Monday, 10 December 2018

Be Prepared for a Housing Market Price Dive, OECD Warns Australia

Best Asia Real Estate Editor's Comments: "Don't kill the messenger".
In ancient times when the messenger came to a king while in battle and gave him bad news he was often killed him thus the saying "don't kill the messenger".

Unfortunately I have to be the bearer of bad news. 

My prediction that I made exactly one year ago on Australian real estate in in major cities, with the exception of Perth, is now coming true .

One year ago in this blog I wrote

"Most of Australian Real Estate Will Fall in 2018:

In the last couple years Bellefontaine became increasingly bearish on Australian real estate for the same reason that he became bearish on Singapore real estate three years ago. The buyers were not Australians but Chinese speculating on Australian real estate who did not take into consideration whether they obtained a positive cash flow. 

The Australian government has along with the Canadian government recently put in new laws to curtail speculation by foreign investors. Foreign investors will feel less comfortable will find other greener pastures."

Now people are no longer asking not if it's going to fall or how much it is going to fall they now realize they better get out now before it's too late.

Along with their real estate crashing will be most of Australia's economy especially the banks. I have been shorting the banks the last couple weeks earning handsome profits in a very short time period. This is not for the faint hearted or inexperienced.

Unfortunately it most likely will be an extreme exponential downturn.

Before it's all over we may see prices in cities such as Sydney down from 30 % to  50%.

Here's a headline just two days ago.

Economics By Michael Heath
December 10, 2018, 3:00 AM GMT+8

Risk of overshoot in house-price correction remains: report

Authorities should prepare ‘contingency plans’ for collapse

Soft landings in housing markets are rare and Australia should be ready to respond to the risk of a significant price dive, the OECD said.

In its latest survey of Australia, the Paris-based group forecast economic growth of 2.9 percent next year, leading to a gradual pickup in wages and inflation. While it said the housing market’s cooling was so far orderly, it warned that high property prices and household debt were potential instabilities.

“Risk of an overshoot in the price correction -- a hard landing -- remains,” the Organisation for Economic Co-operation and Development said in its report. “Estimates of housing valuation are highly uncertain” and “past OECD work has found soft landings are rare.”

Australia’s house-price decline is centered on Sydney and Melbourne and reflects credit curbs and increasingly nervous buyers. But unusually, the drop is happening against a backdrop of record-low interest rates and strong hiring; whereas historically, property downturns occurred when rates were high, growth was slowing and unemployment rising.

Downturn Deepens

Sydney's housing slump steeper than in Australia's last recession

Sources: CoreLogic Inc, Bloomberg

Note: Cumulative peak-to-trough decline

Past falls in the housing market were halted when policy easing encouraged buyers to return. Interest-rate cuts are less likely now -- and with the cash rate at a record-low 1.5 percent, the Reserve Bank has limited ammunition.

“The authorities should prepare contingency plans for a severe collapse in the housing market,” the OECD said. “These should include the possibility of a crisis situation in one or more financial institutions.”
Other Key Recommendations:

If the upswing in economic activity continues and inflation is projected to rise gradually, then authorities should gradually remove monetary accommodation through a policy rate increase
Misconduct and a lack of competition in the banking sector requires regulators to “assure strong accountability, transparency and competition in the financial sector”

With the budget deficit reduction on target, continued fiscal discipline is required and the government needs to ensure fiscal balances remain on track to reach surplus
Like the IMF before it, the OECD recommended a further shift in the tax mix from direct taxes -- such as corporate and personal -- and inefficient ones toward a higher goods and services tax and land taxes

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