“Double, double toil and trouble. Fire burn, and cauldron bubble.”
Shakespeare’s three Scottish witches managed to not only speak in firm unison, but also to correctly predict Macbeth’s future.
Alas, nothing is that unanimous or certain when it comes to the great debate over the price of housing in Australia.
There is an “expert” forecast to suit almost every point of view in the $5.7 trillion property market.
Here is a sampling of the diverse conclusions of just a few learned folk over the past six months, confirming that “fair is foul, and foul is fair,” depending on which side of the fence you stand in the home market.
Tim Toohey, Goldman Sachs
On Wednesday, Goldman Sachs head of Australian economic research Tim Toohey predicted Australia will move from a housing shortage to having 75,000 surplus houses by 2017 -- a marked turnaround from just a few weeks ago when he thought that in 2017 we would have a shortage of 140,000 houses.
Toohey now believes there will be 530,000 fewer people in Australia by end 2017 than the ABS has forecast. (For more on this see: Bad news for house prices, April 20.)
Adam Carr, economist
There is no medium-term threat to house price growth, even in Sydney where much of the surge reflects a catch-up to prices, Carr says.
Debt servicing costs, already at decade lows, are only going lower. Rate hikes are not on anyone’s radar, and the market is unanimous that interest rates will remain very low.
A construction surge is mainly in the apartment market and insufficient supply will ensure price support for detached housing. (The real house price boom hasn’t even begun, April 8.)
HSBC Australia chief economist Paul Bloxham
HSBC predicts Sydney's house prices could drop by 2 per cent in 2016, based on an average official cash rate rising to 2.75 per cent.
Sydney's market is at risk of a bubble, Bloxham says, and the current level of growth in Sydney home prices is unsustainable and likely to be met with declines in future years when interest rates rise.
David Rees, head of Australasian research at Jones Lang LaSalle
Back in September, Rees said that while Australian housing is very expensive compared to much of the rest of the world, there is no housing bubble. Australia's prices are rising in response to fundamentals such as low interest rates, population growth and an undersupply of new housing. Restrictive planning laws have created affordability issues in the Sydney market, he said.
Lindsay David, author of Australia: Boom to Bust
David says Australia‘s $1.9 trillion mountain of household debt will make the US credit-fuelled housing bubble of the last decade look like a walk in the park when it bursts.
From 1996 to 2014, housing prices and mortgage debt significantly outpaced economic fundamentals such as inflation, rents, incomes and GDP.
Now Australian the political and economic elite are stuck between a rock and a hard place, and having the largest housing bubble and mining boom in Australia's history going down simultaneously will cause a severe economic and social catastrophe, David says.
Glenn Levine, senior economist, Moody’s Analytics
The Australian housing market remains fairly valued relative to price drivers: rents, incomes, and the user cost of capital, according to Moody's Analytics.
The New South Wales market could drift further into overvalued territory and the Victoria market was the "biggest cause for concern" as a steady flow of new supply kept rents flat in 2014, while income and employment growth stalled.
Australian Bankers’ Association
The Australian Bankers’ Association argues there is “insufficient evidence” of a speculative bubble and believes the biggest driver of house prices is mortgage rates falling below 5 per cent.
The ABA does concede that houses are expensive relative to rents and “current rates of return may be economically viable only if expectations of further price gains are fulfilled”.
Steve Keen, head of economics, politics and history at London’s Kingston University
Keen, who walked from Canberra to Mt. Kosciuszko wearing a T-shirt declaring “I was hopelessly wrong on house prices” after spectacularly losing a bet over house prices, says there is a housing bubble and it is pumping borrowed money into the economy by propping spending.
“What it means is we are more and more fragile on the bubble continuing indefinitely".
Keen says Australia’s housing bubble could keep going, though two catalysts could cause it to pop: The economy slowing enough to make carrying costs on rentals become excessive, or problems in China.
Scott Haslem, UBS
Haslem says householders in Australia are on average more than 12 months ahead of mortgage repayments, limiting the likelihood of a US-style crash.
Australia’s full-recourse lending also means people can’t walk away from their properties like they can in the US. Haslem says it is unlikely unemployment is going to rise high enough or fast enough for it to be a problem.
APRA chairman Wayne Byres
The housing market poses a possible risk to the economy, even if it isn't in a bubble, Byres says.
"We have very low interest rates, very high household debt, subdued income growth, rising unemployment, very high house prices, a very competitive financial market in terms of house lending ... there's a lot of potential for risk," he told a federal Parliament economics committee.
But Byres stopped short of saying Australia was in a housing bubble.
"I don't know what a bubble is and I don't quite know how you spot it ... If these things were easy to spot and define, almost by definition regulators could deal with them," he said.
Deloitte
Deloitte’s mortgage report released late last month concluded there was little systemic risk from any house price crash and that a 30 per cent fall in house prices could be weathered.
The value of loans against residential property in Australia is $1.4 trillion, well under an 80 per cent loan-to-value ratio. Around two-thirds of real estate in Australia is owner-occupied, and half of those owner-occupiers have no mortgage, Deloitte said.
Jeremy Lawson, global chief economist at Standard Life
Australian housing is as much as 30 per cent overvalued and Australia is vulnerable to a big international economic shock, says Lawson, who was previously a senior economist at the RBA.
Mr Lawson said it is “reasonable to assume that future house prices will grow in line with real household disposable income as the commodity boom unwinds”.
Federal Treasurer Joe Hockey
Joe Hockey has dismissed the idea that a property bubble is forming in Australia, questioning that price increases are “credit fuelled”.
“It is just an infinite mantra for international commentators, for analysts based overseas to say ‘well, you know, there's a bit of a housing bubble emerging in Australia’. That is rather a lazy analysis, because fundamentally we don't have enough supply to meet demand,” Hockey has said.
US economic forecaster Harry Dent
Australian property prices were on the verge of the most violent collapse in generations, Dent said early in 2014, forecasting a 50 per cent decline in prices.
BIS Shrapnel
The soaring Sydney property market will achieve growth of 20 per cent over two years to send the median house price well above $1 million, according to forecasts from BIS Shrapnel.
Prices are also set to take off in Brisbane, but growth will be much more subdued in Melbourne and Adelaide, and prices will fall in Perth.
John Mulcahy, chairman of Mirvac Group
Despite lofty prices, the structure of lending in Australia makes a housing market crash less likely than in the US, Mulcahy says. Earlier this month Mulcahy toldThe Australian he does not “have the sense” the market would crash. Employment is still strong as is forecast population growth and demand for homes in NSW, particularly in Sydney, he said in the interview.
“People can send the keys back in the US. They can’t send the keys back here,” Mulcahy said.
The Reserve Bank of Australia
RBA research has found that debt is concentrated among households well placed to service it and stress testing has implied limited loan losses for lenders. But the RBA’s Financial Stability Review noted that risks in the property market appear to be building.