Jan 30, 2018

Property crunches, recessions and other dud predictions from the pundits

For two years the media has been rife with predictions of looming economic disaster, which has steadfastly failed to materialise.

Bernard Keane and Glenn Dyer

Politics editor / Crikey business and media commentator

Housing affordability Federal Budget 2017

While we at Crikey have made some howlingly bad political predictions over the years, we've always tried to stay cautious on negative economic predictions, wary that too many people talking about a recession is likely to increase the chances of one actually occurring. But others in the media feel no such qualms. Indeed, the doom'n'gloom business is a busy little subsection within the Australian media. So we thought we'd check up on how some of the gloomier predictions of recent times have fared.

Top of the list, of course, is Steve "I predicted the financial crisis" Keen. Not withstanding a humiliatingly wrong prediction on property prices in 2008, Keen's predictions are still treated with utmost seriousness by some journalists. In August 2016, Keen predicted another property price crash in 2017 and a recession, because the Reserve Bank "don't know what they're doing." Australians could prepare for the looming crisis by selling assets and reducing debt, he advised. He repeated the recession prediction early last year.

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9 thoughts on “Property crunches, recessions and other dud predictions from the pundits

  1. Damien

    Strangely no mention of mortgage size in relation to “the laws of mathematics”. So we’ve just hit 200% private-debt-to-disposable income, but as the article states households can keep cutting back on spending to pay their mortgages.

    Such cutbacks in household spending will no doubt provide a boon to our predicted economic saviour, the “services sector” – you know, that sector that is meant to be employing all the people with oversized mortgages…

  2. CR

    The point on ultra-bearish pundits drawing media eyeballs is taken. However, it’s fascinating to look at Irish media stories and real estate forums from 2005-6, where many bullish pundits utterly refused to accept bubble-like conditions (“this is the new normal” etc) until the writing was undeniably on the wall. There are other indicators not mentioned here (surging price to income ratio particularly) which still paint a concerning picture.

  3. klewso

    Wasn’t it McKibben’s conservative view of the world that made him such a go-to darling of the ABC right – 7:30, Lateline? It couldn’t have been his track record …. The same could be said of Sloan?
    Being “expert/economists” where was the GFC before they noticed it?

  4. Phen

    Cmon guys be honest – Crikey has been one of the worst Chicken-Little offenders on this – particularly Adam Schwab.
    How about this gem from 2012 – “So prices will need to fall by 40-50% to allow residential property to be more correctly priced (but like most asset crashes, will probably overshoot that level). The effect this will have on the Australian economy, and the Big Four banks, which have hundreds of billions of dollars of loans on their balance sheets, will be stark indeed”

  5. JQ

    I wonder what Messrs Keane and Dyer make of the proportion of Australia’s housing loans that are interest only, and the fact that once they revert to principal and interest, minimum payments generally rise approximately 50%.
    Couple this with reports that many customers are (unbelievably) unaware they have an IO loan (or that it will change to P&I); surveys showing that a high proportion of mortgagees would be unable to handle minuscule increases in their minimum payments; and that banks themselves have encouraged the approval of loan to valuation ratios above 95%, and you have some idea of the pain likely to be inflicted on the thousands of property-flipping spivs, FOMO vultures, and desperate poor saps mortgaged to the hilt when their loans revert to P&I. Do you think they’ll all be able to refinance at 3% IO at the same time?
    At Westpac, IO loans constitute more than 50% of its mortgage liabilities, in spite of APRA limiting IO loans to 30% (down from 40%). The numbers are lower but in the same ball park at the other three of the big four. I do believe the last decade of housing gains is a giant Ponzi scheme. Don’t pay any attention to the exit from property of several Australian billionaires, or the drying up of Chinese demand for Oz property, or the fact that Sydney auction clearances have already begun plummeting. Property always goes up in value…right?

  6. Woopwoop

    I remember the dotcom boom; the doomsayers kept saying it was a bubble, and the optimists said “you keep saying that, but it hasn’t burst yet!”
    Then it burst.

  7. Duncan Gilbey

    Keen’s advice to reduce debt cannot be seen as a bad call. surely?

  8. AR

    nah, yeah, I’ll stick with Ross Gittins, a working accountant who took the time to do a degree in the Dismal Science.
    He has not been wrong, and like Cassandra thereby ignored, for the last 2 decades.
    Schadenfreude, a dish best enjoyed cold, as of a surfeit of lampreys.

  9. Duncan Gilbey

    I think it was Ronald Reagan who said something along the lines of “things will be sustainable until they can no longer be sustained”.
    No-one can predict when the current asset boom will end, but end it will. They always do (ususally because of too much debt) despite the claim that “this time it’s different”.
    The trillion dollar question is not if but when.

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