Australian Housing Bubble Popped: Still Denial

As usual at the beginning of any secular trend change — in this particular case, the popping of a major real estate and credit bubble which last for about 10 years — people's reaction will always follow these steps:

  1. First is denial — it won't happen here, it's not going to happen here, etc.
  2. Then is rejection — it's not happening, it's a buying opportunity!
  3. Finally acceptance, admission that what is happening is real

So let's see what is happening in Australia, in the wake of their massive real estate bubble which has popped several months ago now: 'Top time to buy' as housing costs fall.
Perth homes are at their most affordable in almost two years on the back of falling prices, stable interest rates and higher wages. 
The Housing Industry Association and Commonwealth Bank measure of affordability improved 3 per cent across Perth and 0.8 per cent nationally in the June quarter. 
The required loan repayment for a median-priced house in Perth is $3325 a month. 
A year ago it was $3558. Housing affordability in Perth improved 15.6 per cent in the past year and is now better than in late 2009. 
Elsewhere in WA, affordability rose 2.5 per cent in the quarter to be 12.6 per cent better than a year go. 
HIA senior economist Andrew Harvey said it had been almost five years since homes across Australia were as affordable as they were today
"Improved affordability is good news for homebuyers," he said. "If we look through the global financial crisis period, which was skewed by unprecedented cuts to interest rates, we have not seen affordability reach its current level since 2006. 
"With new home building moderating and some easing in pressure on skilled trades, now is a particularly good time to consider building a new home." 
Median house prices peaked at about $505,000 early last year and have eased to $470,000. At the same time, wages continued to climb and interest rates were last increased in November. 
Together they make getting into the Perth housing market the easiest in almost 21 months. Affordability will improve even more if a survey for mortgage broker Loan Market proves accurate. 
Of those surveyed, 56 per cent said the 4.75 per cent cash rate should be lowered, with just 16 per cent arguing it should be increased. 
Twenty-two per cent believe the Reserve Bank should cut rates twice by the end of the year.  
Bank governor Glenn Stevens will face a parliamentary committee today where he is expected to be pressed on the future movement of interest rates.
We are still at the first stage: denial.
One thing that's interesting is that 22% now believe that the RBA will now be cutting rates, something I forecast long ago, when 100% were thinking rate increases were the only thing in the stash.

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