Peter Gordon Dip.FP. & Dip.FMB.
e peter@investoproperty.com.au
Ph: 0401 214 134

Booms, Bubbles and Bloodbaths by Terry Rider 29/6/15

Thursday, 9th July 2015

Here’s the most remarkable statistic to emerge from the residential real estate industry this year: 32% of people think there’s a bubble.

The remarkable thing is that so few believe in the bubble hype. Media has been running bubble stories daily. Recently a new B word has taken up headline space: bloodbath, now a popular word to describe predictions from the lunatic fringe who subscribe to bubble theories.

But, according to an Investor Insight Survey, 55% of respondents said there was no property bubble and 13% were unsure.

Media, being the strange twisted animal that it is, chose to highlight the 32% who do apparently believe there’s a bubble, with the inference that this number is significantly high. My reaction was quite the opposite: that it’s amazingly low, given that media constantly tells us that one exists.

Among the many unworthy things that Nazi propaganda guy Joseph Goebbels gave to the world was the notion that “if you tell a lie big enough, and keep repeating it, people will eventually come to accept it as the truth”.

That principle, if that’s the right word, is alive and thriving in Australian media today. Most of what consumers believe to be true about real estate – the affordability crisis, the chronic housing shortage crisis, the bubble, the Great Australian Dream is dead, etc – are lies that have been repeated so often that many people accept them as truth.

This week the Australian Bureau of Statistics published its Residential Property Price Indexes, which are the latest figures to demonstrate the lie in the boom/bubble/bloodbath nonsense much beloved by tabloid media.

Sydney’s price index is up 13% and the next best is Melbourne’s 4.7% annual rise. Brisbane has managed 3.9%, Canberra 3%, Adelaide 2.5% and Hobart 1.9%. The price indexes for both Perth and Darwin have fallen slightly. The weighted average rise for the eight cities is 6.9%, but seven of the eight cities are well below that average.

I’ve scrutinised these figures, and similar data from other sources, from lots of different angles and directions. I’ve turned them upside down. I’ve looked at them in a mirror. I’ve examined them through a magnifying glass. And I cannot find a national property boom there. And without a boom, there is no bubble. And without a bubble, there is no prospect of a bloodbath.

Few media outlets reported the ABS figures, as they don’t fit with the pre-conceived story line of runaway markets, blistering price surges and world-shattering bubbles. Goebbels also gave us the idea, much utilised by journalists today, that you never let the facts get in the way of a good story.

The latest “bloodbath” forecast has come from a couple of attention-seeking conspiracy-theory twits who have put in a submission to yet another parliamentary inquiry in an attempt to drum up a bit of publicity for their consulting business.

They’ve predicted a bloodbath. Naturally media had a field day with it. If someone is silly enough to predict a market crash, journalists will be delighted to recycle it as news, regardless of how outlandish it is or how often the forecasters have been wrong in the past.

I’ve added this to the very large list of people who have predicted bloodbaths, bubbles bursting and markets collapsing in Australian real estate over the past 15 years.

I have a heightened awareness of such predictions because I recently conducted a research exercise for a client on the predictions newspapers and other media outlets have made about real estate prices since the start of the century.

Over 15 years there has been a constant barrage of articles making doomsday predictions about the housing market. Subsequent outcomes have proved them all wrong. Not one has been correct.

I recently published a Top 20 list of worst predictions about property prices. For example, in January 2012 visiting US spruiker Jordan Wirsz, seeking to drum up some free publicity, predicted a bloodbath in which house values would fall 60% in 2013. He forecast land values would fall 90%.

Not surprisingly, this did not happen. There is no precedent, not in Australia nor in any other nation on planet Earth, for such a calamitous decline in values. The actual outcome? Capital city prices, on average, rose 9% in 2013 and 8% in 2014, with most of that growth occurring in Sydney.

But Wirsz’s ludicrous prediction, which should not have been published by any credible media organisation, was just one of numerous doomsday forecasts made over the past 15 years, and all of them have been proven false. They have come from US spruikers, Australian economists and the lunatic fringe brigade of anti-real estate campaigners.

But if Wirsz lobs in Australia again next month and predicts our property values will fall 100% - in other words, every property will be worth zero - newspapers around the nation will publish it, television will rush to do interviews and politicians will call for a parliamentary inquiry.