AUSTRALIA'S HOUSING PRICE BUBBLE DEBATE
Australian Capital Territory New South Wales Queensland Victoria Tasmania South Australia Western Australia Northern Territory Property News Residential
ABS figures show Australia's housing price bubble is bursting: Steve Keen
There are several providers of statistics on Australian house prices, but only one that doesn’t have a vested interest in the direction house prices actually move in: the Australian Bureau of Statistics. So despite the criticisms of this series – that it’s based on detached dwellings only, based on median sales data, too infrequent, not adjusted for “hedonic” differences between houses, etc, it’s the only one I trust.
Chris Vedelago wrote a very nice piece about how confusing the various commercial house price statistics are:
I’m sure the usual spruikers will come out with why this is now the bottom, and it’s a good time to buy, and there wasn’t an Australian house price bubble, and the shortage will drive up prices, and…
Now let’s compare the Australian experience to date with the Japanese and US experiences – where no one, not even Alan Greenspan, denies that there was a housing bubble.
Anyone who takes comfort from that should also consider the longer-term perspective – see figure 4.
The motive force behind Australia’s bubble was the same as in the US and Japan: accelerating debt drove rising house prices during the boom. Now in both those countries, decelerating debt is driving house prices down. The same pattern applies in Australia – see figure 5.
Don’t take heart from the uptick in acceleration at the end of the series there: for that to be sustained into the future, ultimately Australian mortgage debt would need to start rising (compared to GDP). But mortgage debt grew more rapidly here and reached a higher peak than in the US (see figure 6); the odds that it will rise again are slim.
And even though the actual level of mortgage debt is still rising, it’s doing so at the slowest rate ever recorded by the RBA (see figure 7).
The odds are that the rate of decline will accelerate in the next year – since as Leith van Onselen pointed out yesterday, many baby boomers are relying on rising house prices to secure their retirements. Now that house prices are falling, and have been doing so for almost two years, many of these boomers – 74% of whom earn less than $80,000 a year, with the average investor losing over $9000 a year on these “investments” – could decide to get out rather than continue to absorb losses. The unwinding of their leveraged positions could push mortgage growth below zero, and of course accelerate the house price fall.
This article originally appeared on Business Spectator.