Falling house prices mean tough times for retailers
Over the last two years, I’ve been warning that the housing price and residential construction boom would end, leaving a bit of a mess. The big question now is not whether house prices will fall further. It is which other sectors will be impacted, and to what extent?
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
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georgia
:
Whenever I have heard you Roger, you have been spot on predicting things including the mining downturn in 2013 now this so congrats on great analysis.
One thing I disagree with though is this notion of wealth effect. Economists and analysts alike have got this very wrong and the data supports my analysis. Houses increasing in value does not make people spend money because they feel wealthy but because they use their house as a savings account. They are spending debt not savings. Obviously once the lending stops or slows, then spending slows. Look at all booms and busts and same pattern forever. This real estate was so easy to predict it disgusts me that those pulling policy levers did nothing until now. So now we shall all suffer from the coming severe downturn.
Euan
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Hi Roger,
I have been listening to you for a number of years, I must admit I had my doubts about your prediction on property prices as I never saw the interest rate rises coming that some had spoken about as being the straw that will break the property bubble’s back. But I listened to your wise views on cranes, supply, developers, china, David Murray and the renewal of the interest only group. So thank you, I put off buying a property even though we need more bedrooms and avoided buying at the top of the market.
Can I ask a question, how long do you believe the property decline has to go? I have heard you on Nightlife talk about deflation when combined with static wage growth so would love you view.
Thanks again, keep talking sense.
p.s. your business deep dives are now mandatory reading around our company. JB, Kogan..etc.. are clients of ours.
Roger Montgomery
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Dear Euan,
Thank you for those encouraging words. I do believe that the slump in development of apartments recently – which is partly due to the government being very slow to rezone and approve in NSW – will create and undersupply in just a few years’ time, which is positive for prices. Having said that though the capacity for borrowers to borrow is very low because debt levels are at near historic highs. A period of deleveraging is required and there is also an element of ‘once-bitten-twice-shy’ that may impact recent property buyers who have lost money, reducing the desirability of property investing for some. I would guess (and it is purely a guess) there’s a good chance that this sell off could take longer to bottom than the experience in 2008/09 but rarely has an Aussie slump lasted more than four years.
William
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Hi Roger,
In 2016, I looked at the population projection of the property buying age group (30 to 45) and saw a dip going into 2020, i.e. this age group will shrink in size over 2017-2020. But then the demographics will begin to favour property price again in the 2020s. So I think 2020-21 would be a good guess for a bottom in the property cycle.
The easier way to get out of debt deleverage is through inflation. Real interest rate has been close to 0 for a long time and it wouldn’t surprise me to see it in negative territory as is the case in other developed economies.
Overall I’m bullish on Oz as we’ll probably have another commodity bull cycle from 2023.
Just my 2 cents.
Will