Many articles in recent weeks have pointed out the fact that the American housing market is in dire straits. Many articles also suggest Australia will follow suit.
We don't believe that Australia's housing market prices will fall, and here's why.
Fundamentally the markets are very different.
Firstly, Australia has a shortage of housing - America has an oversupply. Where there is a demand for housing it is unlikely that prices will fall.
Only if lots of owners have to sell their houses (for whatever price they can get), will there be a drop in prices. Since over 70% of property owners in Australia live in their own houses, coupled with relatively low unemployment - it is unlikely that owners will start selling.
Secondly, mortgage lending in America is typically 'non-recourse' meaning that in the event the borrower defaults, the lender can take the possession of the property which was securing the mortgage, but they cannot make any claim against any other assets or income of the borrower. What does this mean? Simply, the borrower walks away from a house and the bank reclaim the house.
In Australia, the lender will go after the borrowers other assets and income to make up any shortfall there may be. Therefore the borrower is less likely just to walk away.
So what does this mean for the average Australian property investor? Well for those who see property as a long term investment, there is no better time to buy. Interest rates are on the way down, there are still relatively few buyers in the market and prices are unlikely to fall.
By:Dave Graham
