Late last year economist Steven Keen predicted house prices will drop 5 to 10 percent this year.
More recently he suggested that house prices will be 10% lower by the end of the year.
Is he right?
Well…2012 will be a tough year for property, and I’ve given my thoughts on this in some of my previous blogs, but I found an interesting post in Chris Joye’s great blog.
This is a must read before you pay too much attention to Prof. Keen
Chris Joye said: –
A reader wrote to me the other day with an itemised list of Keen’s forecasts, which is more thorough than I have ever seen before. He asked whether I could post it up, and so I have obliged.
It is a revealing exercise writing down some of the claims Steve Keen has made:
1. In 2006, Keen said we may already be in a recession (we were not).
2. In 2006, Keen said the Australian Debt/GDP ratio would exceed 160% by 2007 (it did not).
3. In 2006, Keen said Australia will be in recession long before our Debt/GDP ratio falls (we did not go into recession).
4. In 2008, Keen said interest rates would be at 2% by 2009, and ZIRP by 2010 (the interest rate trough was 3%; today rates are at 4.25%).
5. In 2008, Keen said we would have double digit unemployment (up to 20%). Unemployment only rose to 5.8%, and is 5.3% today.
6. In 2008, Keen said we would have a severe recession, possibly a depression. We had neither.
7. In 2008, Keen said house prices would be down 40% within ‘a few years’. They fell by about 3% in 2008 (less than one-tenth of what Keen predicted), rose strongly in 2009, rose again in 2010, and have fallen by 2.8% in 2011.
8. In 2008, Keen famously made a house price bet with Westpac’s Rory Robertson, which he lost, forcing him to hike from Canberra to Mount Kosciuszko wearing a t-shirt exclaiming, “I was hopelessly wrong on house prices – ask me how.”
9. In 2008, Keen sold his Sydney home at a cyclical low point, just before prices rose more than 10%.
10. In mid 2010, Keen predicted an “an accelerating rate of decline in [Australian] house prices now, as they did in the USA when “Flip That House” ceased being a winning trade.” In Zappone’s latest SMH profile of Keen, he makes exactly the same prediction again. Zappone writes that Keen expects an “accelerating slide in prices.” In fact, Australian house price declines have not accelerated. They have depreciated slowly and consistently by a cumulative 2.8% in 2011. [Chis Joye: Yes, there is leading indicator evidence to suggest that rate of price declines will soon slow to a halt.]
Every single one of these calls has been wrong.
Sure it’s hard to forecast the medium term movements of our property markets, but if you’ve been following my blogs you’ll know I don’t anticipate a crash this year, but I can see certain markets falling another 5% in value.
We’re in for an interesting year in the world of property investment.
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