Economists say the concept of ‘FONGO’ (Fear Of Not Getting Out) will see a wave of property sell-offs during this property downturn.
FONGO, a blood relative of the more well-known FOMO (Fear of Missing Out), is driving concern that house prices may fall even further during the current downturn as property owners worry they will lose money if they don’t sell now.
A sensitivity analysis by the Reserve Bank last week showed that if homeowners adjusted their expectations of house price gains from 2.5 per cent per year to no increase at all, then real house prices could fall by a third over five years.
AMP Capital’s chief economist Shane Oliver told Australian Financial Review that this sort of dynamic could trigger a big house sell-off.
“The sensitivity analysis highlights the risk of FONGO taking hold,” he said.
“Net rental yields of just one or two per cent may be okay for investors when property prices are expected to rise at a decent rate, but they are not okay if investors revise down their capital growth expectations in response to now falling prices.”
Macquarie chief economist Ric Deverell said there was a definite link between falling house prices and property owners thinking about selling.
“These are big liquid markets so it’s not a case of not being able to sell, it’s at what price,” he told AFR.
“There is actually a conscious bias against selling for a loss and that’s why we get lower listings.”
Louis Christopher from SQM says he expects Melbourne to see a rise in listings as owners look to sell,
“Melbourne is likely to see listings up 20 per cent year on year over the next few months,” he told AFR.
“Sydney maybe less than that. More like 15 per cent.”
“But I stress I don’t think there is any panic in the market.”
“It’s a big downturn, but not one where there is real panic.”