Another week and yet another flipped forecast from one of the major banks.
Westpac Banking Corporation [ASX:WBC] is now predicting Sydney house prices to rise by 10%! Would you ‘Adam and Eve’ it? (For the uninitiated to London slang, that’s cockney for ‘believe’.)
Source: The Australian Financial Review.
‘Westpac has significantly upgraded its expectations, tipping dwelling prices to rise 7% nationally this year followed by a further 4% next year.’
That wouldn’t be so surprising considering low stock levels, rocketing rents, and record-high immigration pouring into the country.
‘In April, Westpac had forecast prices to track flat overall nationally this year, followed by a 5% lift next year.
At that point, the bank’s economists expected Sydney prices to lift just 1% this year….’
And if we scoot back to their forecast this time last year (August 2022).
‘Westpac has warned real estate prices in Australia’s two biggest cities could fall by as much as 18% by the end of 2023.
‘Matthew Hassan, senior economist at the “Big Four” bank has warned that the situation looks “bleak” in Sydney and Melbourne…’
It’s a great reminder that the major banks have an appalling track record for accurately forecasting movements in the property market!
Read that again — so you never fall into the trap of believing anything they say.
They’re like lousy weather forecasters.
The outlook flips depending on what’s happening in the current moment.
With no overriding knowledge of the property cycle, they’re walking blind.
We witnessed this in 2020 with the Commonwealth Bank of Australia [ASX:CBA] calling for a 32% fall in property prices by March 2023.
By February 2021, with a rocketing boom underway in the Australian property market, CBA flipped!
Its forecast changed to an increase of 16% over 2021 and 2022.
It underestimated the boom significantly.
Median prices were almost 30% higher by the end of 2021!
At the time, Media Watch covered the debacle.
The episode leads with ‘Up? Down? Flat? Don’t believe the media or the forecasters when it comes to real estate prediction.’
How true is that little statement!
You can watch it or read the transcript here.
It was released at a time when the MSM networks were busy pumping the property boom — highlighting the sensational and driving fear of FOMO.
Here’s an excerpt from the show.
‘Melbourne property prices have gone through the roof.’
‘People are crying at auctions. It’s a very emotional time for buyers, feeling like they can’t get into this market.’
Ten News First (Melbourne), 16 April 2021
‘Eddie Dilleen is just 29 years old and owns 29 properties. He joins us now to share his secrets.’
Studio 10, Ten Network, 15 March 2021
‘Couple reveal “light bulb” moment that helped them net $1 million a year in rents and retire in their 20s’
The Daily Telegraph, 20 March 2021
‘Aussie couple who turned $60,000 house deposit into $20 million property portfolio.’
News.com.au, 22 April 2021
They’re feeding off predictions by MSM economists:
‘Despite the pandemic house prices are expected to skyrocket. The Commonwealth Bank predicts home prices in Sydney will rise by more than 13% over the next two years.’
Today, Nine Network, 16 February 2021
However, these are economists that last year were forecasting a crash.
‘The country’s biggest lender is warning house prices could plummet by almost a third because of the coronavirus pandemic. Commonwealth Bank’s worst-case scenario sees an average 32% drop by March 2023.’
Sunrise, Seven Network, 14 May 2020
‘…the unemployment rate is at least going to get to 10%. And that opens up the possibility that property prices could fall as much as 20%.’
The Business, ABC, 25 March 2020
‘…I think we’re going to see more gains. I wouldn’t be at all surprised if prices go up by another 15 to 20 per cent over the next 18 months to two years.’
News Breakfast, ABC, 4 March 2021
‘…you’re looking at that, falling by 32% by the end of 2022, that’s really suggesting there’s no V-shaped recovery in all of this, is there?’
‘It will take a while. I mean, it means a million-dollar property you can pick up for $700,000 and that’s what I guess Sydneysiders are looking at.’
Today, Nine Network, 14 May 2020
‘…this is the median price now and the far right — assuming, let’s say, this is a scenario, that the RBA, you know, does say that it increases by 30% — you could pocket $300,000 over the next three years if you jump in now. It seems like a sure thing.’
Today, Nine Network, 2 March 2021
‘Up down. Up down’, says Media Watch.
To be fair — if you were peering in from the sidelines when COVID hit with no knowledge of historical cycles, then it did look dire for the real estate market.
But still — it’s simply another example of many failed forecasts over the years. All from economists given a front seat in the mainstream!
If they had been following the forecasts I was putting out in Cycles, Trends & Forecasts, they would have been advising their clients to purchase in early 2020 ahead of the inevitable boom that surged us into a 2022 peak.
We pinned the boom, and we also forewarned the slowdown that followed in Melbourne and Sydney (and this was done back in 2019 prior to the mid-cycle COVID recession occurring.)
And I’ll go so far as to say that the increases we see now will strengthen through 2024 taking us to a peak in 2026 — before we once more fall into another land-based led recession through to 2028.
How can these mainstream economists be so wrong?
The travesty here is their failure to study the land cycle.
If they acknowledged the land cycle existed, they would have to accept and advocate to policy makers, the cure.
That cure of course was put forward by Henry George in his 1879 publication, Progress and Poverty — An Inquiry into the Cause of Industrial Depressions and of Increase of Want with Increase of Wealth: The Remedy.
‘The Remedy’ was to tax land and un-tax labour income and productivity.
In other words — tax what you earn, not what you don’t earn.
Taxes on capital reduce its supply and destroy economic activity.
And in our economy today, taxes are certainly not needed for government spending.
For every dollar of income tax collected, some studies have shown that we lose around $2 in productive activity (deadweight losses of taxation).
You may as well flush your tax dollars down the toilet!
Let’s remove the façade now and call it for what it is — robbery!
Land taxes, on the other hand, have benefits.
It was why the renowned economist Milton Freedman referred to land tax, as the ‘only good tax’.
Land tax cannot reduce a land’s supply. And on its own, it does not destroy productive activity.
Land tax reduces land’s value (discouraging hoarding land for gain) and encourages construction — thereby increasing supply and over the longer term, reducing rents.
We’re a long way from seeing the system change here, however. The current regime will never allow it. They’re still pumping faulty economic theories that muddle the minds of those that sit glued to the ABC.
Instead, we encourage real estate speculation — allowing owners to ‘grow richer, as it were in their sleep, without working, risking, or economizing.’ (John Steward Mill)
It’s why the subject of housing affordability is never out of the news.
You don’t have to like it — but you do have to understand it.
Especially if you want to advantage of it!
The economy is rigged in favour of landowners.
Keep that in mind when you invest your dollars.
You have two choices in this country — be a renter or a rentier.
I know which I’d rather choose.
Get it right, and you too can ‘grow richer as it were’ in your sleep.
Editor, Land Cycle Investor