The Economist predicts 20% fall in Aus housing mkt
Jun 4th 2004, 12:55 pm
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The Economist predicts 20% fall in Aus housing mkt
Australia's housing bubble could be the first to burst. It won't be the last http://www.economist.com/printeditio...ory_ID=2736477
SEEKING to cut through the tangle of statistical measures of Britain's housing market, the economics editor of The Economist turned to her hairdresser. Last year, he was convinced that “buy to let� was a sure way to make money. Today, finding it harder to cover his costs with rents, he has decided to sell. A sign that the residential-property boom could soon turn to bust? Maybe. Figures, not just anecdote, also suggest that in Britain and elsewhere, housing markets look ready to fall.
Two years ago, we launched a set of house-price indicators, backdated to 1975, for 13 developed economies. In our latest quarterly update we have added three more countries: New Zealand, Denmark and Switzerland. Our indicators, based on data from estate agents, lenders and official sources, show that house prices are slowing in several economies that had been looking frothy. In America average house prices rose by only 1% in the first quarter of this year, the smallest quarterly increase for six years. Prices fell in 39 of the 220 metropolitan areas covered. Even so, prices were still 7.7% higher than a year before (see table). California saw the biggest gains, with prices up by 18% in Los Angeles. But higher mortgage rates may be starting to bite: new home sales fell by 12% in April, the biggest drop for ten years.
The average house price in Britain, as measured by the Office of the Deputy Prime Minister (ODPM), rose by 7.8% in the year to March, down from an increase of 25% at the end of 2002. The ODPM index weights price changes by the value of homes in different parts of the country and is considered to be a more accurate measure than other indices which currently show prices rising much more rapidly.
Australia's housing market has weakened. According to official data, average house prices kept rising in the first quarter, leaving them 18% higher than a year before. However, figures collected by Australian Property Monitors, which are more timely because they are based on prices when contracts are signed rather than at settlement, suggest that home prices tumbled by an average of 8% in Sydney and by 13% in Melbourne in the first quarter. Anecdotal evidence suggests that the slide has continued since then. Last weekend in Sydney only one-third of properties put up for auction—the most common method of sale in Australia—were sold, signalling that prices have farther to fall.
The drop in house prices in Australian cities undermines a popular argument heard in Britain and America that even if house prices do look frothy, they are unlikely to fall unless there is a big rise in interest rates or a jump in unemployment. Neither has been needed in Australia. Interest rates have risen by only half a percentage point during the past year, to 5.25%—less than half the level during the previous housing downturn in 1990. Meanwhile, unemployment is close to a 20-year low.
Instead, the main reason for the falls in Sydney and Melbourne seems to be that first-time buyers have been priced out of the market, while demand from buy-to-let investors has dried up as net rental yields have fallen below mortgage rates. This holds lessons for Britain, where the number of first-timers has also slumped and buying-to-let is looking less profitable.
However, not all markets are slowing down. House prices in New Zealand surged by 22% in the year to the first quarter, the biggest increase in any of the countries we track. House prices have also risen at double-digit rates in France, Italy, Spain and Ireland in the past year.
House prices have outpaced inflation everywhere in recent years except Germany and Japan, where prices continue to fall. Among our 16 countries, prices are now at record levels in relation to average wages and rents in America, Australia, Britain, Ireland, the Netherlands, New Zealand and Spain. The ratios of prices to incomes exceed their averages in the past 30 years by between 25% and 60%. A return to the long-term average could be brought about either by a fall in house prices or by a rise in wages and rents. The snag is that with wages in most countries increasing by only 3-4% a year, it would take years for inflation to erode real house prices to normal levels.
The chart to the right shows by how much prices would need to fall to get back to their long-term average, assuming that the decline takes place over four years and that wages rise at a pace similar to that in the recent past. House prices would need to fall by 10% in America, by 15% in New Zealand and by 20-30% in the other five countries.
Need prices fall so far? Maybe not: lower real interest rates than in the past would justify an increase in the long-term ratio of house prices to wages and rents, and would therefore require a smaller fall in prices. On the other hand, when past housing booms have turned to bust, prices have typically undershot their average by 10% or more.
SEEKING to cut through the tangle of statistical measures of Britain's housing market, the economics editor of The Economist turned to her hairdresser. Last year, he was convinced that “buy to let� was a sure way to make money. Today, finding it harder to cover his costs with rents, he has decided to sell. A sign that the residential-property boom could soon turn to bust? Maybe. Figures, not just anecdote, also suggest that in Britain and elsewhere, housing markets look ready to fall.
Two years ago, we launched a set of house-price indicators, backdated to 1975, for 13 developed economies. In our latest quarterly update we have added three more countries: New Zealand, Denmark and Switzerland. Our indicators, based on data from estate agents, lenders and official sources, show that house prices are slowing in several economies that had been looking frothy. In America average house prices rose by only 1% in the first quarter of this year, the smallest quarterly increase for six years. Prices fell in 39 of the 220 metropolitan areas covered. Even so, prices were still 7.7% higher than a year before (see table). California saw the biggest gains, with prices up by 18% in Los Angeles. But higher mortgage rates may be starting to bite: new home sales fell by 12% in April, the biggest drop for ten years.
The average house price in Britain, as measured by the Office of the Deputy Prime Minister (ODPM), rose by 7.8% in the year to March, down from an increase of 25% at the end of 2002. The ODPM index weights price changes by the value of homes in different parts of the country and is considered to be a more accurate measure than other indices which currently show prices rising much more rapidly.
Australia's housing market has weakened. According to official data, average house prices kept rising in the first quarter, leaving them 18% higher than a year before. However, figures collected by Australian Property Monitors, which are more timely because they are based on prices when contracts are signed rather than at settlement, suggest that home prices tumbled by an average of 8% in Sydney and by 13% in Melbourne in the first quarter. Anecdotal evidence suggests that the slide has continued since then. Last weekend in Sydney only one-third of properties put up for auction—the most common method of sale in Australia—were sold, signalling that prices have farther to fall.
The drop in house prices in Australian cities undermines a popular argument heard in Britain and America that even if house prices do look frothy, they are unlikely to fall unless there is a big rise in interest rates or a jump in unemployment. Neither has been needed in Australia. Interest rates have risen by only half a percentage point during the past year, to 5.25%—less than half the level during the previous housing downturn in 1990. Meanwhile, unemployment is close to a 20-year low.
Instead, the main reason for the falls in Sydney and Melbourne seems to be that first-time buyers have been priced out of the market, while demand from buy-to-let investors has dried up as net rental yields have fallen below mortgage rates. This holds lessons for Britain, where the number of first-timers has also slumped and buying-to-let is looking less profitable.
However, not all markets are slowing down. House prices in New Zealand surged by 22% in the year to the first quarter, the biggest increase in any of the countries we track. House prices have also risen at double-digit rates in France, Italy, Spain and Ireland in the past year.
House prices have outpaced inflation everywhere in recent years except Germany and Japan, where prices continue to fall. Among our 16 countries, prices are now at record levels in relation to average wages and rents in America, Australia, Britain, Ireland, the Netherlands, New Zealand and Spain. The ratios of prices to incomes exceed their averages in the past 30 years by between 25% and 60%. A return to the long-term average could be brought about either by a fall in house prices or by a rise in wages and rents. The snag is that with wages in most countries increasing by only 3-4% a year, it would take years for inflation to erode real house prices to normal levels.
The chart to the right shows by how much prices would need to fall to get back to their long-term average, assuming that the decline takes place over four years and that wages rise at a pace similar to that in the recent past. House prices would need to fall by 10% in America, by 15% in New Zealand and by 20-30% in the other five countries.
Need prices fall so far? Maybe not: lower real interest rates than in the past would justify an increase in the long-term ratio of house prices to wages and rents, and would therefore require a smaller fall in prices. On the other hand, when past housing booms have turned to bust, prices have typically undershot their average by 10% or more.
Jun 4th 2004, 1:25 pm
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Re: The Economist predicts 20% fall in Aus housing mkt
HOUSE PRICES STILL RISING IN WA
House prices are still rising
CLYDE RUSSELL
ECONOMICS EDITOR
House prices continued to rise in the first three months of the year, according to official national data released yesterday.
Perth house prices rose 1.2 per cent in the first three months of the year to be 19 per cent higher than a year earlier.
The 2.5 per cent rise in the house price index in the first quarter contradicts some private sector surveys and economists said it also meant the Reserve Bank might still have to raise interest rates in coming months.
The house price index measures the change in prices for detached houses across Australia's eight capital cities.
While the quarterly increase was the weakest in three years, house prices are still 17.9 per cent higher than a year earlier, except in Melbourne where prices fell 1.3 per cent over the quarter but were still 8.9 per cent higher than a year ago.
Sydney house prices rose 3.5 per cent over the quarter and 15.8 per cent over the year.
Westpac senior economist Andrew Hanlan said that even though house prices still rose in the March quarter, it was clear they were losing steam.
"While it is impossible to gauge the precise movement in residential prices, it is apparent that a much needed correction is now under way," he said.
He said that part of the difference between the Bureau of Statistics numbers and those of private surveys could be explained by different ways of calculating the data.
The bureau used the settlement date rather than when contracts were exchanged and therefore the official data tended to lag changes in the private sector numbers.
Data from Australian Property Monitors this week showed Melbourne prices down 12.9 per cent in the quarter and Sydney prices down 7.5 per cent, numbers way worse than the official statistics.
National Australia Bank economist Kristina Jawerth said house prices had continued to rise, even though at a slower pace, despite the two interest rate rises late last year.
"Combined with an unsustainably high level of credit growth and the solid domestic (economic) outlook, we believe the Reserve Bank remains on a tightening bias," she said.
The gain in house prices also stands in contrast to comments on Wednesday by Reserve Bank deputy governor Glenn Stevens, in which he said house prices had fallen moderately. Weakening house prices were cited by Mr Stevens as justifying the decision not to raise interest rates so far this year.
HSBC chief economist John Edwards said house prices might not be as soft as the Reserve Bank thought.
© 2004 West Australian Newspapers Limited
All Rights Reserved.
Top Home
House prices are still rising
CLYDE RUSSELL
ECONOMICS EDITOR
House prices continued to rise in the first three months of the year, according to official national data released yesterday.
Perth house prices rose 1.2 per cent in the first three months of the year to be 19 per cent higher than a year earlier.
The 2.5 per cent rise in the house price index in the first quarter contradicts some private sector surveys and economists said it also meant the Reserve Bank might still have to raise interest rates in coming months.
The house price index measures the change in prices for detached houses across Australia's eight capital cities.
While the quarterly increase was the weakest in three years, house prices are still 17.9 per cent higher than a year earlier, except in Melbourne where prices fell 1.3 per cent over the quarter but were still 8.9 per cent higher than a year ago.
Sydney house prices rose 3.5 per cent over the quarter and 15.8 per cent over the year.
Westpac senior economist Andrew Hanlan said that even though house prices still rose in the March quarter, it was clear they were losing steam.
"While it is impossible to gauge the precise movement in residential prices, it is apparent that a much needed correction is now under way," he said.
He said that part of the difference between the Bureau of Statistics numbers and those of private surveys could be explained by different ways of calculating the data.
The bureau used the settlement date rather than when contracts were exchanged and therefore the official data tended to lag changes in the private sector numbers.
Data from Australian Property Monitors this week showed Melbourne prices down 12.9 per cent in the quarter and Sydney prices down 7.5 per cent, numbers way worse than the official statistics.
National Australia Bank economist Kristina Jawerth said house prices had continued to rise, even though at a slower pace, despite the two interest rate rises late last year.
"Combined with an unsustainably high level of credit growth and the solid domestic (economic) outlook, we believe the Reserve Bank remains on a tightening bias," she said.
The gain in house prices also stands in contrast to comments on Wednesday by Reserve Bank deputy governor Glenn Stevens, in which he said house prices had fallen moderately. Weakening house prices were cited by Mr Stevens as justifying the decision not to raise interest rates so far this year.
HSBC chief economist John Edwards said house prices might not be as soft as the Reserve Bank thought.
© 2004 West Australian Newspapers Limited
All Rights Reserved.
Top Home
Jun 4th 2004, 2:02 pm
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Re: The Economist predicts 20% fall in Aus housing mkt
Originally posted by Stoney
Data from Australian Property Monitors this week showed Melbourne prices down 12.9 per cent in the quarter and Sydney prices down 7.5 per cent, numbers way worse than the official statistics.
Data from Australian Property Monitors this week showed Melbourne prices down 12.9 per cent in the quarter and Sydney prices down 7.5 per cent, numbers way worse than the official statistics.
Don't forget the ripple effect in the UK and the hotspots effect also. London/ hotspots first, most. Rest progressively later, less. True for upside & downside.
Guess the same is true of Aus/ Sydney.
Sure hope it's true for NZ. Dunedin being as far away from AKL as you can comfortably get (OK deedee, Gore probably an even better place to have bought.
)
Jun 4th 2004, 2:21 pm
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Re: The Economist predicts 20% fall in Aus housing mkt
Originally posted by pleasancefamily
Statistics, damned statistics!
Don't forget the ripple effect in the UK and the hotspots effect also. London/ hotspots first, most. Rest progressively later, less. True for upside & downside.
Guess the same is true of Aus/ Sydney.
Sure hope it's true for NZ. Dunedin being as far away from AKL as you can comfortably get (OK deedee, Gore probably an even better place to have bought. )
Statistics, damned statistics!
Don't forget the ripple effect in the UK and the hotspots effect also. London/ hotspots first, most. Rest progressively later, less. True for upside & downside.
Guess the same is true of Aus/ Sydney.
Sure hope it's true for NZ. Dunedin being as far away from AKL as you can comfortably get (OK deedee, Gore probably an even better place to have bought.
)
It's amazing how many apparently contradictory reports about the Australian housing market have been posted in the other 2 or 3 threads about it. One thing for sure is that whatever the true state of the housing market, soon is a better time to purchase for new entrants to the market than the recent past. The exchange rate is moving in the right direction for aspiring first time buyers from o/s as well.OzTennis
Jun 4th 2004, 4:25 pm
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Re: The Economist predicts 20% fall in Aus housing mkt
Originally posted by OzTennis
As someone said the other day on here (wasn't you Don?), 'The Economist' has predicted 18 of the last 5 recessions. It's amazing how many apparently contradictory reports about the Australian housing market have been posted in the other 2 or 3 threads about it. One thing for sure is that whatever the true state of the housing market, soon is a better time to purchase for new entrants to the market than the recent past. The exchange rate is moving in the right direction for aspiring first time buyers from o/s as well.
OzTennis
As someone said the other day on here (wasn't you Don?), 'The Economist' has predicted 18 of the last 5 recessions.
It's amazing how many apparently contradictory reports about the Australian housing market have been posted in the other 2 or 3 threads about it. One thing for sure is that whatever the true state of the housing market, soon is a better time to purchase for new entrants to the market than the recent past. The exchange rate is moving in the right direction for aspiring first time buyers from o/s as well.OzTennis
I reckon Aus housing mkt is largely at the whim of migrant numbers, anyway.
Jun 4th 2004, 6:03 pm
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Re: The Economist predicts 20% fall in Aus housing mkt
Originally posted by pleasancefamily
Twas I!
I reckon Aus housing mkt is largely at the whim of migrant numbers, anyway.
Twas I!
I reckon Aus housing mkt is largely at the whim of migrant numbers, anyway.
Originally posted by OzTennis As someone said the other day on here (wasn't you Don?), 'The Economist' has predicted 18 of the last 5 recessions.
Originally posted by OzTennis It's amazing how many apparently contradictory reports about the Australian housing market...
Given that the contract prices are lower than the settlement prices, the general trend is definitely downwards.
Last edited by MikeStanton; Jun 4th 2004 at 6:11 pm.
Jun 4th 2004, 6:44 pm
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Re: The Economist predicts 20% fall in Aus housing mkt
Originally posted by MikeStanton
Hardly. With a net influx of, say, 50000 people - out of population of 20 million. That's ~0.25%.
Hardly. With a net influx of, say, 50000 people - out of population of 20 million. That's ~0.25%.
Reckon your statistic would look a bit different if you gave a %: new migrant households as a % of existing Aussie homes.
Never said I coined the joke. (Who does?)
Jun 4th 2004, 6:55 pm
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Re: The Economist predicts 20% fall in Aus housing mkt
Originally posted by OzTennis
As someone said the other day on here (wasn't you Don?), 'The Economist' has predicted 18 of the last 5 recessions. It's amazing how many apparently contradictory reports about the Australian housing market have been posted in the other 2 or 3 threads about it. One thing for sure is that whatever the true state of the housing market, soon is a better time to purchase for new entrants to the market than the recent past. The exchange rate is moving in the right direction for aspiring first time buyers from o/s as well.
OzTennis
As someone said the other day on here (wasn't you Don?), 'The Economist' has predicted 18 of the last 5 recessions.
It's amazing how many apparently contradictory reports about the Australian housing market have been posted in the other 2 or 3 threads about it. One thing for sure is that whatever the true state of the housing market, soon is a better time to purchase for new entrants to the market than the recent past. The exchange rate is moving in the right direction for aspiring first time buyers from o/s as well.OzTennis
"The first law of bubbles is that they inflate for alot longer than anybody expects. The second law is that they eventually burst"
No-one is debating anymore that there is a bubble. Its just a guessing game of when it will burst, or will it deflate gracefully?
JTL
Jun 4th 2004, 7:35 pm
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Re: The Economist predicts 20% fall in Aus housing mkt
Originally posted by pleasancefamily
Reckon your statistic would look a bit different if you gave a %: new migrant households as a % of existing Aussie homes.
Reckon your statistic would look a bit different if you gave a %: new migrant households as a % of existing Aussie homes.
Oz is not the UK. It doesn't have the shortage of land (yet). What explains the large hike in house prices over the past 3-4 years? Just like the UK, Ireland etc - they've been driven by the low interest rates, low inflation (except properties) good economy. And, in Oz particularly, the tax breaks for 'buy to let' properties. All these property speculators waiting for future capital growth. Just like all the high-tech investors - until the dot com crash.
Edit: this article in the Weekend Australian sees the direction as definitely down.
Too many empty properties chasing too few punters. And now the echoes say, "We're goin' down!"
Last edited by MikeStanton; Jun 4th 2004 at 8:06 pm.
Jun 5th 2004, 12:19 am
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Re: The Economist predicts 20% fall in Aus housing mkt
Originally posted by pleasancefamily
Australia's housing bubble could be the first to burst. It won't be the last http://www.economist.com/printeditio...ory_ID=2736477
Australia's housing bubble could be the first to burst. It won't be the last http://www.economist.com/printeditio...ory_ID=2736477
Australian building approvals are expected to continue a downward trend in April, but the housing market is nearing its lowest point of the cycle, economists said today.
Hmmm comparing the two ? Its about to burst, or, its about to start coming up again ?
Jun 5th 2004, 2:53 pm
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Re: The Economist predicts 20% fall in Aus housing mkt
Originally posted by ABCDiamond
The Age June 3rd 2004
Australian building approvals are expected to continue a downward trend in April, but the housing market is nearing its lowest point of the cycle, economists said today.
Hmmm comparing the two ? Its about to burst, or, its about to start coming up again ?
The Age June 3rd 2004
Australian building approvals are expected to continue a downward trend in April, but the housing market is nearing its lowest point of the cycle, economists said today.
Hmmm comparing the two ? Its about to burst, or, its about to start coming up again ?
For those who have just bought houses, they say UP UP UP.
For those who have yet to buy houses, they say DOWN DOWN DOWN.
For those who bought houses long time ago when the price was lowest and just sell it recently, they say, no they don't say, they go to Carribean island for a nice long holiday. Waiting for the next cycle to make the move.
For the agents, UP or DOWN, they say BUY BUY BUY.
I say RENT RENT RENT since I cannot buy one.
Simple isn't it?
