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Triggers to a crash | Michael Yardney [Podcast]

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There is so much uncertainty in the market right now with people concerned about a crash. decrease rent price house cost stats data crash property market decline

All the talk about a property market crash usually comes from people overseas who don’t really fully understand the Australian market.

What needs to happen in the economy to cause dwelling prices to fall significantly?

In a recent Real Estate Talk Michael Yardney, from Metropole Property Strategists, discussed 8 things that would need to happen.

HERE’S A TRANSCRIPT OF THE INTERVIEW:

(Alternatively you can listen to the short podcast at the top)

Kevin:  What could possibly cause the market to crash?

Michael:  To make things clear…

Michael YardneyWe’re not discussing the cyclical proeprty market correction when things slow down, as they always will but a market crash.

For property markets to collapse, people are going to have to be forced to sell their homes at a time when there is no one willing to buy them so that property values will drop substantially.

There’s no doubt that currently there are some segments where property markets are losing ground – in particular, the new and the off-the-plan markets, foreign investors are having difficulty getting financed but so are local investors.

But in general,  most people who own properties are owner-occupiers, homeowners, many without a mortgage or with a little mortgage and these people don’t just sell; they simply remain in their home waiting for things to pan out.

People are not going to outright sell their home and take a loss – unless you have some major shocks.

Can we go through what those shocks could be?

Kevin:  Let’s do that.

Michael:  What could cause people to be so desperate that they’re forced to sell their home? economy

Firstly, high unemployment. That could trigger a wave of forced sales.

But we know have our economy is doing reasonably well.

Unemployment hasn’t gone up. In fact, there’s been considerable jobs growth.

A lot of the jobs being created currently are part-time jobs, but there are still significant jobs growth in Sydney and Melbourne, in particular – and in fact, in all our capital cities – and employment data is coming out positive, so I don’t think that’s going to happen.

Another thing that could force people to significantly get into mortgage stress.

What I mean by this is to have a  situation where people have to desperately sell their homes and cause property values to crash we would need high interest rates where a raft of homeowners default.

This is not on the radar of any of the economists or any of the banks.

Interest rates interestingly probably wouldn’t have to rise a lot, not to the 7% or 8% – or the 16% we had years ago.

Just a 0.5% or 1% interest rate rise will stop this market dead, but it won’t cause people to sell out.

Remember… our banking system is underpinned by residential property lending – and the banks, the system, the government has a vested interest in keeping dwelling prices at least stable.

The government doesn’t want it’s constituents to lose value in their homes.

The only people who want the market to crash seem to be  those who have missed out on the market boom of the last few years; they’re hoping that values will fall so that they can buy in cheaper. 

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Kevin:  Absolutely.

Michael:  The next thing is a severe recession.

That could cripple our economy. It would create unemployment and they would default on their mortgages.

But while we may well have a little recession one day – because we haven’t had one for years – it’s really, really unlikely in the foreseeable future.

It’s not on the radar of the Reserve Bank or any economists of us having a severe recession that would cripple our economy.

Of course, an oversupply of property could create a fall in property values, and that could occur in a few isolated markets – the Melbourne high-rise market, particularly in the CBD; the Brisbane inner-city high-rise apartment market also is suffering from an oversupply.

But that’s a sub-segment of the market, it’s not the whole market. property market

Our rising population has been one of the things that has driven our property markets, and population growth is slowing, but it’s not slowing so much that it’s going to cause a crash in the market. So I can’t see that being an issue.

Of course, the slowdown in foreign investment could well significantly affect certain sub-segments of the market, as we’ve already said.

Another one could be changes in government legislation.

It came up earlier this year with the concept that maybe negative gearing wouldn’t be allowed or superannuation funds couldn’t invest in property.

I don’t think that any of these things are on the medium-term radar.

So I can’t see a crash in the property markets in the foreseeable future.

Kevin:  What are the positives?

Michael:  Our population growth is robust, and that’s bringing new people in, plus we’re making more babies, so that combination of more people and basically a wealthy nation – our economy is healthy – is going to mean that these people are going to be able to, and want to, afford to buy properties.

We have a sound banking system, so it’s unlikely we’re going to have the problems of a lot of overseas countries had.

We have rising business confidence and rising consumer confidence. stock market money app techonology smart phone learn invest

When businesses feel confident, they employ people, they buy inventory and the economy moves on.

When consumers feel confident, they make decisions like buying houses, buying cars, buying investments.

While we’re taking on more debt, we’ve actually got a healthy comfortable level of household debt because interest rates are low, so in general, we’re managing those well.

The last thing is just our culture of homeownership.

70% of us own or are paying off our home.

There’s a lot of positives for the property market in general in the future, but of course, I can see a few little issues ahead that will give us some speedbumps to stop this strong rise we’ve been having.

Kevin:  So the bottom line?

Michael:  Well, for a number of years, property bubblers, doomsayers, property pessimists have been predicting that our housing market is going to crash. crystal ball future property city growth apartment find search predict

They have told us, “We’re denying the impending gloom, blinded by the consistent performance of our property markets.”

It’s unlikely for our property markets to collapse, but there’s truth in certain segments, they are going to correct.

It’s important to be vigilant, be aware what’s happening in the world economies that are affecting Australia, and take a strategic approach to investment and get good advice along the way.

Kevin:  Thank you very much for your time, Michael Yardney from Metropole Property Strategists.

Michael:  My pleasure, Kevin.

Listen to the full show at RealEstateTalk.com.au and while you’re there subscribe and receive our weekly podcast (or the transcripts) where I interview Australia’s leading property experts. 



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Australia's leading independent property commentator, brings together leading authorities on the property market. Each week at Real Estate Talk we take a fresh look at the property market so you get all the facts to help you make the right choice.
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