Another US house price survey, another decline in value. This time it was the National Association of Realters which revealed a 7.7% drop for the year to March — the largest fall the association has recorded since it started taking records in 1982. The average median house price in the US is now $US196,000. Leading the way down were Sacramento (29% fall), Las Vegas (20.2%) and Phoenix (15.4%).
The correction seems to be heading across the Atlantic, with David Blanchflower (who is a member of the Bank of England) suggesting last week that UK house prices could fall by 30%. Blanchflower’s view was based on the fact that “the UK average house price of £178,555, according to Nationwide Building Society, is six times mean earnings. That’s way above the long-term average multiple of 3.7. To get there, UK house prices would have to fall 30 per cent, even counting in three years of 5 per cent growth in average earnings.”
The logical question arises — if the US has fallen by upwards of 30% in some regions, and the UK is priming for a big drop — exactly how overvalued is Australian residential property?
There are two schools of thought. Property bulls will suggest that while prices appear high in historical and relative terms, the number of people moving to Australia exceeds the number of dwellings being constructed — supply and demand suggests that this will continue to put pressure on house prices. This view is supported by increasing rental yields.
The contrary opinion is that Australia is in the midst of a housing bubble in which prices bear absolutely no reflection of underlying economics. Using the metric suggested by Blanchflower — the median price of a house in Sydney is $551,000, while the Melbourne median is above $450,000. According to the RBA, average weekly earnings for all employees are $45,729.
Therefore, the average house price in Sydney is 12 times earnings, and in Melbourne it is 9.8 times earnings. Sydney house prices are therefore almost double those of the allegedly overpriced UK in relative terms.
Another metric which is considered to be more telling is the ratio of monthly mortgage payments versus income. In the UK, the current rate is 50%, which is significantly higher than the long-term average of 37%. In Australia, the ratio is above 57%. It appears that Australian residential property is one giant Ponzi scheme of sorts, with property owners relying on ever-increasing house prices to vindicate their investment.
The US has slumped, the UK is looking extremely wobbly, yet Australia continues to sail through, despite its residential property appearing far more expensive than our Anglo-counterparts.
The key for Australian residential property is employment. Not only is Australia virtually at full employment, but despite consumer confidence being down, few workers expect to lose their jobs. If that changes, our housing market could experience a very substantial correction.
Renter’s attack on building workers and nine day fortnights can’t go unchallenged. they still work the same hours per fortnight even with a day off and to single builders out is way off the mark when we have seen established properties with no improvements done to them skyrocketting from one sale to the next. it is the easy access to money, cheap loans, people’s greed, the media and a government that wanted to make everybody feel like they were doing well which has caused this blowout. it is a pity that innocent people are getting hurt but i have no sympathy for the speculators who have had a good run but who now face ruin.
Renter’s attack on building workers and nine day fortnights can’t go unchallenged. they still work the same hours per fortnight even with a day off and to single builders out is way off the mark when we have seen established properties with no improvements done to them skyrocketting from one sale to the next. it is the easy access to money, cheap loans, people’s greed, the media and a government that wanted to make everybody feel like they were doing well which has caused this blowout. it is a pity that innocent people are getting hurt but i have no sympathy for the speculators who have had a good run but who now face ruin.
Has anyone ever heard of the supply/demand? What was that idiotic piece recently from the RBA (Ridiculous Bunch of A**ehol*s) about property prices will never be affordable again.
Well, duh, if buyers cannot afford it then they will not buy, duh. Therefore prices will fall, duh. Was the RBA (and every other paid ,mouthpiece ‘economic’ commentator) imagining an Australia with millions of empty houses, where the majority of people sleep in the street? Are we imagining an Oz with 3 people owning 5 million homes, all empty?
Average drop over the next 3 year, 50%, with regional and local differences. Houses close to the city and/or train/tram lines ($3+ dollar a litre boys and keep adding) will drop less, but they will drop.
I have to laugh at supposedly ‘ Intelligent’ people coming out with this rubbish. Then there is commercial property .. total blood bath, watch bank profits collapse. Which bank will need a Govt bailout first?
Renter’s attack on building workers and nine day fortnights can’t go unchallenged. they still work the same hours per fortnight even with a day off and to single builders out is way off the mark when we have seen established properties with no improvements done to them skyrocketting from one sale to the next. it is the easy access to money, cheap loans, people’s greed, the media and a government that wanted to make everybody feel like they were doing well which has caused this blowout. it is a pity that innocent people are getting hurt but i have no sympathy for the speculators who have had a good run but who now face ruin.
Has Adam Schwab tried to rent a property recently? Too many warm bodies chasing too few houses. That’s the real story of Australian property as either as buyer or renter. Sydney is both Ocean and mountain land locked. Melbourne has the absurd 2030 outer Green belt constraint and the Save our Suburbs crowd frothing at the mouth about inner urban development. Add to this mix our population growth and smaller households and herein lies part of the answer to Australia’s property market. The UK and US are of no relevance to our special circumstances on the door step of China. Prperty prices are also high because of government imposts, regulations, taxes and cushy work practices in the building industry. As for me, I’d love to don a hard hat and work nine days out of every ten and still be paid the same money. Who pays for all the above? You go it – home buyers, investors and tenants. Get rid of the above imposts and only then might prices begin to stabalise.