There are always bubblers and doomsayers around predicting the bursting of Australia’s property bubble.

But recently US demographer Harry Dent has been wandering around the country telling anyone who’ll listen to him that we’re on the verge of an economic winter and when it comes, the fallout could be worse than even the Great Depression of 1929.

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I had a chance to interview Dent, one of the world’s most controversial economists, on my Michael Yardney Podcast and hear him predict that the stock market could possibly crash 80% just weeks or months from now, and that our property markets will eventually crash with Sydney real estate house prices likely to drop by as much as 40%.

Now Harry comes to Australia every couple of years, usually when he has a new book to promote (as he does this time), throws the cat amongst the pigeons by predicting Armageddon and in the process gets lots of publicity for his books and seminars.

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Only last night my sister, who knows little about property asked me: “Is the value of my house really going to drop 40%? I heard some American guru on TV say that’s what’s going to happen.”

So, is Dent right this time? Are we in for a property market collapse?

I’ll try and answer this with a Q&A.

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What’s all the fuss about?

Having spoken personally with Dent I could hear the conviction in his voice as he explained how “Every boom must bust” and we are in more than a boom… “we’re in a bubble”.

Dent says: “This bubble is unlike any before it because governments are unnaturally propping up the economy using quantitative easing.”

“Governments are pouring money into the economy. It’s not going to the average person, its going …to corporations (who are) buying back their own stocks with almost zero cost money. That is a fake boom.”

“So, this bubble doesn’t even have the fundamentals behind it. Which means that when it does burst, it’s going to burst worse than the last bubbles did.”

Dent predicts that our stock market will crash after the Chinese property market crashes, but the world-wide fallout will be a worse than the Great Depression of 1929.

Is this something new?

Interestingly Dent made similar prediction in 2011, 2012, and 2014 as did The Economist and Demographia.

In early 2014 Dent came to Australia warning that when the China Bubble Bursts – and it was meant to by mid 2014, just weeks after his forecast was made – Sydney house prices could collapse by up to 55%.

Now that didn’t happen did it? Instead our major property markets boomed!

Back in 2012 Dent was quoted in Forbes Magazine as saying “…the greatest housing bubble in developed-country cities starts with Brisbane, Australia…”

When I asked him on my Podcast what he had to say to those who sold up their homes based on his predictions his answer was: “Well I was wrong.”

He continued with much conviction to explain that while the timing was premature, his forecast is correct because he has no doubt that we are in a bubble.

So what is a property bubble?

Investopedia defines it as:

“A run-up in housing prices fuelled by demand, speculation and the belief that recent history is an infallible forecast of the future. Housing bubbles usually start with an increase in demand in the face of limited supply which takes a relatively long period of time to replenish and increase. Speculators enter the market, believing that profits can be made through short-term buying and selling. This further drives demand. At some point, demand decreases or stagnates at the same time supply increases, resulting in a sharp drop in prices – and the bubble bursts.”

For mine, bubbles are also accompanied by easing of lending criteria so that loans are easily obtained leading to rapid rises in housing credit, with many people who can’t really afford to take on loans speculating and overcommitting themselves.

Are we in a bubble?

The simple answer is NO, and property values are not about to collapse!

Sure, house prices are high compared to many parts of the world, but rising prices per se don’t cause a bubble.

What is needed is for the rises to be fuelled by increased borrowings – leverage – which makes the banking system fragile and unstable.

Story continues