Property market biggest threat to Australia’s recovery: Harry Dent

Property market biggest threat to Australia's recovery: Harry Dent

Australia’s comparatively young population will support the country through its post-coronavirus recovery, provided it can ride out a hit to the property market, a leading demographer has predicted. 

American commentator and demographer Harry Dent says that Australia’s younger-skewed demographic profile bodes well for the future, supported by strong Asian immigration.

But the country’s highly leveraged housing market still poses a risk to economic recovery.

“The biggest challenge for Australia is going to be the real estate bubble burst, and the impact on household net worth, and the impact on the banks, who have 75 per cent exposure to this,” he said. 

“Australia is going to continue to get whacked by their exposure to commodities, exports, and when this real estate bubble takes another hit – I tell people in Australia, the 2017, 2018 mini crash was the appetizer. You are going to see home prices down 30 per cent to 50 per cent in Australia.”

The demographer has made similar predictions in recent years during visits to Australia, fellow experts and commentators Peter Switzer, Terry Ryder and Michael Yardney have all observed.

Dent, who chiefly uses demographic trends to forecast economic movements and market trends, named Australia along with New Zealand, Israel, Sweden and Norway as one of the five smaller developed countries with strong demographic trends.

On the flip side he warned that Europe, Japan, Taiwan, China and Korea will grow weaker coming out of the Covid-19 period due to older demographics and reduced spending.

AMP Capital chief economist Shane Oliver previously predicted the unemployment spike caused by coronavirus could see property prices in Melbourne and Sydney plummet by 20 per cent, with no other economists or commentators predicting a 50 per cent reduction in values. 

The national property price index grew 0.7 per cent in March, although this is likely the last gasp before widespread unemployment, suppressed consumer confidence and a ban on open houses takes the wind out of the property market. 

In addition to the property risks, Dent said the coronavirus crisis will push most economies into a short-term recession spanning from the second quarter to the third and potentially early fourth quarter. 

“Sometimes you have to have a recession to clean things out. This is what this is, and there’s no other way to get out of this.”

“This virus is a short-term thing… But it is the perfect shock because it is going to literally throw most economies into a short-term depression: so many businesses closed down, so many travel and retail-related things, that literally we could see 10, 15, 20 per cent unemployment in the second quarter in a lot of countries, and bleeding into the third,” he said. 

He said the virus exposes current weaknesses in many developed countries, namely slowing productivity. 

“I always say, ‘How come it’s taking $20 trillion worth of money printing just to keep economies like the US growing at two per cent, Europe at 1.5 per cent, and Japan at one per cent?’ That’s how weak the fundamentals are.”

The short-term downturn will be followed by a longer period of deleveraging, but once the period of deleveraging occurs, nations should come out stronger, Dent said. 

“Sometimes you have to have a recession to clean things out. This is what this is, and there’s no other way to get out of this.”

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