Oh Harry… what have you done now?
No, not Prince Harry and those Vegas pictures, but Harry Dent – The Doom & Gloom Extraordinaire – who recently wrote in Forbes Magazine, and I quote:
…the greatest housing bubble in developed-country cities starts with Brisbane, Australia…
Excuse me whilst I look around to check if we are talking about the same place. There isn’t another Brisbane in Australia is there?
Read on peoples, it’s about to get personal!
But before we start, here is a fuller account of what Harry Dent said in Forbes:
Around the world, the greatest bubble by far occurred in Shanghai, up 525% since 2000, and in China in general. Mumbai saw a 400% bubble, Dubai 300% and Seoul 205%. The greatest bubble in developed-country cities starts with Brisbane, Australia at 210% followed by 180% in Miami, 170% in L.A. and 165% in Vancouver. There are many cities that could see real estate drop 70% to 85%!
The only cities that had major bubbles and have already seen them fully erased in the U.S. are Phoenix, Las Vegas and Atlanta. No other major bubbles have burst back to where home prices are affordable again, and major cities from Shanghai to London to Vancouver to Melbourne and Sydney, Australia, are still going up or very near their peaks.
These types of very strong areas always have the view that their bubble won’t burst because they are so special – but bubbles always burst. The greater the bubble, the greater the burst — is also a very good general rule, even though the most attractive cities with the scarcest land for development typically are the last to peak.
The real estate bubble is like a popcorn popper with different markets frothing over and peaking at different times, but all will burst ultimately. Given that real estate is so local, the best way to gauge the downside potential of your home or commercial real estate is to find out what it was worth at the beginning of 2000 at best and the beginning of 1996 at worst. If you can’t take that much heat consider selling and renting for the next three years plus.
I mean really, does this guy truly believe what he says? If Brisbane’s house values fell, say 70%, they would drop by over $300,000; and in 2000 the median Brisbane house cost $155,000 and in 1996 it was $130,000. Today,Brisbane’s median price is around $435,000.
As at mid-October, the average Brisbane household pays just 22% of their household income towards their mortgage. This is on par with the proportion paid in the early 2000s and mid-1990s. Re-read Harry’s last paragraph as outlined above.
Even allowing for nominal price growth of 6% per annum (real price growth – minus inflation – of about 3%) over the next three years, the proportion of household wages needed to pay the average Brisbane mortgage in 2015 is anticipated to be about 27% or 28%. Unaffordable?
Where is this bubble Harry? What is going to cause it?
Rapidly rising interest rates? A massive rise in unemployment? Federal Labor re-election? Well that just might! But seriously, WHAT? I know we live in uncertain times but really, give me a break! 70% to 85% falls in value!
What if you are wrong and someone takes your advice, like Dr. Steve Keen for example, and decides to sell and rent? Only to pay more rent every year and have the pleasure of watching their previous home grow in value, and at the same time get increasingly priced out of the market. I hope you don’t take your own advice!
This constant doom and gloom is far more damaging than most spruiks. And it is catching. Heck it must be, even the Rolling Stones have a new song titled Doom and Gloom…GRRR!
And for the record since 2000, according to the REIA, house prices in:
Sydney rose 91% (5.5% pa compound growth) from $337,000 in 2000 to $642,000 today
Melbourne rose 103% (6.1% pa) from $264,000 to $535,000
Brisbane rose 179% (8.9% pa) (you cannot even get your babble right!) from $155,000 to $433,000
Adelaide rose 193% (9.4% pa) from $135,000 to $395,000
Perth rose 201% (9.6% pa) from $158,000 to $475,000
Hobart rose 185% (9.1% pa) from $130,000 to $370,000
Canberra rose 168% (8.6% pa) from $184,000 to $494,000
Darwin rose $200% (9.6% pa) from $190,000 to $570,000
Most of these capital city markets saw their price growth curves peak in the early 2000s and have been largely growing well below long-term averages since then. This has particularly been the case in recent years. And why single out Brisbane?
For the full Forbes article go here.
Michael Matusik is the director of independent property advisory Matusik Property Insights and writes the Matusik Missive which is free, however, reprinting, republication or distribution of any portion of this material, or inclusion on any website, is strictly prohibited without the written permission of Matusik Property Insights and may incur a charge.