street talk, Steve Keen's original forecast back in 2007 was for a 40% decline in Australia's average housing prices over the following decade (so the jury's still out on that one until 2017). Since his forecast, house prices are only marginally higher now (after a pullback during 2008) and largely on the back of demand brought forward due to the boost in the FHOG. So for arguments sake let's just say about a 50% fall from current house prices over the next 7 years would deliver his original forecast.
Keen recently wrote;
..In a speculative market like the stock market, much of the buying is driven by the belief that prices will continue to rise; as soon as that belief evaporates, buyers become sellers and the price doesn't "taper", but plunge. A certain Irving Fisher once commented that "stock prices have reached a permanently high plateau", only to see them (and his reputation and wealth) evaporate in the ensuing 3 years.
So the hope for Chris Joye is not that house prices will behave like stock market prices, but precisely the opposite. Bears like myself argue that the housing market has indeed become just like the stock market - a place where leveraged speculation in the belief that house prices always rise does far more to explain house price movements than any appeals to "fundamentals" - and this is the main reason that house prices have risen so much in the last two decades.
There is however one important way in which house prices do differ from shares: the first sign of trouble is not a sudden drop in prices, but a fall in the number of sales and an increase in the length of time it takes for properties to sell...
With buyer demand fading, the demand driven leveraged speculation that sparked our housing bubble has come to an end. The decline in house prices has merely begun. And given the degree and the extent of debt leverage, it would require up to 7 years for the debt deleveraging and price deflation to fully unravel. That's the big picture trend which will take years to confirm but there should be early signs over the next 6 months or so (initially from our share market which is the perfect barometer of all important social mood). Watch this space...
