Aussie Bubble Not Safe If US ‘Falters’
One common topic suggestion is housing bubbles in countries other than the US. “London median prices resumed their upward climb last month, particularly on upper-end houses. What is going to kick the knees out from under that market? can we offer any words of hope to our good friend nhz?”
Another said, “We’ve lived in Brussels for almost 2 years now. A few observations: My husband does quite a bit of traveling for business in Europe, and asks about housing everywhere he goes. Someone from the Netherlands just told him this week that housing is only going up about 3% a year there, and has done that for the last few years.”
“Here in Brussels, my neighbors are doing major remodeling on their home, and are having a hard time finding workers, as there is more work than workers. And I do know that a recent survey here in Brussels showed that investors are cautious about the financial markets, the stock market, etc. It just sounds too frighteningly familiar to what is going on in the U.S. But, we in no way profess to be experts over here! Just watching…..”
The Australian looks at the subject. “Whether the turbulence in commodity markets turns into a very big fall might depend on what happens to the US east and west coast housing markets, the key drivers of US consumer spending. Australians must hope the US does not duplicate the mistakes of Sydney.”
“The Australian economy boomed in the first three years of this decade thanks to an unprecedented housing boom. When interest rates were increased, that boom turned into a slow slide rather than a crash, due partly to the subsequent China-driven commodities boom that allowed big tax cuts.”
“But a large part of the Chinese demand for our commodities came because the US’s housing boom drove consumer spending to record levels as the optimism created by paper dwelling profits caused people to increase their borrowings.”
“Most young Sydney couples now simply either can’t or don’t want to pay $450,000 for a two-bedroom unit and saddle themselves with a huge mortgage. An attitude is developing among the young that says: ‘We can’t buy a dwelling, so we don’t need to own one.’”
“Those who bought inner city units in the Sydney boom have suffered. A Sydney two-bedroom unit that might have sold for, say, $550,000 at the peak is now selling for $450,000. Many owners now have little or no equity in their dwelling.”
“Dwellings are still being built, mainly because developers have low-priced land and prefer to complete the building rather than have the land idle. The biggest unit developer in Sydney for the young market, Harry Triguboff’s Meriton Apartments, concluded that if it kept selling into a depressed market where investors were absent it would send the price of a two-bedroom unit to $400,000 or below.”
“He developed a scheme to withdraw his units from sale and either rent them or tap into the serviced apartment market, much to the dismay of hotels and motels.”
“So, we have a looming stand-off and while that continues, the real estate market for Sydney’s young people will remain depressed, causing an enormous cultural change in the city. The young people who might consider buying a dwelling are also those who are moving offshore, where they find more attractive salaries and tax scales.”
“Hopefully, the experience of Sydney will be a lesson for the US as well as the rest of Australia: if you don’t treat the delicate housing flower carefully, you will not only greatly reduce your prosperity (in the absence of a commodities boom) but you will also trigger unexpected social side effects.”