BIS Shrapnel Analyst Predicts Price Growth for Sydney, Long Soft Landing

House prices unlikely to decline, expert says

But BIS Shrapnel managing director Robert Mellor is one property analyst who believes that strong population growth and a shortage of homes will ensure Australian house prices do not collapse.

"I've never seen a time where the market responded and softened so much in one year as it has in the last 12 months, basically because there's a lack of investors in the market," he said.

Investors? I thought owner occupiers were the salvation of your market? (strong population growth)

'Modest growth' Mr Mellor says people will not sell a house unless they absolutely have to if they are going to get less than what they paid for. "Only people who are forced to sell, whether they be owner-occupiers or investors," he said.

Sure, but at 10% growth per year (up to two years ago), anyone who bought five years ago can sell for 20% off, anyone who bought ten years ago can sell at any price. Now, wealth effect will make them not want to, but if it's just a matter of taking a loss relative to purchase price, that still leaves a lot of sellers.

"I'd be very conservative in terms of forecasting price growth going out the next five or 10 years, for many markets, particularly places like Melbourne, price growth is going to be minimal." He says prices will struggle to rise more than 1 per cent per annum in the next three or for years.

That is, in effect, a serious decline. Inflation is a low 1.6% Q1 2012 but it's been averaging 3% over the long term. Gains of 1% against a 3% inflation rate over ten years results in a loss of value of about 23%. That would be a soft landing, but it would still be a major landing in house values.

"But markets like Sydney, Perth, Brisbane, where there's massive amount of pent up demand and very low vacancy rates, we will see over the next six to 12 months a return to modest growth - not 10 per cent plus but more in the 3, 4 per cent to 6, 7 per cent range.

"Unemployment would have to go up to 7 or 8 per cent to even get a 5 or 10 per cent decline in house prices."

Noted. I also note there is nothing on credit markets, commodity prices, Europe. Australia IS an island, in all ways.