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So, where’s this property crash?

David Taylor
Contributing Editor

Towards the end of 2015, investment bank Macquarie, did something very brave. It called the end of the boom in property prices.

It forecast house prices would fall by as much as 7.5 per cent, starting in March 2016, with a recovery commencing in the second half of 2017.

“Our economics team are forecasting quarter-on-quarter house prices to fall from the March 2016 quarter before beginning to recover from June 2017, with a 7.5 per cent fall from peak to trough,” the bank said.

That didn’t happen.

In fact property prices, especially on the east coast of the country, continued to climb higher.

Latest data

The Bureau of Statistics recently spilled the beans on the current state of the Australian property market.

The numbers were largely unsurprising.

Overall, residential property prices rose 1.9 per cent in the June quarter, 2017.

Prices in Sydney rose 2.3 per cent, and 3.0 per cent in Melbourne. Those rises were partially offset by falls in Perth (0.8 per cent) and Darwin (1.4 per cent).

“Through the year growth in residential property prices reached 10.2 per cent in the June quarter 2017,” the ABS said.

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“Sydney and Melbourne recorded the largest through the year growth of all capital cities, both rising 13.8 per cent followed by Hobart, which rose 12.4 per cent.”

So yes, the property market is still basically pretty healthy.

The doomsayers

There have been plenty of doomsayers over the years. I’ll reluctantly admit I was one of them. I had good reason too: prices, on most estimations were overvalued, households were holding more debt than ever before, and the economy looked very shaky indeed.

If interest rates rose, or the jobless rate started to creep higher, or there was some growth shock from China, for example, the property market was ripe for the picking. Some analysts had it falling by as much as 20 per cent.

The reality

As we know, none of that eventuated. A combination of a strong growth in China, local business investment, and an increase in consumer spending, combined with fiscal stimulus from the government, has kept the economy alive.

The Reserve Bank has also sought to keep things moving along by maintaining record low interest rates.

So, folks have jobs, financing a mortgage has never been easier, and there is little prospect of interest rates climbing for at least the next 6 months.

Buying a home to live in, at the very least, is a no brainer, as long as you can afford the on-going mortgage payments.

The future

In addition to the factors supporting the property market, there are also some elements helping to drive prices even higher. A big one is immigration. It keeps climbing – by the hundreds of thousands.

That wouldn’t necessarily be such an issue on its own, but it’s still the case that not enough houses are being built. That lack of supply is keeping upwards pressure on house prices in Melbourne and Sydney.

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There was one more factor I didn’t foresee, however, in terms of continued house price growth. I didn’t predict that the government wouldn’t change capital gains tax concessions or negative gearing tax breaks. Both have kept investors in the market when prices were clearly moving beyond anything regarding reasonable valuations.


Of course, there are always clouds on the horizon (some darker than others at times). In the property market, those dark clouds are forming over the Brisbane skyline.

The governor of the Reserve Bank, Philip Lowe, recently made a speech where he made specific reference to it.

“We are also watching the Brisbane property market carefully, particularly the effect on prices of the large increase in the supply of new apartments.”

Perhaps to soothe concerns, the governor went on to say:

“More broadly, a range of indicators, including employment and retail trade, suggest that there has been a recent improvement in economic conditions in Queensland,” Dr Lowe said.

There are other risk factors too of course. One is a negative economic shock from China or the United States. Both would hurt the local economy, and thereby the housing market.

Perhaps the most acute risk for Australia is the amount of debt households are carrying.

The ANZ Bank is forecasting the Reserve Bank will lift the cash rate by 50 basis points, or 0.5 percentage points, next year, with the first rate rise as early as May.

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Martin North from Digital Finance Analytics warns that if rates do rise by that much the number of households in “financial stress” will rise from around 800,000 to over 1,000,000. And what do you do when you can’t pay the mortgage? You sell.


The Reserve Bank and APRA are also watching lending, and lending standards, very closely. If they sense that banks are going overboard to try and keep their earnings afloat, expect that they will continue to make life difficult for the banks.

Investor loans have already pulled back following recent actions by the regulators to slow lending growth.

All OK for now

Property crash? No way. Property correction? Unlikely. A continuation in property price rises on the east coast? Most likely. And the rest of Australia? It’s a little uncertain but prices should stabilise as long as the labour market improves – which it seems to be doing if you can believe the Reserve Bank.

Can we relax about the property market? Not a chance.