The COVID-Induced Experiment on Interest Rates and House Prices: Is Cameron Murray As Right As You Can Be?

We’ve just had an economic experiment of epic proportions and there’s really only one conclusion: on house prices, Cameron Murray is as correct as anybody can be about a contested economic issue.

Cameron Murray is an all-round interesting thinker whose views at least on some topics you almost definitely will have some provocative issues with. One such claim, which he’s made in a variety of places, is that by far the biggest factor on house prices is interest rates. Of course, you have to discount massive government policy change or an economic depression producing widespread unemployment. But barring that, it’s interest rates all the way.

In this COVID period, we’ve had:

  • a massive narrative change (the story told ad nauseam during 2020 was that house prices would crash)
  • a massive government-backed building boom increasing supply
  • a massive drop in immigration, as well as depopulation in certain areas, reducing demand
  • a large drop in rents
  • great economic uncertainty with a concomitant rise in unemployment during 2020

And yet, the drop in interest rates swamped all those factors above to push house prices to further highs. Even credit flow dropped without much of an impact on the massive upswing in house prices.

Granted, people can argue with Murray’s position on the margin, but I put it to you that one of the silver linings of this whole COVID debacle is that we can put to rest one of the great Australian economic debates and definitively conclude: house prices are all about interest rates.

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12 Responses to The COVID-Induced Experiment on Interest Rates and House Prices: Is Cameron Murray As Right As You Can Be?

  1. conrad says:

    I was only mildly surprised about that — given the massive money supply increase I wondered where it could all possibly go. If shares return tiny amounts and have rather inflated prices and many types of small businesses are especially difficult to run, what’s left for the huge amounts of money sloshing around, especially in Aus where the investment opportunities are more limited? Beats me.

    I imagine the problem now for Aus and many other countries with similar problems is that the simplest way to burn off all the debt will be via inflation, but inflation will force interests rates to rise, hence burning off individual speculators. Looking at the US inflation rate which is apparently currently 5.4% (!) and the 10 year bond rate which is 1.34%, I presume something will have to give somewhere.

    • Antonios Sarhanis says:

      The surprising thing is that this has been a first-home-owner led story. Investors have lost overall share in the market and interest-only loans have dropped. It’s unlikely these first home owners would have been investing at all otherwise.

      But yes, the debt… doesn’t appear these low interest rates are being used to boost productivity…

  2. paul frijters says:

    Cameron has been right about housing for a decade now.
    He has been right about corruption too, as well as covid. He is one of the few honest economists in Australia willing to say what his population needs to hear.
    Born and raised in Queensland. Like Julian Assange. That state seems to produce both the worst and the best.
    He did have a couple of overseas teachers in his education though. Maybe that has been the problem :-)

    • Antonios Sarhanis says:

      A friendly foreigner is always helpful.

      Yes, this has been such a vindication of Cameron’s views. It’s hard to think of a better experiment that would have any chance of actually happening.

  3. paul walter says:

    “…both the worst and the best”.

    Frijters needs to explain in greater detail his contempt for Cameron.

    • paul frijters says:

      I have nothing but respect for both Cameron Murray and Julian Assange. When saying the place also produces the worst, I was thinking more of the extreme corruption of Queensland politics. Perhaps such circumstances breed some particularly brave people.

    • paul frijters says:

      yes, Australia is almost unique in the Western world for how blatant the corruption is on both sides of politics, at state level and commonwealth level. They treat the electorate as an abused housewife so used to being beaten up and screwed over that she no longer even registers it as abuse.

      • Nicholas Gruen says:


        I don’t want to appear defensive on Australia’s behalf here. I appreciate your perspective on the magnitude of the bezzle built into Australia’s financial markets, but firstly the kind of blatant disregard for the need for governments to at least act embarrassed when things like Sports Rorts break — now rolling into a car parks — is a little new.

        More to the point, it seems to me that most of this is debauching the bureaucratic process to try to win elections. In the UK the funny business seems to have been lining large Conservative donors which seems worse to me. (There also seems a bit of that in Australia, but rather less than in the UK under Boris).


        • paul frijters says:

          In the UK there is still the act of embarrassment and the rorts are more hidden.
          In Australia the corruption to line private pockets is just off the scale and totally in the open. There is also vote buying, sure, but open rorting is now normal the last 10 years.
          Think of how mine, by changing laws, dont have to clean up, leaving huge bills for the community. Think of the neutering of the state ICACs. Think of the rorts on pharmacies (there are laws preventing competition). Think of the banking royal commission, of which the current upshot is that one of those defending the rorts of the private banks has now been appointed the person to oversee the regulation changes. Think of any infrastructure project the last 10 years (Sydney tunnel is a classic, but the 100 billion nonsense project just announced in Victoria is another one. That is a lot of money going to a small elite). Think of the submarines. Think of the mining deal Gillard made.

          So its totally in your face and on a massive scale. The federal politicians have whole evenings where both sides of politics mingle with the lobbyists.

          Already in 2016 in Game of Mates I concluded with Cameron Murray that probably some 50% of national income was syphoned off by the rorts. Not to buy votes but to enjoy by the rorters. That seems pretty much in the right ballpark.

          The rorting in the UK is a more subtle, such as via a working population encouraged to think of spending a whole life working hard for the privilege of a 1-bedroom apartment in the center of London as something worthwhile. That too benefits a small elite but is a much more hidden rort.

        • paul frijters says:

          oh, btw, I have come to see the story that “we are just buying votes in marginal constituencies” as the marketing of the rorters inside they own political parties. The submarine rort is a classic: sold internally as a means of buying marginal Adelaide votes (for which there are way cheaper ways) whilst very little of the enormous amounts of money would end up in the hands of Adelaide workers.

          There is hence a double-game of BS accompanying a major rort. One is the myth told to the population, which is usually incredibly flimsy and increasingly absent (telling you what they think of voters), and another is the myth told inside the political parties.

  4. paul walter says:

    The other part is dumbing down.

    For example, Academics jumped on for producing objective studies on unemployment, with media ignoring real events for Kardashian type waffle.

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