Australian Housing Market

There was an interesting comment on email from The Daily Reckoning Aust today. The email was touching subprime mortgage crisis and Australian housing market.
Here is thye quote:

Is Australia on the verge of a U.S. style housing quagmire? "Further interest rate rises could stop the housing market recovery in its tracks, housing experts have warned. The warning comes at a time when the Australian housing market has so far shown it is immune to the US sub-prime mortgage crisis," reports Florence Chong in today's Australian.

--It doesn't seem quite accurate to say Australia's housing market is immune to the sub-prime crisis. It's true that there isn't a huge chunk of at-risk mortgages in Australia that resemble the US$2 trillion in ticking sub-prime and Alt-A loans to borrowers who probably won't pay.

--But make no mistake, every credit bubble has its roots in the belief that you can borrow your way to wealth. That belief is alive, strong, and wildly out of control in Australia. The durability of housing prices and the housing market is a function of affordability. You can use credit to bridge the gap between what you want and what you can afford for awhile.

--But unless the government finds new and more innovative ways to channel money to new homebuyers, houses simply aren't going to get more affordable for Aussie buyers until prices fall, or at least fail to keep up with inflation. Paying ten times your income for a house (or even more) is not a sustainable economic and demographic trend.

--The flip side of the argument is that Australia is a nice place to live. We realized this again walking along the beach at North Cronulla on Monday. You can imagine a lot of people would want to live here. Asia's newly rich might be delighted with beach-side investment properties anywhere on Australia's Gold Coast...or Sunshine coast...or East Coast...or West Coast.

--Of course foreign demand will not make Aussie homes more affordable to Aussies. But it may support prices for owners of investment properties. You never know. Either way, we think 2008 will surprise a lot of people who think housing prices never go down. They do. They will. And it will be sooner than you think.