Pleiades gave me the heads up on the latest from Steve Keen. Keen thinks we're seeing the early stages of the decline in house prices. If so sell your banking shares now!
Population dynamics – even immigration dynamics – have nothing to do with house prices. What determines house prices is not the number of babies being born, or immigrants – illegal or otherwise – arriving, but the number of people who have taken out a mortgage, and the dollar value of those mortgages.
For changes in house prices, what matters is the acceleration of mortgage debt, and that’s why the 'first home vendors boost' was instrumental to the turnaround in house prices in 2009: it turned a nascent deceleration in mortgage debt into an acceleration once more. That acceleration has now run out and deceleration has resumed – and house prices have started to tumble as a result.
The fact that the Credit Impulse leads changes in house prices also gives some indication of where future prices are likely to go. The mortgage Credit Impulse shown above is for the acceleration in mortgage debt over a year: the change in mortgage debt compared to the previous year. This brings in an inevitable lag in the series – matched by the lag in the change in house price data, which also shows the change in house prices over the previous year – so that the turning points in each series line up in the graph. Lows in the mortgage credit impulse are associated with lows in house price change, and vice versa. With the mortgage credit impulse still headed south, and leading falls in house prices by three to six months, that implies that there are at least two more quarters of negative house price movements coming up.
All a bit of fun stuff. If you already own your home, then it's probably not the biggest deal. If you've borrowed against equity in the house, this stuff is THE nightmare. I guess there will be an announcement by the government soon that they'll try and prop up house prices with some new helicopter drop of money. If that happens then I think it says a lot about our polity and that in the long run it will be the housing industry and its associated lobby that will be the undoing of Australia - just as the Military Industry Complex in America has racked up the debt, and the construction industry in Japan has soaked up government money putting that government deep into debt. The money spent by the government will simply stave off the inevitable. The problem is that when the reckoning comes down the track, the conundrum will be much bigger then.
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