Last week on 60 minutesAmerican demographer and economist Harry S Dent said Australian house prices could fall by up to 50 per cent in the coming years.
While predictions of a collapse in Australian house prices usually receive considerable attention, AMP chief economist Shane Oliver said such sentiments have been expressed at several repeated over the past two decades. In fact, he said many of Dent’s previous price predictions have not come to fruition. realization.
“How seriously should we take accident predictions? And more fundamentally, how can we address affordability? » Oliver highlighted this in a recent market outlook.
“Calls for an Australian property crash – say a fall of 30 per cent or more – have been made regularly over the past two decades.”
While acknowledging that a crash cannot be entirely ruled out, Oliver said the housing market is more complicated than many “permanent housing bears” would suggest.
“First, the housing market is not just a speculative bubble fueled by easy money and low interest rates,” he said.
“Of course, low interest rates have allowed us to pay more for home purchases, but the key factor keeping them high relative to incomes is that the supply of new homes has not kept up with demand due to strong population growth since the mid-2000s.
“This partly explains why house prices have not collapsed despite the three-fold increase in mortgage rates since May 2022.”
Oliver added that Australian households with mortgages have proven more resilient than he and many others would have expected in the face of monetary tightening through 2022 and 2023.
“Of course, arrears start to increase as these supports recede, so maintaining this resilience should not be taken for granted,” the economist said.
Finally, Oliver said, the conditions for an accident are not met.
“This would likely require a sharp rise in interest rates and/or a much higher unemployment rate. A big interest rate hike from the RBA is unlikely, given that global inflationary pressures are easing and global central banks are now cutting interest rates.
“A fall in house prices is therefore a risk, but would likely require a deep recession.”
AMP’s base case for average house prices remains modest growth before a recovery after the start of the rate cut, Oliver concluded.
