Sharry says ‘bank predictions reflect worst case scenarios’ – Stephen Sharry

19 Dec Sharry says ‘bank predictions reflect worst case scenarios’ – Stephen Sharry

We like to give both sides of a story so in reply to the prediction from Finder and the ANZ Bank of a potential 15% to 20% fall from peak house prices in Sydney and Melbourne, the Executive Editor of Property TV, Stephen Sharry gives us his view.

Transcripts:

Kevin:   Well, following on from a story that we carried earlier in the show, my chat with Graham Cooke from Finder about the report from the ANZ Bank forecasting a 15 to 20% drop in values, based on median prices. This disturbs me and I want to talk a little further about it. I’ve consulted with, and is my next guest, Stephen Sharry, who is the executive editor for http://www.propertytv.io

Kevin:   Stephen, I was concerned enough to want to follow through on this story. I think sometimes we can make some big errors by firstly, just basing everything on median price. Welcome to the show, Stephen.

Stephen:   Hi, Kevin. Look, you’re quite right. In my opinion, I agree with that. Mind you, like you, I’m not an economist. Median house prices are the median prices for houses that have sold.

Kevin:   It’s an indication of where people are buying, really.

Stephen:   Yeah, at that particular time.

Kevin:   That’s right.

Stephen:   They’re not really … And look, they do have a correlation with eventual value, but they don’t represent it at a particular time in total. I think the banks are currently running in very conservative mode. They’re looking at worse-case scenarios everywhere.

Stephen:   In Sydney, we’ve seen huge increases, Kevin, haven’t we, over the last-

Kevin:   Oh, yeah. The last couple of years.

Stephen:   … ten years.

Kevin:   Yeah, that’s right.

Stephen:   When you have a look at Australia and you look at the Core Logic figures, we’ve had an astounding, would you believe this, since 1961, six thousand percent increase in property values. Sounds impressive, but when you adjust that for inflation, it rounds out at around 300% or so. It’s around that five percent per year, so it’s just kept itself ahead of inflation, all the way through.

Stephen:   Sydney market, in fact, went way above that. It went way above the average across Australia. Look, you can call it a correction if you like. It’s kind of like a breather. I think the market’s just taking a deep breath. The banks are just having a huge kick with the Royal Commission, which is not finished yet. Yeah, they’re just taking a breather, as far as lending is concerned. That’s reflected in the price of properties that have been sold.

Kevin:   Yeah, we’re so quick to talk about when there is a drop. As you’ve rightly pointed out here, I know you haven’t called it a correction, they’re my words, but on the back of some pretty big increases. The moment we see an increase in price, we talk about, “Oh property is now unaffordable.” The moment we see it drop, the prices are going to crash.

Kevin:   I think it’s just a gross generalisation to continually talk about medians, when we have already identified in some of our other chats that this is more than just one or two markets. Sydney and Melbourne are two markets, but there’s tonnes of regional markets as well. Even markets within markets, Stephen.

Stephen:   That’s correct. There’s a market within the Sydney market, as we know. We’ve both been astounded at some of the prices that have been coming in in the western suburbs. There are still areas, particularly in that urban fringe, where property prices are still reasonable, and certainly reasonable by Sydney standards.

Stephen:   Look, I go back to what I always say currently about the economy in Australia. We’ve got low unemployment. We’ve got very stable gross domestic product. Our GDP is just brilliant when you look at it, compared to other countries, including the US. Our balance, we’ve got a positive balance of trade. It’s not huge, but it’s about three billion dollars a year. We’re moving towards a near-balanced budget. Everything is lining up to be supportive, even if there is an international correction.

Stephen:   That global environment combined with say a cash shortage with the banks, are the two biggest threats that we have. As long as the banks can continue to lend at a reasonable rate, those mutuals, etc., so long as they kick in and provide something out there, I know it’ll tighten, but they’ve still got to keep lending funds. We’ll see a drop in some markets, stability in others, and slight increases in some of those closer, regional markets.

Kevin:   Yeah, those fundamentals you talked about there are all quite relevant. You would think that those alone should lead to more consumer confidence, but we’re not seeing it. I think sometimes on the back of negative reporting like what we’re seeing here, you know predicting prices are going to drop by 20%, and everyone immediately goes into negative mode. I don’t think that we get very far with this negative type of reporting.

Stephen:   I don’t think so either, Kevin. I don’t think it has a great deal of value. Remember, in Australia, too, we’ve seen some tremendous responses from the RBA and government at managing the economy during difficult times. The global financial crisis, Australia was one of the only countries in the world that got through the global financial crisis without a recession kicking in. We did that partly based on the fact that the fundamentals are all lined up. Also because the Reserve Bank and the government stepped in immediately with assistance packages to make sure that stability was maintained.

Kevin:   Always good points. Stephen Sharry joins us as executive editor at propertytv.io. Stephen, thanks for your time.

Stephen:   You’re welcome, Kevin.