Housing market meltdown highly unlikely
Australian property prices may have dropped since the GFC but, based on recent data, it’s highly unlikely to endure a “US-style...meltdown”, new research shows.
“If the November results from the RP Data – Rismark Hedonic Index remain consistent (November month on month result was +0.1 per cent s.a.) and we see another flat result for December, it may provide the best indication yet that the Australian housing market is flattening out,” RP Data said in an online blog.
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“The risk of a US-style housing meltdown are looking increasingly remote,” it continued.
“The key factors to watch will continue to be interest rates and the labour market data. With inflation tracking lower than expected, speculation about further rate cuts is likely to improve market sentiment.
“In balance, unemployment is ticking upwards and the banks are looking unlikely to pass on any cash rate cuts in full. Overall I think we can expect market conditions to remain reasonably flat over the first six months of 2012 at least.”
The Australian housing market has fared much better than its US counterpart, RP Data said.
“Based on CoreLogic’s House Price Index (HPI), it’s been 69 months since the US housing market peaked,” RP Data said. “Since the national index for ‘single family combined homes’ reached its high point back in April 2006, US home prices have fallen by 32.8 per cent.”
“Most of the home value destruction was over and done with in the first three years directly after the market peaked.
“Looking at Australia, while there isn’t a long time series of data since the market peaked back in October 2010, values are down 3.8 per cent in total (3.5 per cent on an average annualized basis),” it said.
“The downwards trajectory in Australian dwelling values fits reasonably closely with the US trajectory over the same 13 month time frame (US prices were down 4.4 per cent over the first thirteen months post peak compared with the 3.8 per cent fall in the Australian market).
“Six months later the US market was recording falls of one-two per cent month-on-month as the US banking sector imploded, unemployment and mortgage defaults rose swiftly and the GFC spread around the world.”