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Will house prices collapse?

By Peter Switzer

My mates at the Fairfax press are forever predicting the imminent death of housing: if it’s not a house price collapse, it’s a collapse in confidence or maybe a collapse in the share price of banks because of a housing collapse.

Why use those two words?

The words “housing collapse” must be great for getting clicks/readers or else their preoccupation with the housing sector might be construed that the young journos there want a house price collapse so they can get into a really hot property market.

That’s me teasing, of course.

Also read: Westpac raises mortgage rates, one day after NAB

The latest scary story

The latest scary story shows goes this way: “Confidence in the housing market has collapsed, with the number of Australians describing property as the wisest place to put their savings falling to its lowest level in more than 40 years,” The Age reports.

Stop the negative talk!

The Melbourne Institute of Applied Economic and Social Research has been surveying about the wisest place to store savings since it began its consumer confidence survey in 1974 so it’s a valid story. However, these predictions of doom could become self-fulfilling!

Two or three years away, at least

I know this house price surge has to end and, for some, it will end in tears because they’ll pay too much or will have to sell when the eventual recession comes along. That could be two or three years off however!

Can I cope with two or three more years of house price gloom? I have to admit price growth has to soon slow down and fall in some cities, suburbs and regions but this does happen, especially when the price growth has been sensational for Sydney and Melbourne.

Show no fear!

In his inaugural address to the American people, the truly revered US President, Franklin D. Roosevelt, famously warned that the “only thing we have to fear is fear itself”. Nowadays, as I’ve argued, I’m more afraid of newspaper headlines that pedal fear.

False headline

This week, one prominent newspaper (that I won’t name) ran with the click bait of “RBA fears house prices are heading for a collapse”. However, after you’ve fallen for that lure, you find a new headline: “Reserve Bank worried about collapse in apartment prices.”

Last time I looked, an apartment is not a house. And to add to the inaccuracy masquerading as news, we discover the Big Bank’s Assistant Governor, Michele Bullock, was really only talking about a “looming oversupply of apartments in Brisbane in particular, and possibly some parts of Melbourne.”

Note the word “possibly”. Also note that Sydney is not on the RBA’s worry radar screen!

Also read: NAB hikes standard variable mortgage rates

Oh, come on…

Wisely and pretty obviously, Ms Bullock points out that if there is a downturn, there could be “systemic issues for the banking system.” Really, who’d be surprised about that?

Things do recover

If there is an economic downturn, then unemployment will go up and so will bankruptcies. And considering most households and businesses borrow from the banks, well, yep, the banks will be in trouble. Their share prices will fall. Our super will become less valuable (as it did in 2008 and 2009) but then it will recover.

The CBA’s share price fell to around $27 during the GFC period of misery but it’s now at $84.49!

The economy goes up & down

We live in an economy that passes through cycles of booms and recessions. One day we will see a downturn, which will end up as a recession but we’ve dodged a recession for over 102 quarters. And soon we’ll break the world record of going 103 quarters of growth without a recession, held by the Dutch.

Then house prices will fall in many areas. Some suburbs will see prices level off. Others will see a house and apartment price collapse.

During the GFC, house prices in Palm Beach, Sydney, the Central Coast of New South Wales and the Gold Coast in Queensland all saw price collapses because these areas are often volatile in both directions.

Stop the negative talk

The biggest worry for house and apartment prices isn’t foreign buyers or ‘terrible’ investors but a recession. And there’s more chance of that happening if media headlines scare consumers and stop them from spending, which hurts business profits, which leads to less investment as well as less job creation.

Also read: RBA Ready to Tighten Rules for Housing Investors as Prices Surge

Trump could prevent recession!

Right now, we live in a local and global economy that has been slightly ‘trumped’ into positive action. If the US President gets a lot of his economic policies up, we can stop worrying about a recession for at least a couple of years.

If Trump succeeds in being the global economic circuit-breaker (as many suspect he will), then we will grow faster, the RBA will raise interest rates later this year and get the banks to impose more lending controls. And some of the hot air in the property balloon will be gradually released.

When the recession eventually shows up, stock prices and house prices will fall in many parts of Australia. Right now, however, we have better things to be concerned about and better things to be positive about.

Fear the media!

So I proclaim: “The only thing not to fear is scary economic headlines from desperate media outlets.”

Don’t worry, be happy

Bad times will come one day but enjoy the next year or so, though don’t overpay for property right now as we are at the top of the cycle in Sydney and Melbourne.

Peter Switzer is the founder of the Switzer Super Report, a newsletter and website for self-managed super funds.

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