00:02I think the housing market's cyclical in Australia, a very uncontroversial comment.
00:06We see periods of very significant house price growth and then we see the market make a correction
00:11and that's what we're seeing at the moment.
00:13So we're in a market correction now?
00:14That's correct.
00:15I don't think that's controversial at all.
00:18Okay, so do you agree that Australian housing is in a correction?
00:21What is that exactly?
00:23I don't disagree with her at all.
00:26Well, I think the definition of a market correction is a short-term downtrend in home prices that corrects it
00:34when it's basically overvalued.
00:37And I think by any metric, Australian house prices are relatively overvalued here.
00:42If you look at house price income increase over the year, right around 14 times the average income in Australia.
00:50Look at it before COVID, it was around 10 to 12 times.
00:53And before 2000, house prices were already six to eight times of income.
00:57So I think it's definitely overvalued relative to income.
01:01The pace of increase versus inflation has been quite high as well.
01:05Since 2020, house prices have gone up by around 50% in Australia.
01:09Inflation has gone up about 23%.
01:12And if you look at our peers, the U.S. has seen around 40% increase in house prices.
01:18And other countries like the U.K. or the Euros have been around 20% increase.
01:23So, of course, I think it is normal to see the market going down a little bit when it has
01:29gone up after such a big upswing.
01:31Now, I think right now the house prices are driven by two things.
01:35The capacity of people to pay for the homes as well as interest rates.
01:40We've had three interest rate increases in Australia this year.
01:44That definitely would dampen house prices a little.
01:46And now with the new changes to the tax for investors in the budget, that probably would take away some
01:52of the marginal buyers in market, which are investors.
01:54So that means that there are fewer buyers in the market.
01:57That leads to lower house prices.
01:59The sentiment of people are going down as well because people are not willing to bid as much with lower
02:04house price expectations.
02:06So that would lead to a short-term downturn in the home price market.
02:10Now on to inflation figures.
02:11What are we expecting to see?
02:15So, I'm afraid I don't have a lot of good news around inflation for the average viewer here.
02:20Today, we expect to see a bit of a decline in the monthly figures.
02:23That's around a 0.4% decline.
02:27And that's driven by a big drop in fuel prices at the pump, around 12% to 15% in
02:33the month of May.
02:34But that still means that the average annual figures for headline inflation is still going up from 4.2%
02:41to 4.3% this month.
02:43And the number that the Reserve Bank cares the most about, which is the trimmed mean number that takes out
02:51all the volatilities in the inflation readings,
02:53that is actually going up by 0.3% over the month and 3.5% over the year.
03:01Now, 3.5% might sound like a very normal number, but that's very far away from the Reserve Bank
03:07target of 2.5%.
03:08So, we do think that the RBA will continue to remain hawkish with this set of inflation figures in the
03:15upcoming months.
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