Housing Prices to Fall Until 2045?

End of Financial Year (EOFY) sales are great.

As companies look to get rid of old stock you can get great deals on electronics…cars…furniture…you name it.

You can now even find great deals in property…

Ok, maybe not in Australia…yet. But in Spain you sure can.

This is Bankia’s new idea — a Spanish bank — to get rid of the large stock of property they hold. They have joined Haya Real Estate to launch an ‘end of year campaign’.

If you are not familiar with Bankia [BME: BKIA], it’s been around since 2010, when seven Spanish banks combined to create it. Bankia almost went bust in 2012, and was later nationalised by the Spanish government.

As you can see below, Bankia’s shares have been flatlining for years.

Bankia Shares

Source: Yahoo Finance

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Bankia’s fire sale includes 2,000 properties with discounts of up to 40% and distributed all over Spain in urban centers or the coast. 1,200 of them are priced at 75,000 euros or less (about $121,500). That’s quite a sale!

As we wrote yesterday, Spanish banks still have a lot of property stock left over from the property bubble that hit Spain between 2002 and 2007. 10 years on and banks are still having difficulty flogging it.

The Spanish bubble was fuelled by large foreign immigration and easy credit. Sound familiar?

Economist Warns: Overvalued Housing Market Set to Implode. Download the free report now.

As you can see below, the number of foreign immigrants in Spain increased five-fold between 2000 and 2008, with the percentage of foreign population over the total population increasing from 2.3% and peaking at 12.2% in 2010.

Foreign immigrant population in Spain

Source: Wikipedia

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One of the main argument’s for Sydney and Melbourne’s strong housing price growth in recent years has been because of large population growth.

Yet as Spain’s case shows, this can stop…quickly. 

The problem for Spain is that it has an ageing population, which means that demand for property could keep slowing.

The other problem for Spain is that incomes haven’t kept up with property growth.

This is something we have also seen in Melbourne and in Sydney, where property prices have increased but incomes haven’t not followed suit.

Comparing property prices with incomes

The Economist recently ran an interesting article on this. They compared the increases in house prices in different world cities with rents and median household incomes.

As you can see below, many cities around the world are well overvalued when compared to incomes.

House price index for cities

Source: The Economist

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Sydney property could be overvalued by 50% …Madrid by 15%…Auckland by a whopping 75%.

Prices have been rising faster than incomes, and they have been fuelled by cheap debt. But, cut access to debt and if incomes don’t start growing to catch up with property increases we could see more property price declines.

According to The Economist, the property boom in these cities happened because of three factors: demand, supply and the cost of money. Yet as these factors start to reverse, we could be near ‘a turning point’.

Demand is slowing as credit and lending standards tighten, especially for foreign investors.

There is also an increase in supply as more apartments in Sydney and Melbourne hit the market.

And, interest rates and costs are starting to rise, which will mean that mortgages will become more expensive.

Another factor that could slowdown property growth in Australia, according to author Harry Dent, could be demographics.

As he wrote in his book, Zero Hour:

Despite Australia’s stellar demographic trends, its housing trends are not as bullish. Why? Because older people not only don’t buy houses but when they die, they sell. Given the baby boomer trends were stronger than the millennial growth rates even in Australia, the dying of the baby boomers between 2015 and 2045 will cause net home demand to decline.

The tide is turning, that’s why we expect more property price declines.

Are you prepared for an Aussie housing collapse? Find out before it’s too late.

And, Harry sees large property falls in Sydney. As he continued:

Sydney’s real estate bubble began to inflate exponentially in 2001. It’s taken 16 years to advance 3.1 times. That’s not as high an intensity as other bubble cities, like London. But, like San Francisco, Sydney was already expensive, and this bubble has built over a longer time frame, as have those in Melbourne and Brisbane and other major cities. Perth has already seen declines of as much as 50 percent on the high end, with the iron ore and commodity bubbles collapsing and Australia’s declining trade with China depressing total exports…

‘Sydney property prices will more likely crash by about 53 percent into the early 2020s (going back to early 2006 lows)….

To read more on Harry Dent’s predictions for Australian property and how the next few years could play out, click here.


Selva Freigedo,
Editor, Markets & Money

Selva Freigedo is an analyst with a background in financial economics. Born and raised in Argentina, she has also lived in Brazil, the US and Spain. She has seen economic troubles firsthand, from economic booms to collapses and the ravaging effects of hyperinflation, high unemployment, deposit freezes and debt default. Selva now writes from her vantage point here in Australia. She is lead Editor at the daily e-letter Markets & Money. And every week, she goes through each report and research note produced by our global network of trusted advisors to find the best investment opportunities for you in Australia and overseas. She packages these opportunities for you in Global Investor.

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