According to official housing data released today by the Australian Bureau of Statistics, Australia’s Housing Market has slammed on the brakes with five of eight states going into reverse gear.
The weighted average of eight capital cities barely kept its head above water, rising only 0.1% for the September 2010 quarter. This is a dramatic drop from the four and five percent rises per quarter recorded towards the end of last year and into 2010.
The biggest fall in house prices was recorded in Brisbane, falling 2.1 percent over the three month period. Hobart and Adelaide each shared second place with a 1.4 percent fall, while Sydney and Canberra recorded a 0.9 percent and 0.4 percent reversal in fortune respectively.
The quick reversal of consumer confidence towards Australia’s housing market in recent months has caused a surge of experts trying to dismiss the fact that Australia is in the grips of one of the biggest housing bubbles in the world. The Economist magazine has recently reported Australia has the most expensive housing of the twenty countries it monitors, indicating that residential housing in Australia is as much as 63.2 percent overvalued.
Last week it was Westpac’s turn to join the Commonwealth by telling the world that a bubble in Australia’s housing market is a myth, and that we are different. Both the Westpac and Commonwealth banks have the biggest exposure to residential housing loans in Australia.
Westpac chief economist Bill Evans makes the argument that there is no bubble in Australia, because it would have popped by now given the stress placed on it during the global financial crisis. News Limited writes :
Westpac disputes a housing price bubble is being created, saying this would have been highly unlikely to survive the “stress test” of 2008 when prices fell, investor demand slumped and sentiment towards housing was “intensively negative”.
What Mr Evans fails to realise is the massive support the government provided to the market to ensure the bubble didn’t collapse. With mortgage approvals falling 25% to September 2008 and house prices starting to take a dive (see chart above), the Government stepped in and rescued the housing market from imminent collapse by doubling the first home owners grant as part of a $10.4 billion economic stimulus plan.
This recent fall in demand has been attributed to the winding back of the first home buyers grant and stimulus. Last week the Adelaide Sunday Mail reported :
Real Estate Institute president Michael Brock said governments were achieving a false economy by cutting back grants, a major factor in falling first home buyers.
So it appears now that false economies are no longer created by generous housing grants & incentives, but rather the removal of them. Mr Brock’s comments were contained within an article showing the number of first home buyers in South Australia has dropped to its lowest level since 1998.
Mr Evans from the Westpac last week provided further confidence suggesting “With the population boom continuing and particularly strong growth among key first-home buyer age groups, there is significant upside to future housing demand.” Lets just hope the bank is right, or it could get very messy, very quickly. The bigger the bubble – the bigger the fallout.
» 6416.0 – House Price Indexes: Eight Capital Cities, Sep 2010 – The ABS, 1st November 2010.
» Housing bubble a myth, says Westpac – News Limited, 1st November 2010.
» Bye-bye first buys – The Sunday Mail (Adelaide), 24th October 2010.
Today’s ABS data shows priced down in five cities, and up in three, but a slight positive national figure (due mainly to strong Melbourne result). The question is what happens from here. Will Q4 be the first quarter to show a national fall. If so, that just might spook the public and falls could accelerate. But it prices rise in Q4 then the public will think the worst is over and we’re back on an uptrend. Public sentiment is everything. To be honest I don’t think the political will exists for more housing stimulus. Both parties are too weak, they’ve got more important things to think about, and frankly I’d wager they’re happy with this flat result. A ‘soft landing’ is exactly what the RBA and government wanted to achieve, and that’s what they’ve got here.
Alex Barton
Australian Property Forum
http://s4.zetaboards.com/Australian_Property
The debt levels, affordability issue and higher interest rates is going to kill the property market. Add the amount of money the banks have borrowed from overseas then you have some major problems. Australia cant keep consuming much more debt. Everyone says well Australia is different. The difference is Australia has dug itself into a deeper hole than the US and other countries. REMEMBER THE US WAS HAVING HOUSING SHORTAGES AND THE UK. WHERE ARE THEY AT TODAY?
Australia depending on China is really what will be the future issue. China has 64 million empty units/houses, roads leading to now where, cities that are empty, bridges being built in the middle of now where, and 60% of their current GDP tied to all this stimulus money the govt granted 2 years ago then something isnt right. If Australia and China do not go through a correction then it would be the first time in history that this didnt happen. Its not if its coming but when.
I must see negative figures from Sydney.
I wonder how all the investors feel about these figures?
Is the Pyramid Scheme over?
Looks like the fairy tale is not going to have the happy ending the fools thought it would.
Interestingly I posted in the readers comments section under the article about the CBA raising it’s rate above the RBA hike today and I got slammed by hundreds of people for supporting the rise. It amazes me that so many people have the “I want it all but not have to pay anything much for it” mentality…… CBA’s rates are now sitting on the 8% range and everyone is abusing them for ripping off consumers…… back in the mid 2000’s interest rates were just under 9%, so really what is the big deal?…. the only diff now is that clowns have borrowed so much more for things that aren’t worth it………
I look forward to Westpac’s profit report and it’s raising of rates along with all the other banks, at least now there is a hope that realestate will return to a more normal cost versus cash flow level.
It is amazing how the media is very involved in stoking the flames in the housing price bubble. Telling punters that Australia is a special case and how the banks are all so evil. No doubt ,media fortunes are tied to advertising revenue, much of which is derived from the real estate sector but I suspect that journalists too have a vested interest in maintaining the housing price bubble, as they too own real estate.
AverageBloke, falls in Syd are a done deal and Melb as well its just a question of by how much now!