Be wary of property doomsayers

August 24, 2017
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Everyone has a view on Sydney real estate.

FOR years now, home buyers and investors have had to wade through a sea of negativity on housing price commentary, while all the time prices have been going up. Bearish commentators have regularly forecast dramatic downturns.

None have eventuated in Sydney. And the pessimists were out in force this week on the ABC’s Four Corners.

Even well-regarded property forecasters don’t necessarily get it right either — they all tipped 2017 would have a slowdown in price growth.

But here we are entering spring with continued strength. Sydney’s annual price growth is running at more than 10 per cent, according to CoreLogic, and has done so since 2012.

Imagine if you had missed out because you placed faith in a headline grabbing forecast by Steve Keen or Harry Dent?

All the experts tipped 2017 would have a slowdown in price growth.

All the experts tipped 2017 would have a slowdown in price growth.Source:Supplied

You’d be sitting on the sidelines, having missed out on 10, 20, maybe 50 per cent price growth.

Of course there was risk in your purchase, but hopefully you did so with some caution and some cushioning should circumstances turn.

The economic bear, Gerard Minack, has long been warning of a recession. It was supposed to come as Australia ended its once-in-a-century mining boom.

“I think it’s a powder keg,” he told the Four Corners reporter investigating the forces driving our debt fuelled housing boom.

“I don’t know when we get a downturn that pops this, but sure as hell one’s coming.”

Four Corners found several sad situations where Perth buyers had thought it was all risk-free.

Mr Minack, the former Morgan Stanley executive, said Australia had been led down a perilous path by current tax arrangements and lenders who had been increasingly willing to leverage up borrowers.

Australia now has a household-debt-to-income ratio of 190 per cent.

“For every $1 of household income, there’s (nearly) $2 of debt,” Mr Minack said.

The same Mr Minack quietly upgraded Mosman homes a little while back to a $4.2 million three-storey house.

We now have a household-debt-to-income ratio of 190 per cent.

We now have a household-debt-to-income ratio of 190 per cent.Source:Supplied

Mr Minack’s former Federation sold for $3.1 million having paid $1.2 million in 1999, appreciating at a nice annual rate of 6.45 per cent.

Both featured five bedrooms but the latest had prized harbour views.

Locals say he bought well as the block cost $2,725,000 about 10 years ago.

Of course, there was risk for Mr Minack, like every other purchaser, and something could happen to any family or our economy that makes a sound purchase riskier.

In 2015 before his purchase Mr Minack forecast “when we get across-the-board unemployment then we’ll get an across-the-board downturn in house prices; it’s just a matter of time.”

Time has moved on to record low unemployment, with most home purchasers happy with their well-leveraged lot.

A downturn will happen one day, but I sense when it does there will be a buffer for many that wasn’t there last time, in the early 1990s recession.

Originally published as Be wary of property doomsayers

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