The stats are indicating that we have some significant price deflation occurring in housing, the worst of which is being experienced in WA. Considering that the other states (ex. Queensland) have been in virtual recession for a long time now and houses probably already reflect close-to-real prices this was hardly surprising. People's time-preferences are changing; with all of the grim news and speculation over the home buyers grant individuals are holding off on that new house.
- Volatile Industry
This is NOT a credit issue -- I'm sure most people who are in the 'considering' bucket can afford to buy a house. There are other factors involved here.
Think about it
1) Confidence is down -- The news is saying we're all going to be out of work soon! Better not buy that home just yet!
2) Anticipated Price Deflation -- It's widely expected that, in the short term, house prices will fall. Why spend $1m today when I can get the same for $750k in a year?
3) Government Intervention -- The first home owners grant and speculation on other aid ('stimulus') packages. This is, in my opinion, the biggest culprit. The government has been fueling this speculation with their own policies -- for example the first home buyers grant has gone from $7,000 to $14,000 ($21,000 new). Add to that the availability of artificially cheap credit (yes, this was the RBA's work) and you get a housing bubble.
So what will happen?
People will speculate, for good reason, that if they hold out they will end up with a better deal -- confidence that they won't lose their job; a cheaper price thanks to falling market prices; a larger home buyers grant from the government; lower interest rates on their mortgage; and hopefully some kind of fiscal stimulus bonus.
Would you buy a house today?
House prices (approvals) will continue to fall. The government will intervene and provide some kind of bailout package to go with continued interest rate cuts. The bubble will re-inflate and everyone will praise their brilliant work. Until five (I have no idea what time frame we're talking here; this is a rough guesstimate) years down the track inflation hits, interest rates rise and the bubble pops (again). Now the real question is -- how do we stop this vicious government-induced cycle?
