Housing Denial in Australia Feeds Off Same Myths We Heard in the US

It is amusing to watch Australian analyst after analyst cite the same silly myths regarding housing that we saw in the united states. First consider a sampling of the nonsense we heard in the US.

• There is no national housing bubble
• There is a housing shortage in Florida, San Diego, Las Vegas, Phoenix, etc.
• There is never a better time to buy than now
• Home price cannot possibly drop where Boomers are moving
  
• Seattle housing will not drop because the local economy is strong

Florida was ground zero in the US bubble bursting and for the next two years we heard things like.

• Las Vegas is not Miami
• Phoenix is not Las Vegas or Miami
• San Diego is not Phoenix, Las Vegas, or Miami
• Chicago is not San Diego, Phoenix, Las Vegas, or Miami
• Seattle is not Chicago, San Diego, Phoenix, Las Vegas, or Miami

For varying reasons every city thought "it's different here". Yet the bubble bust spread from city to city and eventually engulfed the entire country.

Similar denial runs deep in Australia.

Please consider Australia Housing Cracks Emerge Across Queensland Coast

Apartment prices in the luxury beachside Australian town of Noosa Heads have tumbled by a fifth since 2008 as cracks emerge in a housing market that�s so far escaped the rout seen in the U.S., U.K. and Ireland.

The median apartment price in the tourism and retiree town 150 kilometers (93 miles) north of Brisbane has slumped 21 percent in three years to A$570,000 ($594,000), according to the Real Estate Institute of Queensland. Sales have more than halved across Queensland state�s Sunshine coast, home to �Crocodile Hunter� Steve Irwin�s Australia Zoo, and the Gold Coast, known for its surfing beaches and casinos.

�We have a very overvalued housing market and even a small adverse shock can be magnified by a large adverse impact on property values,� said Gerard Minack, Sydney-based global developed markets strategist at Morgan Stanley (MS), who asserts Australian home prices are as much as 40 percent overvalued. �We�re seeing that now in parts of Queensland.�

Economists and analysts at organizations including RP Data, Australia & New Zealand Banking Group Ltd. (ANZ) and Westpac Banking Corp. (WBC) have said the weakness in home prices along Queensland�s southeastern coast is unlikely to spread as low unemployment and a shortage of homes underpins prices.

�A lot of sellers are cutting prices and are preparing to meet the marketplace,� said John Newlands, Gold Coast spokesman for the real estate institute and principal at an LJ Hooker franchise in Surfer�s Paradise, a northern Gold Coast suburb that�s home to the world�s tallest residential tower. �In 2011, more investors will start to come back into the marketplace as prices fall.�

Look at those last two paragraphs. I believe that is the typical attitude. It is the same nonsense we saw in the United States.

To be fair, the article did mention that Gerard Minack, a market strategist at Morgan Stanley, believes Australian home prices are as much as 40 percent overvalued. However, that opinion is in the minority.

Five Facts

1. It's Not Different in Australia
2. There is Not a Shortage of Housing
3. Australia is in a Bubble
4. Now is Not a good time to Buy
5. It's Better to Sell Now than Next Year

In the US, countless sellers walked the market down, hoping to get prices they could have gotten "last month" as Realtors in every city gave reasons why "It Can't Happen Here"

Well it could and did. It turns out there was not a shortage of housing in Phoenix, San Diego, or Las Vegas. It only appeared there was a shortage because inept Fed policies fueled bubble mentality. Moreover, prices eventually crashed in places where there were limited properties for sale.

Home prices simply will not forever stay monstrously elevated over wage growth and the cost to rent even if there is a shortage.

Yet, the same denial is happening in Australia in spite of the fact the US provides a clear model of what happens to prices once the pool of greater fools runs out.

For more on the Australian housing bubble and the pool of greater fools, please see
Australian Home Sales Sink, Luxury Units Sell for Half Cost; New Home Loans at 10-Year Low; Australia Retailers in Deep Trouble; Party Officially Over

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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