Sep 24, 2018
"Are property prices about to
PLUNGE by 40-45 percent?"
Channel Nine's '60 Minutes' ran
a feature with the sensational and alarming headline:
"Aussie housing prices could
fall by as much as 40% in next 12 months"
It’s déjà vu. Every few months,
the media finds someone who’s willing to stick their necks out and
offer a property market doomsday scenario, predicting the end of
the world for property owners in Australia. In spite of the fact
that such predictions have been proven wrong time and time again...
So, is the sky really going to fall this
time?
Well, I think it's highly
unlikely that the property market will crash.
But today I’m chatting with 2
experts, Pete Wargent and Dr. Andrew Wilson to bring some sense
back to the discussion.
Some highlights from the chat with Pete
Wargent
- Different property markets behave differently,
but generally speaking, if you own capital city property, you don’t
need to worry about a crash.
- Australians do have higher household debt than
people in other parts of the world, but it’s important to
understand why that is. The government doesn’t own most of the
housing stock, so most of the rental properties are owned by
landlords. This means that Australia will likely continue to have
higher household debt than other countries for the foreseeable
future.
- In
general, Australia’s debt is in the hands of people who can afford
that debt – in the upper two quintiles. On the other hand, debt
levels haven’t really increased in the lower income
levels.
- In
international terms, the number of people in mortgage arrears in
Australia is very low.
- Tighter lending standards have caused an
intended slowdown in the market, but a crash is
unlikely.
Some highlights from the chat with Dr. Andrew
Wilson
- Should we be worried – are our property markets about
to crash?
- Looking at the historical data, the most
significant fall in house prices since 1986 was 9.6%, and that
occurred over 9 quarters. The next highest was 7.2%, and that
occurred over 5 quarters. There’s no historical precedent for a 40%
crash.
- What’s the real story about household
debt?
- Although debt has risen with houses prices, the
proportion of household income required to service higher debt has
fallen over recent years despite low incomes growth and low real
wages
- Although debt has risen with houses prices, the
proportion of household income required to service higher debt has
fallen over recent years despite low incomes growth and low real
wages
- And
since the last Census, wages are up 4.1% and mortgage rates are
down 0.5% with house price growth dissipating.
- What about mortgage defaults? Are they really a
problem?
- Such
a huge volume of garbage is being written, filmed, podcasted,
Facebooked, and blogged about mortgage stress right now that it’s
nigh on impossible to keep up!
- An
important metric to watch is the health of the labour market, with
jobs growth still firing along and the unemployment rate continuing
to decline to the lowest level since 2012, with further
improvements expected over the next year or two.
- What about the fear of many interest-only loans
swapping to principal and interest?
- Investors who have taken out interest-only
loans three or four years ago are in a position where they could
repay more because interest rates are lower than when they took
them on. Also, they would have more equity in their properties.
They have the equity to cover converting into an interest and
principal loan and at a lower interest rate.
- What do you see ahead for our property
markets?
- We’re
in for a period where prices growth won’t be dissimilar from one
capital city to another. It will reflect more local factors, like
strong economic performance.
Links and Resources:
Michael Yardney
Metropole Property Strategists
Michael Yardney's Property Renovations and
Development Workshop
Pete Wargent
Dr Andrew Wilson
Some of our favourite quotes from the
show:
“It’s unfortunate to see so many
investors buy into this fear mongering and make emotional,
sometimes panicking decisions, on the result of this
scaremongering.” –Michael Yardney
“It’s the property market’s
version of the women’s magazines that say Jennifer Anniston is
pregnant again or Prince Harry and Megan are expecting a baby.”
–Michael Yardney
“I see the coming months as a
great time of opportunity if you’re looking to buy new investment
or upgrade your home, because some people are going to sit on the
sidelines, worrying and concerned, by all the scaremongering in the
media.” –Michael Yardney
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