Last week on 60 Minutes, US demographer and economist Harry S Dent said Australian house prices could fall by as much as 50 per cent in the coming years.
While predictions of an Australian house price crash have a habit of garnering substantial attention, AMP chief economist Shane Oliver said such sentiments have been made many times over the last two decades, in fact, he said many of Dent’s previous price predictions have not come to fruition.
“How serious should we take forecasts for a crash? And more fundamentally, how do we fix affordability?” Oliver underscored in a recent market outlook.
“Calls for an Australian property crash – say, a 30 per cent or more fall – have been trotted out regularly over the last two decades.”
While acknowledging that a crash can’t be entirely ruled out, Oliver said the property market is more complicated than many “perma property bears” allow for.
“First, the property market is not just a speculative bubble fuelled by easy money and low interest rates,” he said.
“Sure, low rates allowed us to pay each other more for homes, but the key factor keeping them elevated relative to incomes has been that the supply of new dwellings has not kept up with demand due to strong population growth since the mid-2000s.
“This partly explains why property prices have not collapsed despite the threefold rise 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 are starting to rise as these supports recede, so the continuation of this resilience should not be taken for granted,” the economist said.
Finally, Oliver said, the conditions for a crash are not in place.
“This would probably require a sharp further rise in interest rates and/or much higher unemployment. Sharply higher interest rates from the RBA are unlikely as global inflationary pressure is easing and global central banks are now cutting.
“So, a property price crash is a risk, but would likely require a deep recession.”
AMP’s base case for average home prices remains for modest growth ahead of a pick-up after rates start to fall, Oliver concluded.
