According to official housing data released today by the Australian Bureau of Statistics, Australia’s Housing Market has slammed on the brakes with five of eight states going into reverse gear.
The weighted average of eight capital cities barely kept its head above water, rising only 0.1% for the September 2010 quarter. This is a dramatic drop from the four and five percent rises per quarter recorded towards the end of last year and into 2010.
The biggest fall in house prices was recorded in Brisbane, falling 2.1 percent over the three month period. Hobart and Adelaide each shared second place with a 1.4 percent fall, while Sydney and Canberra recorded a 0.9 percent and 0.4 percent reversal in fortune respectively.
The quick reversal of consumer confidence towards Australia’s housing market in recent months has caused a surge of experts trying to dismiss the fact that Australia is in the grips of one of the biggest housing bubbles in the world. The Economist magazine has recently reported Australia has the most expensive housing of the twenty countries it monitors, indicating that residential housing in Australia is as much as 63.2 percent overvalued.
Last week it was Westpac’s turn to join the Commonwealth by telling the world that a bubble in Australia’s housing market is a myth, and that we are different. Both the Westpac and Commonwealth banks have the biggest exposure to residential housing loans in Australia.
Westpac chief economist Bill Evans makes the argument that there is no bubble in Australia, because it would have popped by now given the stress placed on it during the global financial crisis. News Limited writes :
Westpac disputes a housing price bubble is being created, saying this would have been highly unlikely to survive the “stress test” of 2008 when prices fell, investor demand slumped and sentiment towards housing was “intensively negative”.
What Mr Evans fails to realise is the massive support the government provided to the market to ensure the bubble didn’t collapse. With mortgage approvals falling 25% to September 2008 and house prices starting to take a dive (see chart above), the Government stepped in and rescued the housing market from imminent collapse by doubling the first home owners grant as part of a $10.4 billion economic stimulus plan.
This recent fall in demand has been attributed to the winding back of the first home buyers grant and stimulus. Last week the Adelaide Sunday Mail reported :
Real Estate Institute president Michael Brock said governments were achieving a false economy by cutting back grants, a major factor in falling first home buyers.
So it appears now that false economies are no longer created by generous housing grants & incentives, but rather the removal of them. Mr Brock’s comments were contained within an article showing the number of first home buyers in South Australia has dropped to its lowest level since 1998.
Mr Evans from the Westpac last week provided further confidence suggesting “With the population boom continuing and particularly strong growth among key first-home buyer age groups, there is significant upside to future housing demand.” Lets just hope the bank is right, or it could get very messy, very quickly. The bigger the bubble – the bigger the fallout.
» 6416.0 – House Price Indexes: Eight Capital Cities, Sep 2010 – The ABS, 1st November 2010.
» Housing bubble a myth, says Westpac – News Limited, 1st November 2010.
» Bye-bye first buys – The Sunday Mail (Adelaide), 24th October 2010.