Australian House Prices in Recession

4 08 2011

The latest update to the RP Data-Rismark Hedonic Home Value Index, released today, show Australian house prices have now been falling for six consecutive months. House prices in June fell 0.2 percent seasonally adjusted. Capital City home prices have now fallen 2.0 percent for the year to June.

On Tuesday, ratings agency Moody’s warned it was undertaking a re-assessment on the Australian housing and RMBS (Residential Mortgage Backed Securities) markets. It warned that the run up of House prices in Australia over the past decade is only partially explained by fundamentals and that a possibility of a major correction was a material risk for the Australian market. According to Moody’s, the elevated mortgage debt levels in Australia makes the Australian financial system vulnerable, and untested at current levels of indebtedness.

The ABS on Wednesday released figures showing CPI was up 0.9% for the June quarter. This prompted ANZ to tip that Interest Rates could rise as early as next week in a pre-emptive bid to curb spiralling inflation. Any such increase will be a further blow to the housing market, crippled with record levels of household debt.

Today, ANZ’s Australian Chief, Phil Chronican said the Australian housing market looked “weak” indicating the gains of the past two decades are unlikely to be repeated. He told a business lunch today that he believes the Australia housing market is unaffordable due to unhealthy tax breaks such as negative gearing. ”Governments might want to look at whether the current extent of negative gearing tax breaks are fostering an unhealthy focus on housing as an investment vehicle, thereby compounding affordability issues”. He said housing should be a “a place to live in, sleep, eat and raise your family” and not a speculative investment vehicle.

Earlier in the year, it was made public that the Gillard Government is looking at options of winding back or abolishing Negative Gearing. Negative Gearing requires investors(speculators) to make losses on investments in return for capital gains in the future. Negative gearing doesn’t work all that well in a falling market and our market is expected to continue falling for years to come as we unwind the largest housing bubble in the history of Australia, a bubble exceeding the Melbourne Land Boom that crashed in 1891 and that lead to the Australian Banking Crisis.

» RP Data‐Rismark Hedonic Home Value Index – June, 29th July 2011.
» Australian Capital City House Prices Notch Up Sixth Monthly Fall – The Wall Street Journal, 28th July 2011.
» House prices fall for the sixth straight month – Sydney Morning Herald, 29th July 2011.
» Moody’s warns on Aussie housing market – Macrobusiness, 29th July 2011.




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