Chat with us, powered by LiveChatCase for a crash is a house of straw

Case for a crash is a house of straw

The doomsayers are wrong: fundamentals for Australian property values are sound. Even in the worst-case scenario of a serious downturn in the domestic economy, there is a host of reasons that point to a soft landing for Australian real estate.

Could this be a real estate salesman's fantasy come true? If financial Armageddon is what you crave, there's plenty to feed your habit right now; a rout on global share markets, commodity prices crashing, the dollar under attack, panic on debt markets. But then there's good old Aussie bricks and mortar. It has held up remarkably well during a time of almost unprecedented economic uncertainty.

Despite a veritable army of doomsayers - as evidenced by the number of websites and chat rooms - salivating at the prospect of a crash in property prices, it has stubbornly failed to materialise. There is no doubt residential real estate prices are on the slide. And if the economy stalls and unemployment rises, they will continue to edge lower. But don't count on a crash.

According to the latest numbers by RP Data-Rismark, capital city residential prices are down just 3.2 per cent on a national basis compared with this time last year. Most of that decline has been borne by houses, off 3.9 per cent in the past 12 months with most pain concentrated in the top end of the market, while there has been hardly any movement in home unit prices. Look back two years, and in almost every capital, except Perth, home values are steady or slightly below 2009 levels. Sydney, however, has bucked the trend. Prices have risen strongly over that two-year period and in the past 12 months they've remained barely changed against drops of between 4 and 7 per cent in the other capitals.

The fearmongers love to compare Australian real estate with American. They draw graphs showing how steeply the local market declines are to various points in the US home price debacle of 2007. American real estate still hasn't recovered. In case you missed it, an advertisement on the front page of the Asian edition of the Financial Times a fortnight ago had the real estate equivalent of the BOGOF (Buy One Get One Free) sale. The deal was, buy five American houses for $US200,000 ($A210,000) all up and get the sixth one for just $US25,000.

The logic goes, if it happened there, it is bound to happen here, too. But you may as well compare Australia with Mars.

Source: The Age Domain