Now as you all know, I love a good bargain and purchasing properties in areas that have reduced in value… but there is a new breed of idiots out there.
There are some so called “financial experts” predicting that ‘Australian property will drop in value by a minimum of 30%, but more like 50%-60%…’
The problem is that some property owners and investors are buying into their self designed graphs and diagnostic reports.
These self acclaimed experts are promoting controversy… and wHy?
C’mon people, look at the bigger picture.
These guys have an agenda!
How do they earn money? By selling books and seats at seminars. Hello!!!
So by causing upheaval in our market and getting on TV and saying our values will drop dramatically, they will sell thousands more books and have sellout seminars which they charge a fortune to attend.
In actual fact, by me writing about them in a Blog, this also helps promote their endeavor.
And to be honest they are no different than property spruikers who say that certain locations will double in value in the next few years.
About the only praise I can give these guys are that they are great marketers. They are able to get themselves on all the TV shows, magazines and online forums to create this debate to get people to buy their books.
Well not this duck… I wont be buying any of their books.
I would, however, challenge them to a debate???
That aside, let’s have a good look at wHy their absurd statistics will not occur…
There are two big reasons that we wont see 50% drops plus across the board in Australia:
The simple laws of economics state that prices will rise when demand far out ways supply. And in Australia we have a huge under shortage in available housing. This is the complete opposite to the USA.
And unlike the USA, you simply cannot drop the house keys on the front door mat and walk out of your property.
Our banking system must approve a property to be sold, if the mortgage is higher than the net sale proceeds. In English if your property was worth $500,00 and you now sell it for $250,000 and the mortgage if $400,000, the bank will not release the mortgage.
No Title deed, no sale…simple!
And there are not many property owners that own more than 50% of their properties. And those who do, have little motivation to sell their home cheap.
As Australians we are also a bricks and mortar house-proud nation. The Great Australian Dream is to own a home… almost at any cost.
And this filters through to us keeping the house under almost unaffordable circumstances. Tighten the belt and just keep tightening…
Now we are certainly going to see some reasonable property price reductions in Sydney and Melbourne and probably the other capital cities after that. But not to the extent of 50% plus… more like 10% to 20%… but this is in line with heated markets cooling off, like they have done in the past.
There is one thing I do know, and this is that I will be cashed up ready to secure some pretty impressive bargains in the next few years.
But wHat if it did happen, what if properties did lose value by over 50%???
Let’s look at that…
If house prices dropped 50% plus, that would mean that our unemployment rate would have to hit over 15% (more like 20%+) with many unemployed families falling into mortgagee in possession and the banks taking their homes. This would be the trigger to a huge drop in value.
So with these tens of thousands of homes being liquidated by the banks, this would in time see property prices reduce, as valuers would have enough precedent sales to justify such a drop in value.
So we would have tens of thousands of extra families looking for rental properties for somewhere to live.
Now one could argue that we have seen these drops in the USA in their property prices. Yes we have, hence I am investing there myself. But their banking system allowed for this to occur. Like mentioned above, families simply walked out of their home and dropped the house keys onto the door mat and drove off.
If you want to see a great diagnosis of how the USA crash occurred, watch this link… FYI it’s a bit rude, but funny, and sums it up the GFC really well.
http://www.youtube.com/watch?v=tJH2CcpXztE
In essence, Americans were sold mortgages by greedy banks using a greedy bank system, that they could never afford in a million years. They were destined to fail.
Now to back up these “experts” (another of my favourite words, like scheme)… they were bantering all around Australia in 2011 that the same thing would occur. That’s right they were saying that Australian house values would drop by over 50% and guess what has happened, yep they have gone up by around 20%. At least they were close…NOT!!!
Even still, they sold lots of books and seats at seminars…
So I guess if you purchased one of their books or a seat at their seminar, you just got ripped off…
And time will tell if their predictions (the same as 3 years ago) will come true. I am backing on the fact that our property market is in full steam ahead and will contradict their “expert” analysis of Australia.