Friday, 12 December 2008

Affordable housing, here we come?

If you have ever bother to peruse the list of other blogs that I have tacked up on the right hand side of this page, you'll see that I follow a few that are related to the housing market in the US and the UK. The word "bubble" is used a lot, along with the word "crash".

I would like to juxtapose the information that we get from these well written and well researched blogs with that provided by the SMH today in an article about negative equity.

The Dr Housing Bubble blog tells us for instance that in California, prices are down 42-48% from the peak. I understand that other states that had big bubbles have suffered similar declines.

The SMH uses a figure of 20%.

Whichever number you want to use, they are horrible - if you own a house and have a big mortgage.

If you are a vulture like me, waiting to get into the market at a reasonable price, this is fantastic news. After years of being locked out of the market, first home buyers might soon be able to buy something without mortgaging their first-born to the bank. It's interesting to note that whilst the housing markets in Ireland, Spain, the UK, the US and other places have crashed, we have not seen a big slide here yet - and The Economist has for years rated the Australian housing market as the most over-inflated in the world. They've been saying that a 70% decline in house prices is required to bring them back in line with long term trends, rates of return and that sort of thing.


I wonder how bankers sleep well at night. Perhaps living in denial is the key.

Should we worry if people are living with negative equity? After all, it will only become a problem if they have to sell up - that is when the price is realised. Until that moment, any paper profits (or losses) are just that - paper, rather than reality. If you ask me, having 360,000 homeowners living with negative equity is just the start - wait until we have over a million of them. And wait until unemployment ticks up a bit, and people are forced to sell. OUCH.

That's when I hope to buy.

No comments: