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Steve Keen ... Australian House Prices Down 10% From Peak; The odds are that the rate of decline will accelerate in the next year
Topic Started: 2 May 2012, 12:41 PM (4,028 Views)
Mahamed
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Morbidly Obese

Won't be long before the bulls run off with their tails between their legs..............

http://www.debtdeflation.com/blogs/2012/05/01/australian-house-prices-down-10-from-peak/

Australian House Prices down 10% from Peak

by Steve Keen on May 1st, 2012 at 2:04 pm

There are several providers of statistics on Australian house prices, but only one that doesn’t have a vested interest in the direction house prices actually move in: the Australian Bureau of Statistics. So despite the criticisms of this series—that it’s based on detached dwellings only, based on median sales data, too infrequent, not adjusted for “hedonic” differences between houses, etc., it’s the only one I trust.

Chris Vedelago had a very nice piece about how confusing the various commercial house price statistics are:

The Real Estate Institute of Victoria said the city’s median house price rose 0.9 per cent in the March quarter. Except that, according to RP Data-Rismark, it fell 1 per cent. Australian Property Monitors, which is owned by Fairfax, believes prices rose 1.6 per cent in the three-month period. Residex, on the other hand, estimates values fell 1.9 per cent… (“Confused about the market? We all are“, The Age April 29)

I’m happy to ignore these numbers—and even more so the spin doctoring that goes with them. The ABS numbers are in, and they show a 1.1% national fall over the March quarter. Sydney house prices fell 1.8% according to the ABS, whereas Australian Property Monitor alleged they rose 1.4%—the latter being the basis for Andrew “Always Look On the Bright Side” Wilson’s latest piece “Confidence rises as prices bounce back” (SMH April 28). Yeah, right.

Australian House prices have now fallen 6.1% from their peak, and have been falling for 21 months, which is the longest downturn in nominal prices ever recorded by the ABS—the previous longest being the 12 months from the beginning of the GFC (which was terminated by my favourite government policy of all time, the First Home Vendors Boost).

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I’m sure the usual spruikers will come out with why this is now the bottom, and it’s a good time to buy, and there wasn’t an Australian house price bubble, and the shortage will drive up prices, and… So let’s put the current data in the context of the bursting of acknowledged overseas house price bubbles.

Firstly the inflation adjusted data: in real terms, house prices have now fallen 10% from their June 2010 peak, and are back to a level they first reached in late 2007.

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Now let’s compare the Australian experience to date with the Japanese and US experiences—where no-one, not even Alan Greenspan, denies that there was a housing bubble. The Japanese bubble peaked in June 1991; the US bubble peaked in in May 2006; and Australian house prices peaked in June 2010. Figure 3 shows the three declines from the peak, and while the Australian experience so far is clearly better than the USA’s, it’s only a whisker better than the Japanese experience to the same date after the peak.

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Anyone who takes comfort from that should also consider the longer term perspective—see Figure 4.

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The motive force behind Australia’s bubble was the same as in the USA and Japan: accelerating debt drove rising house prices during the boom. Now in both those countries, decelerating debt is driving house prices down. The same pattern applies in Australia—see Figure 5 .

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Don’t take heart from the uptick in acceleration at the end of the series there: for that to be sustained into the future, ultimately Australian mortgage debt would need to start rising (compared to GDP). But mortgage debt grew more rapidly here and reached a higher peak than in the USA (see Figure 6); the odds that it will rise again are slim.

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And even though the actual level of mortgage debt is still rising, it’s doing so at the slowest rate ever recorded by the RBA (see Figure 7).

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The odds are that the rate of decline will accelerate in the next year—since as Leith van Onselen pointed out yesterday, many Baby Boomers are relying on rising house prices to secure their retirements. Now that house prices are falling, and have been doing so for almost 2 years, many of these Boomers—74% of whom earn less than $80,000 a year, with the average investor losing over $9,000 a year on these “investments”—could decide to get out rather than continue to absorb losses. The unwinding of their leveraged positions could push mortgage growth below zero, and of course accelerate the house price fall.
Edited by Mahamed, 2 May 2012, 12:44 PM.
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Sweetdish
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Steve Keen is never wrong : )
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NotFooled
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The Bear Whisperer

The sky is falling! The sky is falling!
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muzza
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NotFooled
2 May 2012, 01:34 PM
The sky is falling! The sky is falling!
No mate, it's the house prices. Isn't that why you and I are both sitting on the sidelines, enjoying the show ? :D
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NotFooled
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muzza
2 May 2012, 01:38 PM
No mate, it's the house prices. Isn't that why you and I are both sitting on the sidelines, enjoying the show ? :D
True :D I'd like to see some real drops before calling it a crash though. 30% over 6 months would do it for me.
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davel
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quite persuasive... didn't realise ABS prices had been falling 21 months.

Its also interesting to note - in his spruiker parody he uses the "shortage" argument...... how the shortage argument is rarely used these days, its like most people have accepted this is not the case now. This is a LOT different than 12-24 months ago and very telling.
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Elastic
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I'm not certain that mortgage debt/gdp cannot go any higher.
Although we seem to have reached what seems like a peak it may be that with interest rates falling enough we could see it boost a little higher.
Still I'm not one to disagree with Steve.
Only a rat can win a rat race.

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Strindberg
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From Keen's article:
Quote:
 
Australian House prices have now fallen 6.1% from their peak...


Adjusting for inflation is a new trick Steve has recently adopted. His old failed predictions, and his bet, were based on ABS house price indices and thus were nominal.

According to the ABS, house prices have fallen 6.1% from peak - not 10%.
Housing costs to Income broadly unchanged since 1994 - re-ratified here
The People of Australia have the highest median wealth in the World
2002-2012 10 year house price growth the SLOWEST since 1952-1962
"There are two kinds of people in this world: ones that fiddle around wondering whether a thing's right or wrong and guys like us." (Hugo to Gagin in Ride the Pink Horse)
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Strindberg
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davel
2 May 2012, 01:46 PM
quite persuasive... didn't realise ABS prices had been falling 21 months.
...and remain 13.6% higher than 3 years ago and up in real terms too. All cap cities are up on 3 years ago.

Where are the losses for the Baby Boomers which Keen pins his hopes on of accelerated falls. The vast majority of IP holders are sitting on profits not losses.
Housing costs to Income broadly unchanged since 1994 - re-ratified here
The People of Australia have the highest median wealth in the World
2002-2012 10 year house price growth the SLOWEST since 1952-1962
"There are two kinds of people in this world: ones that fiddle around wondering whether a thing's right or wrong and guys like us." (Hugo to Gagin in Ride the Pink Horse)
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Admin
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Quote:
 
Seller Strike, Buyer Strike

Posted on Tuesday, May 1st, 2012

• ABS House Price Index -4.5% YOY
• RBA interest rate cut -0.5%

The solid new trend of falling house prices is confirmed by the ABS today with real prices now in retreat for seven quarters and the downward path accelerating. Property markets operate on a very long cycle. Once broad trends are established, they continue, says Prosper Australia.

Today’s ABS House Price Index 6216.0 is a lagging measure, but fresher statistics like building approvals, housing finance and auction clearance rates have been consistently weak for 12 months or longer and show no change to conditions.

“There is a seller strike and a buyer strike,” Prosper Australia Campaign Manager David Collyer said today.

“We are seeing a house price ‘slow melt’ as sellers hold out for peak prices while buyer indifference means few properties are sold.

The stand-off is now nearly two years old.

“Arguments today’s -0.5 per cent interest rate cut by the Reserve Bank of Australia will raise house prices have no basis in fact.

“This is evidence of panic, of a central bank departing from the measured and gradual adjustments in which they take pride. Confidence will be shaken, not improved, by this dramatic move.

“The economic entrails are very ugly: poor housing affordability, banks newly cautious, housing oversupply, weak conditions for all outside mining, a struggling jobs market, rising unemployment, citizens paying down debt as fast as possible and economic devastation overseas.

“I say, the strike will end in seller capitulation. After all, buyers do not have to commit, while the need for owners to reposition their balance sheets simply becomes more and more urgent.

The Negative Gearers are approaching exhaustion. Their strategy requires strong capital gains and makes galloping losses in a steady or declining market. For how long will they be content to subsidize the renter of their investment property?

Baby Boomers downsizing cannot hold out either – retirement looms. For many, current prices are so utterly divorced from what they paid that a few per cent less now will not make much difference to their giant gains.

Either seller group is capable of blocking the exits and tipping the price falls into a steep decline. For both, the first-mover advantage to meeting buyers in a falling market are profound. They get the best price, the flexibility of cash and they sterilize risk.

“Prosper repeats and restates its price projection of a 15 per cent price fall this calendar year, with a 20 per cent fall entirely possible,” Collyer concluded.

“Don’t Buy Now!”

Read more: http://www.prosper.org.au/2012/05/01/seller-strike-buyer-strike/
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