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Andrew Bell’s Market Update: Will We See A Property Crash?

MARKET WRAP
Issue 22   |   October 27th, 2016  |  Will We See A Property Crash?

Will We See A Property Crash?

Shane Oliver, from AMP Capital, is without a doubt one of the enduring real estate researchers for +20 years, I have enormous respect for his accuracy throughout that time. Shane’s latest report touches on the fact that Australian real estate is incredibly expense. That comes as no surprise to most of us. He claims the reason for this is a combination of the shift from high to low-interest rates over the past 20-30 years, which boosted borrowing and buying power, and then the big one which is the inadequacy of supply. The graph below shows the accumulative shortfall of over 100,000 dwellings relative to underlying demand. This is partly is what I touched on in my last report, where I mentioned we needed cashed up overseas developers to help fund the development of additional housing supply.

Shane goes on to say that a surge in prices and debt has led many to conclude a property crash is imminent. He highlighted this as being drummed up many times over the past 10-15 years and suggests that a crash is unlikely because:

  1. There is not a generalised oversupply of property
  2. Despite talk of mortgage stress the reality is debt interest payments relative to income are around 2004 levels
  3. Australia has not seen anything like the deterioration in lending standards seen in other countries prior to the GFC.

In fact the reverse, that in recent years there has been a decline in low-doc loans and a reduction in loans with high loan to valuation ratios. Finally, whilst property prices have surged 60% & 40% over the past four years in Sydney and Melbourne they have fallen in Perth back to 2007 levels and there has only been moderate growth in other capital cities.

Shane goes on to say “to see a fall of some 20% you would probably need to see one or more of the following: that being a recession with much higher unemployment which looks unlikely, a surge in interest rates and that is also unlikely, and a property oversupply.” Whilst that may come into existence in some places throughout Australia it is not the situation in the overall Australian property market as the graph has shown.

Surprise $20 Billion On Revenues

Just another quick and separate point, we have always been described as the lucky country. We certainly can’t rely on just good luck alone but it is great to see a report this week in the Australian Financial Review showing that with the strengthening commodity prices in recent months the Australia Federal Budget could be the beneficiary of $20billion plus in revenues that we weren’t counting on. It puts a nice dent in the budgeted deficit but we will certainly need a lot more than that to address our deficits and our debt. But good news is good news and as a boost to our economy which is generally on a fairly good footing.

DO YOU WANT TO BE PART OF SOMETHING BIG?

The last thing before I finish up, we have just launched ‘The Event 2017 program. It is one of the great real estate events on the national calendar and we are proud to be the originator of the concept which dates back some 24 years. For anyone thinking of buying or selling you should be part of this great program and for your interest, we have included the short video link providing you with the details on how to be part of this ‘EVENT’.

All the very best for now. I will see you in a fortnight’s time.

Kind regards,
Andrew Bell, OAM
Chief Executive Officer
The Ray White Surfers Paradise Group

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