The property doomsayers have returned. They seem to fade away when economic forecasts become even mildly positive, but once expectations turn downwards there’s an immediate incursion of negativity.
On September 14 Melbourne’s Herald-Sun ran an article by John Beveridge that showcased the ‘housing prices are about to crash’ theorists, including University of Western Sydney Associate Professor Steve Keen.
In the article, Professor Keen says the claims of an undersupply of housing stock are not supported by evidence; any strength in the market is a ‘distortion’ caused by the variety of stimuli applied by state and federal governments.
The article then referenced British commentator Jeremy Grantham, well-known for his repeated use of the word ‘bubble’ when discussing housing prices in the UK and Australia, who thinks there’ll be a 50% fall in property prices.
Beveridge’s article also reported on American economic forecaster Harry Dent who during a recent visit to Australia predicted a coming economic collapse that will, as the article describes it, take housing prices “back to where they were a decade or more ago.”
However, as the article goes on to say, offshore forecasters often make predictions based on their own experiences. If they haven’t experienced the property markets in Australian capital cities, especially that in Sydney, they haven’t experienced a different set of conditions that have kept prices stable through all the economic ups and downs of the past three years.
Australians can Afford Mortgage Repayments
Professor Keen doesn’t have the same set of excuses. He appears unable to see his own country’s current economic strength resulting from commodity exports, leading to relatively low unemployment levels and high wages.
He ignores the favourable taxation treatment of housing, both in terms of capital gains and in the ability of investors to negatively gear their property purchases. And he also seems to have missed the fact that the majority of Australian mortgage indebtedness is held by people who can afford to make the required repayments.
The doomsayers utter their dismal forecasts, grab a headline or two, and then quickly fade away as the next upwards stage of the property cycle begins. It’s not hard to see that Australia is experiencing a lull in the cycle at present and even Sydney property has lost some of its buoyancy.
Interest Rates Level Off
On the brighter side, this lull has contributed to a levelling off of interest rates that looks like lingering into 2012. An AAP article by Jason Cadden published in the Daily Telegraph reported on a survey of twelve economists who were in total agreement that the Reserve Bank will keep the cash rate at 4.75% where it's been since November 2010.
Stable and relatively low interest rates are one of the property market’s best stimulants. The NSW Treasurer, Mike Baird has found another way to really get things moving.
Mr Baird recently announced that from January 1 first home buyers will once again be paying stamp duty on purchases of existing homes costing over $500,000.
A partial exemption will be available for first home buyers on homes worth between $500,000 and $600,000.
Following the announcement, Sydney auction clearance rates suddenly leapt past the 60% mark and are unlikely to subside before Christmas.
A September 12 story on the News.com website quoted Dr Andrew Wilson, senior economist for Australian Property Monitors, who said that the rush of first home buyers onto the market would cause a rise in prices “at the affordable end of the market.”
The story also quoted Real Estate Institute of NSW president Wayne Stewart who agreed with Dr Wilson about the rush the impending stamp duty impost would cause.
"We have a positive and a stable 12 months ahead,” he said. “We will see a rush on properties in the lower quartile, prices will inflate and we'll see a hangover period after that."
Housing a Good Investment
Louis Christopher, managing director of SQM Research, said in his group’s latest property report that Sydney stood out as a being on track for house price growth of between zero and 4% by the end of 2012, factoring in no interest rate change.
His view is supported by Dr Andrew Wilson who wrote in the Sydney Morning Herald on September 4 that key indicators point to continued stability in the Sydney housing market over spring with a genuine prospect of increased homebuyer activity.
Dr Wilson pointed out that Sydney's median house price has fallen by just 0.6% cent over the year ending July 2011. According to Dr Wilson, this is a remarkable result given the general national decrease in affordability and buyer confidence over this period.
“Under pressure, confidence in Sydney's housing market has remained firm, reinforcing its Gold Standard status not only within Australia but also increasingly when compared with overseas markets - a factor attracting increasing numbers of international investors.”
The biggest problem for the doomsayers is that they’re outvoted by the experts. Sydney real estate is unique in Australia – and just maybe in the world.
Sources:
- Zappone, Chris, ‘Economy returns to growth in June quarter,’ Melbourne Age
- 7 September 2011
- Nicholls, Sean, ‘Treasurer's balancing act,’ Sydney Morning Herald, 7 September 2011
- Nicholls, Stephen, ‘Build it or lose it: government sets deadline for stamp duty concessions,’ Domain 6 September 2011
- Zappone, Chris, ‘Report: House prices to slide further in 2012,’ SMH.com
- 7 September 2011
- Wilson, Dr Andrew, ‘With interest rates on hold, don't give up on the joys of spring,’ SMH 4 September 2011
- ‘Commonwealth Bank in mortgage pledge as asking price for homes slashed in some states,’ News.com.au 12 September 2011
- Cadden, Jason, ‘Economists believe the Reserve Bank will hold off on an interest rate rise,’ Daily Telegraph from AAP, 2 September 2011
- Matusik, Michael, Business Spectator, 2 September 2011
- van Onselen, Leith, ‘Australian homes are overpriced, but how much?’ Business Day 14 September 2011
- Beveridge, John, ‘The Australian property bubble can withstand greater adversity,’ Herald Sun 14 September 2011
Philip Keeffe - Phil Keeffe is an Australian journalist originally from California who has lived in Sydney since 1968. His communications background ...
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