By Michael Yardney
Following a couple of booming years some of our property markets have stalled, and the latest stats show that house prices have dropped a little in a number of our capital cities.
Not surprisingly this is allowing some of the property pessimists to rub their hands in glee saying “I told you so.”
Sure our property markets are experiencing a slowdown, and yes prices are falling a little in some locations, however we’re not in for a property crash and in a moment I'll explain why.
But let’s look at what really needs to happen to cause dwelling prices to fall significantly.
Now just to make things clear… while at this gathered eight events that could cause a significant fall in Australian property values, I'm not predicting that any of the events will take place, but they do provide danger signals for those watching our housing market.
What could cause our property markets to collapse?
It’s not as simplistic as the bubblers think. House prices “collapse” (not cyclically correct, but collapse) when people are forced to sell their homes and there is no one willing to buy them.
I accept that properties are expensive in some locations of Sydney and Melbourne and that recently home prices are falling a little, but that doesn't mean property values will crash in our big capital cities.
In fact, they’ve never have crashed since housing market data has been collected in Australia.
Instead what tends to happen prices is an orderly correction, with prices only falling slightly, because people choose to simply remain in their home and ride things out, while most property investors also try and hold on rather than realising their capital loss.
A true collapse in house prices would require some large external shock such as:
Infrastructure Australia predicts Sydney’s population will increase by around 80,000 people and reach 6.1 million in 2031.
In Melbourne the population curve is steeper with the population likely to be 6 million people by 2031, or an increase of 100,000 people a year.
The other capitals are set to experience similar, but not as dramatic population increases.
Population growth has slowed over the last year and is currently concentrated in our four big capital cities, but if our population does not rise by anything like these estimates, then there will be dwelling surpluses, which will cause prices to fall in some locations.
Seven good reasons why our property markets won't crash this year.
I explained these in detail in a blog here
The bottom line:
For a number of years now bubblers and doomsayers have been predicting the bursting of Australia's property bubble.
They’ve told us we’re in denial about the impending gloom blinded by the consistent performance of our property markets over the last few years.
I've just explained what could cause a property market collapse, but I’ve also explained why I don't think we should be worried.
However, we need to be vigilant. As investors we need to be aware of what's happening in the world's economies as Australia does not operate in isolation.
Strategic investors will take advantage of the opportunities our property markets will offer over the next couple of years maximising their upsides while protecting their downsides.
Michael Yardney is a director of Metropole Property Strategists, which creates wealth for its clients through independent, unbiased property advice and advocacy. He is a best-selling author, one of Australia’s leading experts in wealth creation through property and writes the Property Update blog.