Harry Dent is back again, predicting Australian house prices will crash

Michael Yardney /

There are always bubblers and doomsayers around predicting the bursting of Australia’s property bubble.

But recently US demographer Harry Dent has been travelling around the country telling anyone who’ll listen to him that we’re on the verge of an economic winter and when it comes, the fallout could be worse than even the Great Depression of 1929.

I had a chance to interview Dent, one of the world’s most controversial economists, on my podcast and hear him predict that the stock market could possibly crash 80% just weeks or months from now, and that our property markets will also eventually crash, with Sydney real estate house prices likely to drop by as much as 40%.

Dent comes to Australia every couple of years, usually when he has a new book to promote (as he does this time), throws the cat amongst the pigeons by predicting Armageddon, and in the process gets lots of publicity for his books and seminars.

Only last night my sister, who knows little about property asked me: “Is the value of my house really going to drop 40%? I heard some American guru on TV say that’s what’s going to happen”.

So, is Dent right this time? Are we in for a property market collapse?

I’ll try and answer this with a Q&A.

What’s all the fuss about?

Having spoken personally with Dent, I could hear the conviction in his voice as he explained how “every boom must bust” and we are in more than a boom, “we’re in a bubble”.

Dent says: “This bubble is unlike any before it because governments are unnaturally propping up the economy using quantitative easing”.

“Governments are pouring money into the economy. It’s not going to the average person, it’s going …to corporations (who are) buying back their own stocks with almost zero cost money. That is a fake boom,” he says. 

“So, this bubble doesn’t even have the fundamentals behind it. Which means that when it does burst, it’s going to burst worse than the last bubbles did.”

Dent predicts that our stock market will crash after the Chinese property market crashes, but the world-wide fallout will be worse than the Great Depression of 1929.

Is this something new?

Interestingly, Dent made similar prediction in 2011, 2012, and 2014 as did The Economist and Demographia.

In early 2014, Dent came to Australia warning that when the China bubble bursts — and it was meant to by mid 2014, just weeks after his forecast was made — Sydney house prices could collapse by up to 55%.

Now that didn’t happen did it? Instead our major property markets boomed!

Back in 2012 Dent was quoted in Forbes as saying: “The greatest housing bubble in developed-country cities starts with Brisbane, Australia …”.

When I asked him on my podcast what he had to say to those who sold up their homes based on his predictions his answer was: “Well I was wrong”.

He continued with much conviction to explain that while the timing was premature, his forecast is correct because he has no doubt that we are in a bubble.

So what is a property bubble?

Investopedia defines it as:

“A run-up in housing prices fuelled by demand, speculation and the belief that recent history is an infallible forecast of the future. Housing bubbles usually start with an increase in demand in the face of limited supply, which takes a relatively long period of time to replenish and increase. Speculators enter the market, believing that profits can be made through short-term buying and selling. This further drives demand. At some point, demand decreases or stagnates at the same time supply increases, resulting in a sharp drop in prices — and the bubble bursts.”

For mine, bubbles are also accompanied by easing of lending criteria so that loans are easily obtained, which leads to rapid rises in housing credit, with many people who can’t really afford to take on loans speculating and overcommitting themselves.

Are we in a bubble?

The simple answer is no, and property values are not about to collapse!

Sure, house prices are high compared to many parts of the world, but rising prices per se don’t cause a bubble.

What is needed is for the rises to be fuelled by increased borrowings or leverage, which makes the banking system fragile and unstable.

Over the last few years our banks have tightened lending serviceability criteria ensuring that those taking out new loans could adequately service their debts.

Clearly our housing markets are set to cool this year, but while Dent thinks we’re in a bubble, the RBA and economists at all of Australia’s major banks, whp have proved more accurate at predicting the swings and roundabouts of the Australian economy, believe our property market is not in bubble territory, nor about to collapse.

This is in part because of Australia’s strong economic and population growth underpinning our property markets.

When I chatted with Dent I explained to him that in Australia, 70% of dwellings are owned by owner-occupiers, and around half of them do not have a mortgage. And for those that do, many are ahead in their repayments.

I explained the Australia psyche: we don’t sell up our homes when things get tough — we’d rather eat dog food than sell up the ‘castle’.

Here’s why I think property values are not going to collapse

Remember for a property market to crash — and that’s different to price growth slowing or the normal cyclically correction — you need desperate sellers willing to give away their properties at fire sale prices and no one willing to buy them.

To make our property markets crash we need one or more of the following four things.

  1. A major depression (not just a recession.) Nobody (other than Dent) is suggesting this will occur;
  2. Massive unemployment and people not able to keep paying their mortgages — unlikely;
  3. Exceedingly high interest rates so that home owners won’t be able to keep up their mortgage payments. Again, this isn’t on the horizon; and
  4. An excessive oversupply of properties and no one wanting to buy them. Other than in a few spots this is not occurring in Australia.

What is likely to happen to property values this year?

While our markets are slowing, the value of well-located properties in our main capital cities are likely to be higher at the end of the year than they are today.

While I’m acutely aware of some of the issues Dent has brought up — yes, there are clearly economic and political issues overseas that could destabilise the world’s economies — here’s why I’m confident of the future of our capital city property markets:

1. Recently the International Monetary Fund has given an optimistic outlook expecting world economic growth to be 3.9% in both 2018 and 2019 — they can’t see a recession ahead. 

2. Similarly the RBA sees the Australian economy performing strongly moving forward. At present we’re creating more jobs than we have for a long time — and when people have jobs they don’t sell up their houses. Only last month the Australian Bureau of Statistics noted:  “Over the past year, trend employment increased by 394,900 persons (3.3%), which is above the average annual growth rate over the past 20 years of 1.9%.”    

Michael Yardney 9 March

3. Our banking system is sound and mortgage arrears are low.

Yes, some local investors took on too much debt and became speculators, taking out interest-only loans with very small deposits, hoping (speculating) that capital growth would occur. This worked out well for some who bought the right properties, but others who overpaid for off-the-plan apartments or who bought properties in regional or mining towns learned that properties values don’t only go up, as today’s hot spot can quickly become tomorrow’s not spot and property values fall.

But, in general, over the last few years lending to investors has been more responsible.

Anyone who borrowed in the last few years was “stress tested” — they could only borrow if they were able to repay their interest if interest rates rose and if they paid principal and interest.

According to Westpac’s latest Housing Pulse research report, mortgage arrears and debt servicing levels are slowly falling and not far off long-term averages but well below their historic peaks.

Michael Yardney 9 March

Source: Westpac

4. Our household wealth is the highest it ever has been, and most household budgets are in good shape:

Michael Yardney 9 March

Source: RBA

As you can see from the graph above, much of our household wealth comes from owning real estate, so the bubblers would argue that the level of debt against our properties is an issue.

On the other hand, CoreLogic estimates the total value of the Australian housing market at around $7.5 trillion, with the value of mortgages against these properties totalling $1.71 trillion. Now that’s a loan to value ratio of around 23% — not bubble territory to me.

5. Inflation is contained, while interest rates are low and likely to remain so for a while. Low interest rates encourage homebuyers and investors into the property market while at the same time allowing current homeowners to pay off their mortgages quicker.

6. Our strong population growth (around 1.6% per annum — faster than any other developed country) underpins our economy and housing markets. Interestingly most of these new Australians want to live in our four big capital cities and in many cases in many of the same suburbs. And this won’t change in the near future. Australia has a “business plan” to grow to 40 million residents in the next three decades. This means we will be adding the equivalent of a city the size of Canberra each year for the next 30 years.

While we’re experiencing natural population growth, we’re very lucky that we are a country where more people want to come to live than we allow in, and if the global economy fractures, living in Australia will become more attractive than ever.

7. Other than in a few specific markets (especially Brisbane high rise apartments) we do not have an oversupply of property.

In conclusion

Of course there is not one property market and as always, some markets will perform better than others. But on the whole, a mixture of low interest rates, strong population growth, job stability, affordability and increasing confidence will keep our property markets moving forward this year — albeit more slowly.

One more thing: as long as I’ve been investing in property, and that’s over 40 years now, there have been doomsayers warning the sky is falling. And the media has lapped up their stories.

In the meantime, while smart investors and homebuyers were out buying the right type of property, others who were more cautious were sitting on the sidelines waiting to see how things pan out. While this may seem safe to them, they are likely to miss out on some great opportunities.

NOW READ: Will stock market volatility cause property prices to fall?

Michael Yardney

Michael Yardney is a director of Metropole Property Strategists, which creates wealth for its clients through independent, unbiased property advice and advocacy. He is a best-selling author, one of Australia's leading experts in wealth creation through property and writes the Property Update blog.

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  • Steve Smith

    lets just remind ourselves who has the highest household dept.

    Never ever believe the opinion of a glorified estate agent ..ever!

    • Charles

      U can believe a down to earth one.

  • Charles

    I bet Mr bent is renting for fear of the collapse.

  • Shawn Dunner

    It may be worth taking 5 minutes to read through this article again and correct the spelling mistakes. Your article appeals to me as an investor and I agree with the points you make here. However, this website and the content that is added speaks to the business and investing community. The spelling mistakes in this article takes the polish off of your excellent research. If you would like some more influential supporters for your usually well written and thoughtful publications, perhaps it would be worthwhile having an editor with an eye for detail to proof read before your articles are published. Just a friendly thought 😉

  • James Deaner

    as i have said prior about Mr Dent, i will gladly sell you a book for half his reatil price which will aslo tell you bad things have happened in the past and will happen in the future….he raises income off others unknowing fears..tsk tsk.

  • Aint it odd that media outlets will uncritically allow this booster to spread his fear message, time after time. Sloppy.

  • Edward

    Great news, Dent only speaks the truth no chicken little here, the market is crazy blind freddy knows that, the crash is inevitable, should have happened a lot sooner, buckle up people.

  • Edward

    Great news, Dent only speaks the truth no chicken little here, the market is crazy blind freddy knows that, this crash is inevitable, buckle up people.

  • Daniel Ray

    Ok. First you might want to look at the figures in more depth like your spelling in your article. Rushed. Your looking at a lake to see if its safe to swim by just looking at the surface. But if you look deeper, underneath that it may not be as safe as you think. First off we have the 3rd most highest debt per households in the world. For every dollar we earn we spend $2. Thats the first big red flag. 2. Wages are not growing. History tells us in order for house prices to keep increasing wages need to increase along with it especially full time income which full time unemployment is down and only part time and casual are up. 3. We have one the highest rates of liar loans currently out in the market in our history. This is backed futher with the current royal commission reports into the banks. 4. The most important point. Immagration and population we are told are the biggest contribution to higher house prices. This actually only makes up 20% of the contributing factor towards higher house prices. Its the rate and affordability of finance. You can have all the people in the world immagrating to our top cities but they need to be able to borrow and afford the repayments in order to buy the ever increasing house prices. Ever since rates dropped a lot in 2011-2012 (when house prices actually went down by 10%-15% from 2010 i might add) prices went up. As rates dropped further prices continued to go up. So in order for house prices to continue to increase in price you need the finance to increase. In which banks have in the last 6 months been tightening which in turn has caused a slow melt in sydney with 26 straight weeks on negative growth. So we don’t see a massive correction yet but what Dent is saying we are way to exposed if something does happen. So for example if labour wins next years election and changes the negative gearing to only allow it for new purchases, basically that is the pin that can burst the bubble and as the majority of people are exposed it can cause markets to collapse. Perth. Look at them. Look it up. West perth in 2014 had an average price over 910,000. Now its 625,000 and still falling. Look up articles in 2014 there. They thought prices would continue to increase. Basically sydney and melbourne currently have colds. The symptoms are there and we are simply giving the housing markets panadol to keep it at bay but just make it worse. All you need is to catch a chill and your in the hospital.

    I’ll sum it up. Think of your typical couple. Everything is a cool and comfortable. But when finances are getting bad, they hate talking about it. So they go out and get finance to keep comfortable and so they don’t have to address it and things stay as they are. But when things get really bad they have no choice but to discuss it and they get into a argument and things go really bad. No one. I mean no one likes talking about there personal finances when things are bad.

    Basically people like Dent and Steven Keen who actually produce the hard facts are like financial advisors telling all of us “im looking at your figures, its not good. You better fix this now and get things sorted in case something happens your in out on the street”. No one likes being told things are bad financially. So into turn economists, journalists and most of the financial system disput the arguments as they don’t like being told the truth financially. Truth is like poetry and the F likes poetry.

    It would be like saying “well i haven’t had a car accident in 5 years. I’ll increase my speed and drive like a bigger idiot. Nothing will happen to me. So why would i need insurance.” Most people know that sooner or later it can happen without warning. The housing market is driving 200km in a 100km zone with ever declining fuel, complete arrogance and no insurance.

    ‘Mic drop’