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Claims that Australia is heading for a 50 per cent drop in house prices are ‘outrageous’, economists say

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Claims that Australia is heading for a 50 per cent drop in house prices are ‘outrageous’, economists say

For those excited by the prospect of snagging a home for half price following predictions of a home loan crisis and a plunge in property values, don’t get your hopes up.

Claims that Australia is heading for a 50 per cent drop in house prices are ‘outrageous’, economists say

A US-

based researcher’s predictions that we will witness up to 50 per cent price drops across Australia are “outrageous” and “not going to happen”, according to leading economists.

In a 60 Minutes episode on Sunday, Jonathan Tepper, founder of macroeconomic research group Variant Perception, predicted a property market crash of 30 per cent to 50 per cent.

Mr Tepper expects property prices to plummet at similar rates seen in the US, Ireland and Spain as a result of huge mortgages on “overvalued” property in Australia.

AMP Capital chief economist Shane Oliver said it’s nothing new to find people making claims of upcoming property prices crashes, but “unless we have a very severe recession or interest rates go sky high causing people to default, it’s not going to happen,” he said.

“They often make the claim that [Australia has] the highest household debt to income ratio, but if the figure is adjusted for the amount kept in offset accounts and for businesses … it’s at the same level as it was in 2007/2008,” he said.

“As we can see at the moment, the banks are telling us households aren’t having problems servicing their debt.”

While he said “everything is possible” and there is the chance fraudulent pay slips have been used by some brokers, the banking regulator APRA is serious on banking standards.

“If we had unemployment at much higher levels than 6 per cent, if we had mortgage rates at more than 10 per cent I would be much more worried,” Dr Oliver said.

“But I’ve seen all these claims before and there is an underlying resilience in the Australian housing market that sees it hold up,” he said.

Domain Group senior economist Andrew Wilson called the claims of a 50 per cent price drops in Australia’s capital cities “outrageous”.

“The clear characteristics of Australia’s capital city housing markets are orderly growth and correction phases, if anything we’re going to have a less volatile market in the future,” Dr Wilson said.

“Even in the deepest of recessions we haven’t seen [house prices drop 50 per cent], even in the 1990s with unemployment pushing over 10 per cent in some areas and high mortgage defaults, we saw a very modest change in house prices.”

Among all Australians, it’s typically under 5 per cent who are “highly leveraged” for their homes, with 96 per cent either owning their own home outright or paying less than 30 per cent of their incomes on repayments, he said.

“The logic doesn’t support any prospect of the type of house price drops being forecast by the doomsayers.”

HSBC chief economist Paul Bloxham does not believe Australia has a housing bubble, saying high prices are “explained by the fundamentals of supply and demand”.

“Most of the loans are held by upper income earners and the housing debt is fairly well allocated,” Mr Bloxham said.

While the ramp up in investor activity seen in 2015 was “concerning for the Sydney and Melbourne markets” he said measures taken to restrain those risks appear to have been successful.

“In Ireland, the US and Spain house prices went up and credit was misallocated to households who couldn’t afford to service it, but there was also an oversupply of dwellings, which meant when the falls happened [it was exacerbated],” Bloxham said.

In most areas of Australia there is no oversupply of homes and, in the case of Sydney, it is “very undersupplied,” he said.

However, LF Economics’ Lindsay David agrees “100 per cent” with Mr Tepper’s view the national housing market is “a bubble just waiting to burst” with a mortgage crisis on the cards.

“By global standards our banks are lending what could only be described as toxic sums of debt to homebuyers that will never be repaid,” Mr David said.

“One only needs to walk into a bank or mortgage broker and have a five minute chat to realise they will lend to you a sum of debt you could never ascertain in other countries with no core evidence that you could ever repay the debt, particularly interest only loans, in a market downturn,” he said.

Original Publish: http://www.domain.com.au/

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Opinion

Experts warn of ‘debt bomb’ as housing downturn worsens

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debt bomb
AUSTRALIA is facing a “debt crisis” — and the property market and our entire economy are at risk as a result.

That’s according to the sobering 60 Minutes segment Bricks and Slaughter which aired last night, revealing the country’s property downturn was just the tip of the iceberg.

According to reporter Tom Steinfort, the current slump is actually “more like falling off a cliff”, with a number of real estate and finance experts claiming houses could plummet in value by up to 40 per cent in the next 12 months.

If that happens, it would also cause an economic “catastrophe”.

Mr Steinfort spoke with data scientist Martin North from Digital Finance Analytics, who said Australia was uniquely vulnerable when it came to an economic crash tied to a property downturn.

“At the worst end of the spectrum, if everything turns against us we could see property prices 40-45 per cent down from their peaks, which is a huge deal,” he said.

“There’s $1.7 trillion held by the banks in mortgages for owner-occupies and investors. And that’s about 65 per cent of their total lending.

“That’s higher than any other country in the Western world by a long way.

“There’s probably no country in the world more susceptible to the ramifications of a housing crash than Australia. We are uniquely exposed at the moment.”

Mr North said Australia was now in the same position as the US was back in 2006 and 2007 — a position which triggered an economic collapse.

“As a society, and as a government, and as a regulatory system, we’re all banking on the home price engine that just goes on giving and giving and giving. It’s not going to,” he said.

“We’ve got a debt bomb, we’ve got a debt crisis and at some point it’s going to explode in our face.”

debt bomb

Melbourne homeowner Mohammed Souid told 60 Minutes his family was experiencing mortgage stress. Picture: 60 MinutesSource:Supplied

It’s a sentiment shared by Laing and Simmons real estate agent Peter Younan, who said the median house price in his patch in Granville in Sydney’s west had dropped from $1.2 million to $1 million in just one year — a shocking $200,000 plummet.

He said foreclosures had also risen by 600 per cent in the region.

“The mortgage stress is definitely being felt especially in this area,” he said.

60 Minutes also spoke with several Aussie homeowners who gave harrowing details of the stress they faced trying to pay off their mortgages, including having their power turned off and being “hounded’ by their banks.

What does a million dollars buy in Aussie capital cities?

debt bomb

Market analyst Louis Christopher of SQM Research said the market had been “clearly overvalued”, labelling the downturn as the “correction we had to have” — at least in Sydney and Melbourne.

“On our numbers, Sydney was effectively over 40 per cent overvalued. And Melbourne was overvalued by about the same amount,” he said.

But property investor Bushy Martin said the blame lay squarely at the feet of buyers who “mortgaged themselves up to their eyeballs” in a bid to snap up dream homes before being able to afford them.

debt bomb

Property investor Bushy Martin says homeowners are to blame for the crisis. Picture: 60 MinutesSource:Supplied

However, the segment has also sparked backlash online, with some claiming the situation had been exaggerated.

One Reddit user branded the report as an example of “alarmist journalism and scare tactics”, while another said it was “dramatic and cringe-worthy”.

Others also criticised the segment for making it seem like all homeowners would be affected, when the downturn was actually mainly focused in the NSW and Victorian capitals.

And some said it was unfair to blame the banks for the situation, and that homeowners needed to take responsibility for their own decisions.

That was in response to comments made by one homeowner on the program, who said the bank had “suddenly switched the mortgage to interest and principal”, raising his repayments by 57 per cent.

“The interest only part annoyed me the most. The bank didn’t ‘suddenly change’ your repayment from (interest only) to (Principal and interest) your IO term expired. You a) knew this would happen and b) assumed the bank would renew it when it expired. I hope this speculator gets burnt first,” one Reddit user said.

Related article: Experts warn of ‘debt bomb’ as housing downturn worsens

Source: news.com.au

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Opinion

Queensland is the next property hotspot, experts say

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Queensland is the next property hotspot, experts say

As New South Wales and Victoria continue to experience weakness. Queensland is expected to take the lead, a National Australia Bank (NAB) poll of property professionals revealed.

According to the survey, industry experts project house prices in Queensland to increase by 0.7% next year and 1.3% in two years.

Some areas seen to perform strongly over the next year include Brisbane, Cairns, the Gold Coast, and the Sunshine Coast. Out of the suburbs, Coomera and New Farm are expected to realize robust gains.

Meanwhile, Queensland’s rental market is also poised to enjoy an upward boost, growing by 1.3% next year and 1.9% in two years. This is despite the stricter rules on housing investment.

The respondents of the survey also expect Queensland to retain foreign buyer interest. In fact, the share of foreign sales hit a four-year high of 22.8% over the previous quarter.

The results of the survey go against NAB’s own projection of the market. For instance, the bank expects house prices to remain flat in Brisbane over the next three years. Unit prices, on the other hand, is seen to fall by 4.5% over the next year.

NAB chief economist Alan Oster said Brisbane’s housing market seemed to be going sideways and its unit market still creates concern.

“It hasn’t peaked yet, so that’s good. We’re seeing quite strong economic activity in Queensland, so that always helps,” Oster said, as quoted by The Courier-Mail.

Source: brisbaneinvestor.com.au

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Opinion

Gold Coast house values record the biggest growth in Queensland

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Gold Coast house values record the biggest growth in Queensland

The Gold Coast has recorded the strongest growth in house prices in Queensland over the past 12 months.

GOLD Coast house prices are leading the way in Queensland, up six per cent in the past 12 months to an average $620,000.

The latest figures by the Real Estate Institute of Queensland show homes on the Glitter Strip are $35,000 more on the same time last year.

Unit prices are up 1.9 per cent to $428,000.

Gold Coast house values record the biggest growth in Queensland
REIQ data reveals houses on the Glitter Strip are worth $35,000 on the same time last year.

REIQ’s Queensland Market Monitor for March said the strong population growth came on the back of infrastructure projects such as the $550 million Gold Coast Health and Knowledge Precinct and M1 upgrades.

“The property market has been one of the big winners from the sporting event as the $1.5 billion infrastructure investment has boosted confidence and demand for housing in the region,” the report stated.

“We expect house prices will show an upward path in 2018. However, this growth will most likely be more moderate.”

A quiet real estate period leading up to, and during, the Commonwealth Games likely contributed to a slight drop (-0.3 per cent) in the March quarterly median sales price, the report reveals.

Gold Coast house values record the biggest growth in Queensland
Andrew Henderson says a growing population and employment opportunities were contributing to a strong property market. Picture: Jerad Williams

REIQ Gold Coast zone chairman Andrew Henderson said he expected interstate migration to continue to benefit the city.

“I expect the market to remain strong,” he said.

“There is a heavy amount of interstate buyers moving here.

“I was at an auction recently where the winning bidder was from Sydney and the underbidder was from Melbourne.”

Mr Henderson said growing employment opportunities were also attracting homebuyers to the city.

Gold Coast house values record the biggest growth in Queensland
The Gold Coast property market is expected to remain strong.

“We have some of the best health facilities in the country and our universities are world recognised.

“Those two things alone complement the tourism industry and the lifestyle aspects that the Coast offers.”

The report found the fastest-selling suburbs on the Coast included Worongary, Merrimac, Highland Park, Mudgeeraba and Carrara.

It also revealed the rental vacancy held tight throughout the first quarter of the year at 1.1 per cent.

Gold Coast house values record the biggest growth in Queensland
Andrew Bell says the Coast had evolved from a tourist town into a vibrant city with an expanding economy. Picture Mike Batterham

Ray White Surfers Paradise Group CEO Andrew Bell said the Games heralded the next chapter for the Coast, as it evolved from a tourist town into a vibrant city with an expanding economy.

“The city’s property market is riding the irreversible momentum that has now come to the Gold Coast in terms of economic diversity and with more employment options we will need more housing options for people,” Mr Bell said.

“We are no longer going to be subject to tourism upsides and downsides as we were in the past because our economy has well and truly diversified beyond just tourism.”

Source: brisbaneinvestor.com.au

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