Property prices to fall 20% by 2013 year's end: Steve Keen

A major correction in Australian property prices will occur over the next two years and an  even bigger one over the next decade and a half, according to University of Western Sydney associate professor of economics and finance Steve Keen. 

Keen is forecasting a 20% drop in house prices between now and the end of 2013.  

The economist has also also stuck with his forecast that prices will ultimately tumble by about 40% but stressed that this would occur over a much longer timeframe than previously reported. In September 2008 Keen made headlines when he was quoted as saying properties prices would fall 40% over the next few years, a statement he is eager to correct.

“I’ve always been strong in saying that [the 40% drop] will be over 10 to 15 years,” Keen said in an interview with Business Spectator.

“But in terms of bringing it to a tighter timeframe, I think you could tie me down to saying I’d expect something of the order of a 20% fall from peak to trough, whatever the peak might be, whatever the trough’s going to be. 

“I’d be quite happy now to say the last price peak was the overall peak and so I’d expect something of the order of a 20% fall between now and say the end of 2013.” 

Keen made the comments following publication of a new version of his book Debunking Economics.

The academic forecasts that it will take up to two decades for the global economy to recover from the GFC. 

He criticised the US government’s response to the GFC and said it had got it wrong by giving money to the banks, which just put in their reserve accounts instead of to the indebted firms and households that needed it most. 

“If you look at what would happen with, say, an economy worth roughly a trillion dollars and an injection of a hundred billion dollars one year after a crisis begins, you do get about three times as much bang for your buck by giving it to the households than giving it to the banks. 

“So, Obama effectively wasted two-thirds of the money he gave to the banking sector – if he’s lucky. In fact, that’s probably an underestimation,” Keen says.