Did you hear?! The property market is going to drop by 45%!! Oh no!

Welcome to Furious Friday!

Today, we’re looking at a recent 60 Minutes segment ‘Bricks and Slaughter’, which aired on Sunday and sensationalised Australia’s property market.

The segment made several inaccurate statements, including;

1. Our property market has only ever increased (and implied that from here it can only decrease),
2. That we were on a path towards a 45% housing collapse.

Since the episode

1. Several of the experts that appeared on the show have come out and expressed their disappointment and unhappiness as the majority of their comments were either manipulated or never made the final cut.
2. SQM’s Market Analyst Louis Christopher says he was interviewed for over 45 minutes of which approximately one minute was featured in the segment.
3. Media did their job – which is to sell headlines based on fear!

So, where is the property market headed?

Property moves in cycles, and doesn’t always go up. 

• Property prices have gone down in the past, even in recent times in 2008 and again in 2012 as attached.
• Majority of media is reporting on Sydney, no mention of Brisbane – In Aug 2018 values rose over the month in Brisbane, Darwin and Canberra, were unchanged in Hobart and they fell elsewhere.
• Australia’s largest housing market, Sydney, has seen values fall by 5.6% since peaking in July last year; a trajectory that is straight down the middle of previous downturns.
• During the GFC, Sydney dwelling values fell by 7.0% in the space of twelve months, and the downturn before that (2003-2006) saw values fall 7.1% over the same number of months.
• Australia’s second largest city, Melbourne, has seen values falling since November last year. Since that time the market is down a cumulative 3.5% and the descent has generally been milder relative to previous downturns.

45 percent housing price collapse

• Martin North says 60 Minutes took the absolute worst of the four scenarios he presented, and used it as the basis of the alarming segment which went to air on Channel 9.
• “It is not my central scenario, rated only a 20 percent probability, as I made clear when interviewed,” he said noting this caveat did not make it to the final cut.
• North suggested a fall of 45 percent in home prices would be over three years or so, and require the US financial markets to react to rising US Fed rates.
• Even in markets where values have been falling consistently for more than four years on the back of a material weakening in economic and demographic conditions, we haven’t seen values fall by anywhere near 40%. Perth dwelling values peaked in 2014 and have fallen by 12.6% and in Darwin where conditions have been even tougher, dwelling values are down 21.8%.

Sydney median house price is still up 220% since 2008

• The median house price was $141,000 in 1988, $257,000 in 1998 $505,000 in 200, median house price was $1.120m in June 2018.

Australia is completely different to USA 

• Finance market is very different to USA in 2008, they introductory rates which reset at the same time and went from 2% to 5% so repayments rocketed up.
• Also, the USA had non-recourse lending meaning you could walk away from a loan if you didn’t want to pay it back – When borrowers owed more than the asset was worth, they took full advantage of the non-recourse feature and handed the keys to their home back to the bank. The term “jingle mail” was coined to describe envelopes full of house keys arriving at lenders. Banks took the losses.
• APRA regulation

The Takeaways

1. The property market moves in cycles, it goes up and down. If property prices had kept going up we would be in more trouble – e.g. Sydney median house price will hit $2m by 2028 unless market changes
2. If people make crazy claims, look into them. Understand the context within which the statistics are presented. Know the full story.
3. Our market is fundamentally different from the American market. We have lending standards.
4. Remember, the language used in the media is used to SELL. The words “market correction” are far less sexy than, “Armageddon” or “market collapse”.

Here’s a few links

• Louis Christopher, SQM Research
  https://www.news.com.au/finance/real-estate/sydney-nsw/sqm-researchs-louis-christopher-disappointed-with-60-minutes-appearance/news-story/3a749833c55f9456cb71560252d7f764

• Bricks and Slaughter
  https://www.9now.com.au/60-minutes/2018/extras/latest/september/bricks-and-slaughter

• Martin North
  https://www.propertyobserver.com.au/forward-planning/investment-strategy/property-news-and-insights/89508-45-percent-hosuing-price-collapse-was-least-likely-scenario-martin-north-on-the-60-minutes-washup.html?utm_source=Property%20Observer%20List&utm_campaign=84f40de3d2-EMAIL_CAMPAIGN_2017_09_28_COPY_01&utm_medium=email&utm_term=0_a523fbfccb-84f40de3d2-245607477