Five reasons why Aussie house prices won’t crash by 40 per cent

PROPERTY price doomsayers have returned to TV screens, last week warning of a 40 per cent tumble in Aussie home values next year. Here’s why they’re wrong.

THEY’RE ba-ack! Property price doomsayers have returned to TV screens, last week warning of a 40 per cent tumble in Aussie home values next year.

It’s a horrifying thought for homeowners and investors, but the good news is that the claims are garbage.

Some of the property experts quoted in last Sunday’s 60 Minutes later distanced themselves from its report, and said it focused on worst-case scenarios rather than likely events, while other experts slammed it as a beat-up.

But scaring people gets good ratings, right?

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It’s not the first time the program has predicted property armageddon. Two years ago it had a US researcher saying our real estate prices would collapse 30 to 50 per cent. That didn’t happen.

And a decade ago Aussie economics professor Steve Keen predicted a 40 per cent collapse within 12 months and sold his house in Sydney based on this. He missed out on Sydney’s next boom and lost a bet with a Macquarie Bank analyst that resulted in him walking from Canberra to Mount Kosciuszko wearing a T-shirt that said “on house prices I was hopelessly wrong”.

House prices might look a little wobbly at the moment but a collapse is highly unlikely.

Home prices fell last month in five out of eight capital cities, according to CoreLogic, and people who bought at the peak in boom cities have lost some wealth.

Doomsayers are always predicting price crashes but in Aussie property they have never been correct. Here are five reasons why we won’t see a 40 per cent fall nationally in house prices.

1. INTEREST RATES ARE LOW

A house price crash can happen if home loans become unaffordable and borrowers have no choice but to sell. Our interest rates are at record lows, and the Reserve Bank could cut them more if things got too hairy.

2. UNEMPLOYMENT IS LOW

When people lose their jobs they can’t afford to pay their mortgage and we can enter crash territory. Australia’s unemployment rate is a low 5.3 per cent and economists don’t expect it to rise quickly any time soon.

3. SUPPLY AND DEMAND

House prices will plunge if there’s a big oversupply, but that’s not an issue affecting Australia. About 250,000 people have been immigrating here each year — requiring a lot of roofs over a lot of heads.

4. DIFFERENT LOAN TYPES

In Australia, if you can’t pay your mortgage the bank takes your house. In the US — from where a lot of doomsayers seem to come — many property owners can simply hand their keys back to the bank and the bank takes the debt. This helped fuel the US house price collapse during the GFC.

5. OUR BANKS STILL LEND

Banks have become tougher lately, demanding more income data and being more conservative mortgage lenders, but they are still handing out home loans. Customers just need to jump through more hoops, which is probably prudent.

@keanemoney