Don't Fear the Bubble, says US Property Guru
A US economic forecaster has claimed mortgage brokers could actually benefit from a housing bubble.
Long-range economic forecaster and author Harry Dent has echoed predictions from economist Steve Keen that Australia's property market will see significant decline in the years ahead. Dent built a reputation in the United States forecasting the economic downturn in Japan starting in the late 1980s, the economic boom of the 1990s and early 2000s, and the onset of the GFC. He told Australian BrokerNews brokers should not fear the idea of a housing bubble.
"If we're right and the worldwide economy goes down and interest rates go down, then there will be a whole group of people ready to refinance. Brokers should aggressively go after refis," Dent commented.
Dent has forecast a further global economic downturn spurred by the European debt crisis. While he said Australia was "the best country in the world to ride out the crisis", he predicted Australia's economy will be harder hit by the downturn than it was by the GFC. Part of this downturn, Dent said, will be a significant drop in property prices leading to falling interest rates.
Not only would tumbling mortgage rates lead to a wave of refinancing, Dent said, it would also rekindle demand as the housing market approached its bottom.
"If the market does go down, it's going to encourage buying by younger households and immigrants to Australia. What's going to get young people back into the market is to let prices fall back down to reality, and that will rekindle mortgage demand. Otherwise the market stagnates forever with old people not buying anything," he said.
Age demographics play heavily into Dent's predictions. According to Dent, baby boomers have served to drive housing asset prices up, but are reaching an age where demand tapers off. He contended that demographics indicate most people purchase homes between the ages of 26 and 42, and that property spending drops off after the age of 50.
"There was this illusion during the '70s and '80s that property prices always go up, but that's because baby boomers were driving them up. Old people don't buy real estate. A certain percentage downsize, but the baby boomers are done," he commented.
Dent argued that Sydney currently held the distinction of being the most overpriced property market in the developed world, and said rising asset prices were forcing most people out of the market.
"Real estate can't keep going up at this rate until it's priced everyone out of the market except a couple billionaires who have to borrow against their yachts for a condo on the Gold Coast," Dent said.
Dent predicted property values in Australia will eventually decline to levels seen in the late 1990s to early 2000s, and said the market would find its floor by 2015. He dismissed arguments that Australia's unique circumstances would prevent house price collapse.
"I've been to a lot of bubble areas around the world. They always say 'It won't happen here because we're special and this is a special place'. I'm coming to say learn from the United States. The U.S. saw Japan's baby boom and saw their real estate bubble burst and said 'It won't happen here'. That's a dangerous assumption," he commented.