Investors may cause the property market to slump if they sell up, according to a leading economist.
With the past 18 months recording a “chronically weak” property environment, one of the housing markets' biggest risks is investors selling out, according to AMP chief economist and head of investment strategy, Shane Oliver, in his latest ‘Oliver’s Insight’ report.
While the number one threat remains the overseas climate, particularly in terms of employment fuelled by exports to China, investors themselves have a lot of power in the market, Mr Oliver said.
Low levels of finance approval and new home sales, subdued prices and first time buyer activity, combined with weak auction clearance rates, may be putting fear into investors, with investors remaining wary after the Global Financial Crisis.
“Since the GFC, Australians have become fearful of taking on more debt and the once strongly held belief that house prices can only go up has long been ditched,” Mr Oliver warned.
“[Property] investors who make up a third of housing debt may lose patience with the lack of capital growth and sell, leading to sharp falls in house prices.”
However, he said, he certainly doesn’t see any logic in selling up.
“Real estate investors are usually in there for the long term, made necessary by large transaction costs... why would those who are already in suddenly sell now?”
Despite this fear and a lack of investors buying, there’s hope ahead, and those looking to invest need to jump on soon rather than expecting any huge drops in the market.
“[While] fears are growing of a deep house price slump ahead, the most likely scenario remains a lengthy period of range bound house prices around a flat trend in real terms,” he said.
With values going nowhere over the last four years, this may continue for the next five.
“Bottom line – in the very short term house prices could fall a bit further as economic uncertainty continues to impact, but providing Europe doesn’t plunge China and the world into a renewed recession, falling mortgage rates are likely to drive a cyclical recovery in the housing market from later this year/early next.”