House prices to rise 20 per cent this cycle: Chris Joye

House prices to rise 20 per cent this cycle: Chris Joye
House prices to rise 20 per cent this cycle: Chris Joye

Australian economist Chris Joye says home owners will see around 20 per cent capital gains in this cycle, assuming no further cuts by the RBA.

The Coolabah Capital Investments fund manager predicted the recent quick turn around in housing fortunes.

"When house prices were still in free-fall back in April 2019, we controversially forecast that the record 10 per cent bust (which we predicted in 2017 when prices were still climbing) would promptly end and be superseded by a sharp 10 per cent rebound", the AFR columnist said.

"To the best of my knowledge, no other investors shared this central case."

He said this was based on the assumption the RBA would cut rates twice in quick succession. They then "poured more fuel on the flames with a third cut in October."

Joye suggests the RBA will need to "shunt rates" a lot lower than their current level if they want to achieve its legislated full employment target and boost wage growth back to historical trend.

House prices to rise 20 per cent this cycle: Chris Joye

"Getting the jobless rate down to between 4 per cent and 4.5 per cent (from its current 5.1 per cent mark) will require a large amount of additional monetary stimulus—much more than the RBA will get from the partial pass-through on the next two cuts. And this could easily push house prices 30 per cent beyond their June 2019 trough", Joye said.

Dwelling values are now eight per cent above their mid 2019 bottom, with Sydney and Melbourne leading the way with over 11 per cent gains on a non-annualised basis.

"This is a little stronger than the run-rate we outlined in April 2019 to get to 10 per cent appreciation over the following 12 months, but that analysis banked on two cuts and we have been furnished with three", Joye added.

House prices to rise 20 per cent this cycle: Chris Joye

"Unfortunately for the RBA, this price action betrays its intellectual hypocrisy. During the 2012 to 2017 boom the RBA repeatedly claimed that the 50 per cent increase in national prices had little to do with its slashing the cash rate from 4.75 per cent to 1.50 per cent."

Joye said they blamed inert housing supply and population growth.

"Fast forward to 2020 and now the RBA tells us that the sudden boom in prices proves that its "monetary policy transmission mechanism is working", Joye says.

Tags: 
House Prices Housing Value

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