Houses to fall 10% in 2012

Economist Steven Keen is at it again. This time he’s predicting house prices will drop 5 to 10 percent in 2012.

Is he right?

Well…2012 will be a tough year for property, but before I answer the question I posed, I’d like to mention that I find it interesting that Professor Keen is only predicting a 10% drop.

In the past he saw houses prices falling 40%. He made a public statement and put his money where his mouth was selling his home in Sydney a few years ago just before prices boomed.

Keen, who was forced to take a hike up Mt Kosciuszko in 2010 after losing a bet that house prices would fall 40 per cent, recently forecast a drop of between 5 and 10 per cent next year because buyers would opt to pay off loans rather than take on more debt.

In an article in the Sydney Morning Herald experts were lining up to contradict the extremist property analyst Steve Keen’s prediction with most forecasting moderate growth.

Releasing the Australian Property Monitors‘ property market outlook, senior economist Andrew Wilson tipped 3 to 5 per cent growth in median house prices nationally and for Sydney.

Dr Wilson believes ”demand for housing will intensify”, pushing up prices.

Median house prices nationally had dropped 4.2 per cent over 2011, he said, and 1.6 per cent in the October quarter.

Of course we’ve had two interest arte drops recently, but concerns about the European economy are taking their toll, with most Australian’s preferring to stash their cash or pay down debt as they see how things play out overseas. Many potential property buyers are waiting to make sure house prices don’t fall further.

Looking ahead, Dr Wilson said that since Australia’s economic fundamentals were strong, the nation was well positioned to weather any downturn in international markets.

”This, coupled with renewed buyer confidence, will be the key to driving prices growth in the new year,” he said.

Brisbane and Perth to do well

He said that Brisbane, the worst performer this year with prices down almost 7 per cent mainly due to the devastating January floods, would bounce back between 5 and 10 per cent off the back of the resources boom.

Likewise, Perth and Darwin. But Melbourne, due to big price rises in 2009 and 2010 and an apartment oversupply, could expect growth of between 0 and 3 per cent.

Shane Oliver, the head of investment strategy and chief economist at AMP Capital Investors, also disagreed with Keen. ”Didn’t he forecast a 40 per cent drop a few years ago?” he joked.

However, Oliver isn’t as upbeat as the others, expecting a weak start to 2012 because of economic uncertainty. Over the year, he says prices could drop 1 or 2 per cent nationally but he is more optimistic about Sydney. ”I’m expecting modest gains over the year of maybe 1 or 2 per cent for Sydney,” he said.

My thoughts:

2012 will be another year of crises. The Eurpoean debt problems will just be the start of it.

Fortunately Australia is well positioned to weather the storm, but we won’t be totally immune. I can see the first half of 2012 being tough for our property markets, but it looks like the RBA is likely to cut interest rates twice more next year.

This plus our own relatively strong economy should underpin our property markets.

I can’t see a round of forced sales causing our property markets to crash. However I can see values dropping up to a further 5% in selected property markets before prices stabiles and then eventually turn up.

It won’t take big rises in property values to bring those sitting on the sidelines

I t is likely that the average homebuyer won’t need to see a lot of price growth to regain confidence; they just want to know that home values won’t fall further. Meanwhile they are stashing their cash waiting for someone to ring the bell that the market has bottomed.

Of course no one will do that, so I like to remind buyers that they are not buying “the market” but an individual property in the market.

If they buy well and purchase a good property below it’s intrinsic value, they will be covered even if the market drops a little further. And when they look back in a few years time they’ll be pleased they took action while others waited for the “bell to ring.”


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