There will always be critics from all over the world who suggest that property prices are going to crash. I’ve noticed the most recent critic, US demographer Harry Dent claiming Australian property prices could drop as much as half the value of property. He also goes on to say “… all of real estate in coastal cities all around the world are greatly overvalued and they’re all going to burst … 90 per cent in the worst case.” Harry comes to Australia every couple years – usually when he has a new book to sell and predicts a housing crash to gain huge exposure for himself and his seminars.
In the last couple of weeks this topic has made the news and what do most people do when they hear something like this on the news? They panic! They take someone’s opinion as a fact. This just goes to show how strong the media is when it comes to the impact they can have and the influence over others. All this does in turn is result in a lack of confidence which doesn’t do the housing market any favours. I have had several clients contact me over the last couple of weeks about this concerned. Is there really going to be a housing crash in Australia?
The simple answer is NO but I’ll let you come to your own conclusion about this, here are my thoughts:
While there’s no denying housing prices are high compared to other countries around the world and we have affordability issues in some areas this does not cause a bubble. For a property market to crash you need desperate sellers willing to sell at ridiculously low prices and no one willing to buy.
The only way Australia could find itself in that position is if our unemployment rate increased significantly to double digit figures, high interest rates exceedingly increase or there is an excessive oversupply of properties with no demand. Australia is not facing any of these issues right now with things actually being quite the opposite.
Australia has a high employment number and it is very unlikely we would be heading in double digit unemployment. Our economy is strong and only as recently as two weeks ago in its Statement of Monetary Policy the RBA forecasted even better times ahead. Close to 94% of people in Australia who want a job are employed.
Interest rates are at all time lows and likely to remain so for a while and in Australia we have a huge shortage of property and what drives property pricing up? Supply and Demand and with Australia’s strong population growth (approx. 400,000 people last year) we have a housing supply shortage in most areas.
The Australian housing market is far different to the US and other parts of the world and US analysts continue to be surprised we aren’t in the same position they have been in. Australia doesn’t have suburbs full of empty houses awaiting mortgagee sales like the US.
Our banking system is sound with mortgage arrears rates low at approximately 0.5-0.6% across the country with household budgets overall being in good shape with debt reduction the main focus.
I believe now is the time savvy investors should be getting into the market with interest rates at historic lows, strong population growth, vacancy rates at unprecedented lows and strong rental yields. While some property markets will perform better than others in 2014 I believe if you conduct your research and do your due diligence wisely this year is the time to get in the market and realise some great capital growth.