Everyone’s talking about the drop in property values, and some are wondering if we might be heading for a meltdown like they’ve experienced in the USA. The circumstances over in America are very different to those here in Australia, as The Age’s Kenneth Davidson points out in “House prices are a bubble waiting to burst”:
“The loans that financed these homes were allocated by agents who didn’t care that their clients were NINJAs (no income, no job, no assets), or the housing was in jobless ghettos without public transport, because the loans were bundled and on-sold.”
– Kenneth Davidson, The Age
So although the drop in real estate values will probably not be as significant as it has across America, prices are expected to drop. Australian Property Monitors are talking about a 10% fall, whilst Residex CEO John Edwards says we’re heading for a “once-in-100-years real estate slump”. Then there’s RP Data, who are saying that predictions of a 10% drop were “sensationalist” and “next to impossible”. Sorry RP Data, but suburbs across Brisbane have already dropped by 10%, so maybe it’s not that impossible. Yes, RP Data could be talking about the likelihood of a city-wide drop in value, and the stats suggest that hasn’t happened yet, but perhaps it’s just a matter of time.
Are we heading towards a house price meltdown? In my opinion, no. We are looking at a correction of the market, which has become overvalued, and that may see prices drop in the order of 10 or 20 per cent, and that number will be higher if there is one more interest rate rise. However, I doubt things will be anything too massive, unless Australia goes into a nationwide recession that impacts upon every industry.