For 25 years, real estate agent Adam Flynn has dismissed his fear-mongering colleagues’ claims that the Australian property bubble is about to burst. However, he now believes that their dark prophecy could become a reality.
Speaking to FEMAIL, the industry expert and property investor stated that interest rate rises in August or September, along with a potential further rise in November, could cripple the market. It (the Australian housing economy) will haemorrhage and everyone will suffer,” he claimed.
Mr. Flynn, who works “at the coal face” of the industry by selling houses, is far removed from the pen-pushers at the Reserve Bank of Australia, who continue to increase interest rates in an attempt to curb inflation. “They don’t hear the conversations in real time, based on the 13 interest rate rises – people are just hanging on by a thread,” he said.
He shared an example, saying, “Just the other day I was speaking to a woman, a homeowner, who only had enough money in her account to buy her kid new school shoes.”
It’s not just the financially vulnerable who are nearing breaking point, he noted. Australians, from budget-savvy first-time homeowners to those who secured loans for million-dollar homes, are in trouble. Even once prosperous property developers are stretched too thin.
“I have been speaking to people in every category. I have never seen it this bad. I think 30 percent of people with a mortgage in Australia are at breaking point. They will break if rates rise – and many more will be on the brink.”
Flynn predicts that people will be forced to put their homes on the market to pay back the banks, leading to a flood of properties. “The only way people will be able to make one look more attractive than another is to lower the price,” he said.
The influx of homes, especially during the spring, could lead to a drastic drop in house prices. “We could see prices wiped by 40 percent – a haemorrhage like this will take years to recover,” he said. “People won’t get enough back for their homes to pay the banks or get enough back for another deposit. They will just lose everything.”
Flynn expects property prices across the country to fall quickly and is preparing for a record-breaking number of homes to flood the market for a quick sale over Christmas and January, typically a quiet time for real estate. “People will need to put their homes up quickly to avoid drama from their bank, and will have to keep prices low because otherwise, after a few months on the market, their homes will be stale,” he explained.
He warned that the damage won’t be isolated to a specific location or tax bracket and will change the property market and wealth distribution across Australia forever.
However, a total property market collapse wouldn’t be bad for everyone. “The people who have never been able to own property, who struggle to come up with a deposit or get a loan, will have their chance,” he said. If his 40 percent wipe-out prediction is true, people could be securing homes now worth $1 million for $600,000, he claims.
“In my opinion, the RBA has no other way to tackle inflation than to put interest rates up. But it would be wildly irresponsible for them to do it.”
Australia could have a new wave of first homeowners and a ‘new money’ class could evolve from the ashes, he said. And of course, the super-rich would still benefit. “There are investors with cash waiting for this to happen. They will swoop in and buy good homes for dirt cheap,” he said.
“The next two years will be a buyer’s market. Until inflation settles.” Then things will begin to rebuild, slowly.
Mr. Flynn says the wave could start as early as the day interest rates are put up, with most people aware they are already pushing against their limit. But it could be a two-stage process with others rushing to offload property once they are unable to make the next repayment.
Previously, Mr. Flynn had confidence in the market, claiming there would be small bumps, but that the bubble would never burst completely. “I have never said this – and I have been in the industry through the GFC, 9/11, and Covid,” he said.
Mr. Flynn advises that anyone who’s not prepared financially or mentally to stay put in their home for the next three to five years should sell now before prices drop off.
Parallels with the UK Housing Market and Mortgage Rate Rises After Liz Truss’s Budget
The situation in Australia draws striking parallels to the UK housing market following the budget rises announced by former Prime Minister Liz Truss. After the controversial budget, the UK saw a significant increase in mortgage rates, which triggered widespread concern about the housing market’s stability.
In the UK, the rapid increase in mortgage rates led to a similar scenario where many homeowners, from first-time buyers to those with significant investments in property, found themselves at the brink of financial distress. The increased borrowing costs put a strain on household budgets, forcing many to consider selling their homes to avoid defaulting on their loans.
Just as Flynn predicts a flood of properties hitting the Australian market, the UK experienced a surge in listings as homeowners rushed to sell before prices could drop further. The fear of a devaluation of property prices by as much as 40 percent echoes the concerns raised in the UK market, where a significant price correction seemed imminent.
Both markets faced the prospect of a buyer’s market, where those with liquidity could capitalize on the downturn. Investors with cash reserves waited on the sidelines, ready to swoop in and acquire properties at a fraction of their previous value, further influencing the market dynamics.
Insights from Nick Marr, CEO of Homesgofast.com and Europeanproperty.com
Nick Marr Homesgofast.com & Europeanproperty.com
Nick Marr, CEO of international real estate platforms Homesgofast.com and Europeanproperty.com, has drawn striking parallels between the current situation in the Australian housing market and the UK’s experience following Liz Truss’s budget. The sharp increase in mortgage rates in both countries has placed immense pressure on homeowners, resulting in a flood of properties hitting the market as people struggle to keep up with repayments.
“The current situation in Australia mirrors what we saw in the UK following Liz Truss’s budget. Both markets experienced a sharp increase in mortgage rates, putting immense pressure on homeowners across all financial brackets. The rapid rise in borrowing costs is pushing many to the edge, and we could witness a significant number of properties flooding the market as people struggle to keep up with repayments,” Marr stated.
While the prospect of a property price drop in Australia presents a potential opportunity for overseas investors, Marr emphasized the substantial risks involved. “The volatility we’re seeing means that investors need to be particularly strategic and prepared for rapid market fluctuations. The parallels to the UK market highlight the need for a careful approach to leverage and liquidity,” he said.
Marr advised international buyers to consider how the predicted market collapse and gradual recovery in Australia might affect their long-term investment strategies. “Just as in the UK, a buyer’s market could emerge, offering attractive deals for those with the capital to invest. However, it’s crucial to factor in the broader economic conditions and potential policy changes that could impact the market’s stability,” he explained.
One of the key lessons from the UK experience is the importance of monitoring government interventions and policy shifts, according to Marr. “In times of economic stress, regulatory changes can significantly influence market dynamics. Overseas investors in the Australian market should stay informed about any potential measures that might be introduced to stabilize the housing sector,” he noted.
Marr also underscored the need for investors to prepare for rapid market fluctuations. “The parallels between the UK and Australian housing markets underscore the need for investors to prepare for rapid market fluctuations. Ensuring that investments are not over-leveraged and maintaining a buffer for unexpected changes are essential strategies. Those who can navigate these turbulent times with foresight will be better positioned to capitalize on the opportunities that arise,” he concluded.
Questions for Overseas Property Investors:
1. Given the potential for a drastic drop in Australian property prices, should overseas investors view this as a prime opportunity to enter the market, or is it too risky given the current economic uncertainties?
2. How might the predicted market collapse and subsequent recovery phase affect long-term investment strategies for international buyers?
3. What are the implications of a significant price drop on rental yields and the overall stability of the Australian real estate market?
4. Could there be potential policy changes or government interventions that overseas investors need to be aware of during this turbulent period?
5. How should overseas investors prepare for the possibility of rapid market fluctuations and ensure they are not over-leveraged in this volatile environment?
The insights from Flynn and Marr provide valuable guidance for overseas property investors considering the Australian market amidst the current economic uncertainties. Their observations highlight the importance of strategic planning and cautious optimism in navigating these challenging times.
Check our latest Homes for sale in Australia
