House prices to fall further but even Steve Keen ponders the extent of any Australian property bubble
Following yesterday’s Twitter debate on ABS house prices, the university of Western Sydney’s Steve Keen has remained true to his word and posted commentary on whether the Australian housing market has reached its bottom.
Before this quarter’s ABS data came out, Keen noted Australia’s rate of price decline from its peak lay between the US and Japanese experiences; now it is smack in line with the slow bleed of Japanese prices, but nowhere near the decline experienced in the US.
Keen wrote today, just a few hours before heading into hospital for a knee operation, that he expects Australian house prices will fall further.
But he appears to have tempered his views on the extent of a housing price bubble in Australia, albeit with an ironic shot at his bullish opponents.
“So does this increase mean that the trend of falling prices is now over, and house price growth will resume? No, no more than did the slight increase in real prices back in December 2010 (which we are now only aware of courtesy of a revision of ABS data). What it means is that the trend for decelerating mortgage debt has temporarily reversed.”
Keen highlights the differences between Australian and the US:
“So the bottom line is that Australian house prices are falling more slowly than America’s because Australian consumers are deleveraging much more slowly than their US counterparts.”
He says there are several obvious factors that could explain why:
“Australian mortgages are mainly floating rate, so rate cuts by the RBA very rapidly reduce the debt servicing burden. In the US on the other hand, mortgages are fixed rate.
Government efforts to keep the property Aspidistra flying – ranging from the hardy perennials of the Federal First Home Vendor Grant, Negative Gearing, setting Capital Gains Tax at half the Income Tax rate and exempting the family home, to State-based sales tax exemptions and First Home Vendor Schemes – have succeeded to some degree in enticing new entrants;
and (irony alert).
There is no Australian house price bubble.”
Keen suggests Australians will most likely have to continue putting up with very high debt servicing costs relative to the rest of the world.