Australia has participated fully in a relatively synchronized global house price bubble.(1) The breadth and synchronicity of the bubble, across most developed countries and on different continents, suggests that there were some major causative factors in common. Perhaps the greatest global factor was a concomitant credit bubble, emanating from over zealous investment bankers in Wall Street bundling up mortgage debt in complex instruments to sell to investors who accepted very low risk premiums, resulting in plentiful cheap credit around the world. The Bank of International Settlements in its most recent report supported this view (BIS 2008).
It is clear that the bubble �popped� in the US in June 2006, with the Case-Shiller 20 City Composite Index exhibiting a roughly 17% decline over the subsequent 19 months to February 2008. The synchronicity of that peak across the 20 individual city indices, which in turn make up the 20 city index, is quite amazing � 11 of 20 cities peaked � 2 months of June 2006. UK housing prices have also peaked in the last 12 months. And there are early but explicit signs that Australian housing markets peaked in early 2008 with house price declines likely to be evident in data from mid-2008.
That Australia�s house price bubble has begun to deflate is unsurprising given the remarkable synchronicity of the house price increases across countries. For a full discussion on asset bubbles and reasons for their synchronicity, the reader is directed to Shiller (2005). |
