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Home prices could still fall, expert warns

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A leading global economist has warned that house prices could still decline, despite consistently rising over the years.

“I don’t get the impression that we have a housing bubble here yet... but I would say that Australia must beware of the narrative that because prices have never fallen they can never fall again,” Paul Sheard, chief economist at the ratings agency Standard & Poor’s, said at the annual AB+F Breakfast with the Economists in Sydney.

“It can happen and when it does, it is difficult to reverse.”

However, the Australian-based economists on the panel countered the view, pointing out that low interest rates, low unemployment, and sufficient population growth can support the property market.

“History tells us that unemployment has to rise substantially or rates increase substantially (to cause a housing crash)”, said Su-Lin Ong, managing director and chief Australian economist at RBC Capital Markets. “Neither of those events were likely to happen.”

The panel also said that the economy is performing well in general, but noted that consumer and business concern about the possibility of recession was high.

“It’s very unlikely that we’ll have a recession,” said Shane Oliver, chief economist at AMP.

He also pointed out how previous predictions that Australia would suffer an “inevitable recession” after the mining boom were proven wrong. He said the Australian economy had been surprisingly resilient and flexible.

Different regions are experiencing various rates of growth but this should not be taken as a negative thing, according to Westpac’s chief economist, Bill Evans. He said that state infrastructure spending is offsetting the flickering natural gas development boom.

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