Of course property spruikers and investors will argue against these forecasts based on fundamentals � as all proponents of any particular asset class do to justify their views. If markets were completely rational and always priced on fundamentals, that would be perfectly valid. But it is exceedingly clear that, especially over the last several decades as the globe has been awash with liquidity, markets rarely trade strictly on fundamentals. In fact, it is frequently argued that markets are very rarely priced accurately with respect to fundamentals � and these rare occasions simply mark a fraction of a moment in time as markets swing from overpriced to underpriced and vice-versa. What makes prices flip between the two is market participant psychology � the tendency of people to be optimistic or pessimistic, rolled together with emotions described at their extremes as greed and fear.
So the question needs to be asked: why should markets, from this point in time, move in line with factors which definitely do determine our future need for housing � household formation (dependant on various demographic factors such as population growth rate, both natural and from migration, etc) relative to existing housing? I do not argue that immigration to Queensland is not strong � but it has been for a long time. Ross Barker, director of the Queensland Department of Infrastructure and Planning stated �in terms of growth rates, Queensland has been the fastest of the states for most of the period between 1991 and 2007� (7). He added �overseas migration is now much more significant than interstate migration�.
Clearly, house price movements throughout the 1990s did not reflect this fundamental because house prices declined in real terms. Moreover, that current migration levels are more dependent now on overseas migration, and from my understanding, specifically skilled migration under the 457 temporary visa scheme, suggests that this form of migration will be very quick to adjust to economic circumstances. Furthermore, as the migrants in question are highly mobile and skilled, in an economic downturn they may well leave to go to better performing economies. And finally, in regards to household formation by Australian citizens, the demographics underlying the increase in household formation may well change abruptly � there is already much discussion of children staying in the family home till later stages in life, but this is probably not all that new a phenomenon, and a deterioration in economic conditions could also lead to lower household formation through �bunching� up. (Certainly there are anecdotal reports of lots of students living together in one house, not unlike some friends I knew at uni in the late 80s!) |
