House price Armageddon?
In any Australian city, W&D will see neon and other illuminated displays of the current temperature. No other country does this like Australians. Weird. Surely the temperature is what it is.
Equally, the publicity given to changes in house prices (a lauded, but by definition, an inadequate and inaccurate measure of the investment return from residential housing) and the week-end 'clearance rate' (i.e. the number of homes sold at auction divided by the number of auctions expressed as a percentage) reflects a bizarre fascination seen nowhere else in the world.
So it comes as no surprise to W&D that two unrelated events caused headlines that elsewhere in the world would be buried on page 18 of the financial section.
The first was an analyst stating that the Australian housing market was in a bubble (true) and that because of that, house prices would fall 40% (false). Visiting economic and property über (the German adjective not the American noun relating to a hire-car company) experts often fail to understand one key factor. That is, unlike 48 American states, Australian residential lenders will only lend (generally) on the basis the individual owner of a mortgage is also personally liable for the debt.
This means not only that borrowers are reluctant to borrow more than they should (mostly, but beware the marginal borrower) but also that they cannot easily walk away from their mortgage obligations. As they can in the US.
Combined with very high transaction costs, it is virtually impossible for housing prices to fall in an Adam Smith classical sense to 'clear' the market. Home prices will just not rise for a long time.
The second was the ridiculous claim by Napoleon Turnbull that house prices would collapse if the tax benefits of negative gearing were abolished. Which in turn was risibly backed up by a discredited analyst's report to the same end.
The third was the reported sale of just one house in a mining town (Moranbah, a coal mining town near Mackay, Queensland) for $130,000. Nothing remarkable about that, except that is was bought for $720,000 in 2012. So the 2012 purchaser bought at the peak of the boom. And sold at what is probably the trough. So...what.
In each case the publicity was and is out of all proportion to either reality or relevance. W&D recommends that everyone take a...