Australia’s housing bubble pop.


It looks like there are jitters beginning to be felt through Australia’s house bubble. How do we know? Because when “housing bubble fears grow” it already burst. It is too late now. Whoever sells first wins.

Consider this article:

Herald Sun, September 13, 2010.

Housing bubble fears grow
AUSTRALIA’S banks have significantly ramped up their exposure to the housing market in a move with hazardous implications should the boom turn to bust.

Research shows home lending has raced ahead of business lending, helping to drive a property boom that has seen Melbourne house prices surge 73 per cent since 2005.

The study by London-based research firm CreditSights says house prices have doubled across all mainland capitals since 2002, and that home lending now comprehensively dominates Australia’s credit system.

The findings come as a separate study, by global consultants Datamonitor, reveals a “price correction” is the likely consequence of dwindling housing affordability.

“Given that house price growth has outstripped wage growth significantly over the last decades, this would have to entail either a significant fall in property prices or a sustained period of stagnant property prices,” Datamonitor says.

Its exhaustive study of Australia’s mortgage market also says fixed-rate home loans are out of favour with borrowers, who are possibly disillusioned “after years of having fixed their rates at the worst of times”.

The CreditSights report was written by Singapore-based senior analyst David Marshall, who previously covered Asian banks for global ratings agency Fitch.

Mr Marshall says growth in the Australian housing market over the past year in particular, with prices surging 24 per cent in Melbourne, has become “a little too positive”.

He says home loans account for 58 per cent of total lending – a substantial increase on the 43 per cent figure recorded at the end of 1999.

Total home lending, including investor loans, now significantly outstrips business lending and personal loans.

While business lending has largely plateaued since the onset of the global financial crisis, home lending has continued to climb.

Mr Marshall says positive factors supporting house prices “remain in place”, including broad economic growth and low unemployment, but he warns strong loan growth has not been underpinned by savings growth.

As a result, the banks are turning to offshore lenders for cash at twice the rate they were a decade ago and need to raise $130 billion to $140 billion in foreign markets over the next year.

Mr Marshall has reportedly said the Australian banks’ cash needs could lead to higher borrowing costs that they would have to pass on to customers, “which could lead to house prices slowing”. “There is a problem here and it’s hard to say where it will all end,” he said.

The Commonwealth Bank last week announced executives would soon travel overseas to meet investors to dispel growing fears Australia is in the throes of a house price bubble.

Critics of the Australian housing market frequently based their analyses on superficial or incomplete research, the bank said.

The Datamonitor report says that while an “eventual correction of prices” is likely in the housing market, the short-term outlook is more upbeat and only a small number of people expect prices to fall over the next year.

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