Doomsday housing price forecasts highly questionable

Forecasts of housing price drops of as much as 30 per cent are highly questionable and cannot be relied upon with any degree of confidence, according to the Real Estate Institute of Australia.

REIA President Adrian Kelly said anyone who suggests they can forecast the future of the property industry “with any acceptable degree of probability” during this unprecedented time is being “highly fanciful”.

“We can only look at what is happening in the market place at the moment as well as in previous times of high unemployment to provide pointers to likely outcomes,” Mr Kelly said.

“Currently we have a situation where listings are decreasing yet the enquiry level from prospective buyers is increasing. It is simple economics that when supply decreases and demand remains that prices edge upwards. They certainly don’t drop.”

Mr Kelly said recent forecasts suggest that the supply of new housing will be severely constrained over the coming year, with the Housing Industry Association expecting building of new dwellings to fall by almost 50 per cent over the rest of 2020 and into 2021.

But Mr Kelly believes this does not suggest a scenario of supply exceeding demand, which is a prerequisite for falling prices.

“Whilst it is expected that higher levels of unemployment will provide a constraint on house prices, the anticipated levels of around 10 per cent have been experienced before and we should look at what happened to housing prices then,” he said.

Graphs 1 and 2 show median housing prices, interest rates and unemployment rates for the period from 1980 for New South Wales and Victoria – Australia’s two largest housing markets.

“History shows us that in the early 1990s we had a sustained period of unemployment above 10 per cent yet median house prices remained stable,” Mr Kelly said.

“It needs also to be remembered that in ‘the recession we had to have’ interest rates for housing loans were around double what they currently are.

“I do not believe that this points to a catastrophic outlook for house prices.”

Show More

News Room

If you have any news for the Real Estate industry - whether you are a professional or a supplier to the industry, please email us: