Australian women entrepreneurs in property

Reserve Bank of Australia governor Glenn Stevens warns of a housing bubble and we should take note of what he says, for a couple of reasons. First, he's the man who controls the levers, and when he says that he is going to lift interest rates to calm us down and resume our seats at the housing auctions, he no doubt will raise the interest rates again. Second, we must remember that interest rates can be blunt instruments, whose early effects are not always quickly seen. Even with the best of intentions the Reserve Bank may overshoot and pop the bubble rather than have it deflate gently.Here's the message: in the short term property can fall like anything else. In the US, the average home is now worth less than it was in 1980. As Percy Allan's newsletter Market Timing points out, this is asset deflation on a scale not seen since the Depression of the 1930s.According to BIS Shrapnel, the average Sydney house, at $600,000 is worth 7 1/2 times what it was 30 years ago. The situation in other state capitals is similar. "Americans are joining tea parties to vent frustration at their diminishing wealth brought about by a housing glut," says Allan. "By contrast Australia's [huge] housing shortage is creating two classes of city dwellers; those with property who fear further residential development will compromise their lifestyles and tenants who know that home ownership is getting beyond their reach."A country the size of Australia should not have a residential land shortage, but it does.Allan says: "Until the concentration of population in a few state capitals is reversed, the housing crisis will grow worse since urban consolidation is meeting growing resistance in the absence of mass transit systems to alleviate metropolitan congestion."Certainly that's true, but does that mean that the interest rates will be cranked up some more? The answer to that is a "yes" and when that happens, things could get even trickier. The median price of a single-family home during the past 40 years in the all-important US real estate market between 1991 and 2005, housing prices increase at a rapid rate, as did the rate of increase.Housing prices have dropped 35 per cent from the 2005 peak. A buyer who purchased the median priced single-family house at the 1979 peak has seen that house lose value (a bit more than a 4 per cent loss).Not an impressive performance considering that it has taken place over three decades. Could Australian house prices fall in similar manner? Sure, says Intelligent Investor research director Greg Hoffman. "The US property market meltdown should dispel this myth immediately that property prices cannot fall," he says. "Anyone who is not convinced should look at some compelling evidence from around the world that shows that property prices can, and do, fall."Initially it can be hard to accept that prices may fall, especially in, say, Japan, where it is possible to get a mortgage loan at interest rates of less than 2 per cent a year but prices in Japan have fallen uninterrupted for more than 15 years. Hoffman says the reason people don't buy is the exact opposite to how Australians justify incredibly low yields: What use is a high rental yield if the value of your capital depreciates every year?There are substantial differences between Japan and Australia: the former is earthquake prone, it's bad form to live in someone else's house and people don't move often. If they do, they'll often knock down the previous owners' perfectly good dwelling and build a new one. In the early 90s, the economy was motoring, absolutely everyone had a job and interest rates were low."These were all reasons provided to justify high prices. Not only that, but Japan has 128 million people to squeeze into a land area half the size of NSW, " says Hoffman. But fall they did: Organisation for Economic Co-operation and Development data shows real Japanese property prices are more than 40 per cent lower than their 1992 peak.Europe provides further examples. OECD data shows German property prices falling since 1991. Again, it's a country where mortgage rates are lower than rental yields, but past experience is scaring off investors.The Swiss endured 11 straight years of falling property prices through the 90s and into this decade. There has been some relief in recent years, but those who bought in 1990 are still a long way behind.Hoffman suggests Australians need to be wary of the most dangerous thought in investing: that property prices cannot fall."None of the European movements mean property prices have to fall in Australia," he says. "They have looked expensive for a number of years now but, despite rising interest rates, we're yet to see a market-wide correction."But to believe that prices can't fall is exactly the thinking that allowed the banking gurus to turn NINJA [no income, no job, no assets] loans into supposedly indestructible mortgage-backed securities in the US."The run-up in house prices has coincided with an equally impressive run-up in debt owed by Australian households. Despite record low unemployment and an 18-year economic miracle, our savings rate at one point fell below zero. At least now we're spending less than we earn, but we're still not saving much, even with superannuation.Australian house prices rose 13.6 per cent last year and their strength seems to have continued into this year. House prices in Australia have performed far better than those in Britain and US, thanks in large part to the stronger performance of the Australian economy. That's even stronger than in China where house prices are up 10.7 per cent during the past year.So where to from here? AMP Capital's head of investment Strategy and chief economist Shane Oliver is not overly fussed. He agrees that Australian housing is expensive but points out that it is supported by an undersupply. "Worsening affordability is likely to constrain average house price growth to around 5 per cent over the year ahead," he says. "Expensive housing and high household debt levels are a risk, but in the absence of higher unemployment, much higher interest rates or a big supply increase, a US-style collapse in Australian house prices is unlikely. None of these seem likely in the short term. In fact, none of these seem likely any time soon."