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Will Australian House Prices Crash? five reasons why it's more complicated than you think!
11/10/2017

Will Australian House Prices Crash? five reasons why it's more complicated than you think!

 Key points

  • Talk of a property crash is likely to ramp up again with signs that the Sydney and Melbourne property markets are cooling. But the Australian property market is a lot more complicated than the crash calls suggest.
  • We continue to expect a 5-10% downswing in Sydney and Melbourne property prices but a crash is unlikely and other capital cities will perform better.
  • It remains a time for property investors to exercise caution and focus on laggard or higher-yielding markets.

 

Introduction 

A common narrative on the Australian housing market is that it’s in a giant speculative bubble propelled by tax breaks, low interest rates and “liar loans” that have led to massive mortgage stress and that it’s all about to go bust, bringing down the banks and the economy with it. Recent signs of price falls – notably in Sydney – have added interest to such a view.

The trouble is we have been hearing the same for years. Calls for a property crash have been pumped out repeatedly since early last decade. In 2004, The Economist magazine described Australia as “America’s ugly sister” thanks in part to a “borrowing binge” and soaring property prices. At the time, the OECD estimated Australian housing was 51.8% overvalued. Property crash calls were wheeled out repeatedly after the Global Financial Crisis (GFC) with one commentator losing a high-profile bet that prices could fall up to 40% and having to walk to the summit of Mount Kosciuszko as a result. In 2010, a US newspaper, The Philadelphia Trumpet, warned “Pay close attention Australia. Los Angelification (referring to a 40% slump in LA home prices around the GFC) is coming to a city near you.” At the same time, a US fund manager was labelling Australian housing as a “time bomb”. Similar calls were made last year by a hedge fund researcher and a hedge fund: “The Australian property market is on the verge of blowing up on a spectacular scale…The feed-through effects will be immense… the economy will go into recession." Over the years these crash calls have even made it on to 60 Minutes and Four Corners. 

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