Email of the day (1)
"I thoroughly enjoyed your Sydney seminar. You mentioned that you thought the Australian housing was [Ed. Probably] safe from the bubble as long as the commodities held up.
"Today's Sunday papers (trashy...) are all calling for the bubble, so maybe I can take this as a contrarian view.
"I have checked the chart AUEHPI and this leg seems to be accelerating faster than the previous. Unfortunately the chart won't let me put a 200MA on it.
"Hoping you could expand on your seminar thoughts?"
Eoin Treacy's view Thank
you for your kind words and I'm delighted you enjoyed the seminar. I have amended
the data on the Australian House Price
Index which had not downloaded correctly. In fact prices have paused over
the last year rather than accelerated. The reason you could not add a 200-day
MA to the chart is because it only updates quarterly. If you choose a 4 period
MA, it should approximate the average of a year's data.
The Index
only dates back to 2004 which does not give a particularly useful idea of how
prices have performed. In order to create a longer-term chart, I took the old
Australian Established Homes Index
which was discontinued in 2005 and manually rebased the more recent data to
update the chart.
Prices
were broadly stable from 1988 to 1997 when they began to trend upwards. They
paused between 2004 and early 2006 before pulling back in 2007. Prices rallied
to a new high by 2009 and the current pause has lasted a year. A lower high
and lower low have been posted within the range.
At the
Sydney seminar, my comment with regard to the Australian housing market was
prompted by a question posed by a delegate at one of the breaks. Housing prices
are not our forte, concentrating as we do on exchange traded vehicles. Australian
residents will know their own market best, however I will share my perspective
as an outsider.
I was
asked a similar question at a talk I gave to the UK's Society of Technical Analysis
in 2006. My answer was that while I thought UK housing was overvalued, it would
probably be OK until there was a problem with the banking sector. My reasoning
was that banking occupied such a dominant position in the UK economy and investment
banking bonuses were so important to the London economy that as long as these
were intact, the bull market in property should remain in motion. The subsequent
credit crisis has resulted in a correction in UK
property prices.
The Australian
economy is finely balanced between a booming commodity sector which accounts
for the majority of exports and a challenging environment for the domestic,
service dominated, economy. You will know better than I whether revenue from
the boom in commodity prices is helping to support property prices in the cities
which have been the focus of the property bull market.
This
article from PropertyGuru.sg
dated March 24th claims Chinese investors are active in Sydney property. This
article
from the Sydney Morning Herald dated June 1st makes the bearish case for property
prices.
The RBA
has raised short-term interest rates quicker than the rest of the OECD since
September 2009 in an effort to contain inflationary pressures. At least in part
as a result, the Australian Dollar has become one of the strongest currencies
in the world. Australian property is expensive. At least a pullback is underway,
probably in response to tighter monetary conditions. However, a significant
deterioration in the wider economy, led by commodities and by extension the
Australian Dollar, would probably be required to initiate anything other than
a reaction.