Why does everyone keep talking about a "housing correction" and what does it actually mean?

29870_600Do you remember good ol’ Steve Keen?

He was the economist who famously lost a bet against former Macquarie Bank economist, Rory Robertson.

Keen believed that property prices in Australia were due to “correct”, a nice way of saying, “fall”, by 40% post-GFC. Rory disagreed – so they placed a very public bet.

When Keen lost and house prices failed to plummet, he was forced to walk from Canberra to Mt Kosciuszko… more than 220km!

This all took place several years ago and Keen has since moved to the UK to London’s Kingston University as Head of Economics, Politics and History.

But there are always economists who are ready to make alarmist statements, and senior economist Guy Bruten from global research company AllianceBernstein is the latest.

He has analysed the Australian property market and come to the conclusion that “there’s a clear risk that falling house prices may be the next phase in the post-commodity-boom adjustment story”…

Read the full story below. And as I always say, don’t get spooked by media headlines. Do your own research and take expert’s opinions on board, but let it become just one of many influences that help to shape your investing journey – rather than the seed of fear that drives you to make rash decisions.

Australia On The Brink Of A Housing Correction, Claims Economist

A global research company says Australia is on the brink of a housing correction, as its forecast for the Australian economy remains “downbeat”.

The recent upswing phase – which has seen house prices in Sydney surge 30% over the past two years – is expected to change in the coming months, according to Guy Bruten, a senior economist for AllianceBernstein.

“… with signs of oversupply starting to emerge in pockets of the market, and with APRA … starting to offer “guidance”—a weak form of macro prudential policy—one wonders how long this can continue,” he said in a note to investors.

“There’s a clear risk that falling house prices may be the next phase in the post-commodity-boom adjustment story.”

This sentiment echoes the latest home lending figures released by the Australian Bureau of Statistics, which revealed that the number of new home loan commitments dropped 0.7% in November. Excluding the refinancing of dwellings, the number of loans was down by 0.8%.

Bruten also says it would be “unwise” to be swayed by last week’s “better-than-expected” labour figures, which raised the question of whether we are seeing a fundamental turnaround in the Australian economy. He says Australia’s economy is still fundamentally bearish.

“Despite a couple of better jobs readings, we remain downbeat about Australia’s prospects for the next few years.

“The long shadow of the commodity price bust remains the key theme. The next phase? Weaker LNG prices and, perhaps, the long-anticipated housing correction,” he said in the note to investors.

Source: Your Investment Property magazine.

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