Love him or hate him, Chris Joye is Australia’s top housing tipster and the story he’s telling now is spot on:
According to the newspaper’s economics editor, John Kehoe, national house price declines of more than 10-15% “would probably make Reserve Bank of Australia Governor Phil Lowe nervous” because of their impact on “consumer spending and housing construction”.
Many believe that Kehoe didn’t just pull this opinion from his behind: that is, it could be an accurate representation of the Martin Place Mandarin’s otherwise precarious state of mind.
If that’s true, the RBA should shit its dacks.
Yes, it should. The RBA has already tightened massively. That it has not yet become evident in the economy should not distract from this fact. As Joye points out, the leading indicator of consumer activity, which generates 55% of GDP, is collapsing with spectacular speed:
While our projection of a 15-25% price decline explicitly provided a range of spot rate increases beyond the first 100 basis points, it did not envisage a much higher spot rate, d about 4%.
In June, we published internal modeling which showed that if the RBA raised its key rate to, say, 4.25%, the expected loss from peak to trough in house prices would be 30 to 40% larger. %. However, this is not our central case, which remains a still remarkable decline of 15 to 25%.
For perspective, remember that the peak-to-trough drop in US property values during the GFC was 27%.
This is what the RBA is playing with and they should, indeed, “shit their dacks” because no one else will be blamed. Not even the Albo cowards, who could avoid it by fixing energy inflation.
The RBA’s drastic tightening makes even less sense when we look at the new data from late last week. Months before launching the most sweeping tightening of any DM central bank (faster even than the Fed, given that it only meets every six weeks), the RBA said it would wait and see wage inflation data well above 3% in hard numbers. Then it suddenly rolled based on its own internal software data derived from the “binding”.
Late last week, he released some of this data and it’s equally damning:
The data clearly exaggerates the strength of prices to the upside and hasn’t even reached 3%, let alone the 4% the RBA says it needs for sustainable inflation.
Yet the RBA has already imposed a monetary constraint on households equal to that of the pre-GFC period when wages exceeded 5%.
Australia should also “shit its dacks” being ruled by such inconsistent fools.