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"Is the property bubble going to pop...or will it just
gradually let off some of the excess gas and gently deflate?
Houses in some areas are definitely cheaper, but the average
price of a house in Sydney has risen from $500,000 (December
2004) to $520,000 (June 2005). The year predicted to be the
danger year is now 2007." - Mark
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| Economics - the housing market |
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by Henry Thornton |
July 17, 2005
"Safe Shelter Australia Suggests End of Home Boom Needn't Be Dire." The
Wall Street Journal (WSJ) article says Australia's experience suggests the end of a housing boom doesn't necessarily lead to widespread economic distress.
Alan Wood continues: "It isn't the first time Australia's housing boom has attracted international attention. A bit over a year ago Morgan Stanley's chief Asia economist Andy Xie suggested the bursting of our housing bubble could be the trigger for a global crash. Not yet, thankfully, not even a local one. However, the WSJ article is right to say it's too early to declare our experiment in bubble popping a success.
"The example it chooses to reinforce this caution is Japan: "Japan's central bank raised interest rates in 1989 and 1990 to pop a real estate and stock bubble. For a while the economy seemed destined for a soft landing. Then it plunged into a decade-long malaise, from which Japan is only now emerging."
As we have said, the global excess liquidity has to go somewhere. While there is some slowing in growth of global liquidity, neither global (nor Australian) monetary policy can yet be described as "tight." With the prices of most goods and services still not rising too fast, the excess liquidity has been raising asset prices and this will continue. But, of course, the higher they go the bigger the eventual correction. 2007 is the danger year.
Reference: Henry
Thornton
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