The Status Of The Australian Housing Market

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June 24, 2011 2:16 AM EST

The Australian housing market is beginning to feel the struggles that the United States and Europe have already been feeling for several years now. The American Bureau of Statistics shows that owner-occupied housing loans are down by 1.5% in March when original projections showed over a 2% rise. The amount of loans that consumers are taking out is significantly lower than ever before despite annual incomes increasing over the past several years.

The average consumer is becoming more aware of spending. They are focusing on paying off debt and reducing spending. They are taking real estate courses to learn where they can learn about the true state of the housing market and making smarter decisions overall. While this is good for the individual, it isn't helping the housing market.

There are two schools of thought in regards to what the housing market will become if the amount of loans continues to reduce. The first is a softer approach where housing will drop about 5% in value. The second is a harder one where people will begin walking away from their homes when the homes become valued significantly less than what the amounts of the loans are.

How prices stand is one of the largest indicators of the housing market. Prices are slowly falling. Whether the data is coming from RP Data/Rismark or the ABS, the information is the same. The pricing on homes has fallen about 2% in the quarter that ended in March. The projections show that the prices will continue to drop throughout the remainder of the year.

Some of these reductions can be chalked up to the natural disasters in Queensland, however the trend is not likely to reverse in 2011. The housing prices will continue to fall. Clearance rates are also not improving, nor will they likely do so in the foreseeable future.

Clearance rates are what homes are being sold for and what the sellers have to adjust their prices to in order to make the sale. Expectations are constantly being lowered for the home to sell because of the situation of the market. The number of homes for sale is about 30% higher than last year because people are trying to downsize.

The clearance rates are staying somewhat consistent but likely not improving. Sydney is maintaining a rate of somewhere along the lines of 50% and Melbourne is in the 60% range.

There are other factors to consider when looking at the health of the housing market, too. Home affordability is worsening since 2010. The Housing Industry Association is showing that the average person paying mortgage is spending a little over 35% of their total household income on their mortgage payment.

Signs of mortgage stress are already being seen throughout Australia. Fitch, a ratings agency has reported that there has already been an increase in delinquencies in mortgage. The percentages are considerably smaller than what is being seen in Europe and the United States, but the trend is still in place. 30 day arrears have risen .7% in a single quarter while 90 days have risen .6%.

Real Estate courses are evolving. They are showing realtors how to spin a better picture to the consumer. People don't want to buy new homes if it means that they are going to spend so much of their income to pay for it. There are also courses for the consumer to explain various options that don't include walking away from a home.

Property corrections are likely in the near future for Australia, like has been seen in the United States. Households that are too far upside down in their homes will sell their homes and prices across the country will plunge. Some experts have estimated that these plunging prices could be as much as 40% of the total home value. It will take time to correct the situation, but at least Australia isn't the only one that is going through it.

Interest rates will have a significant impact on what ultimately happens because it's the variable. Many expect that that there will be two rises in the rates over the next several months, going into the beginning of 2012. It may impact home buyers entering the market and it could cause more people to go into mortgage arrears.

The housing market will be up in the air for a while until we know how the RBA will handle the housing prices and how inflation is tackled. It will be a continuous question mark for the next twelve months as everything comes to light.

Article written and supplied by Anna K.

Anna K. is a journalist from Brisbane,Australia. She writes for several blogs about finance topics such as real estate, insurance and several others which attract attention of many readers.

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