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March 2016

Newsletter #78

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If you’re thinking of selling, you may be well advised to do so sooner rather than later. A renowned investment expert who predicted the mortgage bubble bursts in Ireland, the United States and Spain has warned that Australia will be next. Jonathan Tepper, a UK based economist and founder of research house Variant Perception, is convinced Australia is in the midst of one of the biggest housing bubbles in history and it’s simply in a league of its own when it comes to mortgage lending. He believes the mortgage bubble will burst within the next year as a consequence of the ‘unsustainable level of borrowing.’ 

 

He believes property values will fall by 30 to 50 per cent, leaving investors with high loans. Australian banks which continue lending money to people who want to invest in high risk areas or simply can’t afford it are apparently not helping the situation. As a result many Australians are already starting to feel the financial pressure.

The Australian Financial Review reports that Tepper and local hedge fund manager John Hempton scoped out the apparent epicenter of this bubble, Sydney's Western Suburbs. “Property values in Australia are out of control and the level of mortgage debt in Australia is something like 3.8 times the gross domestic product,” he said. 

He also likens negative gearing (the ability to claim losses on leveraged investment properties as a tax deduction) to startups during the dot com bubble burning through their cash. "Only in a bubble could losing money on housing be viewed as positive," he writes. Housing prices are totally out of whack. They keep going up while almost everything else – wages, GDP and rental income – remains relatively stagnant. It remains to be seen just how on the money these predictions will be.

According to Global Property Guide, New Zealand’s housing market is now slowing, with the economy also slowing. However the slowdown has come after a significant upward spurt which has propelled prices in Auckland to stratospheric levels and Auckland´s price rises are continuing.

The nationwide median house price rose by a meagre 0.82% to NZ$459,500 during the year to November 2015, a sharp decline from the year-on-year rise of 7.24% in the 12 months earlier, according to the Real Estate Institute of New Zealand (REINZ). During the latest month, house prices declined 0.1% month-on-month.

However, the number of property sales in New Zealand was up 8.5% to 8,048 in November 2015 compared to the same month the year before, and up by 2.7% from the previous month, according to the REINZ. Excluding Auckland, property sales increased by 23.8% in November 2015 from a year earlier, and rose by 4.6%. 

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