"CAN the Australian housing market recover as it has in the past or is it different this time?"
Is it different this time?
Ask any foreign money manager what scares them about Australia's stockmarket and they will invariably say the risk of a housing collapse because of gross overvaluations. It makes a lot of sense. Virtually all the Western world has seen house prices crumble since 2007 while Australia's residential market has defied gravity, recording only gentle declines. The median house price in Australia is six times the median household income - 30 per cent greater than the US and the long-term average.The long-term economic impact of Australian housing on the general economy is hinged to how much oversupply there is, if any. Even if prices fall to 50% of peak prices. As long as there is still demand to build something employment will not take a hit.
The bulls like myself believe that history will repeat itself and lower interest rates will eventually trigger a building cycle that in turn will drive domestic economic growth. The bears counter this by saying it is different this time because household debt still sits at a lofty 172 per cent of gross income. They believe any spare income from lower interest rates will be used to pay down debts and not ploughed into the property market.I saw a quote the other day that bears repeating. Legitimate methods for getting rich should not include running others into debt. (I paraphrase.)
In the early 1990s, household debt was only about 50 per cent of gross income, providing a sturdier platform for a housing boom.
Housing starts in Australia have sunk to a multi-year low of about 125,000 and are predicted to spike to 140,000 in 2013 with the moribund Sydney market, surprisingly, leading the charge. The long-term average for Australia is about 150,000 starts, but underlying demand is currently closer to 170,000 given population growth.
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