FROM BOOM TO DOOM… BUT IS IT REALLY THAT BAD?

Without a doubt, housing risks are heightened relative to a year ago.

Dwelling values are slipping lower nationally, mortgage rates are edging higher and mortgage arrears have moved off their record lows.

All this against a backdrop of record high levels of household debt (the ratio of disposable income to household debt reached 190 per cent in March this year), increasing levels of housing supply and rising domestic and global uncertainty.

It should come as no surprise that some commentators are forecasting a substantial reduction in dwelling values.

We saw similar forecasts during previous downturns from the likes of Steven Keen, Harry Dent and Jeremy Grantham as well as many others.

The most recent dire prediction to get mainstream airplay was from Martin North predicting a 40-45 per cent fall in dwelling values; albeit with only a 20 per cent chance of this occurring.

If we look at the current downturn in Australian housing, the trajectory of decline is actually quite unremarkable.

While growth is forecast to be subdued relative to previous years, house and unit values are predicted to return to mild positive annual growth by the middle of 2019. Overall, it’s hard to see a scenario where Australian housing values could fall off a cliff. For this to happen, we would need to see an about face in labour market conditions, a global shock or a big rise in interest rates – none of which seems likely at the moment.