NO NEED TO PANIC
FORECASTS of huge falls in property values can be scary for homeowners, but should people fret about predictions from the big four banks?
Not every forecast is created equally. Some look at base-case scenarios, others look at the worst possible outcomes. However, the banks have each managed to o give homeowners the jitters in recent weeks, with forecasts ranging from a 10.4 per cent dip in prices by the end of next year through to as much as a 32 per cent fall by the end of 2022.
And yet there may not be cause for concern.
Real Estate Institute of f Australia president Adrian an Kelly said forecasts of 30 per cent price drops were “highly questionable”.
He said they could not be relied upon with any degree of confidence.
Meanwhile, research from Property Investment nt Professionals of Australia a chairman Peter Koulizos shows that property prices tend to return and increase in a big way following an economic downturn.
Adrian said currently the property market was experiencing a decrease in listings, yet the inquiry level from prospective buyers was increasing.
“It is simple economics that when supply decreases and demand remains that prices edge upwards,” he said.
Adrian said the supply of new housing was expected to be severely constrained over the coming year, with the Housing Industry
Association expecting building new dwellings to fall by almost 50 per cent over the rest of 2020 and into 2021.
“This does not suggest a scenario of over the years,
The Hobart property market has shown its resilience Adrian Kelly. Peter Koulizos.
supply su upp exceeding demand, a prerequisite pr ereq for falling prices,” he h said.
“While it is expected that higher h levels of unemployment will provide a constraint on house prices, t the anticipated levels of ar around 10 per cent have been experienced exp before and we should shou look at what happened to housing prices then.
“History shows us that in the early 1990s we had a sustained period of unemployment above 10 per cent, yet median house prices remained stable.”
The Property Investment Professionals of Australia research found that house prices have increased in Hobart — by as much as 51.8 per cent — in the five years after the most recent recessions.
PIPA chairman Peter Koulizos analysed annual median prices for seven years, including the start of each recession or economic downturn from 1973 to the global financial crisis. He found that five years after the recession of 1973-75, Hobart’s median price increased by 40.2 per cent.
After the downturn of 1982 and
1983, Hobart’s median climbed by nearly 52 per cent, the fourth highest figure among the capital cities behind Sydney, Melbourne and Perth.
After the “recession we had to have”, Hobart prices again pushed upwards with a 20.5 per cent gain by the end of 1996.
PIPA’s research found that Hobart did not show a five-year climb in double-digits after the global financial crisis, and by 2014 the median had only shown steady growth.
Peter said local economic conditions were a factor, and some locations performed better than others after each downturn.
History reveals that big growth in median prices was not far way with — from 2015 to 2018 Greater Hobart’s median climbed by 31.3 per cent, according to REIT data.
“The research shows that despite talk of impending property ‘doom’, it has never happened in recent history,” Peter said.
“The moral of the story is don’t panic.
“Property has shown its resilience through economic shocks before, and we have no reason to expect it won’t do so again.”