Thursday, October 14, 2010

Bust or flatline?

Two recent stories have this blogger reconfirming its assessment of the bust ahead for Australian housing. It has argued that we are facing not the ultimate Waterloo for the bubble but a replay of 2003, when the first FHBG inspired frenzy ceased.

As it has argued before, the dynamics then were similar to now, the outer burbs got ramped because that is where most of the first home buyers can afford to buy houses. As the prices surged, those selling moved closer in to the city and a wave of price surges moved inwards.

This blogger actually watched this same dynamic unfold in Melbourne through 2009.

Back to 2003, however, as first home buyers dried up, outer suburb prices slumped and those who bought were stuck with negative equity. This stalled the move-up ladder of shifting toward the centre and inner prices plateaued.

The two recent stories were this nice insight provided by Delusional Economics on weakness in the outer Brisbane housing market.

Then there is this new story from the SMH today:
NSW has 44 per cent of the nation's mortgage delinquencies, and mortgage holders in outer suburbs of Sydney are the most at risk of losing their homes, a study of 750,000 housing loans has revealed.

Sydney is surrounded by six badly performing regions where more than 2 per cent of mortages are more than 30 days behind in repayments, a Moody's Investors Service report said.

Check out also the above graph. It is the history of established dwelling sales since 1991. NSW was the only state to register a new high in turnover during the second FHBG scheme (those who have read the earlier One Chart to Rule Them All post will notice that 2009 data has changed. It's been updated from an extrapolation of ABS data to fresh APM data. I will provide other new charts later today).

In short, Sydney outer suburbs look particularly vulnerable to a correction and the inner city to flatlining, again.

This blogger also expects the same phenomenon to play out nationally. The danger is that the slump converges with a new shock. It could either be externally generated through an equity market accident or commodities correction, or internally generated, like gouging banks raising rates unilaterally.

For the time being, though, this blogger sticks with the forecast.

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