



Are property prices in Melbourne and Sydney really going to fall by 40 percent?

If you believe recent reports about the Aussie property market falling off a cliff, we’re really in for some trouble.

Also read: Is Australia drowning in debt?

Every few months, some property experts are willing to stick their necks out and offer a property market doomsday scenario, predicting the end of the world for property owners in Australia.

Also read: Aussie dollar is under pressure again

This happens in spite of the fact that such predictions have been proven wrong time and time again.

It’s not the first time we’ve had apocalyptic property market predictions in the media, and it won’t be the last.

Earlier this year I interviewed US author Harry Dent who was on a tour of Australia to promote his latest book predicting a coming Global Crisis worse than the GFC or even the Great Depression.

In my interview with him he said, “I think this time your real estate will come back 20, 30, 40, 50 per cent.”

Of course, he was wrong, just like he was when he came to Australia and made similar predictions in 2014 and the time before that. And interestingly the time before that too!

Also read: Your money would go a lot further in this Aussie state

But is the sky really going to fall this time?

The simple answer is no.

Sure, we’re in the slow down phase of the property cycle, but that’s how the property markets work. Booms don’t last forever.

They’re just one stage of the property cycle and eventually lead to the next stage the downturn phase.

But prices are not about to crash, we are experiencing a soft landing.

Here’s why I think it’s highly unlikely our property market will crash

For a property market crash, and that’s different to price growth slowing or the normal cyclically correction, you need desperate sellers willing to give away their properties at fire sale prices and no one willing to buy them.

This means for a collapse of 40 percent or so, therefore we need one or more of the following things to occur:

A major depression (not just a recession). Neither the RBA nor any credible economist is suggesting this will occur in Australia.

Massive unemployment with people not able to keep paying their mortgages. Instead we’re creating more jobs than ever

Exceedingly high interest rates so that home owners won’t be able to keep up their mortgage payments. Again, this isn’t on the horizon.

An excessive oversupply of properties and no one wanting to buy them. Other than in a few spots this is not occurring in Australia.

The positive factors underpinning our property markets include:

1 – We have a sound economy.

2- Our strong population growth underpins our economy and housing markets.

Interestingly most of these new Australians want to live in our four big capital cities and in many cases in many of the same suburbs.

And this won’t change in the near future. Australia will grow to 40 million residents in the next 3 decades.

This means we will be adding the equivalent of a city the size of Canberra each year for the next 30 years.

It took over 200 years to reach 25 million people, but now it will take only 3 decades to reach that milestone to 40 million.

3- We’re creating more jobs than we have in a long time, underpinned by our many new infrastructure projects.

The Australian Bureau of Statistics recently noted that “Over the past year, trend employment increased by around 300,000 persons or 2.5%, which was above the average year-on-year growth over the past 20 years (2.0%)”.

4 – Our banking system is sound, lending standards are tough and mortgage arrears are low.

Yes, some investors took on too much debt and became speculators, taking out interest only loans with very small deposits, hoping (speculating) that capital growth would occur.

This worked out well for some who bought the right properties, but others who over paid for off the plan apartments or who bought properties in regional or mining towns learned that properties values don’t only go up as today’s hot spot can quickly become tomorrow’s not spot and property values fall.

But, in general, over the last few years lending to investors has been more responsible.

Anyone who borrowed in the last few years was “stress tested” – they could only borrow if they were mot be able to repay their interest if interest rates rose and if they paid principal and interest

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