US economist predicts housing prices to fall 60% but local analysts say market resilient

The poor performance of the local property sector has been dealt another blow by an economist who says that Australian property is as much as 60% overvalued and could see the same type of crash that occurred in Japan over 20 years ago.

Those comments come alongside predictions from bankers and analysts that the Reserve Bank will hold off from raising interest rates when it meets again next month.

Economist Harry Dent has told the Herald Sun that the Australian market is looking much the same way the Japanese market did before its crash in the 1980s, when values fell by as much as 60%.

“That’s what Australia could be looking at. I think prices will go back down to where they were in mid-2000, to where young families can start affording a house again – so that could prove a good thing,” he said.

Such comparisons have been made before, with some analysts saying the Australian market is gearing itself up for a fall. Local economist Steve Keen has famously predicted that property prices could fall as much as 40% over the next 10-15 years. (That prediction was made in 2007).

However, many local economists have rejected such predictions, saying the markets cannot be compared. APM economist Andrew Wilson says the Australian market has remained one of the most resilient, and it would take a significant change for prices to plummet by that much.

“International investors last week showed a very significant leap of faith in the Australian sharemarket, and by extension, the Australian economy. There is a sense that Australia provides a safe haven in terms of residential property.”

Wilson says the comparisons between Japan and Australia are flawed given the widely different nature of incomes, the property market itself and the connection to the Chinese economy which is unlikely to see its growth rate plummet in the near future.

“What we’ve seen during the GFC is that China sort of switched from an externally driven type of economy to growth within the domestic economy which showed it can remain resistant to downturns in the domestic export market.”

“That’s a very comforting outcome for Australia.”

Wilson also points to the weekend’s auction results, which were “resilient” given the massive turmoil in sharemarkets worldwide and renewed discussion about whether the RBA would in fact raise rates next month.

ANZ’s Phil Chronican and Commonwealth Bank chief executive Ralph Norris have now publically said they believe the RBA will keep rates on hold.

Melbourne recorded a 57% clearance rates this week, according to the Real Estate Institute of Victoria.

“Those looking to sell their home over spring will be hoping that speculation of an interest rate cut last week becomes a reality as it would boost buyer confidence just at the right time,” chief executive Enzo Raimondo said in a statement.

There were 431 reported auctions, with 244 sold.

Sydney recorded a 60.5% rate, with 214 reported auctions, while Adelaide and Brisbane recorded 21.7% and 25% respectively.