Friday, October 21, 2011

Property Bubble in Australia Is a Myth

So says Andrew Winter, as written by Andrew Winter. (Seriously)

Property bubble a myth, Andrew Winter says
This occurs a few times every decade but it seems to suffering overuse since the global financial crisis in 2008.
Were you sober when you wrote this?

In regards to predictions of 15% off the average Aussie home.
But what is the average Aussie home? Who knows? That is exactly why these wild generic statements are rarely accurate.
Now you are just jerking us around, right? "Wild generic"?

For someone complaining about article writers tossing statistically meaningful terms about in a sloppy manner your language sure is sloppy. But, it's true that an Average Aussie Home is whatever the writer wants it to be, falling somewhere between repurposed chicken coops and private islands with multilevel swimming pools. Australia lacks for a Case Schiller style index, it's true. RPData does try to address this in their Hedonic Index. But you didn't cite anyone, so there is no way to actually determine whether the predictions were deficient on this point.

But are we really about to suffer massive house deflation?
It is very unlikely. And it's unlikely because in many places deflation has already occurred and values have steadied.
This is a bold statement going into the big spring season, my friend. Steady is not actually what you want to see at this time if you are a bubble cheerleader.

Prices have steadied, and dropped in some markets, it is true, but there is always an upside to a decreasing market and that is of course that it is great for buyers.
Actually, as you are going to see, soon enough, it's not great for buyers. It's a trap.

My advice is don't panic. Get to know the market you want to buy in, I mean really get to know it, study sale prices over the last decade, buy in areas where you can secure a good deal and do not over-commit on your mortgage.
The last decade encompasses the credit bubble. That sounds like a horrible idea. And, of course, don't over commit on the mortgage. Warnings like this have a built-in assumption that the bank will happily allow you to do exactly that. I'd call that a red flag.

Well, if your home is listed with a price expectation of 10 per cent more than it is really worth, add a further 5 per cent and yes, you could see yourself "lose'' 15 per cent.
But how much of a true realistic value is that?
What? I've read that three times and I have no idea what it means. Maybe because I haven't drunk as much as you have yet tonight. "Average" and "really worth" are equally meaningless, by the way. Also "true realistic"?

The heavy losses being faced in the UK and US were caused by bad lending practices and housing policies that just don't exist in Australia. They stretched residents in those countries well beyond their means and created a property bubble. But even in these depressed markets, there are signs of recovery.
No, they were caused by a credit bubble, which you definitely have. As well, your residents are deeply stretched, and no there isn't much of a recovery, unless you are cherry picking some "average" of your own in areas where Australians, Canadians and others are buying up property. To return to the long-term average burden for a household, housing in the U.S. needs to fall farther yet.

I don't think you would recognize a deflationary spiral if it stole your car and ran you over with it. Let's see, it includes record consumer debt loads, declining prices for assets, decimated retail sales as households pull back. Sound familiar? As in, like the other headlines in Australia this month.

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