Are home prices falling?

I keep hearing about some university professor who says house prices will fall by 40%! I am a potential first homebuyer but I am worried that I might buy something for $400,000 and see it fall $160,000 in value. Is this possible? Jay, Nowra, New South Wales.

To be honest, anything is possible in economics and especially so when the global economy has been through so much trauma since November 2007 when the credit crunch hit the stock market. The better question is how likely is it that house prices will fall by 40%? My answer is my educated guess and it is - not very likely. I respect Professor Steve Keen who saw the stock market crash, but it doesn't mean his property predictions will hold here.

The property experts at BIS Shrapnel do not believe property prices will fall by that much and in fact, can see an upside for prices. They say there is an undersupply of properties, especially given our high immigration intake and that high rents and low interest rates will entice new property investors back into the market, which will help property prices. Also remember when you hear news reports, which say that house prices have fallen by 5% for the year, this is an average or mean price or a median price, which looks at the price change for a large number of houses.

You could buy a property where the price goes up by 2% while others will see a 10% fall. Also, lots of people have made paper losses on their property right now, but if they don't want to or don't have to sell, it makes little difference. The capital gains tax free status of your principal property makes it a good investment and it can be a better investment if there is scope for an inexpensive renovation which can add more value to your property.

Over time property prices will rise again and the better the area you select, the more gain you will get. By the way the better area does not have to be expensive, it just needs to be where others will want to live in the future, which ultimately will add value to your investment in your home.

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Are home prices falling?

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