Is your Investment in Property Safe as Houses?

 I just Googled "Australian Property Market".  The search yielded 3,920,000 results.  I could not review them all, so I had a look at a few of the links that the Google algorithm determined to be most relevant.

From this bit of casual research, I make the following observations:

• According to ABS, the number of people borrowing to buy property has declined significantly;
• Various news sites state that the number of properties selling has declined significantly;
• According to NAB, house prices fell in all states in the June quarter;
• Steve Keen maintains his 40% decline in property prices prediction;
• Australian property was described as a "bubble", a "time bomb", an "accident waiting to happen" and many more phrases indicating that house prices were too high and going lower.

None of this surprised me, but what did surprise me was that I did not see even one suggestion that maybe property prices will improve in the short term.  Not one optimist!  So, with all the negative views I thought I would look for some more in depth research (beyond the first couple of pages of the Google search).

One detailed bit of research was Stairway to Heaven or close to the precipice? This is a paper prepared by MLC (owned by National Australia Bank) and it asks the questions: Is the Australian housing market significantly overvalued?  Are Australian house prices likely to fall? and Residential property as an investment? (I guess the ? at the end makes it a question).

If the above questions are of interest to you, I recommend that you read the full article, but here is my summary of the article and the answers to the questions above: 

• Australian housing does appear to be significantly overvalued - affordability is the biggest issue;
• It seems highly likely that housing prices will fall in Australia, however a number of factors should prevent the same catastrophic declines observed in the US.  This paper suggests a decline of 10 to 15% on average over the next 1 to 2 years with significant variations from region to region;
• Housing makes up 60 to 65% of gross household wealth in Australia.  With Australian housing likely to deliver only modest returns for the next 5 to 10 years as prices stagnate, the exposure to housing appears excessive.

 Sorry if this was not the optimistic news you were looking for.  I will try to find something positive for next time.

 Regards

 Nick Rose

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