'Australian housing bloodbath looming'

Bloodbath to hit Australian real estate, analyst Jordan Wirsz says

AUSTRALIA'S love affair with property is about to be tested amid predictions prices will plummet by as much as 60 per cent, with capital cities hardest hit.

Herald Sun,

24 January, 2012

That’s the Armageddon-esque warning from leading US real estate analyst Jordan Wirsz, who believes Australia is heading towards a property bloodbath as the global economic downturn spreads to China and eventually here.

Mr Wirsz advises Fortune 500 CEOs and fund managers on investing in real estate.

He predicts that a flood of properties will begin to hit the market in Australia from next year as investors scramble to bail out, leading to a property crash of magnitude the country has not seen before.

“Right now is not a time to be buying real estate in Australia," Mr Wirsz said.

"The market has slowed substantially but residential prices are likely to fall up to 60 per cent, possibly even more, within five years."

The outlook is even grimmer for land investments, which Mr Wirsz said are more speculative and will plummet by as much as 80 and 90 per cent in value.

Commercial property will also take a hit in line with the residential sector shedding at least 50 per cent of its value. 

Mr Wirsz pointed to artificially low interest rates, high loan-to-value lending practices, overinflated property prices, unrealistic vendor expectations and Australia's large number of second mortgages.

“I’m bearish about world real estate but I couldn’t be more bearish about the Australian market," he said.

"There have been corrections but they don’t hold up to the scale of what is coming.

"The paradigm is that nobody ever believes house prices can go down but those who have bought at the top of the market are going to be sorely disappointed."

He predicts property prices will be on a slippery slope next year when interest rates begin to rise, commodity prices peak and China's demand for Australian exports slows.

A sluggish recovery will begin in 2016.

“If you are homeowner, be cautious, get rid of your debt, consider selling if you don’t plan to be in your house for more than seven years and downsize or become a tenant," he said.

The only winners will be real estate agents cashing in on bank-owned properties, he added. 

Adding to the glum outlook, properties in capital city would be hardest hit “because Australian cities are some of the most overvalued in the world and more speculative than regional areas", Mr Wirsz said.

Mr Wirsz joins other international naysayers including visiting US economist Harry Dent who recently said Australian house prices were 50 per cent overvalued.

With few exceptions, local experts disagree with their predictions.

HSBC’s chief economist Paul Bloxham said for property values to crash there would need to be sharp rises in interest rates, unemployment and housing stocks.

That combination is not on the cards, he said.

"I am not of the view that there is a looming housing bubble in Australia as it seems many doom and gloomsters are," Mr Bloxham said.

"Surely if the market was going to collapse it would have happened in 2009 after the Lehman's collapse when we had the biggest aversion to housing assets that you’ve seen.

"All we saw was a 3 per cent fall in house prices and then they rose."

Mr Bloxham believes an undersupply of housing, more rate cuts, low dwelling price to income ratios and strong overseas demand for Australian assets will act as buffer from global instability

"Some commentators aren’t doing the calculations correctly, they typically look at detached houses in the capital cities, they don’t incorporate apartments and regional areas, and they overstate the level of house prices to income."

Sydney real estate agent Charlie Bailey of Ray White Inner West believes there will not be a burst because there is no bubble.

"People have been predicting house prices to fall every year and every year we have an increase in prices," Mr Bailey said.

"In Sydney, we have 20,000 people a week looking for accommodation and not enough supply.

"I can't see the city's housing infrastructure changing any time soon so a prediction of a 60 per cent fall in property prices is a big call."