Could some ominous rumblings from central banks signal the beginning of the end for the global and local property boom?
It certainly looks that way after the US Federal Reserve and Australia’s Reserve Bank conceded that their original timetable for interest rate rises might have to change to fight growing inflation and cool down a red-hot jobs market.
You can argue about the semantics of their public statements but there is little doubt that the previous scenario of ultra-low rates sailing all of the way through to 2024 now looks highly unlikely.
For the US Fed, the moment of reckoning were inflation figures which blew straight past their “worst case” predictions.
Can inflation rises really be a one-off?
There has been plenty of rationalisation about the “one-off” nature of the inflation boost but with monetary conditions set on ultra-easy, not even the US Fed can take the risk of inflation getting out of control.
That is why it went hawkish and warned of interest rate rises sooner than planned to head off inflation and economic overheating.
Here in Australia, it was the jobless rate falling a full 0.4% to 5.2% in May that proved to be a wake-up call as to what was happening in the real economy.
Australian jobs numbers flying
With total employment up 115,200 in just one month – most of them full-time jobs – it is hard to argue that the jobs market still needs unprecedented support due to the pandemic.
Even the lack of wages growth makes it difficult to hold the ultra-low interest rate argument forever, with ANZ Bank one of many that have now pencilled in the RBA lifting the cash rate twice in the second half of 2023 to 0.5% – with a bias towards that happening even earlier.
The real question is, would some early shock interest rate rises be enough to hold back the most enduring boom of them all, the runaway property prices that have been a feature not just in Australia but in many parts of the world?
Does the housing market need the Phar Lap treatment?
It is one of those questions that is hard to answer in advance but it is reminiscent of the official efforts to hobble the people’s hero, race horse Phar Lap.
No matter how good the horse, if you add enough lead in the saddlebags, eventually it will come back to the field.
With Melbourne’s median house price now $908,000 and Sydney’s $1.2 million, the numbers are becoming hard to justify on any rational grounds, particularly in relation to stagnant income levels.
The real question is how much lead will be required to stabilise price rises, which is again something that central banks usually only work out by checking the rear vision mirror for debris.
Research shows a flying housing market is a big problem
While politicians and even central bankers are quick to say rocketing property prices are not their problem, some excellent research by the UNSW showed that our…