Economists have been quick to dismiss a US-based researcher’s prediction that Australia will see a 50 per cent drop in house prices, in a similar bubble-burst to what was seen in USA, Ireland and Spain.
Research group Variant Perception’s Jonathan Tepper made the claims on 60 Minutes, predicting a property market crash of 30 – 50 per cent due to big mortgages on overvalued property in the country.
Shane Oliver from AMP however, told Domain that he doesn’t think it will happen unless Australia falls into a deep recession or unless interest rates went through the roof causing people to default on their mortgages.
“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.”
“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,” Mr Oliver told Domain.
“But I’ve seen all these claims before and there is an underlying resilience in the Australian housing market that sees it hold up.”
Also quick to wave off the prediction was Domain Group’s senior economist Andrew Wilson. He went as far as to say the claims were 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,” he told Domain.
“Even in the deepest 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.”
HSBC chief economist Paul Bloxham said he doesn’t believe there’s a housing bubble and prices reflect the balance between supply and demand.
“Most of the loans are held by upper income earners and the housing debt is fairly well allocated,” he said, also speaking to Domain.
“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.”