Some absolute waffle written today by Ian Verrender. A crash in property prices? Don't bet on it
The fearmongers love to compare Australian real estate with America. They manipulate graphs and data to make it appear the local market is in as much trouble as the US one.
But American real estate still hasn't recovered. In case you missed it, an advertisement on the front page of the Asian edition of the Financial Times a fortnight ago had the real estate equivalent of the BOGOF (Buy One Get One Free) sale. The deal was, buy five American houses for $US200,000 ($209,000) all up and get the sixth one for just $US25,000.
The logic goes, if it happened there, it is bound to happen here. But you may as well compare Australia with Mars.
Ignoring that America is in recession and we are not [errr, what caused the US recession?], and that our population is concentrated on a narrow strip of coastal fringe [like Florida or California?], there are a host of other reasons that point to a soft landing in real estate [such as?], even in the worst case of a serious downturn in the domestic economy.
[My interjection here: Ignoring the fact that US unemployment was hovering around 4.5% and the economy was boom boom when houses started to slide, here comes the big one. The jewel in this crown of logic...]
The main difference is in the way our banks lend. Our mortgages are fully recourse whereas in the US, they are non-recourse. Default on a home loan here, and the bank will chase you for the outstanding cash and bankrupt you if need be. Not in America. If you owe double the value of your home, you can simply walk out, leave the keys in the door and let the bank take the pain.
- 26 US states plus Washington DC have NON RECOURSE loans.
- That leaves 24 states with full recourse loans.
- ALL STATES (and Washington) have had price falls between 1 and 5 years EXCEPT Alaska, North Dakota and Wyoming.
- The best of the 'falling' 47 states and DC in the last 12 months was Arkansas where prices fell 0.50%, the worst Idaho with a fall of 15.66% last year.
- Florida is coastal with full recourse like Australia and a basket case,
- Alaska and W Virginia are non-recourse and holding positive