The not so slow melt of housing

Further to the charts posted earlier today on the latest RP Data-Riskmark house price indices for August, something I have been following is the comparison between the current pace of house price declines in Australia to the slide we experienced during the GFC and the fall in prices experienced in the US.

As you can see from the chart below the current pace of house price declines in faster than that experienced in Australia during the 2008 slide, while US prices declines were even more tempered through the first 12 months, before the tsunami of selling began once people realized the Ponzi scheme of buying and flipping was done.

It seems that the fall in the appetite for, and price of, credit has been responsible for the slow melt in prices to date. Should prices fail to recover, it is likely that the selling pressure will intensify as investors can no longer justify holding on to properties that are falling in value and, with an unequivocal connection between falling house prices ad rising unemployment, we are unlikely to have seen any forced selling yet either:

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    • The deficit stands at 47.7billion, and ALP needs a surplus to avoid total decimation in the next election. I don’t think any cash handout will be forth coming. If the minority government fails before 2013, and “poll before principle” Abbott get into the lodge, then it’ll be a different story.

      • If Andrew Robb gets his hands on the purse strings, Australia will have a depression within 18 months, and I’m talking more than the 30’s, I’m talking melbourne 1890’s across the entire country.

        He, along with Peter Reith, have a pathological hatred of poor people.

        He would enact policy that would ensure aggregate demand in Australia would plummet.

    • Phil,

      In a strange way, I think that what is happening to house prices at the moment suits the government down to the ground.

      The house price problem will be slowly addressed….it will be due to external factors beyong the control of the government…..and Wayne Swan will get to keep his precious surplus.

      I think you will see much wringing of hands, many expressions of concern, sympathy, and regret, much ganshing of teeth about “global problems”…..but no money.

      What better way to solve an intractable and politically deadly problem without having to do anything, and get no dirt on your hands?

  1. Good stuff Data Sword.
    It appears it takes people about 12 months of denial to figure out what is going on and then the deep dive begins. Sure, it’s different here. But with the macroeconomic background we are facing and the financial conditions that we are headed towards, it won’t be so different here is my guess.
    I hate that people will blame external factors too… “oh, if it was not for the problems in Greece my house would have sold for $100,000 more!” etc

    • > I hate that people will blame external factors too… “oh, if it was not for the problems in Greece my house would have sold for $100,000 more!” etc

      Let them save face. That’s all they’ll have left.

      • No, if they get away with that then the next generations will not learn the lessons of history.. The children have to know that they were eating two minute noodles and sawdust because of bad management, not bad luck.

        Otherwise it will all happen again.

        • +1

          I want this housing bust to be so bad that future generations will look back at this fiasco and laugh.

    • yeah, ‘if only the ponzi hadn’t collapsed, my own private little ponzi wouldn’t have collapsed!!!!’ pretty circular reasoning when you substitute in ‘ponzi’ for ‘crisis in greece/ireland/italy/iceland/US’ etc.

  2. Of course this is FANTASTIC NEWS for several hundred thousand potential FUTURE buyers.

    FUTURE BUYERS only pay 3.5 – 4.5% rent AT THE PRESENT PRICE wherease the cost of MORTGAGE DEBT is 7.5%

    EVERY FUTURE BUYER should WAIT, as the price is declining ~$3,000 per month = $30,000 – $35,000 p.a.

    • indeed. Iv’e been waiting “in the pocket” since 2008. Happy to hang on the sidelines. I hope ours follows that blue line trajectory, but i think our Central Bank has more bullets in it’s gun than the Fed did. 🙁

      • Really, I think they have less.

        -there is no bulk of first home buyers waiting in the wings (I wrote a large comment on the other Aug RP Data post that explains this)
        -we have a commitment to budget surplus (yeah, I know, we’ll see if they keep sticking to that one)
        -the rest of the economy looks shakier now than it did in 2007 and early 2008 for the US

      • Invest part of your savings in things that go up in value if the RBA starts cutting rates, like the US$ vs the AUD. So you have an hedge IF house prices stop falling due to lower interest rates.

        • Got to agree with you there, mb. I’m returning to Oz after 10 years in the US and I’m not moving any capital back there. There is no depth to the Aussie strength.

          • “There is no depth to the Aussie strength.”

            gef05 very good comment and you are spot on. To bad the govt doesnt realize that.

  3. DS I think this sentence may need a re-work please – thank you for the post.


    “As you can see from the chart below the current pace of house price declines in faster that what Australia experienced during the 2007 … “

    • Hi TM…yep good point.

      Sometimes when you know your story you don’t articulate it as well as you should.

      The 07 line is from the peak up to that time which was Dec 07 and the fall is then prior to the stimulus when the market got a rocket under it and this index pushed up 15% or something of that order to the peak in the series which is now Dec 2010.

      So what i’m saying is that we are dropping faster now in the current environment which is weaker, as Miss p suggests, than we did in the first wave of the GFC.

  4. Great comparison DS.

    I think that more people now are not so naive and are getting out early, although clearly that sentiment isn’t wide spread yet.

  5. Makes me glad I sold all my shares and Sydney property in early 2007 and went overseas. May be back later to get a bargain.

    If by some miracle the Sydney market does hold up, then no problem as I don’t like Sydney much anyway. In fact I dread my visits, Sydney now seems third world. I’d rather retire overseas and enjoy a better lifestyle.

  6. Interesting chart. However, I don’t believe that a crash is inevitable. New Zealand’s home prices have been in a slow melt for 3.5 years and there is no sign that their housing market is about to “crash”.

    This is not to say that the situation couldn’t change if China crashes and/or there is a prolonged nasty bank funding freeze.

    • Dead right UE…this is a comparative chart – it tells us the US story and the fact that perhaps we should be worried but for many reason on current settings and structural differences in the Australian market is is not our destiny.

      My idea with this was to see how it was tracking and how it tracks moving forward. As a predictive tool I wouldn’t bet on it absolutely.

      It’s a warning not a fait accompli

      • UE,

        My thoughts China is heading for a very hard landing and will take Canada, Australia, Brazil and Russia down with it. All I am reading now about China in the overseas MSM is dome and gloom. A little bit in Australia MSM but wow the negative press train wheels are starting to roll now.


    • +1 UE

      In my best John Cleese voice, “to make myself absolutely clear”, this is not a prescriptive analog chart that “predicts” a house price crash, just a comparison.

      A very interesting comparison nonetheless, given there was a very interesting wager announced at the most recent peak in December last year.

      A slow melt is the most likely scenario, given the available data, in my opinion.

    • Yeah, I think those are some pretty significant risks that you’re betting against.
      I’d suggest that the macro situation that NZ experienced over the last 3 years is significantly different to the macro environment that is being transitioned into now.
      If Australia had started deflating when they did then yep, a slow burn might be on the cards but as the other economies fail, international credit has a seizure and commodities fall I just can’t see us escaping so lightly.

  7. UE + 2

    China still hold the key. If the demand from China holds up, and we get an interest rate reduction of 0.5% then the cake will rise.

    If China falls then the cake will as well.

    Happy baking guys.

    • Is this a wind up? China’s impact on Australia’s housing market is miniscule.

      If you have data (empirical, as in data, not the guff you write on zeta forums) on how the ‘middle’ of Australian RE is going to be saved by the myth, please share.

      I’m not going to waste time (while Euro markets are open) reiterating (with data) the big myth.

      However, for others check this out…

      2B Yuan is about $150M USD (off the top of my head)

      • velociraptor – China has a massive influence on our GDP, and our employment.

        Those aspects affect the strength of our economy to a very very large degree. We are now an Asian trading nation – don’t forget that, Asia is our business partner. Forget Great Britain or the USA, they may share our past cultural values, but they are not our future.

        To be honest, I can’t believe you even questioned the premise for a second. Did you think about it or just jump in because what I said doesn’t suit your hopes and aspirations. Did you tell UE that you consider this line of thought to be wrong?

        • I think the point is that China is buying iron and coal and these are only responsible for a fraction of our employment. I think it would be fair to suggest that a GDP to employment ratio would be very high for these industries – ie, they contribute a lot to our GDP in $$ but not in it’s ability to support an entire housing market.

          I suppose Chinese foreign investors also buy our real estate, but how long will that continue in the face of negative capital returns?

        • Velociraptor – sorry if i have this pointed to the wrong post, I don’t come here often, although the content here is very good.

          Velo – pointing to a bullshit web blog does not constitute evidence, but if you think it is concrete evidence, then buy a case of champagne and celebrate your victory now. Tomorrow may be too late.

          Whilst I agree that property values are falling nationally (I have been consistent on that for over 12 months) I think you are getting way ahead of reality. It may come to pass, or it may not, but don’t throw all of your money on a dice just yet.

          That’s a little free advice for you.

        • “I can’t believe you even questioned the premise for a second.’

          I make money anyway but more as lemmings follow lemmings in major myths.

          Have you noticed the money Chanos and Hendry are making on China’s crash in slo mo?

          Have you note the disappeared mega-debtors?

          “Did you tell UE that you consider this line of thought to be wrong?”

          LVO and I defer in many areas but agree on others, just like all the bloggers here and respondents. There are no bulls and bears, just analysis. I’m bullsish on some stuff and bearish on others.

          What am I a rear hoofed herbivore with coarse hair, long muzzle with canines, front claws and short horns but likes a good cud chew?

        • Sorry regular MB folks.

          Just wasted 15mins of time I’ll never get back. *rolleyes”

          Like trying to debate with the rocket scientist at the Milk Bar about the wrong advertised price of the bread.

        • Go out onto the street and say “Mining makes up 80% of our GDP”. Most of them will believe it, even though it’s not true. What is true, however, is that mining makes up almost all of Australia’s economic growth in Australia right now, while other sectors are going backward. As long as the economy is growing, house prices will not fall off a cliff. This is the China -> Mining -> House Price linkage.

          Besides China blowing up, there is also Europe. If they allow Greece to default without a firewall mechanism, then it’s “Good Bye Capitalism”.

        • Peter Fraser,

          Don’t underestimate the interconnectedness of the global supply chain. There was an interesting paper at VoxEU analysing the iPhone’s component sources and export revenue to each country that supplied those components. Foxconn was grossing about US$6 from each phone ($178 landed cost stateside). Germany, USA and South Korea make multiples of China’s return on that 178 dollars in “exports”.

          Another thing to bear in mind is the difference in per capita income between the Western countries and the developing Eastern countries. It’s at least 10:1 for China vs the USA according to the CIA Factbook (circa 2010).

          Our resource and agriculture exports may help us weather a downturn in China but the EU is their largest trading partner. Recession in both the EU and a worsening of the US economy appears to be a given right now.

          IMHO we will not get a “get out of jail free card” this time. Ponzi schemes collapse and our FIRE based economy is a kind of Ponzi scheme. Deep T has made that point abundantly clear in his analysis of the LTV “games” our banks have played.

          Buckle up, it’s going to be a hard landing (which we will survive).

          • Anon,

            I’m don’t share your very gloomy outlook, although I do acknowledge the headwinds, and I do expect some downturn.

            I reserve the right to alter my expectations as evants unfold.

            You made good points, and you made them well, and I thank you for that.

    • Yeah, lets hope they reduce rates by 1 to 2% as the economy implodes. We can all then stock up on more houses with our unemployment cheques. Wishful thinking Pete.

    • 0.5% is the difference between house price rises and price declines? Big call. In 2007 prices were still rising and interest rates were higher than now.

      There’s a point where housing supply simply exceeds demand and rate cuts won’t fix it. I am not saying we have reached or we will ever reach that point in Australia but a simple 0.5% cut probably will not be enough, without additional stimulus.

      After the major increases in the last decade housing will be “flattish” for the next few years, that would be my call, even with some interest rate cuts.

    • In the current global environment, falling interest rates won’t push down the $AUSD?
      Making mortgages cheaper but rising general living costs fairly likey to offset any such saving.

  8. Surely the central bank have plenty of room to cut interest rates if house price declines intensify?
    thats what saved Nz’s bacon, and it will also save Aus’s bacon, unless China crashes

    • Australia has frog-boiled with inflation instead of a housing. Look at the carry-trade unwind and tell me that Aus can cut rates considerably. We’ll have the ridiculous price increases that we usually have plus we’ll be importing inflation from overseas. Not only that, but the cost of capital for the banks can go up even with interest rates going down.

  9. That chart is a piece of desperation.
    Taking the slope of a cherry picked period of less than 12 months from a historic chart and and then comparing it with the slope of a period much later for an entirely different country is the most extreme example of nonsense correlation I have ever witnessed. Why the US? Why not Mongolia in 1947 where the slope may be similar?
    I suppose the inescapable inference from such sophistry is you are saying, on the basis of that chart, that all the conditions which applied in the US in 2007 are now identical or worse in Australia. It happened there so it must happen here. Sure – like 9/11 happened in the US therefore 9/11 will happen in Australia just 4 years or 40 years later.
    If that’s the basis of your crash belief, and many posters here have bought it rod line and sinker, the bulls have nothing to worry about and much to scoff.

    • If the basis for the bull’s arguement is “Australia is different” (which is all I’m seeing in that post) then the bears have nothing to worry about and much to scoff. And I’m not seeing everyone suddenly declaring imminent crash from this chart alone. There is already ample evidence out there indicating that housing is and will continue to soften (plenty of it here on MB). Again, who said we’re taking this chart and using it to declare a crash is coming?

      US comparison or no comparison, fact remains that we’ve clearly entered a downward trend and if all you’re going to do is ignore this fact but instead nitpick on arbitrary details and declare “victory for the bulls”, well I’d hardly call that very persuasive from a bear’s perspective.

    • Desperate for what? It’s a simple illustration that housing is falling at a certain rate and that that rate has consequences. Those consequences could be anything from accelerated price falls or the need for rate cuts. I suggest you read the rest of the comments.

    • Why? When the US and Ireland went in 2007 unemployment was under 5% in those countries. Pretty sound to me. It just a Ponzi credit bubble, no different to any over 400 years.

      First class post Data Sword.

      PS DS Can you overlay Irish and Spanish?

      • Second that. I’d like to see the comparison with Ireland as it was a rather extreme case of a construction-based economy.

    • Got our tits caught in the wringer, have we Dick?

      By the way, I believe there are courses available that teach English Comprehension. Might pay to do one of them, then you might understand what you read a little better.

      • …as a valued member of the “it’s all going to shit” macrobusiness community you can get away with filthy abuse. But I’m pleased to have riled you. Rent gone up again?

        • Riled me?

          You’re kidding.

          I don’t feel anger towards you….only a deep-seated pity morphing through to a mild amusement.

          You truly do overestimate your capacity to influence the thoughts and emotions of others.

          As for the rent thingy….well, that’s the nice thing about the internet, isn’t it? You just never, never know.

    • Even if you take America out, it’s falling faster than it did in 2007/2008.
      That’s all the re-assurance I need to keep saving rather than look at buying ATM.

      That aside, I do think there is a logic in the extreme bear POV’s like velocoraptor’s. Things just don’t add up – Australia has become a housing ponzi economy and the unravelling is going to hurt.

  10. ^^ +1

    Monthly, please.

    Additionally, I have wondered for a few years now is Oz was going to be a future textbook case of a housing bubble burst (yes, even more so that other countries….)

  11. Our bubble is bigger that what it was in 2007 so fall is naturally faster. In addition confidence in new successful gov intervention is gone together with the ammunition used last time.

    Next few months trend will likely stay slow (even some minor upward correction is possible) and than – take breath and be ready for a deep dive.

    • +1

      looking at it mathematically in the US etc its almost like its the right halk of an inverted parabola. Slowly at first but as time takes hold (Boomer’s panicking?) reality sets in.

      I’ve been caught unawares by a falling stock, when you wake up to the fact she is sliding like a lubed stripper on a Gold coast waterslide.

      You just take what you can get to save ‘something’ of a profit.

      • “…she is sliding like a lubed stripper on a Gold coast waterslide.”

        Oh, crap, Veloci…..I just blew coffee all over the dining room table! 🙂

  12. Avid chartist writes:

    “Would be great to see a regular monthly update of that chart.”

    The purple line can be updated right now with another 3 years of data. No need to wait, do it now. Why not? Not what you want to see?

      • …looks like Jason can’t answer the question re the purple line and prefers to post an attempt at personal abuse.

        Why does the purple line terminate where it does?
        – it can’t be because the intention is to show a comparison with the blue line because the data is available to extend it,
        – it can’t be because the intention is to show a comparison with the green line because it is extended further than the green line but for some unaccountable reason is cut off at some apparently arbitrary point.

        • Deus Forex Machina


          There is no conspiracy here…

          If you read the comment thread you will see that data Sword clarified above what the lines mean and that Houses and Holes, DE, Prince and Data Sword all said this is not about predicting a crash…or words to that effect.

          Ithe reason the pruple line terminates where it does is because that is where the stimulus rocket powered move higher in housing ocurred…so it is showing the trajectory before the stimulus..

          as others have said the current economic settings in australia are far weaker than they were in 2007 and this is clearly reflected in the housing weakness we are seeing already…

          if teh purple line was extended you would see that it gets a rocket under it and rises 155 as noted above…i’d argue that because of the stimulus driven nature of this boom, because of the current eco settings in thee economy and because of the governments love aaffair with surpluses and the need for fiscal restraint that this would actually make the case for a faaster fall..

          there is no appetite for government support in the current environement with weaker economic settings and australians new found understanding that debt is something that has to be paid back and house prices dont go up for ever…

          so there is no conspiracy here we are just pointing out a linkage and will see how it evolves


          • “this is not about predicting a crash”

            ..with all respect, your blog makes no sense and there would be no purpose in the chart IF it were NOT about predicting an outcome similar to the US. The whole point of your chart is a “comparison” and many of your readers have leapt upon it as evidence of a crash. You yourself speak of the US period “before the tsunami of selling began once people realized the Ponzi scheme of buying and flipping was done” with a very clear indication that you are expecting the same to happen in Australia and you even make a case for Australia having “a faaster fall”. That would be a crash wouldn’t it?
            Just realise what you have done. You have taken a time series of US house prices and then mapped it to two very short time-transposed segments from a time series of Australian house prices. You could probably get a similar result by using the time-series charts of the money spent on US shaving cream and Nigerian education.

            PS- If you use ABS data you’ll see that the pre-GFC stimulus fall was greater than the current fall to date.

          • Deus Forex Machina

            Ahh dick truly…

            lets see how it works out…you are clearly in defensive mode I am simply in inquisitive mode..this will be an interesting comparison to see how things map out over time…

            as a home owner i rooting for you…as a behavioural economic/finance guy i’m doubly rooting for you because if house keep sliding then the rest of the economy is going to suffer

            but we can only put up something for thought and debate and see what happens…

            we’ll update this each month and see…

            by the way dick…where exactly do you think australian houses are going to be in 5 years time or in 1 years time…

            i think we will see a 10% nominal fall which will translate into a 20% real fall peak to trough…


            of and by the way – where did i write the quote you attributed to me…dont remember that one

          • “the reason the pruple line terminates where it does is because that is where the stimulus rocket powered move higher in housing ocurred…so it is showing the trajectory before the stimulus..”

            So you terminated the purple line when stimulus arrived. Why did you not do the same to the blue line? There was plenty of stimulus in the US. You have provided no valid reason why the blue line is extended with all available data but the purple line is terminated and available data is suppressed.

  13. May I ask the reason you did not show all the data available from 2006 instead of just the Blue line ?

    The data is available to show just what happened rather than cutting off the purple line so early.

    It makes the graph look a lacking of information.


  14. Data Sword, I’m not saying I disagree with your general assertion but based on that chart alone I’m afraid I’d have to bet against you. I think it fails to account for every occasion where property dropped 3-4%, & essentially that’s all it says, that property has dropped 3-4%.

    I you want to win me on this chart over you’ll have to show me the evidence that Australia’s fundamental situation now is similar to the U.S. in 2007. Since our market had the chance to crash then and it didn’t I suggest that’ll be difficult.

    Which is not to say I don’t see risk in our market, I just don’t see a correlation between the lines on your chart, sorry.

    • It didn’t have the chance to crash. It was teetering and the government threw good money after bad. It kicked the can and pursued inflationary policy.

      • Many governments persued inflationary policy at the time. The U.S. trippled their money supply yet their housing crashed. We did not go anywhere near that level of easing & our housing market survived. American housing and jobs were based on credit, not Intrinsic Value.

        My view is that unless we lose a lot of jobs our market will not crash, though it may remain lack-luster in capital cities while the regions benefit from goverment policy & especially loads of regional jobs almost anywhere in mining states.

        If the world economy dives, mining jobs will be effected, but not wiped out, because they are largely real jobs that benefit the actual economy. Not jobs created entirely out of credit growth. Sure, some markets we sell to are credit based economies, but some are not.

        • In the US, UE rose sharply after house prices crashed, not before. Why should it be different here?

          As far as I understand it house bubbles are about debt – how much can be created and how much people are willing to take on. If either of those 2 things dries up, bubbles run the risk of popping, don’t they?

  15. Dick Turpin and CS should perhaps look at the definition of comparison and of correlation so as to not confuse the two. Data Sword has, as he was clear within the text, provided the graph as a comparison. A comparison does not imply correlation, so your assumption that it does has caused some strange and irrelevant arguements.

    The comparison on the other hand is interesting.

    Comparisons to history in conjunction with our knowledge of the other environmental factors (low interest rates, low unemployment, low retail spending, overseas turmoil) provides us a useful analytical tool from which we can learn and those who choose to ignore it do so at their own peril. Unless you’re a fortune teller, history is the best we’ve got to provide a context for understanding where we’re going in the future.

    Make of it what you will that it has thus far been a steeper decline, it may be more likely to induce bargain hunting or capitulation, that’s your call, but this comparison (not correlation) is particularly interesting and provides a lot of valuable insight into our current housing economy.

    • Correlation refers to any of a broad class of statistical relationships involving dependence. From all that Miss P and other people here are saying therefore, it appears that the chart was presented with absolutely no intention to suggest that there was any statistical relationship between any of the three variables charted and no such relation should be inferred.
      So, no statistical relationship, and therefore correlation, between the US and Australian house price time series is suggested. Really?

      • Data Sword will have to clarify his intentions to confuse with erroneous correlations.

        Of course there is positive relationship between any two variables that are graphed from their peak, but no, that is not correlation. As per the wikipedia definition that you copied, correlation involves dependence, there is no interdependence between the current Australian house prices and the 2007 house prices in the US, therefore no correlation in my opinion.

        Statistical relationship based on dependence between just those variables, no, historical inferences and relationship, yes. Hence comparison not correlation.

        • Quite. You say there is no dependence between the US house price time series and the Oz house price time series. Agreed. Therefore you know that in the absence of any dependence you know there is zero basis for drawing any conclusions about any apparent statistical relation between the variables. What then it is the point of the chart which shows nothing more than a statistical relationship?

          • I agree Dick. IMHO the chart is little more than a nonsense using cherry picked starting points and uncharted known data.

            What was the point?

          • Yes the point is to drive home a point that we are all doomed to the unassuming readr, who cares? Keep debating , but there were several misleadingcharts that were presented by many bulls to scare people into thinking that house prices sre going to keep on theor exponential growth path

          • No direct dependence, therefore no correlation.

            This does not undermine the usefulness of the graph as an historical comparison that provides insight into both situations.

            If you were to graph the fall of a man I pushed off a cliff and a leaf that fell off a tree, there is no direct relationship between those two objects and the graph won’t tell you why I pushed the man off the cliff or if the leaf will soon get lifted higher by a breeze, but that does not mean that there is nothing to be learnt by the comparison. However they are both subject to gravity and the atmosphere.

            Despite the lack of direct dependence there is clearly a basis from which to draw conclusions.

    • Sure I take your point & add another. Comparison is of no value unless correlation is implied & supported.

      Correlation implies that there is a relationship between two data sets. If there’s no relationship then obviously any similarities cannot be used to draw conclusions on one set of data based on analysing the other.

      I didn’t think to point this out earlier. If you can’t support correlation then you should ignore this piece of evidence and use your other evidence. Make sense?

  16. thanx guys n gals, have just had the biggest laugh 🙂 cracks me up when the property trolls come out to play and end up coming across like a red faced fat man spluttering in the corner. One thing i don’t understand is why they always assume that anyone who is bearish on property is a ” Renter”… but I guess it shows how much they get out in the real world hey ….. by the way Dick… what is your call on housing? or do you refuse to participate in the discussion and merely reduce yourself to mud slinging at anothers point of view?

    I think you’ll find that we ” Its all gone to shit ” MB readers are actually quite open minded to all points of view and appreciate a good discussion on where things are heading with data supplied to support your reasoning….. shit slinging just makes you look like a tosser … so are you going to step up to the plate Dick?