House prices never fall. Well, except for this year, where fall they did. In Brisbane, prices slumped by more than 7% in the 10 months to October — that’s before inflation. Prices also dropped by 5.4% in Melbourne (which had been leading the charge in 2010) and Perth (down more than 7%). The Gold Coast remains a property disaster zone with billions of dollars of unsold inventory, while even the west coast of Tasmania saw prices fall by upwards of 20% as vendors drastically reduced asking prices.
Of course, not everyone appears to have quite caught up with the new reality facing Australian property investors (home owners do not suffer from falling prices, as they can buy another property for a reduced price). Stephen Nicholls, writing in the weekend Fairfax papers, claimed that “experts are lining up to contradict the extremist property analyst Steve Keen’s prediction that the nation faces a drop of up to 10% in house prices in 2012, with most forecasting moderate growth”.
Despite Nicholls’ claims, Keen is no extremist (unless being correct qualifies one as being extreme). The award-winning professor was one of the few economists in the world to correctly forecast the global financial crisis. Keen’s body of work is widely respected and his prediction of a housing collapse is already starting to be proven correct (Keen’s only problem was in failing to account for destructive government policy such as the first home owner’s grant). To grossly simplify Keen’s views, he opines that much of the recent increase in house prices is due to a Australians taking on more debt (mortgage debt to GSP has risen from about 20% in 1996 to almost 90% now).
After maligning Keen (for no good reason), Nicholls then proceeded to quote several so-called experts who were happy to forecast rising property prices in the coming year. Good times are here again.
First up was Andrew Wilson, senior economist at Fairfax-owned Australian Property Monitors. Wilson claimed that ”demand for housing will intensify” pushing up prices, with a “3-5% growth in median house prices nationally”. While dubbed an expert, Wilson hasn’t been especially accurate in recent times with his sage advice on the direction of property prices.
In December 2010, Wilson told Smart Company that “it’s a good time to be a buyer right now … it’s all about momentum. We are going to see more full-time jobs, which means higher income levels, and that will move back into the property market, and that will impact prices as well.”
In April this year, Wilson then claimed that “renters should prepare for significant growth in rental prices throughout 2011, driven by accelerating economic activity, housing shortages and a depressed first home buyer market”.
Since Wilson’s “expert” predictions last year, prices in virtually every Australian capital city have slumped while rental prices have remained tepid, and housing shortages and economic eased. For an expert, Wilson doesn’t appear to have a very good track record of getting things right. In fact, had home owners taken Wilson’s advice last year and obtained a 95% loan to purchase a property, they would have almost certainly lost their entire equity investment.
The next expert quoted by Nicholls was regular media performer Monique Wakelin. Wakelin told Nicholls that she “can’t see a national drop of 10%, there hasn’t even been that this year”. Apparently, Wakelin’s method for determining property price movements isn’t to look at yields, or dwelling construction or even bank funding. No, Wakelin merely needs to consider price growth (or lack thereof) for the past year to determine exactly how the market will perform in the future.
What Nicholls neglected to mention was that Wakelin is actually a buyer’s advocate, Member of the Real Estate Institute of Victoria and author of the book, How to Make Money from Residential Property, so her somewhat unscientific views are also clouded by her personal interest in a strongly performing property market.
Nicholls then quoted Mark Armstrong of the auction tipping competition Property Tycoon, who proudly noted that he was “exact opposite of Steve [Keen]”. Armstrong confidently predicted that property “will grow by 5-10%. All the indicators are that interest rates are going to fall in 2012 and cuts in interest rates tend to bring back the biggest group — the average home buyers”.
Before quoting Armstrong as an expert, Nicholls would have been advised to have conducted a bare minimum level of due diligence on his source.
A quick search reveals that “Property Tycoon” is an online auction tipping game, in which participants try to guess the results of auctions. Entry into the game is free, and participants can win the princely sum of $1000 (the site doesn’t specify how often the $1000 is given out, although we imagine the answer would be “not very”). The reason for Armstrong’s apparent generosity is because participants in Property Tycoon grant permission to be sent two emails a week, presumably, peddling some sort of mortgage finance product. The terms and conditions of the game specify that participants “enter into contracts with you or third parties and for marketing and client relationship purposes”.
Property Tycoon is owned by Armstrong Property Planning (a business that advises on mortgage finance). Earlier this year, Armstrong made a presentation entitled How to develop your own property plan and build a profitable investment portfolio.
Aside from having a fairly clear vested interest in continued property appreciation, Armstrong also has dubious track record with his bullish property predictions. In May this year, as the property market continued to sink, Armstrong advised that “Buyers should be sitting back and watching for opportunities, looking for properties that have been passed in on the weekend”. (Armstrong’s previous flimsy arguments were comprehensively demolished by Leith van Onselen.)
Just to clarify — Steve Keen is allegedly an “extremist” for pertinently warning that Australia’s love affair with debt could have dire consequences on asset prices — whereas discredited and conflicted advisers who profit from a property bubble are deemed to be experts. Perhaps in his next article, Nicholls can spend a bit more researching his so-called “experts”.