"Is a property crash 60 minutes away?"
Channel Nine's '60 Minutes' ran a feature with the sensational and alarming headline: "Aussie housing prices could fall by as much as 40% in next 12 months"
It’s déjà vu.
Every few months, the media finds someone who’s willing to stick their necks out and offer a property market doomsday scenario, predicting the end of the world for property owners in Australia.
In spite of the fact that such predictions have been proven wrong time and time again...
So, is the sky really going to fall this time?
Well, I think it's highly unlikely that the property market will crash.
- Different property markets behave differently, but generally speaking, if you own capital city property, you don’t need to worry about a crash.
- Australians do have higher household debt than people in other parts of the world, but it’s important to understand why that is. The government doesn’t own most of the housing stock, so most of the rental properties are owned by landlords. This means that Australia will likely continue to have higher household debt than other countries for the foreseeable future.
- In general, Australia’s debt is in the hands of people who can afford that debt – in the upper two quintiles. On the other hand, debt levels haven’t really increased in the lower income levels.
- In international terms, the number of people in mortgage arrears in Australia is very low.
- Tighter lending standards have caused an intended slowdown in the market, but a crash is unlikely.
Should we be worried – are our property markets about to crash?
- Looking at the historical data, the most significant fall in house prices since 1986 was 9.6%, and that occurred over 9 quarters.
- The next highest was 7.2%, and that occurred over 5 quarters.
- There’s no historical precedent for a 40% crash.
What’s the real story about household debt?
- Although debt has risen with houses prices, the proportion of household income required to service higher debt has fallen over recent years despite low incomes growth and low real wages
- And since the last Census, wages are up 4.1% and mortgage rates are down 0.5% with house price growth dissipating.
What about mortgage defaults? Are they really a problem?
- Such a huge volume of garbage is being written, filmed, podcasted, Facebooked, and blogged about mortgage stress right now that it’s nigh on impossible to keep up!
- An important metric to watch is the health of the labour market, with jobs growth still firing along and the unemployment rate continuing to decline to the lowest level since 2012, with further improvements expected over the next year or two.
What about the fear of many interest-only loans swapping to principal and interest?
- Investors who have taken out interest-only loans three or four years ago are in a position where they could repay more because interest rates are lower than when they took them on.
- Also, they would have more equity in their properties. They have the equity to cover converting into an interest and principal loan and at a lower interest rate.
What do you see ahead for our property markets?
- We’re in for a period where prices growth won’t be dissimilar from one capital city to another. It will reflect more local factors, like strong economic performance.
Some of our favourite quotes from the show:
“It’s unfortunate to see so many investors buy into this fear mongering and make emotional, sometimes panicking decisions, on the result of this scaremongering.” –Michael Yardney
“It’s the property market’s version of the women’s magazines that say Jennifer Anniston is pregnant again or Prince Harry and Megan are expecting a baby.” –Michael Yardney
“I see the coming months as a great time of opportunity if you’re looking to buy new investment or upgrade your home, because some people are going to sit on the sidelines, worrying and concerned, by all the scaremongering in the media.” –Michael Yardney
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