pomtastic

The latest from the Economist states that Ausssie house prices are now 61.1% over valued.

Everyone globally is talking about our unsustainable house prices and yet it is widely ignored in the media here.

http://www.economist.com/node/16542826

NKSK version 2

With houses in Britain and Australia I'm concerned by the UK prices also - 33% still overvalued even after recent falls.

Given that Western Australia has apparently got through the worst of the GFC and is now experiencing unemployment of just 4% with huge resource expansion on the near horizon, and yet the UK is about to undergo massive public expenditure cuts, I know which house I'm more worried about.

Centurion

Shh - don't look at the elephant in the room and it may just go away.

stevemich

great - yet another "we're all doomed" thread....

ozzieeagle

Well with the building prices I'm being quoted, what your suggesting is that it would cost more to build a house on my block here in Melbourne, than I would get for selling it.

Thats just building costs at circa 330,000 K and 8k's out from the CBD... Thats assuming I would drop from 700k to circa 320,000 K ?

So what happens to the Land value in that ? Or what happens to the costs of Materials ? What happens to the cost of Labour ? Or does no one build or improve anything whilst this adjustment happens ? Or what happens to the 1,000,000,000 dollars the Government has earmarked for spending in central Coburg ? Yes 1 Billion dollars on remodelling the whole of the central Suburb ?

Some how or other I think the Economist has got this one wildly wrong. BTW they have dropped by circa 10 to 15 pct since the peak of the boom circa November last year. They were increasing at 5-10 pct a month for the few months prior to that that though. Things seem to have Stabilised again now.

hotfuss

Not totally ignored.. http://www.theaustralian.com.au/busi...-1225880119320

Centurion

Two years ago I bought a block of land 852m2 for $280k. Now a street away they want $350 for 600m2. Have land costs really gone up by that much in 24 months ? Or is some developer making a killing and the local council pocketing increased fees.

ozzieeagle

Good point, with wildly varying prices across the whole of Aus then how can the whole lot drop by 61 pct. This suggests some places will drop by more than this and others by a lot less, just to get to the average.

Once you get Economists figures that end with a 1, my Bullsheet meter comes on. I can imagine the prices dropping another 15 pct from their high last November, especially if that decline is over the next 18 months. But thats basically a 3 or 4 month loss in price from the preceding 4 Months to that peak point in November 2010, plus no rise for the next Two years. I cant see how you could call that a dramatic decline, especially with the Madness of those 4 months last year. We would be back to a point of around February 2009 with a 30 pct drop from November 2009. Not sure how many people Aus wide bought during that period, but they would be the main losers.... and thats only if they had to sell.






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ABCDiamond

and...
Australia has a property bubble: http://www.smh.com.au/business/austr...0324-qwi1.html with the quote "It’s official: 60 per cent of investors believe Australia has a property bubble."

Housing bubble to burst? History says 'yes' http://www.smh.com.au/business/prope...0430-txcc.html with "81% say prices will drop or flatten out"

However, other reports have things like:

ABCDiamond

156,809 approx, during that 10 months, A bit less than 2008's 170,056. Although these figures are only capital cities, as most figures are only given for the capital cities.

DeadVim

My house is 0% overvalued ... we bought it, we live in it, we love it, we ain't going anywhere.

ozzieeagle

Thats exactly what the vast majority of people will do over the next 2 years, whilst we wait for the rest of the world to kick start itself. I'd say a large proportion of those 150 odd thousand people that bought during that period were Mainland Chinese. They certainly were in Melbourne.


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GarryP

The problem, for Australia, is that its economy is heavily based upon export of base resources - and in particular export of those resources to China.

If China suffers a reverse, which is perfectly possible, then Australia will catch cold in a big way. Last time China, and therefore Australia, avoided the worst effects of the financial fraud in the US contaminating the markets. Next time (eg within 6 months) it may not be so lucky - lots of things that can go wrong.

And as for 'how can house prices fall more than xx%?' - there is no intrinsic valuation to houses. They can quite happily fall a long way if nobody can afford to buy, or if they decide its a bad option. Just look at Detroit, you can't give them away. Yes house prices could lose 40% of their value, no great problem there.

Using rental values as the comparison helps to give an indication of how 'frothy' the market is - since rents HAVE to reflect what the market will bear. With 61% over the top, what its saying is that Australian house prices are not sustainable if interest rates spike. People will go under, get repossessed, and the price will fall quickly in a positive feedback loop.

Put all that together and you can paint a scenario where China hits a roadblock; exports to there essentially stop; the markets realise Australia has no other income and price the currency accordingly, inflation (from imports) spikes and to protect the currency somewhat and control the money supply interest rates rise quickly; this then kills off the buyers and with repossessions rising the bottom falls out of the house price as people rush to get out of 'investment properties' before being forced out. 40% falls are possible within a year in that circumstance.

Putting all your eggs in the resource basket, with little diversification, can create the circumstances for such panic.

ozzieeagle

Not completely in one Basket... Agricultural and Manufacturing make up 40 pct of Australias exports. In other words...Aus could do a lot better from it's natural resources, thats something to look forwards to, I would say.

wilf70

Garryp has largely got it right--not 'if' but 'when'.A good indicator of the state of the world economy is the is the Baltic Dry Goods rate this is down 60%.The last time it was that low was just before the GFC.Is it trying to tell us something???