About 3 weeks ago, the linked article below was published on the topic of the dramatic decline in the price of Bitcoin. It also noted the expected fall in the price of shares and warned of the possible decline in property prices in Australia. So, two out of three down… What about property?
The context was on historical price bubbles. Authored by the Dutch investment bank, Saxo Bank, it predicted the collapse of many cryptocurrencies (that particular boat is fairly full) but did also outline why the share market was likely to fall. Since then it has dropped enough, suddenly, to be classified as a correction (> 10%). And all cryptocurrencies have continued to slide. But predicting property prices is a little more complicated than analyzing statistics.
In the last 14 years of almost constant price growth (including the GFC, where prices briefly settled 10 before bouncing back), Aussie property prices have risen 108%. During this same period, Hong Kong prices have risen 450% (that’s a wow!). So, we must be due to fall?
Probably not. Predicting falls based purely on the amount of growth overlooks the critical differences in different markets. Such as tax treatment and loan practices. In the USA, owners can simply hand the keys back to the bank if prices fall too much. In Australia, we are personally liable for the loan. Negative gearing and capital gains tax are also big factors. Just because negative gearing was removed over 30 years ago, with such impact that it was quickly reinstated, doesn’t mean that politics won’t trump policy now, as it frequently does. So yes, there are clouds on the horizon.
Intriguingly, it is the current instability in shares and other investment avenues that may well prove to be the support to property that helps to maintain price stability over the course of this year. This has been the pattern over the last couple of decades. We all seem to be drawn to the comfort of bricks and mortar in times of uncertainty.