Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Friday, September 16, 2005

More Signs of a Bursting Bubble?

Housing sales are off by 20% in Australia. From James Ferguson at MoneyWeek:

I was sharing a beer with an Australian friend of mine last weekend, when he remarked that a great friend of his, who worked for Jones Lang LaSalle in Sydney, had told him that while you don’t see it in the statistics yet, the prices of the houses they’re managing to shift are down 20% on last year. Even worse, he said, transaction volumes have halved: sometimes less than half of the properties at auction are making their reserve prices. Overall, he said, houses just aren’t selling.

... At the moment, those of us who think that property prices are taking a real tumble are still in the minority. According to Nationwide numbers, price growth is just slowing – it is, they say, now at around 2.6%. The industry pundits don’t see prices falling much either, but rather levelling off into a slow growth period. But I think their confidence is based on looking at the wrong numbers.

The statistics we have right now are all based on properties that actually sell, not the huge quantity, perhaps even the majority, that just don’t sell.

... Worryingly, despite the fact that Sydney’s house prices may already be down 20%, there’s little sign of activity being stimulated in the market.

Can the UK be far behind?

I’m not sure that a 20% fall in prices would turn the UK market around either. With the average house price in the UK now £159,000, according to Nationwide, a 20% drop would bring the price down to about £127,000, still 6.5 times after-tax wages.
Ferguson is not optimistic. And maybe for good reason. As this article points out, some people lost a lot of money in previous housing deflations.

One investor that I respect told me, "For the next decade, my goal is not to lose money."
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