There is no debating that Australians have a love affair with property. With that, come daily predictions on what house prices and rents will do in the future.
But have you ever asked yourself what actual research goes into making these predictions? Most headline articles don’t give the reasoning or background research, just that we have a shortage of houses, there is pent up demand, or last year recorded record growth so it must happen next year.
I’m starting to wonder if the later is true.
The West Australian has today printed a please explain on why BIS Shrapnel’s June 2010 prediction of 8 per cent rise per year for the following two years has never eventuated. In-fact house prices have actually dropped 5 per cent.
The excuse – no one could have anticipated the scale of the global financial crisis.
A sleep at the wheel
Australia, like many countries has seen an unusual and rapid rise in house asset prices in the lead up to the GFC. With household debt at unsustainable levels and households spending more than they earned, the housing market started to falter.
The Rudd Government’s solution was the first home owners’ boost (FHOB). It was a short term stimulus program “designed to encourage people who had already been saving for a home to bring forward their purchase and prevent the collapse of the housing market.”
After an extension, the boost ended 6 months prior to BIS Shrapnel’s prediction. At the time demand was dwindling as any first home buyer considering buying in the years to come, had brought forward their purchase to take advantage of the government’s free money.
Furthermore, there were concerns about the sustainability of the housing market prior to the boost. If the housing market wasn’t sustainable with that level of household debt prior to the boost, encouraging generation Y and X into excessive debt wasn’t exactly going to fix the market – in the long term.
In my opinion a more valid excuse for BIS should have been, the Australian housing market is too big to fail, we expected the government to provide more grants. But even still, I admit, that logic is flawed. You can only bring forward so much demand, before that lifeline becomes exhausted.
That leads us to this logic – well it went up this much last year and our straight line says it has to go up that much next year.
Or are vested interests trying to lead the market. The Australian housing market is certainly not where it is today based on sound financial fundamentals. But something leads us here. Experts will always predict rents increases of 10 per cent in the next year. Landlords, for thought of being left behind will then act. They never look in the rear view mirror and report on what rents actually did because it can be quite sombre. The same applies for forecast increases in asset prices. Buyers are likely to jump in and fight for homes on the belief they will be 8 per cent higher next year. Say they will fall, and buyers will remain on the side lines (and not purchase property research reports.)
But the article not only picked on BIS Shrapnel. The West Australian printed “Australian Property Monitors have also made some bold, but wrong, real estate predictions.”
APM’s excuse – The GFC again, the mining tax debate and an unexpectedly big downturn in consumer sentiment. Personally, I can’t really say with the deleveraging process and households now spending within their means (after spending their $900 handout first,) that a big fall in consumer sentiment wasn’t on the cards. Did anyone put off buying a house because the mining tax debate was on?
With most experts now calling the bottom, do you think they have done their research? Have they considered household debt levels, current housing credit growth, stock on the market, the over-supply of houses, or affordability?
According to the West Australian report, BIS Shrapnel now forecast the Perth median house price will be $580,000 by mid 2015.
What is your forcast? Do you think they are on the money?
» Property experts blame the GFC for dud forecasts – The West Australian, 5th August 2012.