Another weekend, another refutable bullish case for why property prices will continue to defy the odds.

This time, it’s “Lower bound IRs are yet to be priced in” & defaults are low, signalling market resilience.

Here’s my rebuttal;

1. “Interest rates are low & are yet to be priced into the market”.

To be clear, the driver of price is not the current IR settings, but rather, the CHANGE in settings.

In a STABLE market, a -ve change in IR is a catalyst for “risk-on” & price discovery.

Secondly, Lower IRs lead to higher prices if household INCOME remains constant.

In recession, it does not. That’s why house prices often fall as GDP contracts, despite dovish monetary policy.

Thirdly, house prices are influenced by marginal borrowers accessing new mortgage credit.

The change in new credit is above all else, influenced by the lenders appetite for RISK. During exogenous shocks, banks reevaluate risk & tighten lending to protect their balance sheets.

2. “If markets were weak we’d be seeing rising defaults”

According to @DFA_Analyst, over 1m households are in mortgage stress. Yet, defaults are contained???

Remember; a rising market masks instability. For defaults to be problematic, you need mortgage stress + NEGATIVE EQUITY.

Whilst I acknowledge the bullish hypothesis is possible, in my opinion, it’s not probable.

I’m still waiting for the bulls to strengthen their argument & convince me otherwise.