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Bullish Price Sequence

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  • In the past cycle, several investors have been raising their concerns over the housing affordability in Australia.
  • Even though the house-price-to-income ratio in Australia has constantly been reaching new highs in the past decade, questioning the sustainability of the real estate market, it has also been strongly supported by international investors, and especially China.
  • This chart shows how strongly China excess liquidity, defined as the difference between real M1 money growth and industrial production, has led Australia house prices (by 6 months).
  • With China excess liquidity dramatically contracting (due to the sharp fall in real M1 money growth), it will be interesting to see if the Australia property market will hold given that the RBA also prepares for policy normalization.

Source: Bloomberg/MNI