US and Aussie housing markets chalk and cheese: RP Data

It’s a case of chalk versus cheese or perhaps mutton versus lamb when comparing the US housing market with Australia’s subdued market, according to analysis compiled by RP Data.

The US housing market is significantly worse off than Australia on every key metric.

The five most significant differences are:

• US home prices are down 32% from their peak in 2006. While Australian house prices are down 1.9% for the year to June, since 2006 they have increased by 31%.
• US transaction volumes are running 33% below the five-year average and are yet to show any consistent improvement. Australian transaction volumes are tracking about 16% below the five year average.
• Nearly a quarter (22.7%) of all US homes were in negative equity at the end of the first quarter 2011, according to US-based data analytics group CoreLogic. A further 5% are in “near negative equity?. RP Data will release an “Australian Equity Report” that will show extremely low number of homes are showing negative equity.
• The percentage of homes that are at least 90 days in arrears is slightly higher than 8% in the US. Comparable data for Australia shows delinquent housing loans remain well below 1%.
• Distressed sales - homes that are being sold by the lender or sold at a price lower than the amount owed on the property - comprise 30% of all sales in the USA. The number has tripled over the last two years and CoreLogic estimates the number of short sales is expected to increase by another 25% during 2011. While there is no official data on home foreclosures in Australia, outgoing Commonwealth Bank CEO Ralph Norris said last year the percentage of home foreclosures in Australia was “about 0.000001%”
• The vast majority of US home loans are on a 30-year fixed term basis which means most mortgage holders cannot immediately take advantage of the very low interest rate environment until they are able to re-finance. In comparison, while the percentage of people taking up fixed rate mortgage in Australia has picked up recently to around 13%, the vast majority are on variable rate loans, meaning they immediately benefit if rates are cut.

RP Data national research director  Tim Lawless says the US government and banking sector are looking for increasingly creative ways to combat the high rate of default and rising number of bank and Government owned properties.

“Banks in the US are offering principal reductions on mortgages and flexible re-payment options rather than facing the likely losses if the property is taken to market or the mortgage holders simply chose to walk away from the debt,” Lawless says.

 Unlike Australia, most mortgages in the US are non-recourse, so if the home is worth less than the loan it is very difficult for the bank to recoup its loss from the borrower. 

“A principal reduction is simply reducing the amount of out-standing debt payable by the mortgagee in order to ensure that they don’t walk away from their debt responsibility,” he says. 

While the US housing market is vastly different to Australia, Lawless says Australians should not be complacent. 

“The mortgage market meltdown in the US has resulted in a greater level of data transparency which is a good thing and potentially one way in which the Australian economy can learn from the changes now being made in the US".