The doom and gloom surrounding the Australian housing market is immense, so given our contrarian tendencies at Markets & Money, today we will be looking at why and when the Australian housing market will bounce back.
Perhaps a good place to start is understanding the risks present in the market at the moment, then move towards optimism from there.
Special report: Phil Anderson reveals the underlying dynamics in the Aussie housing market. Download it here.
Risks to Australian housing market and how a severe crash could be avoided
Risks local to the Australian housing market, such as a credit crunch, or even a financial sector collapse/bailout in the catastrophic scenario, could play out.
This means we could see peak-to-trough falls of up to 50%, greater than the 20% many expect now and significantly more than the 10%, originally forecast for Melbourne and Sydney.
Indeed, we have year-to-date already seen an 8% fall in Sydney and a 6.5% fall in Melbourne.
But can the market dodge the bullet?
It depends on a number of factors.
It would require some combination of the following:
– The Federal Reserve not hiking interest rates
– Shorten scrapping negative gearing changes
– The RBA engaging in quantitative easing (QE)
– Italy sorting out its budget
– Banks loosening their belts on credit
Some of these are bad long-term policy positions. Markets & Money thinks a correction in the housing market was bound to happen, and probably should happen given how it has been fuelled by increasing household debt.
So things will be messy for a while to say the least.
The long-term picture looks better
Looking long-term, Australia’s population will continue to grow. Perhaps, if and when the approaching storm has been weathered, demand for housing may pick up.
The storm may hit in mid to late 2019 and like the GFC and the worst of it may pass in a year or two. But you can never know for sure.
What we can say is that macroeconomic terms, Australia is in a relatively good position compared to other debt-ridden countries like Spain, Greece, Portugal and Italy — our government debt to GDP ratio is 41.9%. So the government has some room to maneuver fiscally.
With this in mind, timing a move in the property market is crucial. For example, this could be somewhere between the middle of 2019 to the middle of 2020.
Saving is always important, but if you are looking to get in when house prices tank, stepping this up with an eye on housing market movements could be wise.
For Markets & Money
PS: Markets & Money’s Phil Anderson explains the 18 year cycle behind the Australian property boom. If you want a deep understanding of Aussie real estate, this is the report for you. It can be downloaded for free here.