Ignore the real estate ‘experts’: housing isn’t going bust

Ignore the real estate ‘experts’: housing isn’t going bust.

Now that’s interesting advice- especially coming from an expert.

One of the commentators I have been following for a long, long time and one who has an outstanding track record is Don Stammer.

I learned a lot from Don in my early days of investing and I still respect his commentaries.

He has the perspective that only comes from years of industry experience.

And I concur with his recent opinions in The Australian when he recommended to “Ignore The Experts.”

He explained that we’re having a “reasonably orderly retreat” in house prices considering the surge we’ve experienced over recent years.

I loved his comment:

One interesting thing about being an Australian is we each are surrounded by 25 million housing experts. Google the phrase “Australian house prices” and in 0.54 of a second you’ll have a billion items on that topic to consider.

Clearly gloom has crept into the market and home buyers and investors are experiencing a crisis of confidence.

Stammers predictions are:

“In my view, housing, and the economy generally, does not face the full fire of dire times now feared.

But prospects are there’ll be a further, noticeable, fall in the median house price (5 to 10 per cent), followed by an elongated slump in house prices.

This will involve real pain for some home owners who purchased at the peak of the cycle, paid over-the-top prices or borrowed too heavily, especially where people lose their jobs or partnerships break up.”

In his article he had a go at the “unbalanced comments” from shows like 60 Minutes and Four Corner.

But it won’t be easy to maintain a balanced outlook

Stammers explains that each item of news on the housing market, including weekly auction clearance figures, will be dissected to see what unpleasant news it offers on the housing outlook.

Are things as bad, or even half as bad, as the army of naysayers claim?

Are there any shades of grey in the housing outlook?

Stammers believes that traditional concerns for housing — the high level of household debt and mortgage stress — are exaggerated.

But newer worries, such as the impact on bank lending from the revelations of unfair practices by the royal commission and from the likely introduction of changes to negative gearing and capital gains taxes (if the ALP wins government) will push housing prices lower and constrain recovery.

Stammers agrees that Australian households are now among the world’s most indebted.

House mortgages are the equivalent of 130 per cent of household income, and all debt of households stands at 190 per cent of household income.

But Stammers explains that plucking a couple of numbers — gross household debt and mortgage debt — from the aggregated balance sheet of Australian households is not enough.

These ratios do not include important “buffers” such as offset accounts, redraw facilities and prepayments making household finances more resilient.

He also reminds us that the distribution is uneven: one-third of borrowers have more than two years’ worth of prepayments while another third have less than a month’s worth.

What about Mortgage Stress?

Stammers says that “Mortgage stress” is often arbitrarily defined as repayments in excess of 30 per cent of a household’s income.

Thanks to low interest rates, the proportion of borrowers with mortgage stress isn’t much higher than it was a decade ago.

Of course, with 80 per cent of housing loans carrying variable interest rates, mortgage stress will become more widespread as rates rise.

Perhaps there’s some comfort, though, in the prospect that the next cyclical upswing in interest rates — maybe in late 2019 — will turn out to be mild and drawn out.

In fact the Reserve Bank observes: “At present, households in aggregate appear well placed to manage debt repayments. Reliable and relatively timely indicators point to pockets of household financial stress, but this is not widespread.”

Sure there are addition concerns regarding additional regulation of banks likely to flow from the royal commission and Labor’s commitments to abolish negative gearing on future investments in housing (except on new dwellings) and to increase by half the capital gains tax payable when investment property is sold.

But don’t listen to those 25 million property experts who think the end is nigh.

Like Don Stammer, I’ve been round the block a few times.

The economic and property fundamentals are sound.

Things as bad, or even half as bad, as the army of naysayers claim.

About Michael Yardney Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media.