The real estate bubble has burst in the US and the market is showing no signs of a recovery, but analysts in Australia say a similar result here is unlikely.
Despite recent reports from sources such as The Economist magazine and the International Monetary Fund listing Australian real estate as some of the most overvalued in the world, the Australian market has remained stable while property values worldwide have fallen.
RP Data analyst Cameron Kusher said many people incorrectly subscribed to the belief that what happened in the US would affect property prices here. He pointed out median dwelling values in the US fell 11.1% in the first seven months of 2008, compared to dropping just 1.3% over the same period in Australia.
"It's a very different picture," he said. "It's not just the falls witnessed across median values, but sales volumes also took a significant dive in the US. Volumes peaked during August 2004 at 111,099 sales. Since that time sales volumes have recorded a decline of almost 54%."
One of the main reasons for the difference lay in the lending practices of the two countries, Kusher noted.
The US lending system includes non-recourse loans, whereby if property owners default on their mortgage, the banks can only take the security property and nothing further, even if the home is lower in value than the actual loan.
In Australia, the financial system has recourse lending where the bank can repossess the house and mortgagees are expected to pay up what is owed or possibly suffer bankruptcy.
Another factor to consider is supply. Whereas the US had an average residential vacancy rate of 9.1% over the past 10 years, over the same period, Sydney recorded an average vacancy rate of 2.7%, Melbourne's was 3.0% and Brisbane 2.8%.
Figures released by the US Census Bureau showed that between June 2002 and June 2007, the country commenced on 9.3m dwellings, while at the same time the population grew by 13.7m. The current average American household size is 2.6 persons, highlighting the dramatic oversupply of dwellings across the US, said Kusher.
"With these results, it's easy to see why significant property value falls have been recorded," he said. "Such a glut of property being built over the last five years coupled with the fact that vacancy rates were already exceptionally high have led to a significant oversupply. This oversupply, coupled with a poorly regulated financial system has led to the downfall of the US property market. The Australian market is undersupplied, with population growth the highest on record and dwelling commencements remaining flat, as well as having minimal rental vacancies."
Vacancy rates in Sydney dropped to a historic low this month, just above 1%. Melbourne's vacancy rate is similarly low at 1.1%.
Sentiments favouring the Aussie market were recently voiced in a column published in the US newspaper The Wall Street Journal by Australian journalist Janet Albrechtsen. She criticised the lax rules governing the US mortgage industry in an opinion piece published on 6 October.
"Now, Australians - and others - place a high value on homeownership too," she wrote. "But they are aghast at the dumb things America has tolerated in pursuit of that goal."
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