Last week there was more bad news about US housing, with single-family home prices, measured by the S&P/Case-Shiller index, falling for the seventh straight month.
On the same day, this newspaper made mention of a tougher local real estate market, with sales falling and consolidation happening.
Can we make any link? No, but it’s noteworthy that household debt levels in Australia far exceed those in the US before their market crashed.
And over the past week there’s been a flow of bad real estate information, mortgage defaults were up and according to real estate information resource, RP-Data, listings across the country are at their highest point since 2008.
Oh and apparently now there’s a property buyers’ strike!
On top of this, The Economist magazine once again stated Australia has the most overvalued housing in the world, 56% overvalued according to its metrics.
To put that in perspective, after a nationwide average loss of over 30% in the US, The Economist now considers US housing 7.7% undervalued.
Yet it’s possible the US market will fall further, because from a historical perspective, large swings in real estate values aren’t unheard of.
Over the last forty years in the UK, house prices have moved up and away from their long term average, versus income, several times.
Unfortunately, each time was followed with an almost equal swing in the opposite direction.
As much as markets work on fundamentals, they also rely on investor psychology and it’s why these swings are often so pointed.
When it’s good, people are overly optimistic and assume they can’t lose; when it’s bad, people are pessimistic and assume prices will drop further.
Governments know this and both major parties have intervened throughout the past decade when house prices looked like slipping.
Don’t discount the possibility of more buyers’ grants, but if a market is truly overvalued it can’t be propped up forever.
Peter Mancell is a director of Mancell Financial Group and FYG Planners AFSL 224543. This information is general in nature and readers should seek professional advice specific to their circumstances. If you’d like help with your financial future, we ‘re one of only six fiduciary financial advisors in Australia. We think we’re the best financial advisers in Tasmania.
