ANZ Bank’s Paul Braddick Says There’s Going to Be a Boom in House Prices

It’s all happening here on Fitzroy Street.

With your editor writing two monthly research reports, two weekly updates for the reports, and a daily newsletter six days a week, plus all the research we have to put in for those newsletters, we thought it was about time an editorial/research assistant was hired.

Well, yesterday Shae started work and already we’ve been able to fob off a bunch of work.

Result!

But that wasn’t until she’d completed her first task – chair construction.

“You’ll need to build your chair first,” we casually instructed.

“Ha, ha, ha,” Shae responded.

You editor smiled.

“Oh, you’re serious.”

Twenty minutes later and the chair was finished. “Good, you can stay!”

Now, we don’t believe in ‘taking it easy’ on the first day here, so Shae’s next task was to proof read the latest issue of Australian Wealth Gameplan – which I hope to have out to you tomorrow if you’re a subscriber – and also get stuck into a few other tasks.

But part of Shae’s role in coming weeks will be to add more content to the Money Morning newsletter. I’m sure you understand that on a busy week with deadlines for Australian Wealth Gameplan and Australian Small Cap Investigator, I’ve got to put the paying customers first.

But that still shouldn’t mean this free newsletter drops its standards. So now we’ll have someone to step into the breach. That means if your editor is pressed for time elsewhere on the odd morning each month you’ll continue to get top quality analysis of the markets and the economy.

You’ll start to read Shae’s input from next Monday. But until then she’s asked me to say, “Hi!”

This morning we’ll take a look at the housing market again.

We think it’s been a while since we’ve gang-tackled it property. But we can’t ignore. Not following the torrent of emails that came into the Money Morning Mailbag over the last couple of days with a link to the report from The Sydney Morning Herald and the headline, “House prices hotting up.”

I linked to it yesterday, but I’ve put the link in again just in case you missed it.

Not surprisingly, the shrill call from the SMH is that house prices are booming and that the doomsayers have got it all wrong.

The article claims:

“Here are the facts. Australian average house prices have risen 7.7 per cent in the year to date. (In Melbourne the figure rises to 11 per cent.)”

Of course, you could argue whether a government statistic or a statistic from a vested interest in property is really a fact? I mean, it’s a fact that the earth goes around the Sun (yep, we’ll concede that one), and it’s a fact that 2 + 2 = 4.

But a “7.7 per cent” house price rise as a fact? Hmm, we’re not sure that counts. But anyway, we’ll leave that point alone for now.

The article was quoting Paul Braddick, who is naturally an independent observer of the property market. Mr. Braddick is just the head of property research at the ANZ Bank.

OK, maybe he isn’t independent. Actually, he’s the double-whammy of vested interests. A property analyst who works at a bank. But at least we know we can take his analysis of the market with a few grains of salt.

Not that the SMH is prepared to doubt anything he has to say. If this analyst says there’s going to be a boom in house prices then there surely must be.

I mean, if he says it enough times he’s bound to get it right at some point.

That’s a tag we’ve been labeled with on our housing crash call. A stance we’re not only happy to stick with, but a stance that we become more convinced of as time goes on.

It will take a lot of convincing for us to waiver from that view. But as I’ve said before, I’m more than happy for you to convince me that I’m wrong. Although it must be said, after two weeks of waiting, the property bulls have still yet to provide the evidence to back up their claim that rising population equals rising house prices.

If you’ve got the evidence to hand, then send it straight through to Shae. I can see her from here, she’s standing right next to the Money Morning Mailbag now: moneymorning@moneymorning.com.au

But anyway, it seems that it’s not the first time Mr. Braddick has hyper-ventilated over a property boom.

We stumbled across this interview he gave to ABC Radio in 2006. You can see the full transcript by clicking here. But here’s a couple of highlights I’ve picked out:

“Housing lending is going gangbusters at the moment. The finance commitments have surprised even us on the upside… We’ve had one of the strongest forecasts out in the market for some time now, and yet we’ve found ourselves over the past six months continually revising our forecasts up, just because households are continuing to go out there and borrow money.”

Read the rest of the transcript for yourself. It’s a good insight to how desperate the banks are for you to borrow money from them.

But this is perhaps our favourite quote from the interview:

“Over the five years to 2004, where the total level of household debt more than doubled to $700 billion, there were still two-thirds of households still had little or no debt, where little debt is defined as a debt service ratio of less than four per cent.”

Look at that! Two-thirds of households in 2006 with no debt. Clearly it’s not a question of the quality of the potential borrower, it’s the quantity. The more borrowers the better.

What a shambles. Is it any wonder we take such a negative view of the banking system?

But even better than that is the exchange between ex-JPMorgan banking analyst Brian Johnson and an unidentified banking analyst.

As I say, click on the link and you can read it for youself.

The gist of Johnson’s argument is that the banks were going dizzy at the prospect of the debt servicing commitment increasing by 50% while wages growth was only forecast to increase by 12%.

“This thing is just going to explode” was Johnson’s final line.

Well, it hasn’t exploded yet. But it will. There is absolutely no doubt about that. Look, we’re not talking anything complicated here.

For debt levels to increase the banks have to do it one of two main ways: either they reduce their lending standards or they allow borrowers to increase their leverage.

Either way, it’s setting the market up to explode. And with both happening then it just makes the explosion even bigger.

But getting back to Braddick’s more recent interview with the SMH. Not surprisingly it’s full of the usual gumf about housing shortages and population growths and how much better Australian banks were/are with managing risk.

All of that’s rubbish of course.

But this whole idea of population growth not only propping up prices, but increasing house prices just won’t go away.

And neither will the new excuse about how the US housing market suffered from an “overbuild” whereas the Australian housing market didn’t.

Look, we’re aware that you can’t directly compare two different countries and draw exactly the same conclusions for why there will be a housing price crash. We accept that.

But surely the argument goes the other way too. The property bulls are the first ones to compare Australian housing with US housing and claim that it couldn’t happen here because things are different.

In other words the bulls can’t have it both ways. They can’t claim the bears are wrong because Australia is different to the US while simultaneously saying the bulls are right because Australia is different to the US.

It’s not logical.

The reason we know we’re right on the coming housing crash is simple. In any market where there is manipulation and distortion of that market by government, it inevitably leads to a correction in prices.

The idea that government and corrupt banks can keep an asset price or market inflated forever is not only misguided it is just plain wrong.

If the property bulls can’t come up with the research themselves, maybe we’ll just have to help them out. We’ll do some digging around and see what we can come up with.

Other Stuff on the Markets

The S&P/ASX200 fell slightly yesterday by 13 points closing down 0.28%, while overnight on Wall Street the Dow Jones Industrial Average added only 20 points. In Europe the FTSE100 gained 0.94% and the CAC40 was down 1.40%.

The price of gold in Australian dollars is trading at $1,164.08, while in US Dollars it is trading at $1,056.05, up 8.25%. And the price of silver in Aussie dollars is $19.55 and in US Dollars it is $17.736.

The Aussie dollar dropped a little versus the US dollar, trading at USD$0.9066, and improved against the Japanese Yen JPY81.54.

Crude oil closed overnight at USD$73.27.

For the biggest movers on the market yesterday click here…

ANZ Bank's Paul Braddick Says There's Going to Be a Boom in House Prices, 7.8 out of 10 based on 11 ratings

Tagged as: ANZ bank, australian small cap investigator, Australian Wealth Gameplan, Brian Johnson, doomsayers, house prices, housing crash, housing lending, housing market, Paul Braddick, property analyst, property bulls, property market