What is this US obsession with our prices?

By Terry Ryder, 1st February 2012

American analysts have an unnatural obsession with our real estate prices.

There’s a growing list of US evangelists presenting themselves as experts on our property markets – from a distance of around 15,000km.

It appears anyone suffering from limelight deficit syndrome can create a bit of profile by declaring Australia has the world’s dearest houses (we don’t) or predicting an unprecedented collapse of our housing prices (it won’t happen unless a meteorite hits the east coast).

None of this would matter if we had a media populated by journalists who did their jobs.

None of us would know of the existence of Harry Dent or Jordan Wirsz or the people who etch the Demographia report if property writers subjected them, and their claims, to even the tiniest bit of scrutiny.

When Dent sought to drum up some publicity for his new book and seminar tour in Australia by predicting a 50 per cent decline in housing prices, a quick check would have revealed that Dent’s record as a forecasting guru is not as glossy as he claims.

A few Australian journalists did check him out and found his track record is poor.

I’m reminded of the American radio preacher Harold Camping who twice predicted the end of the world in 2011, causing disciples to gather in a designated spot awaiting the “rapture”.

The next punter seeking profile at the expense of Australian home-owners was someone called Jordan Wirsz, who is promoting is webinar. Jordan who?, I hear you ask.

Dent forecast a 50 per cent drop. Wirsz (allegedly a self-made millionaire) went further, predicting a 60 per cent decline. But he went further still – land values would fall 80 to 90 per cent, he said.

Just pause a moment and contemplate what he is suggesting. A fall of 90 per cent means a decline to almost no value at all. If a block of city suburban land is worth $200,000, a decline of 90 per cent means it would be worth just $20,000. Given that planning charges per allotment are generally much higher than $20,000, this is just silly stuff.

That didn’t prevent headlines in Australia such as “Bloodbath to hit real estate”.

The outcome Wirsz is suggesting would be unprecedented anywhere in the world.

To put that in some perspective, The Economist had just published what it calls its “global house price survey”.

The survey falls a long way short of being global, because it scrutinizes only 20 countries.

But it does reveal some things worth noting, specifically that not even basket case economies have created home price declines of 50 or 60 per cent.

In the US, where property markets have been scuttled by economic recession, high unemployment, an oversupply of dwellings and wacky lending practices, property prices have fallen 27 per cent since 2007.

In Spain, where unemployment is above 20 per cent and the over-supply of dwellings is almost farcical, values from fallen 15 per cent.

In Britain, with all its economic problems, the decline since 2007 has been 8 per cent, while in Italy, one of the basket-case economies causing all the problems in Europe, property prices have dropped just 4 per cent.

Somehow, however, the attention-seekers in the US want us to believe that a nation with one of the world’s strongest economies, low unemployment, heavily regulated lenders and few over-supply issues (other than the Gold Coast and Melbourne) is going to lose 60 per cent of its housing values and up to 90 per cent of its land values.

It has the same hollow ring as the Australia media outlets which screamed that Brisbane prices would fall 50 per cent in 2011 because of the January floods. The absurdity of those claims are demonstrated by the latest figures from Australian Property Monitors, who show a 7.5 per cent fall for houses and a 5.8 per cent fall for apartments. Oops.

Equally vacuous were the predictions of a 40 per cent decline of Australian house prices in 2009 by an economics academic from an obscure university. The actual outcome, according to the Australian Bureau of Statistics, was a 13.6 per cent rise. Oops again.

Speaking of vacuous, it’s that time of the year again when a bunch of anti-regulation zealots from the US publish their Demographia report. This claims to be a global survey but it reports on conditions in only seven nations.

Again, it’s only a problem because some Australian newspapers and magazines have repeated the report’s claims as gospel.

The reporting of this flimsy document has been disgraceful in terms of journalistic standards.

Your Investment Property magazine proclaimed Sydney as “the second least affordable housing market globally” and Australia as the world’s second least affordable national housing market.

That’s a pretty big claim, given that the report covers only seven countries and excludes all the nations of Europe, the Middle East, South America and Africa, as well as all the nations and major cities of Asia other than Hong Kong.

The Sydney Morning Herald reported that “Australia exhibited the worst housing affordability of any national market outside Hong Kong”, again ignoring the fact that the report compared Australia to only six other nations.

The report stated that “there were no affordable markets in Australia in 2011”, a claim which is at odds with data showing that first-home buyer activity in Australia is now at its highest level for over two years.

Few of the media organisations that reported on this document told their readers who the publishers of the report are and none asked any questions about their motivations. 

This is a group that campaigns against government regulation of property developers and seeks to argue that regulation creates affordability problems. It seeks to support its arguments by publishing a report of nations which incur its anger by refusing to allow developers open slather.

It’s not an objective research document, the results being tainted by vested interest and data that disagrees with official figures.

ENDS

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