Shares

For three years economists and share market analysts have told us our home values were about to collapse.

It started in 2008, with the onset of the global financial crisis.

The pundits predicted 2009 would be a year of serious price decline. Some said 10 per cent, some suggested 20 per cent. One out-of-his-depth commentator predicted 40 per cent.

None of that happened, of course. In most locations around Australia prices rose in 2009.

Undeterred, the same noisy analysts popped up again and issued similar warnings for 2010.

Surprisingly, given the poor track record of the flawed forecasters, media continued to give them credibility.

But property didn't collapse in 2010, either. Capital cities showed moderate increases and the best of the regional areas delivered double-digit value growth.

Ah well, 2011 presented another opportunity. The chattering economists evidently believe that if you keep predicting something long enough, eventually you may get it right - and then you can claim vindication.

In recent months, there has been a crescendo of voices making dire predictions about real estate. It's made many Australians afraid to go near the property market.

Electronic media has been having a feeding frenzy, shoving cameras in the faces of anyone silly enough to predict a US-style housing collapse (ignoring the reality that their home prices dropped for very clear reasons, none of which apply to Australia).

So, in the light of all this, what happened?

Yes, that's right, the share market collapsed!

Real estate has continued to hold up, with minor price decline in some locations, but the Australian stock market has tanked, following the us and other global markets in a spiral of decline.

What's significant here is that none of strident economists who have warned us of impending real estate doom prepared us for the nosedive in Australian shares.

They've been so obsessed with real estate they didn't see the collapse of share values coming. Nor did they forecast the downgrading of the us credit rating, which was a major catalyst for the share market collapse.

Nor did media, which has been so persistent in its warnings of real estate disaster.

Why have we had this fixation with warnings about real estate but no focus on the share market. Perhaps commentators forgot that most Australians have their superannuation savings wrapped up in the share market.

The basis of the claims of collapsing home prices is that real estate is allegedly over-valued. But clearly it was shares that were over-valued. I don't recall being warned about that.

Let's look at what happened in the week ending Saturday 6 august.

The sharemarket carnage was apparently prompted by concerns that the us could be headed back into recession and fears that Europe's debt issues could spread to Italy and Spain.

On Friday 5 august, the Australian sharemarket dropped 4 per cent to its biggest one-day loss since the height of the gfc almost three years earlier. The fall wiped $60 billion from the value of Australian stocks on Friday 5 august.

That meant a cumulative loss of around $100 billion over the week.

Local traders followed the lead of the us, something that our property markets have avoided. Australian stocks closed on Friday 5 august at their lowest level since july 2009. It was the biggest one-day percentage fall since 20 November 2008.

Now, let's look at what residential real estate has been doing while shares have been choking.

The most official of the data on prices, the house price indexes from the Australian bureau of statistics, shows the weighted average across the eight capital cities was a fall of 0.1 per cent in the June quarter.

This effectively means no change.

Amazing, really, given the low level of consumer confidence, the daily speculation about interest rates rising (inaccurate, given that our last rate rise was in November last year) and those persistent warnings of a real estate black Friday.

The year-on-year result for capital city house prices was a decrease of 1.9 per cent.
Even Brisbane, with the impact of the January flood weighing down its property market, has fallen just 3.6 per cent in 12 months.

The Australian sharemarket fell more than that in a single day.

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