mature enough to handle a long overdue sort of modest correction in housing? Because the first sort of reaction has been, you know, the sky is falling in. House prices are not going to keep going up.
That's right. Well, and we are in a correction. I mean, we've got the May house price data on Monday and, you know, The national median price increase was zero. There was no change nationally. Brisbane, Adelaide and Perth continued to rise but not as fast as they have been, so their growth rate is coming down. And house prices in Melbourne, Sydney and Canberra and Hobart fell, continued to fall. So there is a correction going on.
What are the current trends in the housing market?
I think the national house prices will fall. I mean, in the last sort of couple of decades, house prices have fallen significantly. three times by between 7% and 9%, so that'll probably happen again. I suppose I'm really talking about the 10 to 20 year timeframe, and I reckon that we're in a situation now where house prices probably will not rise for a long time, like 10 to 20 years.
And a fair chance that volumes will fall. Because if you're not a forced seller, and people generally aren't, and particularly with all those with grandfathering or grandparenting, why would you sell? Just, you know, hang on to your negative gearing. So I reckon it's interesting. I reckon you may see the state governments losing some stamp duty revenue because... turnover will change because people have less incentive to sell. Some people are saying, well, I'm going to wait for the correction before I buy. So, yeah, that's where you get that reduction in auction clearance rates because buyers and sellers now just have different perspectives. The buyers are all saying, I'll wait for my 10% correction.
The sellers are saying, I want to get last week's prices. And then you get a bit of a standoff and you get a reduction in turnover.
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