Experts slam property crash forecast

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Australian property commentators have lined up to slam predictions made by a US real estate analyst that property prices here are set to dive by as much as 60%.

Jordan Wirsz, who has been promoting a webinar on Australian property, has predicted that rising interest rates, peaking commodity prices and slowing demand from China for Australian resources will combine to flatten Aussie house prices.

Claiming that the rot will set in over the next couple of years, with a slow recovery not starting until 2016, he has urged investors who don’t plan to hold on to their properties for more than seven years to seriously consider selling.

Predicting “overvalued” and “speculative” capital cities would be the hardest hit, he claimed that the only winners from Australia’s property apocalypse will be the real estate agents making commissions on mortgagee sales.

A 60% drop in property prices in our capitals would create house prices that haven’t been seen for decades. Based on Residex figures, for example, Sydney’s median price would fall from $656,000 to $262,400, Melbourne’s would fall from $574,000 to $229,600 and Perth’s would drop from $469,000 to $187,600.

Unsurprisingly, Wirsz’s gloomy predictions have been met with incredulity by Australian-based property researchers.

BIS Shrapnel senior manager, residential, Angie Zigomanis singled out various economic factors that will keep Australia’s property market stable. Not least, he points to the fact that interest rates have fallen, and are not rising, and that – if Wirsz’s predictions of slowing demand for Australian resources and crashing house prices come through – interest rates would be reduced further, not rise.

He pointed to BIS Shrapnel’s view that, even with the slight slowing of the Chinese economy, commodity prices will still be able to underpin new investment in more capacity. Moreover, those resource projects that have already commenced “are now well underway and will be difficult to stop prior to completion even if China weakens further”.

“Any scenario as dire as Jordan Wirsz’s would require a significant increase in unemployment –beyond double digit rates – that would cause home owners to be unable to meet their mortgage repayments and push forced sales onto the market where the vendors would be forced to accept any price,” he added. “Otherwise, in a weaker market, home owners will just remain in their current dwelling and pay down debt with little declines in prices.”

ANZ head of property and financial system research Paul Braddick, too, is among the many Australian based economists that disagree with Jordan’s apocalyptic forecasts. He pointed to ANZ’s Australian Property Outlook for further explanation of the fundamental strengths of Australian real estate.

The report notes that, while the European debt crisis continues to destabilise financial markets, and the risk of a marked slowdown in China have hit sentiment, Australia’s resource industry has remained solid.

“The key medium-term thematic for Australia remains the unprecedented surge in resource and infrastructure investment,” notes the report.

The ANZ team does recognise that confidence in the property market has been shaken by the economic uncertainty that’s being fanned by the European debt crisis, a slowdown in China and the threat of a renewed global downturn, but points the finger at doomsayers such as Wirsz for adding to weakened confidence in the property market.

“Continued predictions of an imminent collapse in Australian house prices by some commentators have weighed on market confidence,” says the report.

However, while the report predicts prices to ease in the next 12 months, it cites several economic fundamentals that point to a “cautiously optimistic” view of Australia’s property market prospects.

“We maintain a cautiously optimistic medium term house price view supported by a robust economic outlook, low unemployment, flat to falling mortgage rates, improved affordability and a further tightening of the housing demand/supply balance,” says the report.

Are you confident that the Australian economy and property market can ride out the global financial turmoil? Have your say on our property investment forum.

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  • Bob the builder says on 27/01/2012 01:32:01 PM

    With an increasing shortage of housing due to insufficient numbers of new homes being built for an increasing population which according to current demographics is wanting to move into increasingly smaller homes with increasingly smaller numbers of occupants (Baby Boomers - whose numbers going forward are bordering on dangerous and Gen Y - all wanting smaller homes in convenient locations) I struggle to see how apartments, townhouses and well located homes within 25 km of a capital city (depending on the size of the city) could drop so low in price. In my opinion supply and demand dictates price - look at Hong Kong property prices - 12 X average annual income and rising. Why? - very limited supply and a huge demand. Also, this would surely put house prices way below their cost. Who in their right mind would even consider purchasing the land and building a house on it and selling it for $262 400 in Sydney. The cost of having the house built alone would exceed this price unless inflation were to suddenly reverse at the same rate as house and land prices. The fact that pretty much everything - not just property - doubles in price every 10 years would lead me to believe the true annual inflation rate over the last 40 years has been 7% at least. These clowns making these wild predictions seem to forget that inflation will more likely run rampant going forward due to the world's monetary supply being increased at such a rapid pace by governments worldwide trying prevent the collapse of their economies. Money is just like beer. Water it down too much and we will need to swim in it to get drunk. That is the real reason Australian property is seemingly expensive - we are simply refusing to water down our beer unlike the rest of the world. This is why the A$ is also worth more now - US$1.05, 0.80 euro and NZ$1.30 - increases not totally incomparable to that of property in relation to the rest of the world. It's only a matter of time before they all catch up with this thinking. Inflation should eventually even everything out. It almost always has.

  • Kilburn says on 27/01/2012 02:25:55 PM

    I never know what to believe. One person says one thing, another says something totally different. They're probably all wrong. Economists are nothing more than professional guessers, me thinks.

  • James says on 27/01/2012 07:10:10 PM

    I cannot wait for the prices to crash! Me and the rest of young Australia. Of course your 'Experts Slam Property Crash Forecast'... because they don't want their 5 investment houses to dive in value... Stuff em I say. Australia is not Hong Kong... look at the two countries for gods sake?!

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