So we come back to this question again. When Brisbane house prices over the last 4 decades have shown to strongly follow a boom-bust pattern, and when many international organisations point to Australia as being in the grip of a house price boom, eg. the International Monetary Fund says that Australian houses are overvalued by 25% (See this article for coverage), is it really reasonable to expect that suddenly at the peak of the biggest house price bubble Brisbane has ever experienced future house price movements will be dictated by fundamentals? Of course the answer is No!
That is what makes it all the more disgraceful that such a well known and trusted Australian bank as the ANZ recently lent its name to an article in a national newspaper entitled �Home Prices to Explode�. As stated earlier, various industries have much financial interest in there being continued strength in Australia�s housing markets. That one of Australia�s biggest banks engaged in such an obvious attempt to influence market sentiment suggests two things: a) data at the banks� disposal must confirm that the housing bubble has popped, and in a dramatic fashion; and b) this bank is in a particularly precarious position and has significant concerns over the health of its loan book with the prospect of significant bad loans and writedowns, and thus its profitability is under threat. I would not be an investor in the ANZ going forward!(8)
Many property investors and speculators expecting capital gains from March 2008 prices will be extremely disappointed. Moreover, affordability issues will also impact their ability to raise rents � faced with the prospect of vacancies as rental increases ripple outward from the CBD, causing tenants to move progressively outward and those already in outer suburbs to become homeless � a ceiling to rental increases will be reached when owners decide, through financial realities of their own, they would rather have a stable tenant than attempt to continue to extract large rental increases.
I would suggest that my forecasts may be painted by some vested interests as pro-first home buyer. However, it is significant to note that even my central forecast is not especially good for first home buyers. In March 2001, the ratio of the Brisbane median house price to Brisbane average earnings was 3.95. At March 2008 it was 7.67! Under both forecasts, if Brisbane wages increase at the rate of 4% pa, at the end of the forecast period (March 2016) the ratio will be 4.43, 10% higher than in 2001! And remember, most international studies consider that housing is only affordable when the ratio is below 3!! Clearly, young Brisbane families will continue to have to make difficult decisions about family and their desires of home ownership.
Over the very long term, beyond the forecast period, I do believe that affordability will continue to improve for first home buyers as baby boomers sell down their assets through retirement. The continual supply of existing housing on the market should have a downward impact on Brisbane house prices over the next several decades. |
