CPI is
NOT inflation! Inflation has been
HUGE when and how that eventually manifests itself in the economy is another thing entirely.
CPI lags
INFLATION, reacting to CPI is like driving a car looking in the rear vision mirror. For now it appears than in Australia the truly
MASSIVE INFLATION we have seen of global money supplies will first find its way into asset markets. If this is so the AUD should go on a tear along with Stocks and Real Estate (with qualifications!). RE should lag stocks as it is not as liquid & interest rates are on the rise in the US. How this hits our banks funding cost will depend on how they have their current book hedged.
IF they have forecast this correctly then it should result in little or no rate pressure. If not there will be some short term pressure on funding costs, I suspect the latter because they have probably gone for a very 'safe' position and not taken a directional bet on OS rates. That should be short term pressure as they will readjust to the market... that makes the short to mid term play equities over real estate
BUT it means that the outlook for real estate is good
DESPITE its apparent over valuation. Equities on the other hand are coming from a position of relative under valuation, those exposed to 'new world' growth anyway!
My short term expectation is another move from RE to stock as the market realizes the reality of the situation, then RE should follow. The dangerous thing here is the potential to set up a bigger fall in the Australian housing market when/if it eventually materializes. This IMO depends on how the RBA handles it, while they can do little to fight rising rates they have capacity to force rates higher and level any credit 'bubble'.
IF the RBA are serious about keeping Australian private debt in check, and manage to be effective, that could see a muted property market going forward. That would be the most politically astute way to work off the excesses in the RE market while keeping as many people hole as possible with out leading more into a potential credit trap chasing a 'bull' market.
A large part of what we are about to experience in our markets is the result of INFLATION only we don't call it that when it hits asset prices first... we call it prosperity. Truth is that it dislocates society and makes the rich richer and the poor poorer... you will see more and more about the income 'divide' over the coming years BUT that is a whole new subject! We are entering into a period of money depreciating at a higher than normal rate, the trade will be anything tangible or related until it settles again. These markets will become partly driven by the fundamentals of the 'real world' but more so driven by the fundamentals of the currencies we use to measure them in. This is where people with bearish tendencies will get a nasty surprise, deflation will not persist, it will always be a short term credit driven event in a world of FIAT currencies, a crunch if you will. For deflation to persist we'd need to have sound money, we don't!!!!
Sooooooo....
Watch the Australian Dollar and get long risk until it all gets really silly again...
Itssssssh a roll-her-coast-her, ready for an exciting ride?
The future of RE prices? Is still looking flat to up, up is RBA dependent, with a possible near term dip depending on these banks and what the heck they have done with IRS's etc. This is all sans some fatal accident in the IRS market!
BTW, apparently The Bank of America is looking dodgey... the FDIC are concerned that they currently could not handle it going bang and that it has system breaking potential. They are aware that it is an issue, that means it will likely be 'rescued' albeit with a sea of newly minted 'free' money. If it blows watch for flames on the IRS scene, we can only guess at the connections... if it is saved.... well then get ready to ride the QEII wave.
All JMO...
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Have a brilliant day Bots! U 2 TS and crew
Cheers
Z