Apologies if you’re the kind of Australian who needs to be scared by your favourite media outlet and if you really want to be frightened by the prospect of losing hundreds of thousands of dollars on the value of your home! As I say, I’m sorry but what I reveal is possibly a truth you won’t want to hear.
If this introduction is confusing you, don’t be befuddled, because if newspapers and other media outlets continually deliver house price collapse headlines, then you must buy the headlines. Newspapers must be sold on the prospect of a price crash and eyeballs/clicks must prove that you guys have an interest, and may even like the idea of becoming poorer.
Of course, non-home owners would be praying for a price crash so they can get into the real estate market but many of these people could actually lose their job if a real crash came along. This is why I hate home price crash headlines, because it would have the real potential to decimate demand for housing, see a huge cut in the production of new homes and apartments, really hurt economic growth, kill job creation, even undermine the stock market and give the potential for our first recession in 27 years!
That said, if the facts pointed to it happening, then I’d have to man up and warn you that this is a very real possibility. That’s my job — to be your man on the inside in the crazy but important world of money and economics.
To that end, I interviewed the MD of BIS Oxford Economics, Rob Mellor, who’s arguably one of the best credentialed property price experts in the country. His old firm, which he headed up, was BIS Shrapnel, which the building industry has turned to forecasts on supply, demand and prices for nearly four decades! And they were so respected that the UK-based Oxford Economics bought into the operation.
I interviewed Rob for my radio podcast program — The Switzer Money Show — which is now on this website and on my Money Talks program on the Sky Business Channel on Monday night.
Ahead of my TV interview, Rob reminded me that it would be 10 years since he battled it out with my old academic mate, Professor Steve Keen, who was telling everyone that the GFC would usher in a huge house price collapse. Even though Steve was a smart guy, I just knew he was wrong so I brought Rob on my Switzer TV program to hose down the fire Steve was creating.
People took Steve seriously and guys like Harry Dent were pouring petrol on the flames. Steve became a cult hero in the media but was eventually forced into a bet with economist Rory Robertson, who was working for Macquarie at the time and this lowered the boom on the good professor. Rory nailed Steve down to a time period for the collapse in house prices and said that if he was proved wrong he had to walk from Canberra to the top of Mt Kosciuszko with a T-shirt on which read: “ 'I was hopelessly wrong on house prices. Ask me how!'"
Later Steve said his warnings about a house price collapse were based on the Japanese experience, where there was a 40% collapse over a 10-15 year period. I guess Steve will be sweating on the next five years to be proved right!
Based on Rob’s predictions, he has Sydney house prices falling by 5% this year and maybe 1% to 2% next year! Yep, that even surprised me but you must remember that these are average falls for a city. On the weekend, someone paid $2.3 million for a one bedroom apartment in Pyrmont and Domain’s Nicole Frost says this suburb’s prices have risen 12.6% this year.
Other suburbs will have bigger falls and smaller rises than Pyrmont but it’s the average fall that tells us important stuff about the average home owner, who’ll read headlines and be either buoyed or de-vibed by what they read, which, in turn, will hurt the economy, job creation, business confidence and so on.
Rob says the triggers for a house price collapse are not here at the moment. The biggie is rising interest rates. With most economists saying the first rate rise is 12-18 months away, we can rule out that factor.
Another threat to house prices is a surge in unemployment and no economist is tipping that. In fact, the IMF, the Reserve Bank and Treasury think we’ll grow at 3% for the next two years, which is a growth rate that generally reduces the jobless rate.
Sure, Donald Trump, trade wars, China and maybe even Turkey could throw a spanner in the works for the stock market, which could hurt US and global economic growth, and all this could bring on a recession. However, this is just pure, excessive, negative speculation that at this stage looks less likely to happen.
Rob thinks Melbourne’s house prices will fall less than Sydney, while Brisbane will do OK in the short-term before seeing 5% rises in three to four years-time and the worst was over for Perth.
Adelaide will do its usual small rise and Canberra could have a nice rise. Hobart will go off the boil after being up 35% over three years but there are no predictions on anything nasty.
Helping us is not only an economy in OK shape but immigration, which is providing a safety net for the housing sector.
I hope these revelations about the probable truth about house prices hasn’t ruined your day.