A falling housing market will keep the Australian Dream alive
05/04/2012 
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As Victoria’s housing values have plummeted about $40 billion in the past six months, we need to ask why it is such a bad thing. Afterall the Sharemarket has corrections all the time, so why do we expect the real estate values to climb relentlessly without having the same laws of the market apply.
Let’s face it, the price of a home is ridiculously high. It has climbed to levels relative to wages over two times higher than where it was in the mid 1990′s.
The reason for this was simple. It was the last baby boom echo, as the grandchildren of the baby boomers moved into their own home, whether rented or owned.
The last housing bubble was predicted in the 1980′s to be in 2002, and right on que it happened. What was not predicted was what would happen after that, That is till the late 1990′s when a housing value collapse was forcast to happen betwwen 2008 and 20013. Well suprise, surprise, here we are. And according to predictions we have 5 years to go before the correction has run its course.
The things that have protected Australia from declines seen in the US sincce 2006, such as a stable job market, long term employment, Government incentives and MIgration can still help, except when people start to move back, migration ceases or the Government incentives stop appealing. What if long term jobs evaporate? Can you see where this could be going? In teh US the bad stuff had hit the fan in 2006, and its still bad.
Brisbane has been the recipient of interstate migration for twenty years. And Kiwis are everywhere up here. If the migration stops, or reverses, Brisbane is in deep water, and house prices will tank.
I am not saying don’t buy. I am saying only buy quality homes in quality locations that you want to own, and don’t expect to make any capital gains for years to come. Buy a home because you want a stable address to live and keep your stuff. Not for economic reasons, because if you do you might be disappointed.
I met a guy from Belgium in 2003. He asked me how come interest rates are so high in Australia? I said I guess they are because they want to soften demand. He them told me that mortgage rates in Belgium were 3%pa, and that as many as half the homes in Belgium were vacant. The people had moved on.
Anyone that has been to Venice will tell you that 90 percent of the homes are vacant there. There are plenty of towns in the US where home vacancies are high. People move on in our mobile society.
What if that happens in Australia?
If you are thinking of selling your home, sell it now, or withing a 90 day cycle to ensure you get the best price possible. Don’t hang on in the hope that the market might recover, because it always has. Because this recession is new, and the demographics are changing.
We have just been told that NSW is in fact in recession. I think it’s going to be worse that you think it is.
Melbourne’s median house price of $450,000 mid-2008 is now down to $427,500, according to estimates, the Herald Sun reports.
And house price expectations across Australia have sunk to an all-time low, a new report says.
I say that is great because now people will start selling at reasonable prices, prices that ordinary first home buyers can afford.
Victoria’s $800 billion residential property market has dropped 5 per cent – or $40 billion – overall since July, according to BIS Shrapnel calculations prepared for the Herald Sun.
The trend has opened the door for potential borrowers desperate for cheaper housing.
The latest Mortgage and Finance Association of Australia/BankWest Home Finance Index shows almost two in three Victorians expect the value of their biggest asset to erode in the first three months of this year.
“The expected decline in prices will help address the chronic problem of housing being unaffordable for a lot of Australians, and first-time buyers are likely to be enticed back into the market,” MFAA chief Phil Naylor said.
Recent Real Estate Institute of Victoria sales results show the volatile economic climate is producing winners and losers.
Expensive suburbs such as Albert Park and Armadale recorded price drops of at least 30 per cent in the three months from June.
BIS Shrapnel senior economist Jason Anderson said the spectacular credit crunch price crashes witnessed in the United States would not happen here because Australia had a housing shortage and tenants hoping to escape the rent trap.
The research company predicts Melbourne’s median house price will rebound 4 per cent during 2009-10. The median value is tipped to increase 9 per cent in the three years to June 2011. I say that depends on other factors that have not even been entered into the math as yet.
Experts say Melbourne’s northern and western suburbs will be among the best performers as new buyers seek affordable areas. I say that all areas will become more affordable.
Rick Adlam has been helping clients with home loan finance since 1985 when he was home consultant with AV Jennings. Rick started Equity Home Loans in 1996 to help homeowners become property investors. Rick currently consults in the development of Mr Mortgage for mortgage brokers and HomeMate for new home buyers.
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