Experts dispute report with claims of 40 per cent house price fall in 12 months
Experts have questioned claims of a 40 per cent drop in Australia’s house prices, made over the weekend on 60 Minutes.
Martin North, the founder of Digital Finance Analytics, said ballooning household debt, compounded by sliding prices in Sydney and Melbourne, would cause house prices to fall fall 40 to 45 per cent in the next 12 months.
“We’ve got a debt bomb a debt crisis and at some point it’s going to explode in our face,” he said.
60 Minutes – The Debt Bomb That No One Wants To Talk About https://t.co/yHcXLyhYAzpic.twitter.com/6o3M7pVTRt
— Martin North (@DFA_Analyst)
September 16, 2018
Experts have rubbished the claims made on Sunday night, saying the very worst case scenario was presented.
“Look, anything’s possible,” Grattan Institute fellow Brendan Coates scoffed. “But the real question is what’s likely, and a 40 per cent fall in the next 12 months is not likely.”
AMP Capital chief economist Shane Oliver said the doom-saying was all too familiar. “[40 per cent] seems to be a common number that pops up in these crash calls,” he said.
Note: I DO NOT believe the Australian housing market is going to crash. Syd & Melb are significantly overvalued but I take the view the overvaluation will likely unwind over a longer period of time. #60minutes 1/
— Louis Christopher (@LouiChristopher)
September 16, 2018
I stated in my interview with #60minutesthe risks as well as the safety valves that are still present in the market. E.g strong local economies, strong population growth, banks very unlikely to fail, etc. The program covered my comments on the risks and overvaluation only. 2/
— Louis Christopher (@LouiChristopher)
September 16, 2018
Anyway, I think I have said what I wanted to say here. It was largely the @DFA_Analyst show afterall! 45% down the next 12 months?! Ok, over to you, Martin!
— Louis Christopher (@LouiChristopher)
September 16, 2018
Mortgage stress and falling prices were the primary factors of concern on the program, which claimed the number of foreclosures was rising, and the banks were obfuscating the real numbers.
Market Economics managing director Stephen Koukoulas said this was a weak claim.
“There’s a whole lot of reasons to suggest prices are going to be weaker for a shorter amount of time, but it’s remarkably orderly,” he said. “People aren’t rushing in to hand over their keys.
Unfortunately, Martin has rejected my very generous offer
My open letter and offer to DFA’s Martin North – Skin in the game on house prices https://t.co/5on4A0W9X8— Stephen Koukoulas (@TheKouk)
September 17, 2018
Dr Oliver said mortgage stress was actually a relatively low risk area for the Australian housing market.
“There’s a lot of talk about people in mortgage stress, but from what I’ve seen, mortgage stress is a lot lower than in 2011 when rates were much higher,” he said. “I’ve been watching this for at least 15 years.
“There’s no doubt people are in mortgage stress, but it doesn’t seem to be as big of a problem as the reports suggest.”
Domain economist Trent Wiltshire said claims about mortgage arrears trending slightly upward were accurate, but needed to be viewed in context.
“Mortgage arrears have increased a little bit but this is due to Western Australia and the Northern Territory, which are recovering from a downturn in mining,” he said.
Politicians, regulators and the banks were preparing for a house price fall, but something catastrophic would need to happen if a two-fifths drop were to eventuate, Mr Coates said.
“They’re worried about China falling into a hole, a trade war waged by President Trump,” he said.
Mr Wiltshire said such an event could cause unemployment to spike, which would be an actual cause for concern.
“But even then, the RBA and the government have tools to fight this like they did in the GFC,” he said.
For house prices to fall to the levels Mr North predicted, an unemployment spike would need to come hand in hand with rate rises, which the Reserve Bank would be “mad” to level on the market, Mr Coates said.
Prices will fall over the next few years, but Dr Oliver said the more likely outcome is a further drop of 10 per cent over more than a year.
“Top to bottom that’s about 15 per cent in Sydney and Melbourne. I think we have a couple of years of declines in front of us,” he said.
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