Australia participated fully in a relatively synchronised global house price bubble. Abundant cheap credit is believed by most observers to be the primary cause of these asset bubbles. Australian house prices are the most expensive in the developed world, based on price relative to earnings, so there must be specific reasons for our supposedly egalitarian society holding this title. The most important factors are considered to be Australians� penchant for risk taking together with Federal government policy frameworks, especially taxation, supportive of risk taking (i.e. speculation) in housing markets.
With the credit crisis causing the withdrawal of easy credit, the house price bubble is now deflating around the world. In some markets it can be characterised as having �popped�. House price indices in some US cities have dropped by around 30% within 19 months of peaking. There are clear indications that Australia�s house price bubble has begun deflating � e.g. the Brisbane property market has clearly been under pressure since April 2008. This will begin to show up in house price and other data in mid- to late 2008.
Given that the causes of the bubble formation and deflation are consistent with the US, and because the property bear market is most advanced in US markets, future Brisbane house price movements were forecasted by modeling based on US house price movements. Historical data (from ABS and Case Shiller) shows that Brisbane�s house price bubble was, indeed, spectacular � the presumptive peak in March 2008 was firmly between the peaks reached by the Case Shiller 20 US city index and those of Los Angeles and Miami (two of the biggest boom US cities).
Forecasting suggested that Brisbane house prices may decline by 17% between March 2008 and December 2009 to reach a median price of $350,443.
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