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03 December 2008

House prices in Australia are not set for precipitous falls, as in the US

House prices in Australia are not set for precipitous falls, as in the US, nor are household balance sheets suffering too badly, says the Reserve Bank deputy governor, Ric Battellino.

He said that despite the sharemarket plunge, annual returns on shares had averaged 8 per cent over the past five years and real incomes had risen 30 per cent - the biggest surge in more than 30 years.

But mortgage holders may get less interest rate relief than expected in coming months, with Mr Battellino warning that the need to contain inflation "could limit the room for manoeuvre".
Economists still expect a cut of half a percentage point when the Reserve Bank board meets next Tuesday.

Amid predictions that house prices would fall by 40 per cent as households crumbled under the weight of mortgage debt, Mr Battellino told a bankruptcy conference in Sydney that prices would hold up much better than in the US, where they have fallen about 16 per cent in the past year.

Unlike the US, Australia's housing bubble had already burst, about three years ago, Mr Battellino said. "The Australian housing boom ended because prices rose to levels that severely strained the financial capacity of buyers to pay higher prices, not because too many houses were built, as in the US.

"The overhang of unsold houses in the US has created downward pressure on house prices as builders and developers have been forced to sell." This had not happened in Australia, he said. "Rather, the shortage of housing here means that there are buyers waiting for better circumstances - for example, lower interest rates or rising incomes - to facilitate their entry to the market." This latent demand would support the market."

Moreover, housing debt in Australia was largely in the hands of middle-aged borrowers who could afford it, rather than more marginal borrowers, as in the US, meaning forced sales were less likely.

"In Australia, the lending boom was concentrated on existing home owners who traded up to bigger and better houses, and bought investment properties," he said. "While one could argue that no socially productive purpose was served by this increased lending to middle-aged existing home owners, it did mean that the loans largely went to those who had a strong capacity to service and repay them."

Amid talk of an imminent domestic recession, Mr Battellino offered no guarantees: "The economy is being affected by powerful forces from different directions, and it is unclear what the net effect will be."

But he observed that Australia had managed to sidestep a global recession in 2001 after the US tech bubble burst. "Can it do that again? That is certainly what we are aiming for, and there is nothing in the data to date to suggest that we are off track."
The Prime Minister, Kevin Rudd, said Treasury was continuing to forecast positive economic growth into 2009.

Author: Jessica IrvineDate: October 31, 2008 : Sydney Morning Herald


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Morpheus Property

1 comment:

Sydney Buyers Agents said...

Australia is among the lucky countries to be kept afloat despite the seeming global US financial crisis.