It’s been very interesting few days for data on the housing market.
Yesterday we had ratings agency Fitch revealing what it called an “unexpected” increase in mortgage delinquencies, although the numbers remain very low – 30-day-plus arrears rose 1.3% to 1.37% in the fourth quarter of 2010, so it’s hardly panic stations yet.
We also saw another poor set of figures on housing starts, which fell again in the last quarter of December 2010. The housing construction sector remains in deep trouble frankly, and looks very likely to stay that way for at least 2011 and probably beyond.
Then last night, the chairman of the Future Fund, David Murray, told a television panel discussion on Sky News that house prices were too high, and Australia is vulnerable to a fall in commodity prices triggered by a jump in global interest rates.
“Hopefully that won’t happen and we can work through it,” Murray said.
“But by any set of normal measures, house prices in Australia are high.”
I know from the comments we receive here on every property story we write that there will be plenty who agree with Murray’s view that Australians have pushed up house prices because of their willingness to pour a big chunk of their income into home loans.
But the big item still up for debate is: What happens from here?
It seems very likely that we are looking at a property market that is tracking sideways for the medium-term and perhaps as much as a few years – prices might grow slightly in some areas and fall in others, but mainly they will be flat.
For mine, that’s not a bad thing. Prices are above long-term price-to-income ratios and a period of price stability would help alleviate lingering concerns that the market is overheated.
Is my view too rosy? There will be plenty who say yes – many of those who comment regularly on SmartCompany are expecting a major property downturn and still quote the figures used by economist Steve Keen, who a few years ago tipped property prices to fall 40% by 2022, or by 20% peak-to-trough by 2013 (you can see his comments below for further clarification).
I could well be wrong, but I struggle to see where the big trigger for the bust – a spike in unemployment? – will come from in the next three to five years. I can certainly see low growth but not a bust.
I look forward to some more debate on this. But I do have one challenge for those who are bearish on the housing market – let us know the timeframe in which the big bust could happen. Is it 12 months? Two years? Within the next decade?
Let’s keep the conversation going – it’s a great topic and one that affects so many parts of our economy.
NOTE – This blog has been ammended following comments from Steve Keen to clear up the terms of his long-term price predictions.
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