Why I’m Not Expecting a Big Plunge in House Prices

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Last year we continually heard how house prices were set to plunge.

Some analysts predicted house price falls in the order of 40–50%.

Yes, house prices did come off their highs last year.

But I suggest you take the longer view.

Many are calling for house prices to fall further.

But there’s a chance house prices can go higher from here.

I know it’s hard to believe.

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Why you shouldn’t expect a big plunge

But if history is to repeat, they can and will go higher.

For those calling a house price collapse, just keep a few things in mind.

For house prices to fall, you’d want to see some distressed selling. That would show up in loan arrears for the major banks.

To find out for myself, I went straight to Australia’s biggest home lender. I figured that would show me signs of an imminent property crisis.

Commonwealth Bank posted half-year results last month. Loan arrears for housing actually fell slightly during the second half of 2018.

If housing was ready to unwind, you’d think loan arrears in Australia’s biggest home lender would be rising, not falling.

This is one reason I don’t share the opinion of others about a housing collapse.

For house prices to have a big plunge, you’d want to see signs of a softening economy. A good barometer in this regard are the real estate investment trusts.

They’ve been busting higher all year. That tells you volumes. It tells you demand for office and industrial space is high and that rents are improving.

That’s not ringing any warning bells. With the economy holding steady and unemployment at seven-year lows, it’s hard to see where the distressed selling will come from.

So, take a few deep breaths and get a sense of perspective.

House prices have come off their highs, but is it any wonder? They practically doubled over the last decade. House prices were due a retrace.

And even if they should fall a bit further in the short-term, I’m not expecting any big plunge in house prices.

House prices — really land price — has to rise over the long-term.

When people come together as a community, over time land values will rise.

And with improvements in amenities, infrastructure and population growth, land values will rise further.

Australia’s population currently stands at just over 25 million. It’s growing by 1.6% a year, that’s more than other developed countries.

We’re adding millions faster than ever before. 14 years is what it took to grow from 20 million to 25 million.

But forecasts say it will only take 10 years to grow the next five million.

This is the trend. Increasing and faster population growth.

If you make the daily commute, you’ll know how gridlocked our cities have become. They’re buckling under the weight, as infrastructure struggles to keep pace with population growth.

No wonder governments are making infrastructure spending a high priority.

But despite all the billions to be spent on infrastructure projects, spending remains below the long-term average. Check it out:

Money Morning

Source: Business Insider
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This suggests more will need to be done, to cater for an expanding population.

Property bears will have to bide their time

As an aside, from an investment point of view, you could study listed infrastructure stocks. The long-term outlook looks good for these stocks.

But know, all the benefits of this infrastructure being built, will in the end be taken by land price. This should keep house prices on the boil, in the years to come.

Everyone likes to call a housing collapse. It gives the investment houses and analysts free press coverage.

But I believe the property bears will have to bide their time.

If history is to repeat, the real estate cycle suggests house prices can and will go higher next decade.

If house prices completely collapsed this year and into the next, it would go against well over 200 years of repeating history. The real estate cycle just doesn’t call it, in this part of the cycle.

If you don’t know the real estate cycle, get to know it!

The cycle unfolds in a set sequence and timeframe. That knowledge is pure gold, from an investment point of view.

If you study the past, it’s easy to see how the future will unfold, according to the cycles.

That knowledge has been distilled into our real estate clock. This current real estate cycle has gone completely to script so far.

And will continue to unfold in the years to come just as our real estate investment clock indicates.

Understanding this real estate cycle is the absolute key to understanding the economy. It gives you an incredible advantage over other investors.

It’s how you can know where property prices are broadly headed.

And it gives you much more understanding about the stock market too.

Every investor must have this real estate cycle clock in their toolkit. It’s your advantage in markets.


Terence Duffy,
Chartist, Phil Anderson’s Time Trader

PS: Could lithium be Australia’s next resource boom? Click here to find out.

About Terence Duffy

Terence Duffy is an analyst and chartist, specialising in researching economic trends and cycles.  His primary focus is housing and land affordability. But you can also depend on him to offer his unique analysis of stock market charts. As Terence will show you, the charts often forecast, well in advance,…

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