Mostly efficient markets
Back in 2019, I wrote about why it's often smarter to adopt a view that markets are fairly efficient most of the time here.
It's pretty unrealistic to compare today's property markets to the decades preceding the deregulation of the financial services sector (and the financialisation of housing markets that followed).
It's also worth noting how well capitalised Aussie banks are these days, as compared to the pre-financial crisis era.
Today the most highly capitalised internationally comparable banks in the world versus our own 'Big 4' banks rank ANZ (1st), Commonwealth Bank (2nd), Westpac (4th), and the National Australia Bank (6th).
Compare the left-hand side of this graphic to 2008, to a time when most banks around the developed world had Tier 1 capital ratios in the range of 6 to 8 per cent, and often lower.
In that context, an updated look at the value of the Aussie housing market...
Looking frothy?
The ABS reported today that the value of the Aussie housing market increased to an estimated $10.3 trillion in the December 2023 quarter, up from around $9.8 trillion a year earlier.
This presents an opportunity to update the charts comparing the value of the housing stock, to the size of the economy (for which we can use annual GDP, measured as a flow).
Australia's GDP originally fell sharply during the COVID lockdowns, but has since rebounded solidly.
This puts the value of dwelling stock back to around 4x GDP, which is down from a peak of 4.6x GDP.
As noted in previous articles, these measures are only useful up to a certain point.
Clearly if interest rates were to stay at their current level for too long then eventually there would be a good deal of mortgage stress.
However, it's also fairly evident that financial markets expect mortgage rates to fall over the next few years, possibly by quite a lot.
Not enough housing
There's also a chronic shortage of housing building up in Australia.
SQM Research reported today that the national residential vacancy rate fell to just 1 per cent in February, with declines in Sydney, Melbourne, Canberra, Darwin, Brisbane, and Hobart.
Only Adelaide and Perth were stable, but vacancy rates are already at practically zero in those two markets.
Asking rents rose another +1.2 per cent over the month, and even the CBD vacancy rates are now getting tight.
Melbourne's asking rent rose +1.5 per cent, while the median asking rent for a house in Sydney has steepled to above $1,050/week.
SQM's Louis Christopher noted that vacancy rates are set to fall further in March.
The estimated number of dwellings increased by +52,500 to 11,134,600 over the quarter, meaning that the mean dwelling price increased by +$13,400 to $933,800.
Unfortunately this data series isn't quite as useful as it once was, looking only at a mean price (rather than, say, a stratified median index).
To be fair, +52,500 is actually a decent quarterly increase in the number of dwellings, but still it is nowhere near enough given population growth peaking at around +690,000.
Dwelling starts have also slowed very significantly of late.
The wrap
Given all of the above, I wouldn't be at all surprised to see the total value of dwelling stock increase by 20 to 25 per cent over the next few years, as the population continues to increase.
In some parts of the country there may well be a downturn in housing prices, particularly in the popular sea-change and treechange regional markets where there was a super-boom through the pandemic period.
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