This is often treated as a “how long is a piece of string?” question, but The Economist has performed a great public service by allowing an easy comparison of the length of this piece of string across many countries and over time.
Check it out yourself. For Australian readers, house prices today are almost 2.5 times what they were in real terms in 1986; and our price bubble (in CPI-deflated terms) turns out to be smaller than some countries (notably Belgium’s) but larger than the USA’s and UK’s.
Like all such exercises, it is limited by the time series from which the data is taken: the earliest data shown here is for 1975, which is after the second major financial crisis of the post-WWII era (the first was in 1966) but at the end of what was, for its time, a very large property bubble. So the reference point of 1975 could itself represent a “highish” point for house prices, rather than “fair value”.
The data is also short for some countries, and with a difference reference date (say 1987 rather than 1976) the relative ranking of countries changes substantially. A quick look at the Herengracht Index–which shows the CPI-deflated value of housing along a wealthy canal in Amsterdam between 1628 and 1972–shows how important the starting date can be in working out whether housing is “expensive” or “cheap” at any point in time:
The important macroeconomic issue which this data alone doesn’t address is the level of debt that house price inflation has led to. It is probable that a higher real house price reflects a bigger ratio of mortgage and other private debt to GDP, but this isn’t necessarily the case. That ratio is the key indicator of whether a country is going to experience a debt-induced recession.
Employment headline figures look ok except
Aggregate monthly hours worked decreased 1.0 million hours (-0.1%) to 1,535.6 million hours.
Peter_W #75: “next big Australian economic/housing bailout will be negative real interest rates”
We have already had negative real interest rates for the last 10 years. If inflation was correctly calculated and included house prices then interest rates would have been above 18%!
Check out this blog entry from Market Ticker guy Denninger on why house prices should be included in the inflation figures:
http://market-ticker.denninger.net/archives/1838-Feds-Bullard-Admits-To-Bubble-Blowing….html
Dan Denning on debt/assets, bank credit and housing
A Funds Industry Built on Turning Debt into an Income Paying Asset
http://www.dailyreckoning.com.au/funds-industry-built-on-turning-debt-into-income-asset/2010/01/14/
How many of the other countries in the graphulator above have negative gearing on investment properties? The American and Aussie taxation systems are vastly different.
Lets also compare land size (cross sectional area of the string).
For instance if i buy a house in Japan and a house in Australia outside of any of the major cities.
I could probably subdivide the land in Australia into 4 Japanese sized houses, lease 3 of them (with negative gearing) and live in the fourth.
Here is the suburb of Belmont about 25km from San Francisco. Its still much more expensive than Sydney.
http://www.realtor.com/realestateandhomes-search/pg-5?cmid=1099461
Somehow I do not think house price will go down. Sydney is a major city of the world. We need to compare likewise to major cities of the world to see where prices will go.
Look at the trend for Belmont CA.
http://www.trulia.com/real_estate/Belmont-California/market-trends/
Belmont CA is still on the coast and is a high income White enclave area. 25k from Sydney is getting past Parramatta into Blacktown and the South Western areas, low wages, high unemployment and still high house prices!!! Belmont is probably the equalivant of an area like Lane Cove, and by comparison is quite cheap and more bang for your buck – Lane Cove median is more like $1M…
Also house prices in Belmont have actually been dropping.
http://money.ninemsn.com.au/article.aspx?id=999603
Unemployment drops to 5.5%.
Are we seeing leveraging begin again? (It barely blinked.)
Scary shit.
Yes
The median price has not dropped much though
True they haven’t dropped much…I haven’t checked but I am sure there are other suburbs around San Fran within a 25KM ring that are extreamly cheap. I notice in Wellington NZ, Where I am from, houses haven’t really dropped much either, however nobody is really buying because they simply can’t. The owners haven’t been forced to sell as most of the housing is owned by baby boomers. It will be interesting to see what happens when they start dieing off and move into retirement homes…Sydney however is a different story. All these young families out West that have been suckered in by the gov’t grants could be in trouble this year…
Also Sydney compared to Wellington Sydney doesn’t seem to have a shortage of housing, which the media is constantly harping on about…Wellington by comparison does…I remember back in the 90s it was almost impossible to find a rental in Wellington…When I moved to Sydney in 2002 I found a nice one, cheaper and better in my first month of living here. Where I live now, in Parramatta, there are a row of half finished townhouses that have been sitting there doing nothing for well over a year on Victoria road and next to them there is, from what I can see, at least 3 empty ones and one that has been up for lease since before xmas…I don’t understand this housing shortage thing…You just don’t see empty houses in Wellington…
Something stinks in Sydney and it ain’t the air…
I feel there is a big difference between the way many people rent here and the way they do in the USA. In the USA, many people rent from apartment or townhome complexes that are not individually owned, but by firms or property groups who own the entire lot. It seems there are much less people in the USA that own investment homes they can rent out, bc these complexes take a large % of renters in your small towns and even larger cities. Once there was a surplus of homes in the USA, there were no reasons for people to buy them, bc a large portion of renters continue to rent from complexes and not houses. All of Australias apartments seem to be individually owned though, and regardless if you have an investment unit or home, to me it seems you can rent it out quite easily.
Am grateful reader (old age pensioner trying to find affordable housing) of research on this site gregarding future of housing prices in Australia and would like to add the article found on the Daily Telegraph today for further comments :
http://www.dailytelegraph.com.au/news/sunday-telegraph/wealthy-migrants-pricing-locals-out-of-sydney-property-market/story-e6frewt0-1225820390894
Thanks GalaxyRide,
For another sign of the inanity of our economy, take a look at this report that was just brought to my attention by a correspondent (with the email header of “You couldn’t make this up: Australia the next Iceland?”:
http://www.theaustralian.com.au/news/nation/tax-breaks-to-woo-banks/story-e6frg6nf-1225820234610
“THE Rudd government is considering new tax breaks for banks and reducing financial regulation in an effort to build Australia as a regional financial centre, capitalising on Australia’s good performance during the global financial crisis.
The measures, contained in a report delivered to the government yesterday, go against the international trend of raising bank taxes and restricting the growth of the financial services industry.
Financial Services Minister Chris Bowen said the government believed the financial crisis had created an opportunity…
The study was prepared by a panel of senior finance industry executives, led by former Macquarie Bank chief executive Mark Johnson, but was supported by Treasury officials.”
Words fail me…
“The study was prepared by a panel of senior finance industry executives, led by former Macquarie Bank chief executive Mark Johnson, but was supported by Treasury officials.”
That says it all.
http://www.fsponline-recommends.co.uk/page.aspx?u=mwpropertyIIa&tc=EMYKL106&PromotionID=2147066703&u=8981806&g=0&r=&s=0&o=111006&l=176239
FWIW on the UK market
Peter_W and Cryusp @ 75 & 77
Re negative interest rates. The extent of negative interest rates depends, to a large extent, on how you measure inflation as you correctly point out.
Then are we talking savers or borrowers? I know it is pretty well regarded these days, even on this blog, that savers are irrelevant and even worse are exploiters of the downtrodden borrowers. Why save when you can just print the stuff or QE or ‘create’ or whatever you want to call it?
However a realisitic assessment of the ‘real’ savings rate also needs to take into account the effect of taxation. A saver, after tax and ‘real’ inflation has been getting negative returns for as far back as I can recall pretty much. I don’t have the time to put together the numbers on this, however there is little doubt about it that for savers, the after tax return has been negative for as far back as I can remember which is getting to be far too long.
On the other hand for the borrower, with negative ‘real’ interest rates he/she receives a benefit on which he is not taxed…plus all the rest of the tax benefits as are well documented on these pages.
I know I keep coming back to it, but nooone seems to take account of this extra tax benefit when looking at how people behave in the market.
The result of this long-term negative interest rates can be seen in our level of private debt and in our external account and the waste of resources.
@pb Re: Belmont
Another unusual thing about Belmont is that the market isn’t being manipulated as much by the Banks (by keeping the foreclosures off of the market). I see about 44 foreclosures, out of a total of 125 houses for sale.
Take a look at the heart of Silicon Valley:1657 new/resale homes on the market, versus 4250 in all stages of the foreclosure process.
http://www.trulia.com/real_estate/San_Jose-California/
For a city of about 1 Million people, 1657 is a very low number on the market. It is usually about 3 times that, for this time of year. From what I hear from some Realtors, the Banks are planning on releasing small numbers of foreclosures, in order to keep the property values up.
I’ve seen this same pattern in other SF Bay cities.
One has to wonder how long this is going to last, especially with the Alt-A loans now starting to blow up. It all depends now on how long the Banks’ cash flow will last. My bet is 3 years, max.
Steve #89
One of the most insane and bizarre ideas ever.
The lunatics on both sides (bipartisan support) are running the asylum.
Why does a nation of 22 million people with the largest per capita mineral resources on the planet need a single cent of “petro dollar” finance to fund a further acceleration of its already spiraling exponential foreign debt/CAD.
Both sides of politics have totally lost the plot.
Fasten your seatbelts folks the entire mineral wealth of the Australian nation is about to be extracted into the pockets of foreign bankers aided and abeited by the total corruption of govenment via backroom lobying and party donations.
Australian government policy is becoming more and more like a fascist kleptocracy than free market democracy.
I have a bank regulation idea.
Cap the NIM at 1% MAXIMUM fees at Zero and the tier 1 equity (leverage) at 7% MINUMUM
Beyond those limits 100% equity
There is no fundamental reason why a private bank should earn more than 10% after tax return on equity for being an economic utility.
PETER_W @ 94,
I agree that it is insane. I wonder how the neoclassical economists at the Treasury and RBA support a never-ending spiral of CADs and further foreign indebtedness. They must think that because markets are in equilibrium that the current state of the CA is ‘rational’ or that it will soon self-adjust to become ‘rational’.
Since the 1980s, the Labor and Coalition party policies have become ever more narrow and similar. It appears that the unelected and unaccountable planners within the state-subsidized command and control institutions (corporations) have such tight control over state policy that the two major parties offer policies not overly differentiated.
As for the term ‘free market democracy’, Australia has never had anything remotely resembling free markets – certainly not for those who own and control Australia. What we have is something resembling state-subsidized corporate markets. And democracy? People turning up to the polling booth once every four years to elect political representatives who advocate policies, laws and regulations that originate in the corporate sector.
#96 I agree Philip
“What we have is something resembling state-subsidized corporate markets”
That’s pretty close to the definition of Fascism.
@93
I have read of this kind of trickle feeding foreclosures, they term it as shadow inventory or something. With belmont the prices have reverted to 2001 levels so cant argue there has been no drop.
http://www.doctorhousingbubble.com/foreclosure-box-the-most-comprehensive-shadow-inventory-housing-analysis-for-los-angeles-county-examining-269-zip-codes-and-finding-100000-shadow-properties-while-public-views-1900/
Now the reasons for immigration are clearer–
“The nation has weathered the global financial meltdown remarkably well. So much so that most Australian workers received a payout worth almost A$1,000 (£550) from the government.
Can you see that happening here?”
From: http://money.uk.msn.com/msn-local/photos.aspx?cp-documentid=151758457&page=9
MSN UK doing Australia’s propaganda.
PETER_W @ #97,
Before the word fascism became popularly associated with Nazism during and after WWII, fascism meant the control of government by the business class (corporations). This meaning was widespread and I think that FDR referred to this in a speech in 1938.
So by that definition we have fascism in Australia even though that is not it’s popular meaning now.