2019: Housing could crash the Australian economy

By Myles Peterson

The year 2019 is shaping up to be Australia’s annus horribilis.

The political and economic headwinds appear terrible.

Leading the charge towards the cliff are Sydney and Melbourne house prices.

Following years of ridiculous, non-sustainable growth where price-to-income ratios blew out to 10 in Sydney and eight in Melbourne, all evidence points towards a housing crash.

Prices have already collapsed 10 per cent in Sydney in the past year while auction clearance rates dip down to 40 per cent.

A couple who bought a year ago on a 10 per cent deposit will be facing negative equity — hard to stomach for the average home buyer, and an absolute disaster for investors.

Those ‘‘I’m only 25 and own 10 investment properties’’ articles so loved by media spruiking real estate will need updating.

‘‘I’m only 26 and facing bankruptcy.’’

And this is just year one.

Despite the rhetoric, housing bubbles don’t ‘‘pop’’, they take years to run down.

Ireland, the United States and Spain all experienced housing bubbles and subsequent crashes following the 2007-2008 global financial crisis, and all took about five years to play out with price falls of about 50 per cent.

Thanks to the mining boom, Australia avoided the recessions felt in those countries — creating an arguably bigger bubble than any of them.

Now it seems the pendulum is finally making its inexorable return swing.

The impact will ripple through the entire economy, squeezing the life out of retail and construction in our two major cities, and engendering the real possibility of Australia’s first recession in 25 years.

There is little our Reserve Bank and federal politicians can do about it.

Interest rates are at record lows with hardly any room for cuts unless we contemplate negative interest rates — a shocker of an outcome for those with savings.

Prime Minister Scott Morrison has promised a balanced budget that gives room to go back into the red, but with government debt standing at a whopping half-a-trillion dollars, any such move will only shift the burden, if it works at all.

We are a small player in the world economic game, at the mercy of outside forces.

China may come to our rescue again as it did a decade ago with its insatiable hunger for our iron and other commodities.

But things are not looking that good for China either. Issues with debt and shrinking GDP are still playing out, compounded by an on-again/off-again trade war with the US.

And now for the good news.

Shepparton is well placed to ride it all out.

House prices here did not go anywhere near bubble territory.

Shepparton may well benefit and experience house price rises against the metro-falls as housing investors look for somewhere relatively safe to park their cash with decent price-to-income ratios and rental yields.

The region’s largely food-based export mix will not be at the mercy of discretionary spending drops. During a recession, consumers cut back on holidays and luxury goods, not dietary staples.

A housing-led downturn is a real possibility next year, but Shepparton could well avoid the worst of it.

Myles Peterson is a journalist at The News.