Further doubt has been cast today, if Australia’s housing market is in fact different to the rest of the world.

The latest RP data update on Australia’s capital city market has shown house prices have fallen a seasonally adjusted 4 percent for the 12 months to October 2011. Prices fell 0.5 percent alone in the month of October suggesting the pace of the correction has accelerated.

On a monthly basis, Brisbane was the hardest hit recording a fall of 1.6 percent s.a., with Adelaide just behind with a 1.3 percent fall. On the other end of the scale, Hobart and Canberra did manage to record gains for the month, up 3.1 and 1.6 percent respectively.

This new data shows house prices in Australia have now clocked up 10 consecutive months of declines. Just last week, the Economist magazine released its yearly update on housing markets around the globe, reporting that Australia, Belgium, Canada and France are more overvalued today than at the peak of the American housing bubble. Data also shows Australian households now have more debt as a percentage of household disposable income than at the peak of the American subprime mortgage bubble.

Do you think Australia is different, or will the Australian housing bubble head in exactly the same direction than our oversea’s counterparts who had similar size bubbles? Where do you believe the market will be this time next year?

» Home price falls accelerate – The Age, 30th November 2011.
» House prices continue run of falls – The ABC, 30th November 2011.

With the super Saturday flop still in memory, Melbourne property lobbyists have turned to a frog in a last ditch effort to try to save the market.

The ABC’s PM reports “Developers say property prices in Melbourne’s urban growth corridors may skyrocket because of an endangered frog.”

According to Tony De Domenico, executive director of the Urban Development Institute, the endangered frog could add up to $10,000 per block of land in the years ahead.

» Melbourne property prices may skyrocket due to endangered frog – The ABC, 29th November 2011.
» Super slow sales on real estate market’s ‘Super Saturday’ – The Herald Sun, 28th November 2011.

SQM’s Louis Christopher and Kochie featured on Sunrise today to talk about the future of Real Estate in Australia. Louis Christopher explained how auction clearance rates are actually calculated, while Kochie talked viewers through the credit crunch and how Australia has the most expensive property in the world.

The video segment can be watched here.

Television news and printed newspapers around the country has today reported on comments from the Economist Magazine warning the Australian residential property market could plunge 25 percent, triggered by the European Debt Crisis.

The European debt crisis reached new highs this week when an auction of $8.26 billion 10 year German bonds failed with only a 60 percent take-up. Commonwealth Bank Chief Executive Ralph Norris said the global credit market “effectively froze” similar to the weeks prior to the collapse of Lehman Brothers and has warned GFC-II is on its way. ”This has potential to be significantly worse than the Lehman Brothers collapse and the subprime crisis because now we are talking about nation states,” Mr Norris said.

In the article titled “House of horrors; The bursting of the global housing bubble is only halfway through”, the economist calculates Australian housing is overvalued by 53 percent on a rent to price basis (sort of like the PE ratio for shares) and 38 percent on a income to price ratio.

The 25 percent figure used by the Australian media is coming from the paragraph “Based on the average of the two measures, home prices are overvalued by about 25% or more in Australia, Belgium, Canada, France, New Zealand, Britain, the Netherlands, Spain and Sweden,” suggesting 25% is the minimum over-valuation of these nine countries. The report goes on to say Australia, Belgium, Canada and France are more overvalued today than at the peak of the American housing bubble, providing some guidance as to the relative size of our bubble.

While GFC-II could provide the trigger to finally pop the Australian housing (and debt) bubble, readers should note Australian house prices have been falling this year after the First Home Owners’ Boost stimulus wore off and affordability/debt serviceability hit limits.

» House prices 25% overvalued: The Economist – The Age, 25th November 2011.
» Bond sale struggles as jitters hit Germany – The Australian, 25th November 2011.
» GFC II on its way: Norris – The Sydney Morning Herald, 25th November 2011.
» House of horrors, part 2; The bursting of the global housing bubble is only halfway through – The Economist, 24th November 2011.
» Aussie home prices could suffer – Channel 7 News, 26th November 2011.

According to press release from the Mortgage & Finance Association of Australia, “First time home buyers have little confidence in the Australian economy, as they baulk at property purchases and hoard their cash”.

The press release detailed statistics from a recent Commonwealth Bank/Mortgage & Finance Association of Australia Home Finance Index showing only 5.4 percent intend on purchasing a property in the next 6 months.

Reasons for delaying their entry into the housing market were :

But rather than purchasing and leveraging up in debt close too or beyond serviceability levels, would be first time buyers are saving instead. The figures show 36.2 percent were saving in excess of 21 percent of their income. Not a bad result at all.

While 20.5 percent believe prices are too high, 46.4 percent believe prices will fall in the next quarter. This compares with only 20.9 percent predicting prices would fall nine months ago. In Victoria, over half (51.7 percent) believe prices will fall. House prices in Australia have fallen every month this year with little change in trend.

The restraint by potential first home buyers has the property industry in a spin. In recent weeks we have been witness to a (life..) raft of claims by the property lobby suggesting it is never a better time to buy and clinging on to old data from yesteryear showing surging rents.

Such a shortage of first home buyers has seen property professionals masquerade undercover as first home buyers in the media. Kim Ahern, 23, featured in this article in the Sydney Morning Herald said “As soon as we heard the [stamp duty] exemption was going to be taken away from us, we pulled out our finger and did something about it,” ”We couldn’t afford to pay for the house as well as all the fees and the stamp duty.” Kim Ahern, a strata manager from real estate agency LJ Hooker had apparently been looking for three years, and seized this opportunity of stamp duty concessions.

Some agents are even claiming first home buyers are returning to the market in droves, in hope they will encourage some to change their mind and enter the market. What do they say about sheep? Not in this bunch of first time buyers – they have made up their own decisions.

» Cash is king as first home buyers baulk – Mortgage & Finance Association of Australia, 15th November 2011.

The last month have seen some large and dramatic changes in China’s property market. A wave of real estate agency closures in Beijing and Shenzhen and falling prices has many Chinese believing the real estate market has reached all time highs and is now finally correcting. Recent weeks have seen numerous reports of angry buyers storming property developer show rooms, after some developers were forced to drop prices as much as 20 to 30 percent to shift ever rising inventory.

According to New Tang Dynasty Television, turnover of existing homes in Shenzhen fell to 2,000 last month, down 80 percent over the the same time last year and has caused agencies to close due to the dramatic drop in sales. Beijing News said there is now 120,000 unsold properties on the market in Beijing. Home Link China published a report showing 177 real estate agencies have closed in Beijing in October.

China’s Premier Wen Jiabao said China is targeting a “reasonable correction” in the property market, indicating he won’t be relaxing measures designed to cool speculation in China’s property market. According to a Credit Suisse survey conducted in October of 200 Chinese residents, 53 percent of respondents believe property prices to fall. The same question asked in June, July August and September returned results of 14, 12, 14 and 18 percent respectively showing a dramatic shift in future expectations for property prices in the country.

In Australia, The Australian Newspaper has picked up on China’s problems citing comments from analysts that a downturn in China’s property market could have knock of effects for commodities. Yao Wei, a China economist at Societe Generale said “On the global economy, the biggest impact would be on the commodity sector.”

China turned to fixed asset investment such as building apartment buildings, office towers and under utilised roads after the Global Financial Crisis caused demand for its manufactured products to diminish almost overnight. Since then, property has been seen as a pillar of the China economy. If China’s insatiable demand for commodities come off the boil, then Australia could experience a single speed economy – slow, very slow.

» China property dip may have global effect – The Australian, 13th November 2011.
» In One Month, There’s Been A Major Shift In The Chinese Property Market – Business Insider, 12th November 2011.
» The Waning of China’s Real Estate Industry – China Forbidden News, 8th November 2011.

Over the past 18 months we have reported on numerous attempts by the Chinese Central Government to try to cool their overheating property market, using measures such as restricting citizens from purchasing multiple homes, increasing interest rates and increasing bank reserve ratios. In the past two months, these measures have started bearing fruit with the China Real Estate Index showing house prices have fallen for two consecutive months and has caused some speculation that China could start loosen these measures.

But to the contrary, Premier Wen Jiabao said China is targeting a “reasonable correction” in the property market. He told a state council conference, the government should continue with it’s tightening measures for the rest of the year.

» China Residential Prices Fell in October – The Wall Street Journal, 1st November 2011.
» China’s Property Stocks Decline as Wen Pledges to ‘Firmly’ Maintain Curbs – Bloomberg, 31st October 2011.

The September update to Australia’s official house price index was released today showing house prices continue to fall in Australia. The weighted average of the eight capital cities fell 1.2 percent in the last quarter according to the Australian Bureau of Statistics. The ABS also revised down the June quarter originally reported as falling 0.1 percent to a revised figure of 0.5 percent.

Meanwhile, the Reserve Bank of Australia has acknowledged the Australian Economy is no longer as robust and has cut interest rates by 0.25 basis points today. The official cash rate effective tomorrow is 4.5 percent.

While this is expected to bring some relief, figures show the Australian households are still paying close to record interest payments due to large increases in household debt over the past 30 years. Interest payments on dwellings as a percentage of household disposable income has surged since 2001, far exceeding levels in 1989 when the bank standard mortgage rate hit 17 percent.

» 6416.0 – House Price Indexes: Eight Capital Cities, Sep 2011 – The Australian Bureau of Statistics, 1st November 2011.
» Statement by Glenn Stevens, Governor: Monetary Policy Decision – The Reserve Bank of Australia, 1st November 2011.