For the record, North rejected my offer for a wager on the terms accepted by Tony.
While house prices are weak and remain weak, a decline of 35 per cent is unlikely. Very unlikely.
The reasons are straightforward
Demographic factors continue to favour the housing market. Population growth is strong and this unrelenting addition to underlying demand will put a floor under the housing market. Also important over the medium term of a year or two is the slump in new dwelling approvals. This slowdown in the number of new additions to the housing stock will, with a lag, lower the risk of an oversupply on housing. If new construction falls sharply, there may even be pockets of shortages into 2020 and 2021.
There is also an apparent build up in pent-up demand from first home buyers who dropped out of the housing market several years ago when prices were rising strongly. The recent housing finance data showed that the proportion of new loans taken out by first home buyers rose to a six year high, suggesting a lift in opportunistic buying as prices weaken. Suffice to say, cashed up first home buyers are set to provide a key source of fresh demand for housing over the next couple of years, a point which is likely to limit the decline in prices.
There are still a little over three years before the bet is settled on the 35 per cent house price fall.
A more realistic scenario
While the tightening in bank credit and still tight monetary policy settings will see house prices drop some more, probably through to the middle of 2019, a realistic scenario is for a peak to trough decline of around 15 to 20 per cent. When this happens, buyers will emerge from the woodwork, demand will lift and the floor in prices will be achieved.
It would take an obscure event to see price falls get anywhere near the 35 per cent Tony Locantro is betting on.