Price falls the same but fundamentals different in US v Australia property outlook: RP Data

As further signs of weakness emerged in the US housing market following the release of the latest the S&P/Case-Shiller index, RP Data boss Graham Mirabito has stressed there are few points of similarity between the Australian housing market and the US housing market.

The January 2012 S&P/Case-Shiller 20-city composite index dropped 0.8% for transactions recorded between November and January, the fifth straight time that US home prices have fallen, taking them to their lowest level since early 2003.

During the past 12 months, US house prices have fallen 3.8% while over the same period Australian capital city house prices are down 3.6%, according to the benchmark RP Data?Rismark Index. 

But speaking as part of a housing market panel discussion in Melbourne this week, Mirabito stressed there remained “fundamental differences” between the two markets, including differences in how property owners are taxed, the fact that all loans in Australia are full-recourse loans and “just the way Australians live” – such as their pride in home ownership and their willingness to do whatever is necessary to pay their mortgages and hold onto their homes.

“You need to understand the different drivers,” he said.

Mirabito’s comments as part of Australian Banking & Finance magazine’s panel discussion also coincided with new Bloomberg figures showing a 1.6% drop in new US home purchases in February.

Mirabito pointed out that there are 3 million homes in the US owned by the banks and a further 2 million that are “effectively” also owned by the banks because the owners have not paid their mortgages in the past 12 months.

Furthermore, he noted that about 23% of US home owners are in a negative equity position, compared with the 6.1% of Australian borrowers recorded in the December 2011 Equity report compiled by RP Data.

“There is still an equity buffer for most Australian home owners even with a 10% price decline," Mirabito said.

In a note on the impact of the US construction outlook on Lend Lease projects, Goldman Sachs senior REIT analyst Simon Wheatley said the investment bank was factoring in a five-year recovery period for the US housing market.

His comments follow the release of February results for the US Architecture Billings Index issued by the American Institute of Architects (AIA), which rose just 0.1 points to 51.

“The forward indicating inquiries index has accelerated to 63.4 points, up from 61.2 points. A score of 50 reflects no change in billings while above 50 represents an increase in billings,” Wheatley said

“At this stage billings are increasing, though only mildly, however the improvement in inquiries is encouraging and the spread between the inquiry index and billing index is widening, typically a leading indicator of a further improvement in billings.

“The AIA finds that there appears to be ‘persistent caution from clients (of design services firms) to move ahead with new projects’,” noted Wheatley in his Lend Lease note.

The AB&F panel discussion also marked the launch of the 2012 RP Data Property Capital Markets Report highlighting the $4.54 trillion cumulative value of Australian homes, compared with an equities market worth $1.17 trillion.

The company says it does not expect “significant declines” in Australian home values due to an underlying new housing demand of 180,000 to 200,000 new houses per year, strong income growth and “a strong central bank and prudential regulatory regime”.

American flag photograph courtesy of Flickr.