Zero danger of market collapse in Australia

Posted on 29/02/2016  
Zero danger of market collapse in Australia

By Terry Ryder

The latest predictions that Australian property markets will collapse are destined for the growing scrapheap of misguided real estate forecasts.

The 60 Minutes program, well-established as the worst kind of tabloid television, used an obscure US spruiker and the unique market circumstances of mining boom-bust town Moranbah to somehow justify claims that Australia is headed for a US-style market crash.

At Hotspotting, we see such claims as merely the latest in a long line of doomsday forecasts, all of which have been proven wrong.

Australian property markets won’t crash because the conditions needed for such an event don’t exist here.

Some pessimists point to the US market decline past-GFC and infer that Australia will go the same way “because that’s what happened in the States”. They fail to understand that property markets in the US declined for clear reasons – and those same circumstances are not present in Australia.

The American economy was in recession, unemployment was high, a massive oversupply of dwellings existed and lending practices at the time were reckless. When those four elements aligned, the US was primed to crash. But it didn’t fall the 40%, 50% or 60% some have predicted for Australia – it fell an average of 25%.

Australia doesn’t have any of the four main elements that caused the US decline. In particular, our lending standards are among the most stringent in the world – and more so since the APRA changes inflicted in 2015.

There’s nothing new about forecasts about market crashes in Australia, especially from US spruikers who seek publicity to promote seminar tours or book launches. Making doomsday predictions are a guaranteed way to generate major headlines and that’s why those over-the-top forecasts are made.

Last year Hotspotting conducted a research exercise for a client, who asked us to examine what major newspapers and other media had forecast for real estate since the beginning of this century.

We were asked to compare the predictions with the actual outcomes over the past 15 years.

This revealed that doomsday predictions about Australian real estate are extremely common. Hardly a week has gone by since 2000 without someone gaining major publicity by predicting the market was about to crash. Many have predicted falls of 40% or 50%, sometimes more, an event that has never happened to my knowledge anywhere in the world.

These forecasts all have one thing in common: they were all spectacularly wrong.

Below is a list we published in June 2015. This was our “Top 20 list of the worst predictions about Australian property markets”.

Scan the list and you will see how common it is for attention-seekers to declare real estate Armageddon. Equally you will see that every one of them has been wrong.

1.  Date: January 2012
Prediction: Home values to fall 60% in a “bloodbath” starting in 2013. Land values will fall 90%.
Forecaster: Jordan Wirsz, US spruiker
Outcome: City prices rose an average 9% in 2013 and 8% in 2014.

2.  Date: September 2011
Prediction: Prices will fall 40% in 2012, Australians advised to “sell their excess real estate”.
Forecaster: Harry Dent, US spruiker
Outcome: Prices rose an average 2% in 2012, 9% 2013 and 8% 2014.

3.  Date: February 2014
Prediction: Prices will crash “some time in 2014” – by at least 27% in Sydney and Melbourne.
Forecaster: Harry Dent, US spruiker
Outcome: Capital city prices rose an average 8% in 2014.

4.  Date: August 2010
Prediction: The Australian market is 40% over-valued and the bubble will burst soon.
Forecaster: Morgan Stanley’s Gerard Minack
Outcome: Capital prices on average have risen steadily since 2010. 

5.  Date: Sept. 2008
Prediction: Australian property prices will fall 40% in 2009.
Forecaster: Steve Keen, Uni of Western Sydney
Outcome: Prices rose 13.6% (ABS) or 11.5% (RP Data) in 2009.

6.  Date: October 2011
Prediction: Prices will fall 20% by 2013 (later revised his predicted decline to 5-10%).
Forecaster: Steve Keen, Uni of Western Sydney
Outcome: City prices rose an average 2% in 2012 and 9% in 2013.

7.  Date: March 2011
Prediction: “The value of your home could fall 61% the minute interest rates start rising.”
Forecaster: Kris Sayce, Money Morning
Outcome: 4yrs later, we’re still awaiting the collapse in housing values.

8.  Date: 2010
Prediction: The “Australian housing bubble” will burst soon.
Forecaster: Jeremy Grantham, US spruiker
Outcome: Capital city prices rose in 2012, 2013 and 2014.

9.  Date: 2010
Prediction: The cash rate will reach 6.5% and mortgage rates will be above 9% by 2013.
Forecaster: BIS Shrapnel’s Richard Robinson
Outcome: The cash rate has been well below 5% and is now 2%.

10. Date: November 2011
Prediction: The sovereign debt crisis in Europe will put Australian house prices at risk.
Forecaster: Comm Bank chief Ralph Norris
Outcome: House prices rose in 2012, 2013 and 2014.

11. Date: February 2012
Prediction: The “slow melt” in house prices will continue.
Forecaster: Anti-property raver Leith van Onselen
Outcome: Prices rose in 2012 and more again in 2013 and 2014.

12. Date: June 2012
Prediction: House prices are “chronically weak” and “over-valued”, heading for “a sharp fall”.
Forecaster: Shane Oliver, AMP Capital
Outcome: Prices rose a little in 2012 and more in 2013 and 2014.

13. Date: February2010
Prediction: “Price surge heralds big crash” Headline in The Australian, speaking of Melbourne.
Forecaster: BIS Shrapnel’s Jason Anderson
Outcome: Melbourne has had moderate rises in most years since. 

14. Date: February 2010
Prediction: “Prices could fall as higher interest rates bite”. Headline in the Herald Sun.
Forecaster: Economist Craig James of CommSec
Outcome: Prices have risen in most years since 2009.

15. Date: March 2010
Prediction: House prices will soar in Brisbane because of a housing shortage.
Forecaster: Access Economics’ Chris Richardson
Outcome: Brisbane prices in next 4yrs were +1%, -7%, -1%, +5%.

16. Date: August 2011
Prediction: Melbourne will experience “a US-style property crash with price falls of 30%”.
Forecaster: Prosper Australia
Outcome: Melbourne prices rose in 2012, 2013 and 2014.

17. Date: September 2012
Prediction: Australian housing prices will fall by up to 20% by the end of 2014.
Forecaster: Michael Power of Investec
Outcome: City prices rose an average 2% 2012, 9% 2013, 8% 2014.

18. Date: January 2013
Prediction: House prices will grow only 2.1% for the next two years.
Forecaster: NAB residential property index
Outcome: Prices rose 9% in 2013 and 8% in 2014.

19. Date: April 2013
Prediction: The rapid trend in house price growth is at an end.
Forecaster: Luci Ellis, head of finan. stability RBA
Outcome: Price trend (mostly Sydney) continued 2013-2014-2015.

20. Date: June 2013
Prediction: House prices will peak in March 2014 and fall thereafter.
Forecaster: Josh Williamson, Citibank economist
Outcome: Price rises continued, notably in Sydney and Melbourne.

 

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