Given the sheer number of houses listed for sale � presumably due to stressed sales and long-time owners� concerns that they are not likely to have as profitable an opportunity to exit that market for some time � I would argue that it is highly probable that we have already entered a bear market in residential property. The Brisbane residential property bubble has indeed popped.
I will not spend a lot of time discussing why � as the �bubble psychology� fades the reality will be clear to most, and there is sure to be much said of it over the coming months. I would like to think that house prices just got so ridiculously high that it became blindingly obvious to most potential buyers. But I do not think that is the main reason � the fear of never being able to afford to buy a house was palpable. Forget the old fable of cabbies telling you where to buy, three day old embryos were yelling from the womb �buy me a home, it�ll never go down in value!� (I do mean this in a literal way � most parents assumed that house prices would always stay high and were deeply concerned about whether their children would ever be able afford to buy a home.)
The bursting of the bubble was probably due to three events, and their interaction with the market fundamentals of affordability and investment returns. In chronological order the events were the bursting of the US housing bubble, the credit crisis and interest rate rises in early 2008.
I think that Shiller (2005) is right that bubbles are essentially created by feedback loops, and in late 2007 Australians received a lot of negative feedback on housing markets from the bursting of the US housing bubble and the credit crisis. Australians were highly aware of the troubles in the housing market in Western Sydney, but that seemed not to matter. Then the RBA and bank interest rate rises in early 2008 seemed to have a major impact not just on affordability, but confidence. Perhaps it was more to do with interest rate uncertainty. (And very few people are even aware of the potential for a serious current account funding crisis!)
To sum it up, I would suggest that the bubble has popped because those events allowed buyers to analyse the market with a different frame of reference. Investors, especially more experienced ones, and speculators decided that prices had gone as high as they were likely to for an extended period. Most first home buyers were excluded from the market due to record low affordability and tighter credit availability from the credit crisis, and many of those that could afford to buy knew it was imprudent to do so.
(I would like to think that my blogging, along with others, played a very small part in people coming to their senses also � I have no doubt whatsoever that industry groups spend significant funds on attempting to influence public opinion though those channels � it would be interesting for Shiller et al. to research this issue.) |
