Unemployment the key in 2015 house price direction: Gerard Minack

Unemployment the key in 2015 house price direction: Gerard Minack
Jonathan ChancellorDecember 7, 2020

The onetime bearish strategist at Morgan Stanley, Gerard Minack, has addressed his housing market concerns in his first expansive interview since he went solo 18 months ago.

"When we get across-the-board unemployment then we’ll get an across-the-board downturn in house prices; it’s just a matter of time," Morgan Stanley’s former head of global developed markets and now publisher of Downunder Daily advised when asked by the Australian Financial Review on how vulnerable the housing market is.

"I don’t think there’s anything exceptional about our housing market, except that we’ve gone 23 years without a downturn," he added.

"Far better to take some excess out of the market now."

On monetary policy he suggested "you either get nothing or more than two [cuts]".

"If the leading indicators of employment roll over, then for me recession is the most likely outcome," Minack said.

"We have national domestic demand growth of 1%. Here in NSW it’s 4.5% while in the rest of the country it’s falling.

"We know this year that residential investment will contribute less to growth, we know car workers will start to get fired.

"We know mining capex starts to accelerate to the downside.

"The one thing that looks half-good are leading indicators of employment.

"The ANZ and ABS jobs ads, and the components of the monthly purchasing managers index, look OK.

"But if they roll over we’ve got a problem, and already we’ve seen them wobble, which is partly due to politics.

"One of the few areas of bipartisanship we’ve had over the past dozen years is both parties have agreed to be short term and second rate!"

When asked by the AFR's Patrick Commins what are the big global risks, Minack pointed to central bank credibility.

"If (European Central Bank president Mario) Draghi was a stock he’d be on a P/E of 200! (US Fed chair Janet) Yellen’s on 100.

"When that bubble pops, all hell will break loose again, and there you really just want to be in cash."

In October, Minack said while many people have been wrong calling a collapse in the Australian property market, he still saw the sector, along with investing in the major banks, as great risks to the economy in the year ahead.

“Australia has not had a housing bubble blow-up or a recession but let’s not forget at other times [market bears] have made money from it, so they are willing to give it another go.

"My advice is . . . I think it is a little too early. I think down the track this will be a problem.

"I’m not so sure you look for this to be a problem in Australia on a six-month view,” said Minack.

Minack's comments came just ahead of ANZ announcing its latest survey showed job advertisements rose a further 1.8% m/m in December to record their seventh consecutive monthly rise (in seasonally adjusted terms).

Job ads have now trended higher for 14 months and are up 11.4% over the year to December.

The ANZ chief economist Warren Hogan said the data was an encouraging sign that labour demand was firming.

"Annual growth in job advertisements is now at 11.4%, a moderate rate by historical standards but the fastest rate in over 3½ years.

"The improving trend in job ads appears to be at odds with the official employment data which continues to depict a rising unemployment rate.

"In all likelihood, this divergence can be explained by a higher than usual rate of job losses in the economy.

"The good news is that the economy continues to produce new employment opportunities.

"The bad news is that this has not been quite enough to counteract the flow of new workers into the economy plus the on-going loss of jobs in certain sectors.”

“As a result labour market conditions can be described as soft which will continue to cap wage increases.

"Together with the recent decline in oil prices, this will feed through to relatively subdued inflation outcomes through 2015.

"For monetary policy, the most likely course remains for the RBA to keep rates in a holding pattern for most of 2015.

"However a softer inflation outlook suggests the RBA could have a little more wriggle room than previously anticipated to support business and consumer confidence.

"Right now we think the best course of action is for the RBA to maintain a steady hand on interest rates.

"But with global energy costs falling substantially, and inflation likely to be lower than previously thought, there is increasing scope for Australian interest rates to fall a little over the first half of 2015,” Warren Hogan said.

 

Jonathan Chancellor

Jonathan Chancellor is one of Australia's most respected property journalists, having been at the top of the game since the early 1980s. Jonathan co-founded the property industry website Property Observer and has written for national and international publications.
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