In the central forecast, house prices continue to decline to trough at September 2011 at 30% below the March 2008 peak. This represents a median price of $294,000. The median price forms a solid base there over several quarters, and with the increase in demand from first home buyers, prices begin to rise in the late 2012/early 2013. Price rises are roughly inline with inflation from 2013 out to the end of the modeling period at March 2016 when the median price is $334, 224.
In the second scenario, house prices continue to decline and once again trough at September 2011 at 30% below the March 2008 peak. However, with the property investor taxation concessions still in place and promoting speculation in housing, investors begin to position themselves to take advantage of the surge in demand from the FHSA participants gaining access to their funds. This surge in demand initially from investors results in house prices quickly moving off their trough in late 2011/early 2012 and accelerating upward through mid 2012. By late 2012, when the first FHSA holders hit the market, house prices are already $66,750 above their trough prices. Some FHSA holders decide to buy, others decide not to, but the feedback loop has been reignited to a slight degree by the price gains, so more speculators come into the market further driving up prices. However, the ability of spruikers to build moment in the market is hampered by the coexistence of negative feedback loops from the most recent price declines. In other words, spruikers will not be able to perpetuate the myth that �house prices never fall�. Through mid 2013 it becomes apparent that first home buyers are still not entering the market due to poor affordability, so the mini price boom is short lived and it peaks at September 2013 at a median price of $375,548. Affordability continues to be a major issue for first home buyers; some make use of FHSAs, many do not. The mini price boom deflates out to March 2016 to finish at the same median price of $334,224.
Given the size of the house price bubble, the degree of indebtedness by Australians (as elegantly covered in Keen 2007), and the degree of credit market disruption caused by the American subprime crisis, I would consider that the risks to these forecasts are to the downside, i.e. house price falls are more likely than not to be greater than presented in these forecasts. |
