Australia: housing slowdown?

No one is paying a whole lot of attention to Australia right now because of the massive busts in the US, the UK, Spain and Ireland. But, Australia has had a property boom as well. And this boom looks like it’s coming to an end.

IN further evidence that the property market has been spooked by rising interest rates and an uncertain economic outlook, it has emerged that the nation’s largest mortgage broker last month sold 22 per cent fewer mortgages than it did in the same month a year ago.

Australian Finance Group, which accounts for 10 per cent of the national market, with a mortgage book in excess of $50billion, yesterday declared a”mortgage recession” following two successive quarters of falling sales.

Last month, AFG sold 5939 mortgages, an 11 per cent drop from May when it sold 6691, and 17 per cent down from April, when 7125 sales were made. In June last year, it recorded 8195 sales.

AGF spokesman Mark Hewitt said average mortgage sizes were still increasing because borrowers needed to take out bigger loans to cover the cost of housing. Where the average loan was $317,000 a year ago, it was now $341,000.

We’re in a ‘mortgage recession’, The Australian, 4 Jul 2008

What is clear is that the credit crisis is global. Any and all markets that had previously witnessed heady gains should feel the headwinds of global inflation, higher interest rates and a credit growth slowdown.

Countries where this slowdown should be gathering steam include Canada, Australia, New Zealand and South Africa, all of which experienced fairly high rises in the property market. These countries are also heavily leveraged to the commodities sector and have benefitted from high commodity prices. However, if commodity prices fall, all bets are off.

Also see my post Naysayers, the housing bubble was obvious, linking to an article from the Economist attesting to overvaluation in a number of different markets.

3 Comments
  1. theinvestingspeculator says

    It’s all Greenspan fault. He flooded the economy with money. It over spilled to other countries and went into housing.
    http://www.theinvestingspeculator.com

  2. Edward Harrison says

    I’d have to agree that ‘Easy Al’ deserves the lion’s share of the blame. Still, I keep wondering about the massive liquidity of the Bank of Japan and their zero-interest rate policy. This started the carry trade and encouraged massive leverage in order to enhance returns from the carry trade. I look at the BOJ as complicit in the global liquidity nightmare.

    Then you have the Chinese and Japanese central banks piling up the treasuries as they allowed the US to run a massive current account deficit. This deficit created a lot of extra dollars and liquidity and you have to blame the Fed as well as the Bank of China and the Bank of Japan.

    In the end, easy money and market intervention may seem like a good ride on the way up, but it’s one scary roller coaster ride on the way down.

  3. potential fho says

    The housing slowdown in Aus is a function of Housing Unaffordability and it is not accidental.

    It is mainly the result of govt tax policies that have so skewed the tax system that only investors can afford to buy. Investors are always going to be able to outbid legitimate home buyers in the common market of residential property thanks to the tax system as it stands.

    There is a solution, all govt need do is act on recommendation in the recent (June 2008) Senate report Housing Affordability.

    http://www.aph.gov.au/Senate/committee/hsaf_ctte/report/b02.htm

    The govt has to get over itself and stop being the Nanny State for investors. I have written an open letter you can include as a link if you like or take on board the argument in the letter.

    Basically:
    Investors can claim a tax deduction on Loan Interest generated by property debt.

    FHO / Home buyers cannot claim Loan Interest deduction on residential property.

    Investors have tax advantage in common market of residential property purchase.

    Until this anti-competitive tax ruling is addressed unfair advantage will continue.

    Responsibility rests with Treasury to correct the situation.

    Allowing investors, but not Home buyers, to claim Loan Interest deduction is INDIRECT DISCRIMINATION.

    Link to letter is:
    http://australianfirsthomeowner.googlepages.com/home

    thanks

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