Bubble Trouble Seen Brewing in Australia Home Prices – Bloomberg 11-06-13

Salient to Investors:

Housing in Australia accounts for 60 percent of average household wealth versus a global average of 45 percent.

Average household debt has been near 150 percent of annual income since 2006 versus 135 percent in the US. House prices have not fallen more than 10 percent in any one year for more than 40 years.

RP Data said houses in Sydney took 26 days on average to sell last week versus 36 days six months ago: In Melbourne, 34 days versus 46 days.

Saul Eslake at Bank of America Merrill Lynch said it is easy to see how a bubble could emerge, but for now price increases are not being accompanied by a rapid rise in borrowing or building. Eslake said rising sales to investors puts the housing market in a more precarious position if economic conditions unexpectedly sour because they are not as committed as owner-occupiers, and Australia’s tax structure encourages investors to buy when they otherwise would not.

Investment in residential property by self-managed superannuation funds has risen 65 percent since mid-2008 and 10 percent in the 12 months to June, borrowing on average 70 percent of the value of a home versus 90 percent for regular borrowers.

National Australia Bank said foreigners accounted for 12.5 percent of purchases of new homes in Q3 versus 5 percent through most of 2011.

Michael Blythe at Commonwealth Bank of Australia said Australia’s population concentration puts upward pressure on capital city dwelling prices.

Craig James and Savanth Sebastian at Commonwealth Bank of Australia said talk of a housing bubble appeared in Australian media articles more times in September than at any time since 2003.

First-home buyers accounted for 13.7 percent of loans in August, the lowest level since April 2004, and versus a high of 31 percent in May 2009.

Matthew Hassan at Westpac Banking said buyers are not looking to buy in anticipation of significant capital gains.

Population growth in Australia averaged 1.6 percent a year over the past decade, meaning it needs 170,000 new homes a year versus actual supply of 154,000. ANZ Bank said Australia has a shortfall of 270,000 homes, equivalent to 20 months of housing construction, and will climb to 370,000 by 2015.

Paul Bloxham at HSBC said developers and households are unlikely to build new houses unless prices are rising, so a housing price boom is a necessary evil.

Adair Turner said the UK economic recovery is heavily focused on that favorite old British activity – another house price boom.

The IMF said Sweden needs to take measures to prevent consumer debt and housing costs from spiraling out of control.

Chinese home prices rose the most in October for the 17th consecutive month of increases.

Read the full article at  http://www.bloomberg.com/news/2013-11-05/bubble-trouble-seen-brewing-in-australia-home-prices-mortgages.html

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