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Posted by: David Whiteman in Untagged on Jan 19, 2012
Hi Everyone
A very interesting take on the property market .I know that Mr Harvey works for the Housing Industry Association so he does have an interest in being positive.Nonetheless the arguement is an excellent one and his points are well researched and supported. Well worth a read.
For the graphs that support this please go to www.propertyobserver.com.au
I hope you find this helpful.
Regards David
By Andrew Harvey Friday, 13 January 2012
Page 2 of 2
Of course, the fact that we have had even a moderate softening in dwelling prices provides a catalyst for the property "doomsayers" to chase headlines of an imminent housing crash with renewed zeal. The collapse of the housing market in the United States, and in some other developed economies, is often cited as evidence that the Australian housing market will follow the same path. However, these viewpoints ignore a host of important differences between the Australian housing market and those markets overseas, as HIA has outlined before.
The differences include, for example, that: Australian mortgages are "full recourse"; Australian banks have maintained very tight lending standards; mortgage arrears remain low in Australia; more than 70% of Australian households are owner-occupiers (roughly half of whom own their home outright); and the list goes on. The dissimilarities between the Australian housing market and many overseas markets have been discussed at length in the past, simply cannot be ignored in any rational analysis of the Australian market, and mean that we should not be tarred with the same brush.
Few issues seem to elicit more emotive responses than do dwelling prices and their likely trajectory. And the current divide between those analysts that think the Australian housing market is in prime health and those predicting a collapse is wide and the debate vigorous. The reality is that the recent softening in dwelling prices was simply a mild correction and explained by the economic and political factors that have been at work.
Although the rapid dwelling price growth experienced over the last decade is unlikely to be repeated, it is simply not the case that we are standing on the abyss of a looming housing market crash. Those who continue to peddle the story of an imminent crash in home prices should take the time to reflect on Australia's inherently sound housing market fundamentals, and the differences between Australian and overseas housing markets (as outlined above). And despite the fact that the doomsayers' careers seemingly revolve around achieving sensationalist headlines they should at least think about avoiding exaggeration at a time of some fragility in global economic confidence.
Finally we note, as we have in the past, that Australia does not exist in a policy vacuum - we have ample room to move on both monetary and fiscal policy should it be needed. Indeed, the RBA understands that we need to tap into this policy capacity now - and hopefully the federal government will soon be on board also.
On balance, the HIA Economics Group's view is that there is now a decent prospect of a return to dwelling price growth at some stage in 2012.
Barring a complete meltdown in Europe, as interest rates retreat further prospective investors are likely to increasingly favour housing over term-deposits or shaky equity markets. Meanwhile, as the cost of repayments start to align more closely with rent payments, current tenants are also likely to look at making the leap into home ownership.
Andrew Harvey is senior economist at the Housing Insdustry Association
