Zeev's Turnips Patch-No Politics (ZEEV)

[TJ Parker]

australian housing bubble popping? - the economist

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.

http://www.economist.com/finance/displayStory.cfm?story_id=2736477

australian cb warns ...

http://finance.news.com.au/common/story_page/0,4057,9751611%255E462,00.html

House prices to fall further
By David Uren
June 5, 2004

HOUSING prices have a lot further to fall and investors should brace themselves for a hard landing, Reserve Bank governor Ian Macfarlane warned yesterday.

"We expect the housing market will continue to go through a much-needed cooling phase for some time yet," he said.

In his six-monthly appearance before a House of Representatives committee, Mr Macfarlane said he was comfortable with the state of the economy and inflation should present no problems for at least the next 12 months.

This suggests interest rates could stay at their present level until well into next year.

He welcomed the NSW Government's property tax changes, saying they made it easier for owner-occupiers to enter the market and a bit more difficult for investors.