Rising Property Prices? Housing Prices Tipped to Go Through the Roof -That's What Economists Say
Sometimes i think id like some of the fantasy pills that economists take. And id also like a couple of the special "suspension of disbelief" drugs that are obviously issued to every journalist at the beginning of every working day.
Because here we have the latest report of the comments from Reserve Bank economist Dr Tony Richards. Screaming headlines greeted us regarding a potential surge in housing prices in Australia. "Surging house prices could price battlers out of housing market" and "Brace for a housing price-rise flare up" were just a couple of their leads.
I'm sorry. Where have you all been in the past year? Housing prices have gone through the roof already. Why must economists and the media continue to predict things after they have already occurred? Baffling.
So all their stories related to the comments from Richards who suggested that Australia might see a serious rise in house prices due to a lack of supply."Looking forward, the risk is that we might move towards undesirable strong growth in housing prices," Richards said.
Really Doctor? And the last year, what, those serious price rises didn't happen?
In a statement of the bleeding obvious Richards stated that "It is looking increasingly clear that Australia has avoided the large falls in housing prices seen in some other countries over the past two years or so." Hmmm. Yes Doctor. Thanks for that wisdom.
So the battlers could be excluded from purchasing a house? Umm, I'm sorry, but who do you think has been buying over the last 12 months? The number of loans issued to first home owners have hit record highs. I'm just thinking out aloud here, but if they are battlers and find it difficult to make mortgage payments, should they really be borrowing $300,000? We are likely to see them come under stress when interest rates rise.
Ive been keeping a close eye on the property market here in Melbourne. Thanks to low interest rates, high wages, stimulus payments and first home owners grants, property prices have never been higher. Ive watched as older one bedroom apartments in an outer suburb of Melbourne went from around the $200-220,000 mark to $270-300,000 - all in the space of about 9 months.
That's actually a true story. Its hard to believe, but prices for one bedroom apartments in many of Melbourne's suburbs have almost doubled in the last 5-6 years.
Is that not a price surge that has already occurred Dr Richards? Its much the same all over Melbourne, and as far as i can tell, most of Australia. That's not just anecdotal evidence. The size of the average loan has increased significantly over the last 12 months. Add that to the massive first buyers grant and you have increased prices.
The problem is that Dr Richards suggests that it is all about supply and demand. True, to a point. I didn't do an economics degree, but the problem as i see it is that he is equating current demand with what will occur in the next 12 months to 2 years. I don't think it will be the same. Which then in turn will lead to a drop in house prices.
Why? Numerous factors, which i went into here previously - 3 months ago. In summary, interest rates are set to rise significantly, coming off 50 year lows. Stimulus payments have ended. The first home buyers grant is winding down. And all these factors could well lead to a drop in market confidence. Take some of the investors out of the market and prices could soon start tumbling.
Yes, a belief that house prices might fall actually means less demand Dr Richards. I understand the "people need a roof over their head" argument, but there is more to prices than just that. There is always a tipping point. See the United States housing price crash.
Australia has some of the most expensive housing in the world. It cant keep rising, it's just not sustainable.
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I also think as long as it is easier for people to buy an investment property (with all the tax breaks they get) than a home, prices will be artificially inflated. Even with the first home buyers grant, negative gearing is a much more attractive option.
The more homes are traded as investments rather than a roof-over-the-head, the more they will be succeptable to kinds of things which happen with other investments - sharp rises/drop's and more risk.
Just to add to your prediction Grump, the first home owner's grant led to a bunch of idiots going, 'ohhh, that's more I can spend!' instead of being wise and saying, 'ohhh, that's less that I have to borrow!'The median house price rose by $40k from August to September. That's an enormous burst and your are 100% right, it's unsustainable. And your time line too, one to two years will see prices fall dramatically as those that borrowed on the promise of low interest rates struggle to keep up with their giant mortgages. We will see a generation loosing money hand over fist as they sell up and re-enter the rental market... or set up a tent in the botanical gardens.
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