Pass the popcorn

There’s one element of the current weakness in the housing market that I’m really enjoying. Indeed, it’s turning into riveting theatre.

A week ago today, a brawl broke out between the various housing data providers: SQM Research, Residex and R.P.Data/Rismark. As I reported then, R.P.Data/Rismark (represented in the person of Chris Joye) had set themselves on a bizarre course of marginalising their own excellent data as they made the case that house prices are not falling, yet maintaining that they are bearish on the market. To achieve this contortion, they both ignored and celebrated their own seasonally adjusted housing data on consecutive days at different media outlets.

Even as R.P.Data ignored its own seasonally adjusted data to make the case that prices weren’t falling, Residex, in the person of John Edwards, attacked R.P.Data for being overly bearish.

Meanwhile, SQM, in the person of Louis Christopher, made a more consistent case for why prices are indeed falling. He was rewarded with the grandaddy of populist gigs, a spot on Sunrise with Kochie, and a piece in the Fairfax press staking out the case for why prices are falling, as well as pointing out the obvious, that the other providers seemed incapable of uttering the “f-word”.

Since then we’ve had further developments. Last Friday, Chris Joye wrote at his blog that:

Oh boy do we see a lot of complete crap sprouted about Australian house prices from folks who really do not know what they are talking about. Here is a chart comparing the capital city and rest of state (ie, all regions but the capital cities) dwelling price indices since the end of 2006 (click to enlarge). That is, it covers all of Australia. Observe how the market has been flat-lining in both sectors since about May last year, as we correctly forecast (we projected 4-5% growth in 2010 at the beginning of the year and got about 4.7% from memory).

As blind-freddy can see, most of the downward shift that occurred recently was a January–and presumably flood-related–effect. For the time being, dwelling prices don’t look like they are going anywhere quick. They are certainly not “falling fast”. Soft, they are, to be sure. Again, we have forecast this outcome since the middle of last year. And, as we have argued for 12 months now, the risk is to the downside if the RBA hawks up with interest rates 2-3 times this year.

Anyone who claims that this position is “bullish” on housing in the near-term is an intellectual invalid. At the same time, anyone who claims that a 1% year-on-year retracement in dwelling values is a major asset-class event (cf. the share market frequently falling more than 5% on a given day) needs their head examined, with the greatest of respect. And I sincerely meant that latter caveat: you genuinely should seek medical advice if you are convinced that house prices are plummeting.

I’m not sure that simply repeating your reasoning, only this time peppered with abuse, improves your argument. But who am I to judge?

Anyway, Louis Christopher responded today with another salvo from the good ship Kochie, this time in the Herald Sun:

The lies being told about the property market drive us crazy. So it’s time for the truth, the whole truth and nothing but the truth.

Residential property values are falling right across the country and those falls will pick up as the year goes on.

It is frustrating to see all the “For Sale” signs, hear anecdotes of friends and relatives having to slash prices to get a buyer but then read real estate agent or media reports cherry-picking the increasingly rare “good news” sales. It gives a very false perspective of reality.

Louis Christopher’s independent property analysis group SQM Research has data on how much residential property values have fallen from their peaks across all capital cities so far this year and how much further those declines are set to go for the rest of this year.

We asked them to identify areas which are turning into property nightmares.

Remember these values and predictions are only for the 2011 calendar year. There is every likelihood the downturn will extend at least into next year as well because the falls are picking up momentum in the second half of this calendar year.

The facts are there are 70 per cent more properties on the market today than this time last year and auction clearance rates have plunged.

A share market correction is a pullback of 10 per cent from peak levels. Anything over 20 per cent is a crash.

We’re heading for a correction across the board and a crash in selected regions. How much pain will depend on several unknown factors.

If the Reserve Bank of Australia raises official interest rates again, it will add to the pace of the decline.

While most economists seem to change their minds daily on future rate rises depending on the latest morsel of data, the RBA is smart enough to know the weakness in housing and other sectors of the economy.

The ongoing health of the economy will play a big part. Residential property prices are unlikely to drop the 30-40 per cent that occurred in large parts of the US and Europe because of the comparative strength of our economy.

If economic growth reaches the 4 per cent forecast in the federal Budget, and unemployment stays at the 4-5 per cent level, then most existing and prospective homeowners should be in reasonable shape.But if interest rates rise more than expected, or the economy cracks, all bets are off and the property slide could get ugly.

Even now, those first-home buyers who took advantage of the boost to the First Home Owners Scheme a couple of years ago need to make sure they’ve built up equity in their house and cut debt to ensure their loan isn’t worth more than the value of their property.

In Sydney, population growth and a stock shortage will provide a reasonably soft landing for property prices in general. But the prestigious end of the market ($2 million-plus) is being absolutely smashed and there will be no let-up.

In Melbourne, there are twice as many properties for sale as this time last year, which is weighing down prices. Trendy inner-ring suburbs gave great growth over recent years but that bubble is bursting and it is now the worst-affected region in the downturn.

Brisbane could turn into a property nightmare, with declines accentuated by the crash in nearby Gold and Sunshine coasts where there is a massive oversupply of stock. In both regions there is four to five years worth of stock on the market as apartment blocks sold off the plan have failed to settle. Tweed Heads is also suffering. It will be years before there is any sort of recovery.

In Perth, despite the commodities boom, high wages and a booming property market in recent years, there is now a serious oversupply of stock.

Adelaide is generally a pretty stable property market without the big peaks and troughs of the eastern capitals. As such, its downturn will be pretty muted by comparison except in the Port Adelaide area, which will suffer in the aftermath of recent strong development.

Darwin has been going through a strong boom and has been set for the inevitable which is now occurring.

Canberra’s property depends on the health of the public service. Under Labor it looks fine but if the Government changes, and the Coalition delivers its big public service cuts, things can change rapidly.

Hobart is another solid property market but Launceston is suffering from a sizeable property hangover.

It’s not hard to see who is winning the battle for hearts and minds. As R.P.Data/Rismark seems to turn in on itself, SQM is making hay in the major media outlets of the day.

Obviously, I am more of the view that SQM is right. Time will tell on that question. The irony is that I’m relying on the conceptually excellent R.P.Data/Rismark Hedonic Index to draw my conclusion. I sincerely wonder why they don’t do the same.