No-one is lucky enough to have a crystal ball, but five experts give us their views on what’s ahead.
With the property market showing signs of slowing, we asked a range of experts ‘where to now for the Australian property market’.
Is this the start of the crash some have been talking about, or is the market merely catching its breath?
MICHAEL WITTS, TREASURER, ING DIRECT
People relate crashes to what happened after the global financial crisis in the US and the market fundamentals are grossly different here. With current interest rates, the actual repayments on the average home loan are not markedly different to the costs of renting. It’s more a question of deposit affordability than servicing the loan and, if people can afford to rent, they can theoretically afford to repay their housing loan.
For there to be significant pressure on prices, we’d have to see a marked deterioration in employment. There is nothing on the horizon to trigger that.
SHANE OLIVER – CHIEF ECONOMIST, AMP CAPITAL
The property market is cooling and some time in the next couple of years I think we’ll see price falls – but I’m not in the crash camp. We’re talking more falls of 5 or 10 per cent like we had in 2005, 2009 and 2012 where prices pulled back after a period of strength.
To get a crash you would have to have a recession or much higher interest rates. There is some risk of a recession but Australia seems to be weathering the end of the mining boom quite well and substantially higher interest rates are also unlikely.
We also haven’t had anything like the deterioration in lending standards that we saw in America, though we are seeing potential for oversupply in areas like inner-city apartments.
JOHN SYMOND – FOUNDER, AUSSIE HOME LOANS
I certainly don’t see a bust around the corner. The main two areas of concern are Sydney and Melbourne. They are the only two cities to have had significant population growth and you have to house those people. Sydney, in particular, has suffered a shortage of housing for decades. State governments have never had a strategy to ensure an orderly supply of housing to keep up with demand.
We’re also going to see continued investment from China and other Asian countries. There is already some tapering off and there will be pockets where prices dip because they went up too much. There could also be areas of oversupply where prices come off, but that will only happen in those areas.
LINDSAY DAVID, FOUNDER, LF ECONOMICS
Unfortunately, history has an excellent record of repeating itself. Any nation in the past that has attempted to defy the common laws of economics through the use of rapidly expanding household debt has seen their housing markets boom, followed by an awful bust. Australia’s household debt to GDP [gross domestic product] ratio now stands at a colossal 121.5 per cent (the 2nd highest in the world). Since 1996, house prices have outpaced economic fundamentals such as inflation, household incomes, rents, construction costs and GDP, demonstrating that the housing market is in an asset bubble.
Three things that could trigger a crash are rising unemployment, higher interest rates and a reduction in the availability of debt. Slowly but surely all three are becoming more likely.
ALEXANDER PHILLIPS, PRINCIPAL, PHILLIPS PANTZER DONNELLEY REAL ESTATE
I don’t believe the market will crash. Everything is geared to buying real estate – low interest rates, a volatile sharemarket, low rates on deposits. In recent weeks we’ve seen a slight adjustment but buyers are jumping quickly back in once they start seeing better value. There is no shortage of buyers willing to get into the market.
Going into next year the market will be slower but there are no signs there will be a crash. We’ve had strong sales across all price brackets, despite the dip.
What do you think will happen in the Australian property market in the next 12 months? Tell us in the comments below.
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