Australian data was light on over the last week but with the ABS confirming that home prices fell again in the June quarter. In terms of house prices, our assessment remains that the combination of tighter bank lending standards, rising supply, poor affordability and falling capital growth expectations point to more falls ahead, with Melbourne and Sydney likely to see top to bottom home price falls of around 15% out to 2020.

But what about the risk of a property price crash as suggested by the recent 60 Minutes report? Several things are worth noting in relation to this: predictions of a 30-50% property price crash have been wheeled out regularly in Australian media over the last decade including on 60 Minutes; the anecdotes of mortgage stress and defaults don’t line up well with actual data showing low levels of arrears; borrowers have already been moving from interest only to principle and interest loans over the last few years without a lot of stress; and the 40-45% price fall call on the program was “if everything turns against us”. Our view remains that in the absence of much higher interest rates, much higher unemployment or a multi-year supply surge (none of which are expected) a property crash is unlikely. But the risks are now greater than when property crash calls started to be made a decade or so ago and so deeper price falls than the 15% top to bottom fall we expect for Sydney and Melbourne are a high risk. This is particularly so given the risk that post the Royal Commission bank lending standards become excessively tight and if negative gearing is restricted and the capital gains tax discount is halved after a change in government in Canberra. There is also a big risk that FOMO (fear of missing out) becomes FONGO (fear of not getting out) for some.

One factor that supports the argument against a property price crash is ongoing strong population growth. Over the year to the March quarter, it remained high at 1.6%, which is at the top end of developed countries. As can be seen in the next chart net overseas migration has become an increasingly important driver of population growth in recent years.

However, there are a few qualifications to this: there is some risk that the migrant intake may be cut; while accelerating population growth in Queensland will support Brisbane property prices, population growth is slowing in NSW and Victoria so its becoming a bit less supportive of property prices in those states; and the supply of new dwellings has been catching up to strong population growth so undersupply is giving way to oversupply in some areas. The risk of the latter is highlighted by the continuing very high residential crane count which is still dominated by Sydney and Melbourne, indicating that there is still of lot of supply to hit the market ahead. Out of interest Australia’s total residential crane count alone of 528 cranes is way above the total crane count (i.e. residential and non-residential) in the US of 300 and Canada of 123!