Could the housing market in Australia crash?
In the comments to my recent post on housing prices, Amon asked if a housing crash is a potential reality.
In my opinion, the answer to this question is a definite yes. In fact, it has happened in a western country before.
The late 80's (1986 to 1990) saw skyrocketing land and stock prices in Japan. It got so bad that many banks were offering 100-year mortgages. The Wikipedia article on this contains the following graph based on data from The Economist:
According to this graph, the current housing boom in the US, UK, Britain and Australia is worse than that in Japan!
As for the after-effects of the Japanese housing boom, this article from the New York times has a pretty good write up. A couple of choice quotes:
So Mr. Nakashima, a Tokyo city government employee who was then 36, took out a loan for almost the entire $400,000 price of a cramped four-bedroom apartment. With property values rising at double-digit rates, he would easily earn back the loan and then some when he decided to sell.
Homeowners were among the biggest victims of the Japanese real estate bubble. In Japan's six largest cities, residential prices dropped 64 percent from 1991 to last year. By most estimates, millions of homebuyers took substantial losses on the largest purchase of their lives.
According to the NY Times article, the Japanese housing crash was triggered in part by some bad policy decisions by the Japanese equivalent of the Reserve Bank. So while our markets may not crash as hard as the Japanese market did, history does not bode well for our current situation.
Update (23/08/2007): I came across this article and it mirrors what I said in this post and my last one.
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