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Jul 30

Knock me over with a feather – house prices decline

The RP Data/Rismark house price index has shown the first monthly decline in house prices in 17 months and largest since April 2008!!! …well…its down seasonally adjusted…house prices actually still went up. With global asset allocation gurus like Jeremy Grantham (one of the fundies I do listen to) and vocal locals like Steve Kean suggesting the Australian residential housing market is in a bubble, I guess it was just a matter of time.

Jeremy Grantham, of GMO, believes both Australian and UK house prices are completely out of kilter with household income, and as a recently divorced current renter who is looking at houses with the view of ideally owning a (small) mortgage, I have to agree that the prospect of buying a house in Australia (ok, in Brisbane…well…say…not too far out of Brisbane CBD) is downright scary. Now I get the undersupply issue in Australia, but with households stretched so much to buy, with credit being tougher to get, and with rents so low (I pay a rental yield of around 2% to 2.5%) that investors must be edgy, at some stage growth must slow or go backwards…lets face it, everything is cyclical. Grantham says that if the Austrailan and UK house bubbles don’t correct it would be the first time in history that a bubble has not burst…so….is the latest monthly downturn the beginning of the end? Maybe if there’s an external shock to the local (or maybe global) economy.

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