International House Prices: Australia Compared

The Economist has just released the latest version of its interactive global house price graphic. They explain it this way:

The Economist has been publishing data on global house prices since 2002. The interactive tool above enables you to compare nominal and real house prices across 20 markets over time. And to get a sense of whether buying a property is becoming more or less affordable, you can also look at the changing relationships between house prices and rents, and between house prices and incomes.

Whichever way you look at it - and it's worth moving the dates around to get a good idea of the changes - Australia has done 'better' than nearly anywhere else. But we too are now in decline.

If you push the date to start at Q1 2007, you get a real insight into how house prices have fallen in the rest of the developed world.

Going back to 2000, Australia has done well - if you think rising house prices is necessarily a good thing (and I don't). Japan has done particularly poorly (falling prices are not a good thing either)

Going back even further to 1990 and the country that stands out the most is South Africa with an amazing rise in house prices. Australia still stands out, but the most interesting figure is the gradual rise in house prices in Germany - no boom there, just a gradual orderly rise (the best of all outcomes in my view). And look at that fall in the Celtic 'tiger' - financialisation not looking like such a great idea now.

The Economist has been a long-time bear on Australian house prices arguing that:

SOME four years after house prices peaked in much of the rich world, housing remains over-valued, when compared to its long-run relationship with housing rents and income per person. Housing prices in Australia, Canada and France, which had only a slight wobble in 2008 before climbing to new highs, look particularly frothy. In contrast, prices in America have fallen so far that they now look cheap when compared against both rents and income. But given the huge stock of foreclosed homes that is yet to come on to the market, the chances are that they could yet fall further.

From this accompanying article The Economist reports:

Never before had house prices risen so fast, for so long, in so many countries. Yet the bust has been much less widespread than the boom. Home prices tumbled by 34% in America from 2006 to their low point earlier this year; in Ireland they plunged by an even more painful 45% from their peak in 2007; and prices have fallen by around 15% in Spain and Denmark.

The suggestions from the overvalued nature of house prices against income increases and rent changes is particularly bracing.

The ABS and other private sector organisations argue that house prices have fallen further than the 2.2 per cent listed here.