The Australian market remains stable despite recent reports from The Economist magazine and the International Monetary Fund that have identified Australian real estate as some of the most overvalued property in the world.
Cameron Kusher, an analyst from RP Data, said that many people believe that the US’s economic turmoil will have an effect on property prices in Australia. He stated that the median US dwelling price fell 11.1% in the first 7 months of 2008, while it declined just 1.3% for Australia.
He said, “It’s quite a different picture.” It’s more than a drop in median values. In the US, sales volumes saw a dramatic drop. Volumes reached their peak in August 2004, when they were 111.099. Since August 2004, sales volumes have fallen by nearly 54%.
Kusher said that lending practices in both countries were the main reason for differences.
Non-recourse loans are a feature of the US lending system. If the property owner defaults on their mortgage, banks may only take the security asset.
Recourse lending is available in Australia. This allows the bank the right to repossess the property, and the mortgagees the right to pay the amount owed.
Another factor to consider is supply. Over the past decade, the US average residential vacancy rate has been 9.1%. The average vacancy rate in Sydney was 2.7%, Melbourne 3.0%, Brisbane 2.8%.
The US Census Bureau reports that the country was home to 9.3 million people when it started in June 2002. The country’s population increased by 13.7m in the period June 2002 to June 2007. Kusher claimed that the average American household has now grown to 2.6 people. This highlights the oversupply of housing in America.
He stated, “With these results, it’s easy to see why significant property prices have fallen.” Due to a significant oversupply, a lot of properties have been built in the last five years. This is combined with extremely high vacancy rates. This oversupply, combined with a poorly-regulated financial system, has had a negative impact on the US property market. Oversupply is a problem in the Australian market. The market is desperate for liquidity, as it has seen a significant increase in population.
The Sydney vacancy rate dropped to 1.1% in this month’s record setting month. Similar to Sydney, Melbourne has a vacancy rate of 1.1%.
Janet Albrechtsen is an Australian journalist who published her opinion piece in The Wall Street Journal. She criticised the lax US mortgage regulations in an opinion piece published on Oct. 6.
She said that Australians and other people value homeownership. They were shocked by the stupidity of America’s pursuit of this goal.