Comparing house price declines

Back by popular demand, here is my chart on the respective rates of decline for Australian housing now versus the 2008 experience (which obviously reversed)  and the US experience in the GFC. Obviously this is a limited sample and is not intended to suggest that local housing is on the same path as the US. It is about gauging the relative speeds of correction:

 

Comments

    • Second the Ireland suggestion.

      We’re still not falling as fast as the US was once momentum picked up, but we’ve started off falling faster this time.

  1. that chart is a doosy! might want to email that to terry ryder form the oz. he was saying yesterday that the bottom is here and buyers better get in now…

        • Such policies are practically criminal. It’s just another form of debt where you spend tomorrow’s resources today.

          Governments really must look to fixing the economic mess without these various forms of debt. The surplus is a good example. They will achieve it by delaying some spending. Unless the goal is to have one year of surplus then its a quite silly.

          • Those policies are especially criminal, in that they suck in people at a particularly vulnerable stage of life, i.e. when they are in love and getting hitched.

            It is like the bait on the fiscal child abuse trap. It is time to stop being nice to the “deniers” on this topic. It is one of the worst possible indicators of a society’s moral decline, to be ripping off the young like what is happening.

  2. Take that chart down now. If someone from the government sees it, they might try to stimulate the market (again).

  3. That 12 month cliff is upon us. It’ll be most interesting to see if human behaviours, fears and temptations mirror across continents. Certainly from a MSM and joe public perspective, the negative realities are starting to become evident. Look forward to the next few iterations and any other market inclusions if the data is accessible.

    • If you scaled up the US chart before the plunge, you’d see that there were some small bounces. We might get some as well, especially with rising house sales and lower interest rate.

      I’m hoping that we maintain the trend though. It all depends on China though. and what happens to their bubble.

  4. The most worrying thing about that chart is that it looks as though there might be plenty more decline in the US before the bottom is finally reached.

  5. pingupenguinMEMBER

    Thee aggregate graphs are always good to see, but as a Sydneysider it always seems like Sydney is the exception and the real-estate boosters can always say “but Sydney is different”.

    Any chance of seeing this graph disaggregated by states (NSW, Vic etc…)?

    • Sydney is better placed than the other capitals (particularly Melbourne). Its market has been relatively flat since 2004, it is underpinned by higher rental yields, and it is suffering from a genuine housing shortgage.

      • I recall Rumplestatskin posted a few charts that showed that Sydney is always the last to fall and the first to pick up again.

        If you read “The Flow of Money and Its Effect on Local Economies” by William Fruth, you will understand why. Sydney is Australia’s “centre of international capital”.

        Political capital cities tend to be more resilient too, because they have a guaranteed flow of taxpayers money into their local economy from the rest of the country.

        London is both a political capital and a major centre of international “capital”. This is why Britain’s Town and Country Planning system can’t kill it, in spite of having killed every other city in Britain. This is also why NO efforts the Poms make to “stimulate the regions” is going to work – unless they abolish the growth boundaries and the rigid planning system in the regional economies they want to stimulate.

  6. House prices in Australia were pretty much flat in the second half of 2010 also (ie the 6 months before the peak here). I’m not sure what was happening in the US in the 6 months before their peak – but if the US prices were growing strongly in the preceding 6 months, then you might get a better overlay of the two markets by plotting data from July 2010 onwards, implying we’re 18 months into our correction rather then 12 (which would also suggest that we are much closer to the edge of the cliff…)

    • After following “DrHousingBubble” blog in California for a while, it seems that their market VOLUMES spent 2 years at very low levels BEFORE PRICES really started to fall. Vendors simply took their properties off the market when they couldn’t get the asking price. This is happening in Australia right now of course.

      This has the effect of reducing workforce mobility, which is another way (among many) in which inflated urban land prices reduce economic productivity.

  7. The use of ABS data would show quite a different picture.
    RPData showed smaller falls than the ABS in 2008 and thus there were claims then on property bear sites that ABS were the ones to be believe – they had no vested interest.
    Now that RPdata are showing larger falls than the ABS I see that ABS data is disregarded and RPData is preferred.
    The use of ABS data would present a completely different picture.
    Even so, selecting two short time periods from the Australian house price continuous series and then time transposing them both to a point in time 5 years ago seems clutching at straws.
    Other than feeding your bear audience with what they wish to read, why are you trying compare Australia today with the US 5 years ago?

    • Russell, we may or may not be in a decline that is similar to other national housing declines like Ireland and the USA. Statistical comparisons like charting these declines helps people to interpret the data themselves… what’s not to like?

      • It’s chaos theory applied to real estate (butterfly…earthquake in XYZ for example)

        generating a chart on a discussion forum here, results in a 5% drop in property in Melbourne in April.

  8. Hugh PavletichMEMBER

    COMPARING APPLES WITH APPLES

    It is something of a mystery to me, why people talk in terms of “the US market” – because of the sheer diversity of the US housing markets.

    For example – California and Texas are like chalk and cheese.

    Australia (like NZ, UK and Ire) should be considered “straightjacket markets”, where across these countries the land use regulatory regimes are similar. In other words, all their urban markets are “strangled” and are therefore bubble markets.

    What would be helpful is a graph showing Australia compared say with other bubble markets such as California, Florida, Nevada, Arizona and Ireland – from the peaks.

    My view is that the Australian Median Multiples at 6.1 overall for its major metros are just so stretched ( refer http://www.demographia.com ) – that it should be compared closely with say California and Florida.

    This years Demographia Survey (detached housing only) illustrates just how horrifically stretched the major metros of Australia are – with Sydney at 9.6; Melbourne 9.0; Coffs Harbour 9.1; Adelaide 7.1; Brisbane 6.6 with Perth at 6.3.

    These are massive cliffs to fall off – when normal markets do not exceed 3.0.

    Atlanta 2.3; Dallas Fort Worth 2.5 and Houston 2.9.

    To really shock yourself, do an estimate of the bubble values and bubble mortgage debt of the Australian metros.

    As Leiths excellent article today on MB regarding Recourse and Non Recourse Lending US States (with Ireland thrown in for good measure) clearly illustrate, even in Recourse markets, such as Australia and New Zealand, bubbles still collapse and Bankers have very little protection.

    The Bankers surely knew the risks they were taking in lending above 2.5 to a max of 3.0 times annual household earnings. They are hardly shining examples of social responsibility. When it hits the fan (which it will) – lets hope taxpayers tell them are their political mates to go to hell.

    No doubt the lawyers will be sharpening their swords to fight the Bankers for reckless lending in the Courts – defending distressed homeowners in due course.

    The central question will be – did Bankers and Brokers exercise a reasonable duty of care in pointing out to borrowers, the enormous risks of bubble lending?

    Hugh Pavletich
    Co author – Demographia Survey
    http://www.PerformanceUrbanPlanning.org

    • Interesting point about the legal duty of care associated with finance. There have been suggestions that a number of Irish real estate agents through their peak body have been called to account in a similar vein. Do we know what the outcome of that was?

      • Hugh PavletichMEMBER

        Jimbo – i would like to know more about the Irish examples you provide – and too – a wider discussion of this “duty of care” issue.

        • Hear, hear. Those policies are especially criminal, in that they suck in people at a particularly vulnerable stage of life, i.e. when they are in love and getting hitched.

          It is like fiscal child abuse. It is time to stop being nice to the “deniers” on this topic. It is one of the worst possible indicators of a society’s moral decline, to be ripping off the young like what is happening.

          But to be fair to the banks, what are they supposed to do? Collude? To constrain mortgage credit? We know very well how that one would end. But I would love to see any evidence of Bank executives appealing to government about the trap THEY, the banks, were in, if they wanted to stay in business and retain market share.

          AND even IF the banks withheld mortgage credit, house prices would STILL inflate faster than MOST young people could save money, because the problem is the regulatory rationing of urban land. Rationing simply works this way – by “pricing out” everyone below a certain income level. This is just common sense.

          In fact, this has happened already in economic history, in South Korea in the 1980’s. Median multiples in Seoul hit 14, and national SAVINGS ballooned, that’s right, national SAVINGS, NOT DEBT – as young people saved and saved and saved towards a rising target that was always just beyond the reach of MOST of them. Marriage and birth rates collapsed at the same time for the same reason. Seoul’s new “green belt”.

    • Hugh – quote –
      “Bankers surely knew the risks they were taking in lending above 2.5 to a max of 3.0 times annual household earnings”

      Hugh it’s a nothing multiple, the world is much more complex, and here you are still in the stone age.

      Risk is much more complex than a simple multiple, and capacity to meet commitments has nothing to do with with a simplistic and devoutly religious belief in a 2.5 or a 3.0 multiple.

      Every single person or couple have a different multiple which may be more or less than your 3.0 times multiple.

      Really mate it is just an outdated yardstick to be put on the shelf with roods, links, and avoirdupois measures of weights.

      Move on.