Potential for property prices to halve: analyst

Lindsay David, the author of Australia: Boom to Bust, said that left the whole property market vulnerable to potential price falls of up to 50 per cent.

“What history tells us is that, when bubbles burst, what happens is that we move back to the long term medians,” he argued.

“So, if Sydney had a long-term median of say 5 or 6, you could see that we move back to the long-term median of 5 to 6 times income in the event of a deleveraging.”

Such a crash needs a trigger, and Emeritus Professor Mike Berry says there are two main threats.

One is rising interest rates, or moves to limit home lending or property-related tax concessions, in a market propped up by record household debt that is 154 per cent of incomes.

The other threat is an external shock.

“Things like the Chinese economy suddenly hitting the wall,” he explained.

“If that happened, then very quickly unemployment levels would start to rise in Australia, income growth would stop and perhaps go backwards and, when that happens and people start to get worried about the security of their income, that’s when the demand for housing can fall quite significantly and quite quickly.”

The past year’s plunge in iron ore prices is perhaps the best illustration that China’s economy already is not supporting Australia quite as much as it used to.



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