[Podcast] Is 60 Minutes right? Will our property markets crash 40% | Dr. Andrew Wilson & Pete Wargent

“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. Podcast Cover 60min V1

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.

But today I’m chatting with 2 experts, Pete Wargent and Dr. Andrew Wilson to bring some sense back to the discussion.

Some highlights from the chat with Pete Wargent

  • Different property markets behave differently, but generally speaking, if you own capital city property, you don’t need to worry about a crash.  property market
  • 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.

Some highlights from the chat with Dr. Andrew Wilson

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? news bad economy

  • 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.

Links and Resources:

Michael Yardney

Metropole Property Strategists

Michael Yardney’s Property Renovations and Development Workshop

Pete Wargent

Dr Andrew Wilson

Some of our favourite quotes from the show: light-bulb-idea-leader-think-smart-clever-property-house

“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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NOW READ:  A ticking time bomb for property investors. Prices will fall 40%. Is 60 Minutes right?

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About

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 his opinions are regularly featured in the media. Visit Metropole.com.au


'[Podcast] Is 60 Minutes right? Will our property markets crash 40% | Dr. Andrew Wilson & Pete Wargent' have 2 comments

  1. Avatar for Property Update

    October 4, 2018 Peter Doidge

    Dear Michael,
    I read your response to the so-called “alarming and sensational” 60 Minutes story with interest. I have not seen the 60 Minutes programme but have watched some extracts from it.
    Your counter-arguments do not convince me.
    In the first place, it is simply not correct to assert that “there’s no historical precedent for a 40% crash”.
    There most certainly are historical precedents, and one happened in Melbourne, in 1891. As an article in the Australian Financial Review indicates, property values in Melbourne fell by some 50% or even more, in some areas.
    https://www.afr.com/personal-finance/the-great-australian-property-crash-of-1891-why-it-could-happen-again-20151207-glh724
    We also have the much more recent examples of property price crashes in the USA, prior to the 2008 liquidity crisis, and in Spain, Ireland, and other countries, in the wake of that “GFC”.
    Charles Kindleberger’s “Manias, Panics and Crashes” references other historical property price crashes.
    I regret to say, but your response reads very much like “it can’t happen here, because Australia is special”. Australia is not special, and we are subject to the same economic forces as those affecting other countries. If the Fed raises rates sharply in the US, in coming months, then Australia will be forced to follow and the banks will raise rates too. Instead of reciting figures on job creation (and how many of those “new” jobs are casual and part-time, providing no retrenchment benefits in the event of job lay-offs?), you should be looking at the data regarding the various proportions of mortgage holders who will be sensitive to various incremental rises in interest rates. I do consider that a sharp drop in Aussie house prices can only result from some kind of “external” shock, and that ay well be some kind of “black swan” event.
    However, that many be, it’s no use pretending we are “special”, and insulated from world events. And it is also no good cheering a falling Aussie $, as Philip Lowe seems to be doing, as that will simply raise the cost of living for all of us.
    Cheers

    Reply

    • Avatar for Property Update

      October 4, 2018 Michael Yardney

      Peter thanks for taking the time to leave your detailed response – you’re correct the last big crash was 1890’s – things are very different to then. We have a sound federally controlled banking system.
      Plus all the other points discussed

      Reply


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