The Australian Property Market Wager

Followers of the financial press will by now have heard that doomsday economist Steve Keen has lost his high-profile bet with Macquarie Group economist, Rory Robertson.

Keen rose to national attention in 2008 after predicting that housing prices in Australia were on the verge of a collapse. Unsurprisingly, the tabloid media leapt onto the sensational story, generally failing to mention that Keen’s views were not shared by any other mainstream economist.

Rory Robertson was himself quite pessimistic about Australia’s economic outlook at the outset of the Global Financial Crisis. However, after a public email debate on the Australian housing market, Robertson challenged Keen to a bet on Keen’s views that housing prices would collapse by the end of 2009.

Keen has now been forced to concede defeat, following the release last week of data showing that house prices had increased by 6.2% in the year ending 30 September 2009 and were at a new peak.

Keen will have to make a 200km trek from Canberra to the top of Australia’s highest mountain, Mt Kosciuszko wearing a t-shirt saying “I was hopelessly wrong on house prices! Ask me how.”

The Business Spectator’s Christopher Joye wrote that Robertson had delivered a public good by holding “extreme views to account“. Joye was also critical of the print and electronic media, who had reported Keen’s views without mentioning that they were not shared by any other recognised authority in Australia. Joye wrote that Keen’s “dire prognostications” were simply “manna from heaven for journalists looking to shock their audiences.

Since the win, Robertson has been enjoying his victory. He reiterated his confidence in the fundamentals of the property market by saying:

“For fun, if Australian house prices ever fall by 40 per cent from any peak in my lifetime, I will follow in Dr Keen’s footsteps. Similarly, if Dr Keen proves the existence of the Loch Ness Monster, I will take the walk.”

One thing that we can learn from all of this is to be wary of relying on market predictions that we encounter in the tabloid media. Anyone who had sold a property in reliance on Keen’s predictions could have suffered significant losses.

Further, all of the levity surrounding the bet skirts the issue of what actually has been happening with Australian house prices since the beginning of the Global Financial Crisis. Certainly, the data shows that the market ‘cooled’ by 3.8% from its peak in February 2008 to its trough in December 2008. But the results for 2009 are clear – despite (or perhaps because of) the uncertainties surrounding the world economy, Australian house prices continue to grow robustly.

Posted by La Trobe Financial 12 November 2009.

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Some property is just harder to finance!

You may have heard, lenders have made it harder for some people to get finance. A big part of this is due to a loss of appetite for property they class more risky, especially at lending levels where the loan is more than 80% of the property value (full doc).

So if you are out looking for the following types of property to buy, talk to your finance person as whilst not impossible, they will be harder to finance.

  • Small 1 bedroom units, less than 50m2
  • Company titled properties
  • Non Metro Area’s
  • Display homes
  • Units in high density area’s or blocks (greater than 30 units in a block)
  • Serviced Apartments
  • Student Accomodation
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