Australian asset store on a Knife-Edge

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Predicting the time to come of the property market is always fraught with risk, but the current global financial urgency is making the task virtually impossible.

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The Australian media are full of conflicting opinions from property experts on where the market is headed, making it even harder for the median home owner or investor to plan for the future. Real estate markets in most parts of the Usa have taken a hammering over the last two years, and the big question in Australia is: will the same thing happen here?

On the inevitable side, there are any crucial differences between the Us and Australian property markets:

Housing Supply

Many areas of the Us housing market such as Phoenix Arizona are significantly over-supplied with homes. In other words, many more homes were built than each area's regular demand. The overhang of unsold new properties has been added to by the essential whole of foreclosure properties on the market, leading to sometimes dramatic price reductions.

By incompatibility Australia has, according to property experts, been building fewer homes than the general question would dictate. This has primarily been a succeed of planning restrictions, escalating building costs, and the growing tendency of local government to meet budgetary demands through huge levies on developers rather than increased local taxes/rates for existing homeowners (read: voters).

The resulting shortage of homes is evidenced by the very low vacancy levels in the rental markets in all major cities, accompanied by rising rents. Together with the cost of new homes being significantly higher than the existing housing stock, these factors have underpinned the Australian property market.

Lending Rules

Jingle mail - where homeowners can no longer afford the repayments on their house and mail the keys back to the lender - has come to be base in the Us in new times. Most (but not all) Us mortgages are non-recourse, in that the loan is secured solely against the property and there is no opportunity for the lender to get their hands on the borrower's wage or assets. Once the keys are handed back, the liability of the borrower is essentially over.

This mortgage structure has been at the heart of the sub-prime mortgage urgency - there has been no pressure on the lenders to verify the borrower's quality to repay the mortgage, and no liability on the part of the borrower to continue repayments if the going gets tough, or a property market improvement leads to the home being worth less than the mortgage.

In Australia, the loan liability rests with the borrower, and the lender can pursue the borrower's wage and assets should repayments not be kept up to date. This places much more accountability on the borrower to organise their affairs to ensure that they can meet their repayments.

Additionally, Australian consumer legislation puts essential onus on the lender to compare the borrower's quality to meet their loan obligations prior to approving a mortgage. Over the last 5 or 6 years, low-documentation loans (where the level of loan servicing proof has been lower than for thorough mortgages) have grown in popularity, but these are still significantly more regain than the sub-prime loans on the Us.

As a result, the mortgage default rate in Australia is only nearby the 1% mark in 2008, which is about median for the last decade or so.

Other Factors

Other positives for the property market consist of strong immigration inflows, an cheaper growing at a essential (albeit slowing) pace, historically low unemployment, and a growing trade surplus.

The Downside

Despite the above inevitable factors, the outlook for real estate is far from rosy.

The elephant in the room of procedure is the current global financial crisis. Frosty credit markets and downward-spiralling stock markets do not bode well for any asset class in the near future. property however, is particularly vulnerable in Australia, with weighty mortgage debt a millstone nearby consumers' necks. Home affordability is at a report low, as prices over new years have been ratcheted up by a communal which conception price appreciation would go on forever.

And if efforts to loosen up credit both here and overseas do not work - and work soon - it is difficult to see any other outcome than falling house prices. No matter what the question side of the equation looks like, if you can't borrow money then you can't buy a house.

Anecdotal evidence from real estate agents suggests that prices have already started softening in many areas. Whether this softness gains momentum will depend on how the assorted factors above play out in the advent months.

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