A US forecaster has painted a picture of real estate armageddon, predicting Australia's property prices could plummet by as much as 50 per cent in coming years.
The forecast, by economist and demographer Harry Dent, would lead to Sydney's median house price falling from last year's record high of $763,169 to as little as $381,584.
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Property 'bubble' ready to pop
Personal finance editor John Collett and business columnist David Potts speak to economist Harry Dent who claims Australia is in the midst of a property bubble about the burst.
House prices in Sydney and Melbourne have reached almost 10 times income levels - the same point they were in California when the US market peaked, Mr Dent said.
''Bubbles always go up to the point where they just become unaffordable - and then they burst,'' he said.
''They burst precisely because they are so good.''
Mr Dent, in Australia to speak at the Save the Future conference and to promote his new book, The Demographic Cliff, said the decline in resource prices and the bursting of China's property bubble would trigger a collapse in the Australian property market.
''I think it's going to go down at least 30 per cent in the next several years and maybe as much as 50 [per cent],'' he said.
''I'd say the time to worry about property prices falling is in the first half of 2014 into as late as 2016.''
His comments have caused a storm among property observers.
His prediction ''doesn't reflect either the history or the underlying strength of the Australian housing market's dynamics,'' said Andrew Wilson, senior economist with Australian Property Monitors (owned by Fairfax Media).
''The preconditions are not there,'' Dr Wilson said. ''There is no bubble to burst.''
Dr Wilson said the current rate of growth in house prices - 15 per cent in Sydney last year - was unsustainable and he expected growth to ''moderate and flatten this year, but that's a long way short of a catastrophic fall in house prices.''
Financial economist Christopher Joye said Mr Dent was scaremongering.
''He's been saying the same thing about the Australian housing market, without actually referencing any credible fundamental analysis, for a long time,'' he said.
Mr Joye said that some house prices could fall if the Reserve Bank of Australia normalised interest rates back to 7 per cent.
The record-low cash rate and variable loan rates ''are completely and utterly unsustainable'', he said, and he was concerned that house prices were increasing at three to four times the rate of wages growth.
On his analysis, the house price to income ratio would be more expensive than it has ever been by June. ''[People] shouldn't be assuming current rates of house price appreciation will continue forever,'' Mr Joye said.
Economist Steve Keen, author of Debunking Economics and the Debt Deflation blog, agreed Australia was in the midst of a property bubble but said it was unlikely to burst soon.
''It will keep on going because the bubble's being pumped up by overseas buyers, largely Chinese, and superannuation funds - and that could give it two more years of air, maybe even more,'' he said.
Dr Keen said the main trigger for the burst would be that ''nobody who wants to live in a house can afford to buy one any more.''