Brisbane Property Market vs Global Recession

[David]

How has the Brisbane property market reacted to the recession? Are house values decreasing, steady or still increasing? I'm based in London so dont have my finger on the pulse. I'm not ready to purchase a property just yet but will hopefully be doing so in the next year or 2. Is it too much to hope that values will decrease in that time

[Mark Steffens]

Here's an interesting commentary on the Australian market as a whole I read recently:

The report is hefty so let me provide a really brief insight into how
it should be read and by whom. (1) Those looking for a quick
Australian house price 'fix' and senior executives, should just read
the executive summary. (2) Those looking for a more detailed
comparison of Australian, UK and US house prices and housing markets
should also read sections 2 and 4. (3) Those who want to understand
how I get my forecasts should also read section 5. (4) Those who want
an analysis of the drivers of house prices should also read section
3. (5) Nerds, and anyone who wants to understand an analytical model
of the house rent versus buy decision, should read the appendix at
the rear of the document entitled "Nerdsville".
The main context for writing this report is that US and UK house
prices have fallen by 20% and 15% respectively in recent times, and
there are some economist(s) (notably one economist out to make a name
for himself from the University of Western Sydney as opposed to
Harvard) who believe prices could fall in Australian by 40%. The
Qantas Group context for the report is that if house prices fall
leading to further declines in household wealth (the dwelling
represents around 60% of household wealth), then the Group may well
experience a 'second round' of wealth effects on revenue and yield
over the coming months (the first round effect being the impact of
falling share prices on household wealth).
My main conclusions are these. (1) My forecasts indicate that
Australian established house prices could fall by between 5% and 7%
over the next three quarters. (2) There is a less than a 5% chance
that prices could fall by double this. (3) There is little to no
chance of house prices falling by 40% over the coming months and
years in my view. (4) House prices will bounce back strongly by the
second half of calendar 09 as a result of really low mortgage rates
and a recovering Australian economy [an increase in the First Home
Buyers Grant will also help].
The above are my central conclusions for a very broad measure of
established Australian house prices. One of the enduring
characteristics of house prices, however, is that house prices in
location A [eg Mosman (darling)] may be growing by 15% but in
location B [eg St Marys (where's the Trana?)] they may be falling by
15% at the same time - in other words, house price movements can be
geographically eccentric. Keep this in mind when intrepreting my
results.
Australian house prices will not decline by the same magnitudes
witnessed in the US and to a lesser extent the UK for the following
reasons. (1) The sub-prime housing market is much bigger in the US
(around 20% of mortgages), and the UK (around 6% of mortgages)
compared to Australia (1% to 2% of mortgages) - most foreclosure
activity in the US, around 43%, is attributable to the sub-prime
market. (2) The US and UK housing markets have experienced, and are
experiencing, considerable excess housing supply, brought on
initially by 'missed' downward cycles in building approvals and thus
construction, and exacerbated later by rising delinquincy and
foreclosure and subsequent increases in forced sale. Australia
doesn't have these same excess supply issues. In fact it has
deficient supply attributable to a housing construction market that
has been weak for a number of years under the weight of the GST
initially, and then relatively high interest rates. (3) It is much
easier for borrowers to 'walk away' from properties in the US than it
is in Australia by virtue of the fact that it is more difficult for
US lenders to legally 'chase down' borrower assets and future income
streams for any losses made on mortgaged properties. In Australia,
borrowers will fight for their mortgage until the death .. and then
they'll fight some more...., which means forced sales due to
foreclosure are not likely to be anywhere near as large as they are
in the US - although they could spike in response to a higher
unemployment rate. [See section 4 of the report for more details]
Much has been made of the high debt-to-disposable income ratio in
Australia, which is estimated at around 137%. The show pony economist
I alluded to earlier doesn't stop talking about this as the major
driver of the impending 40% decline in Aussie house prices (and thus
the end of the world as we know it). These are my brief thoughts on
the high debt-to-disposable income ratio. (1) For the record, it is
very high in Australia compared to other countries in the developed
world - it ranks around 4th highest in the world and compares to the
US at 106% and the UK at 130%. (2) I call the debt-to-disposable
income ratio a second or third tier driver of house prices because it
needs other things to happen before it can start to impact house
prices. Notably it needs the major breadwinner to lose his or her
job, or a significant rise in interest rates, or a signficant
increase in the price of non-discretionary items (food petrol,
utilities, Magnums) and then it needs the value of the house to fall
below the amount borrowed. (3) While the Aussie debt-to-disposable
income ratio is high by world standards our consumption as a
proportion of income is low at 57% - the US consumes around 72% of
its income and the UK around 65% (and these values have been rising
very strongly over the past decade). This relatively low level of
consumption allows Australians to splurge a little on a housing, a
product that we clearly value very highly. If Australians had a
consumption-to-income ratio of 72% (rather than 57%) we would have
around 20% less of disposable income available to repay our housing
loan.