House prices tipped to ‘tumble’ by 2021 – Graham Cooke

House prices tipped to ‘tumble’ by 2021 – Graham Cooke

House values across the nation are expected to tumble by 2021, according comparison site Finder.  What is behind that dire prediction?  We catch up with Graham Cooke to find out.

Transcripts:

Kevin:   Well, our next story will shoot daggers into your heart no doubt, but finder.com.au predicting that house values across the nation are expected to tumble by 2021. Joining me to talk about this, Graham Cooke from finder. Graham, it’s a pretty drastic statement you’ve put out about property values tumbling.

Graham:   Yeah, g’day Kevin. How’re you doing? Always good to chat with you. This one is interesting indeed. It follows on from the question we asked in last month’s RBA survey. You might remember that we do a survey every month of the leading economists on Australia. There’s 30 or 40 on the panel. We ask them questions surrounding the RBA’s decision of whether or not to increase the cash rate, and recently we’ve been focusing on property questions because that’s what everybody’s talking about and because we’ve seen auction clearance rates dropping and prices dropping.

Graham:   Last month we asked them how long they expect the downturn to last, specifically in Melbourne and Sydney, and the average came through at 20 months with … I think it was about a quarter of the economists actually citing two years or more, so that was a little bit concerning. This month we decided to ask them more specifically about the percentages they expect the prices to drop across the capital cities.

Graham:   So, we took the averages of those and we also looked at the current median house prices to look at what drops our economists are forecasting. Just looking at the percentage drops perhaps unsurprisingly at the top comes Sydney at 8.2%, followed by Melbourne, very closely followed by Melbourne at 8.1%, and then Brisbane at seven. And all the rest are kind of five or less. Very bottom of the list is Hobart, which actually is doing quite well at the moment, at only minus 4.6% for that particular capital.

Graham:   In a separate story recently, we were looking at a boom and gloom index of various different cities and a forecast of how they’re going to perform over the next few months. Hobart came out strongest in terms of the number of suburbs that it had that were in the top ten nationally. So, Hobart’s doing quite well, but not good news for Sydney and Melbourne. Adding those percentages to the current median house values in those cities, we’re probably looking at about 80K knocked off the face value of a median home in Sydney, and about 60K in Melbourne.

Kevin:   Just on talking about medians for a moment, and this is where I think a lot of people get confused, they think of medians as value whereas median is an indication of where the market’s buying. So, really what this reflects is not necessarily a drop in value, but a predominance in the number of people trying to buy down to make it more affordable.

Graham:   Yeah, and also a lot of things are going to affect that in terms of what people are willing to sell at. We’ve also seen the decrease in the volume of property hitting the market, which means that with prices falling there must be a certain percentage of sellers out there who have been holding back for several months in a row.

Graham:   I was seeing some houses … I live in the inner west in Sydney, which is a very fast turning over housing market. I’ve seen houses sit on the market there for six months and not sell. So, it does mean that because of this situation we’re probably seeing a fair number of buyers who are holding off and waiting for that price they’re hoping for. And if we do continue to see prices slide as these results indicate we might see at some point those buyers are going to be forced to sell at less than they really want. We could see this look [inaudible 00:03:28] potentially, but it’s all to watch for at this stage.

Kevin:   Yeah, of course, not everyone can afford to sit on their hands for the next couple of years on the basis … assuming that the market will come back a little bit to make it more affordable. It’s a difficult decision for some people, and I guess … I’m not being critical, but some times these statements make it difficult for people to make a decision.

Graham:   Yeah, and it’s difficult to really predict what’s going to happen in the future. Very few economists in Europe predicted what was going to happen in the GFC pre-GFC, and even as it was happening, even as the prices were falling, very few experts predicted prices to go as low as they did. Some properties lost 30% in value in a short period of time, which had never really been seen before, so it’s kind of all to play for.

Graham:   But the one thing I would say for buyers at the moment what this does mean … we don’t really know when the market’s going to bottom out or whether the prices are going to start going up tomorrow. It does mean that if you’re looking to buy at the moment, you should make sure that you’re getting good value in the market. There’s no need to just jump on the first property that comes up within your budget that ticks all the boxes, which people have been doing previously. Now you can give yourself a little bit more time to make sure that you’re getting value for that dollar that you’re spending, which would be good in the end for the buyers.

Kevin:   Yeah, as we pointed out in the show too, we’ve probably done it in this show, is in fact only two out of three buyers in Australia actually choose to live in one of the Cap cities. There is still tremendous buying in some of the regions, even looking around at say Queensland, New South Wales, Victoria, where you can move out of the city, still get a good commute back into the city and spend as much time travelling, but you can get a home that’s a lot more affordable. I think more and more people are going to be moving to the regions.

Graham:   Yeah, indeed. We also, because of that price differential, have seen an increase in people rentvesting. That’s people who do buy those houses in the fringes, but as an investment and continue to rent closer to the city where they can actually live. A lot of the younger investors that I’ve talked to and seen across the market who have multiple properties have been focusing growing their portfolios in those outlying markets.

Graham Cooke:   There was a guy I saw talk to a panel in one of the banks in Sydney recently, and he’s in his mid-twenties but he has eight or nine properties, I can’t remember, but the majority of the properties he has are in places like Newcastle and more outskirt cities. Which is great for his current situation, but it is also an increase in risk, because if the market continues to slide even further it could be those places that experience the biggest drop in prices and indeed drops in rent. If you got [inaudible 00:06:11] important to be cautious as well.

Kevin:   Graham Cooke, my guest Graham is from finder.com.au. Graham, thanks for your time.

Graham:   Thank you very much, Kevin.

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Kevin Turner
kevin@realestatetalk.com.au
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