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Debate over direction of house prices -

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ELEANOR HALL: Economists at the ANZ are among the optimists who are predicting that Australian
house prices won't fall over the next few years.

It's a sign of the times that a forecast of stagnation is regarded as optimistic.

But there are a number of economists who say a severe downturn and a sharp drop in house prices is
unavoidable.

Richard Lindell has our report.

RICHARD LINDELL: In the US, house prices have dropped more than 30 per cent in some cities over the
past 12 months.

The contagion has spread to Europe where double digit falls have been reported and the year ahead
doesn't look any better.

While Australia isn't immune to the credit crunch, ANZ Chief Economist Saul Eslake says the local
property market should hold up better than most.

SAUL ESLAKE: We will avoid recession although I readily concede that growth will be slower than had
been forecast in the budget and that unemployment will probably raise by a bit more than forecast
in the budget.

But as I say, provided that is contained that we avoid outright recession I think the most likely
scenario for the majority of Australian house prices is that they stay within a fairly narrow
range.

RICHARD LINDELL: Saul Eslake says there are exceptions and tips big falls at the top end of the
market.

Areas like Sydney's western suburbs will also remain under pressure.

But he argues that most of the market will simply dry up, as potential sellers rethink their
position.

SAUL ESLAKE: To some extent the market may be a little artificial. People who were thinking about
selling their property and find that they can't get what they had hoped to get will take their
property off the market will certainly see turnover drop significantly but I again don't believe
that we will see across the board falls in house prices of the kind that we've been seeing for a
couple of years in the US and that we're starting to see more recently in many European countries
because there simply won't be the volume of forced sales on the market, pushing prices down.

RICHARD LINDELL: The number of forced sales is directly related to unemployment.

Gerard Minack at Morgan Stanley says Australia is headed for recession and a sharply higher jobless
rate will push house prices down.

GERARD MINACK: There is a world of difference between what policy makers now have as their first
aim which is to prevent global systemic financial crisis and preventing a credit crunch. And yes I
think we've made some big steps to avoiding a lot of banks going under globally, but I still think
credit conditions will be very tight and with people unable to get finance then prices will come
off as we see some people lose their homes.

RICHARD LINDELL: Gerard Minack expects house prices to fall by as much as 25 per cent over the next
two years as property is still very expensive in global terms.

ELEANOR HALL: Richard Lindell.