Prosper sees property price falling 15%, perhaps 20% in 2012



23 February 2012

bloukrans bridge, south africa. 216m
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• Potential First Home Buyers wary of commitment

• Volume of stock for sale a swollen flood

• Consumers dis-leverage Australia-wide

• Banks unwilling to finance credit creation

Prosper Australia predicts substantial house price falls this calendar year across Australia as the mismatch between supply and demand worsens.

“Current economic settings will not support current house prices,”
Prosper Australia Campaign Manager David Collyer warned today. “It is difficult to foresee anything that could derail the current downward trend – a trend we see accelerating strongly.

“Young adults excluded from home ownership have accepted their status. In a substantial negative for future prices, they are no longer pressing their noses against the window. It will take a major price adjustment to reconnect them to The Great Australian Dream.

“SQM Research shows 368,510 properties available for sale around the country – a very big lump to digest. Further, the pile is set to grow as disenchanted negative gearers exit this failed strategy in disgust.

“The Household Savings Ratio ABS 5206.0 has risen to 10.1%, reflecting a grim determination to purge interest bearing debt.

Australian banks are not expanding their lending. They need to reduce their dependence on overseas borrowings and are rationing credit.

ANZ CEO Mike Smith last week said: “There will not be a return to the level of credit growth that banks experienced pre-crisis for the foreseeable future… as consumers reduce their gearing and businesses pace investments.”

“The RBA is gradually, cautiously lowering interest rates. It is extremely sensitive to suggestions its activities may hasten or brake the deflating housing bubble. The other obvious tool available to government, a First Home Buyers Grant, has been utterly discredited,” Collyer said.

“We expect property prices to wilt under these combined pressures, with prices at end December 2012 between 15 and 20 per cent less than today. We renew and repeat our warning to potential home buyers to stay out of the property market. Falling prices erase equity while buyers’ mortgage liabilities remain payable in full.

“Don’t Buy Now!” Collyer concluded.

Media contact: David Collyer david.collyer@prosper.org.au

About Prosper: Prosper Australia is a tax reform lobby group and think tank that is now 120 years old. It seeks to move the base of government revenues from taxing individuals and enterprise to capturing the economic rents of the natural endowment, notably through Land Value Tax and Mining Tax.

8 Comments

  1. Glenno24-02-2012

    Finally there is one thing I agree with Prosper Australia. Accelerating falls and failed negative gearing strategies.

    Are we all looking forward to the introduction of the Carbon Dioxide Tax 1/7/2012?

  2. SHIRLEY24-02-2012

    All ready down more than that on sunshine coast but local paper still saying this is not happing even though some high end down more (770,00 2007 JUST SOLD 520,000)(2004 2MIL SOLD 1.1MIL)BOTH AT AUCTIONS

  3. Tony Morris.25-02-2012

    Greetings. I believe that the Australian housing market must surely be sliding into an abyss. Study Japan’s ‘demographic implosion’. Demographic change in Australia is far less dramatic but it will see a severe mismatch between the stock of housing and shape of our population. “Baby boomers” who own ‘McMansions/Trainer Palaces’ and investment properties are exposed to very serious loss. The house type which I believe will hold up comparatively well will be small (‘just large enough’) and will rate highly in terms of practicability, utility, durability and functionality. They will be designed to have very low running, maintenance, repair and depreciation costs. They will be a balance between increased construction costs to reduce running, maintenance, repair and depreciation costs ovr their lengthened economic lives.

  4. Tony Morris.26-02-2012

    As the late, great house price bubble inflated it was essentially ‘purchaser driven’. The wave of ‘baby boomers’ began to age into their fifties in the mid to late 1990’s and built or bought the largest home which a couple or individual typically buys. Now, some fifteen years down the track, the next move by those boomers is a ‘downsizing’ of their accommodation. Bear in mind that a market can also be ‘vendor driven’ and that is clearly now the case at the top end. The ‘more prescient’ baby boomers are clearly moving early.

  5. Jeff06-03-2012

    Opinion please. What if the opportunity presents itself to purchase an owner occupier house today at a 20% reduction? For example, a 4 + 2 on Sunshine Coast, asking 460 k, purchase for 380 k? And what if the mortgage required to purchase the house is $50 a week less than the cost to rent a similar house?

  6. David Collyer06-03-2012

    Dear Jeff, Beware! The situation you describe is surrounded by danger. Sure, we can see 20% off peak prices, but houses were never worth that much. As for mortgages being cheaper than rents, you need to take into account all costs – repairs, vacancies, taxes and depreciation – in calculating the financial returns. Go over the numbers with your accountant. A lot of people will get hurt trying to catch falling knives.

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https://prosper.org.au/2012/02/23/prosper-sees-property-price-falling-15-perhaps-20-in-2012/