Billions were wiped from the Australian share market in August, without warning from the economic experts who promote the idea that the sky is about to fall on Australian property.
I will take a look at some of the ‘expert’ claims and weigh their likely effect on the spring market.
This spring, homeowners wonder just what kind of market Australia faces. Traditionally the time for a resurgence of listings and sales, homeowners have been told not to bet on the Reserve Bank cutting interest rates, amid warnings of a property price crash by Christmas.
It seems the ‘experts’ predicted a property market crash keep moving the goal posts.
Back in 2008 during the GFC, Australian property prices were supposed to crash by up to 40 per cent, just as they did in the USA and UK. Then, when our prices rose, it was predicted there would be serious falls in 2009. Some said 10 per cent, others 20 per cent, and then Professor Stephen Keen chimed in with his now famous prediction of 40 per cent. The bidding war has continued, reaching predictions of a 60 per cent fall a few weeks ago.
None of this has happened yet the warnings from international economists continue to roll in.
For a moment it recently appeared as though the Reserve Bank might cut interest rates, but high inflation remains one of its primary concerns. The major banks have responded to the current crisis of confidence by sharpening their pencils but with international borrowing costs on the rise, this trend is unlikely to continue.
Three months ago, Fitch Ratings (US) reported mortgage arrears had shown a 30 per cent increase in the three months to March this year. This information was held up as evidence of trouble ahead and, let’s face it, a 30 per cent increase does sound like trouble. Many potential homebuyers would have interpreted the Fitch warning to mean distressed sales and distressed prices on the near horizon.
What was not made clear is that the Fitch data referred only to the ‘low doc loan’ portion of Australia’s mortgages, only a tiny slice of the total mortgage market in this country, and that the actual arrears rate was 0.42 per cent, up from 0.29 per cent.
How is the average homeowner, investor or first home buyer supposed to work that out?
Only one third of Australians have a mortgage. If there were a 30 per cent increase in arrears across all mortgages, nearly 2.4 million Australian households would be behind on their repayments. We wouldn’t need Fitch ratings to tell us about that; everybody would know somebody in arrears. Although that’s obviously not the case, it’s how it sounds.
So, while the analysts were looking for a property market collapse, the share market collapsed and the US has its credit rating downgraded instead. In one week, $100 billion was lost from the Australian share market. Where were those predictions? Where were the warnings about shares being so overvalued?
Perhaps a permissible observation is that while the Australian share market immediately followed the lead of overseas markets, the Australian property market consistently does not follow overseas markets, and with good reason.
Looking at Australian Bureau of Statistics House Prices Indexes, while the share market has tanked, average house prices across Australian capital cities have fallen 0.1 per cent in the last quarter, which effectively means there’s been no change. Even Brisbane, taken in isolation, has fallen just 3.6 per cent in a year and everybody understands the January floods have a lot to do with that.
So, will the share market turmoil of the past two weeks and its impact on confidence make it harder to sell this spring?
Market activity may be slower than usual as some people shelve plans to buy or sell and wait to see what happens. Without doubt, buyers will search for opportunities this spring, but homeowners would be well advised to work hard at presentation and to price their properties as keenly as possible.
This spring, unless a home is very special, buyers are unlikely to make offers on listings they feel are above market value.