No Sign of Abatement for US House Prices

US Home Prices continued their downward spiral in December 2008. On a year over year basis, both the the 10 city and 20 city indexes showed of -19.2% and -18.5%. Both indices have declined for 29 consecutive months. Both the 10 City and 20 City indices are now back to levels last seen in the fourth quarter of 2003.


Only two metro areas have fallen less than -10% from their peak whilst half of the 20 metro areas have experienced declines of -20% or more and 5 have fallen more than -40%. Year over year declines have stopped accelerating but US house prices still show no signs of stabilizing in the near term.

Australian Home Prices Fall Slightly in Dec Quarter

December quarter 2008 home prices were released by the abs today showing Australian home prices fell -0.8% nationally from the September quarter and are down -3.3% from a year ago. From their peak, Australian home prices are now down -4.0% on a national basis.


By state, Perth not surprisingly has sustained the biggest falls now down -6.7% from their peak in December 2007 whilst Darwin is the only city still setting new highs, although it should be noted that Darwin figures are highly unreliable given the low number of sales.

So whilst the Housing industry shills keep telling everyone that now is the time to buy, it appears that low interest rates and Rudd's handouts for home buyers are only serving to prevent even bigger falls in home prices.

It would seem unlikely that Australian House prices are going to fall off a cliff anytime soon with home buyer grants in place. However it will be interesting to see what the government decides to do when those grants lapse in June as the economy deteriorates and unemployment rises.

US Home Prices Continue to Fall in November

US Home Prices continued to fall through November 2008 according to the latest Case- Shiller Home Price index report. The 10 city index is now down -26.6% from its peak whilst the 20 city index is down -25.1%.

There are moves afoot to try and put a floor under US housing the whinging about putting a floor under housing prices but since they have only reverted back to early 2004 levelsis it really needed? Don;t they just need to market to adjust itself? From the report:

“The freefall in residential real estate continued through November 2008,” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s. “Since August 2006, the 10-City and 20-City Composites have declined every month – a total of 28 consecutive months. Every region was down in excess of 1% for the November/October period, with eight of the regions recording record monthly declines. Phoenix and Las Vegas were the worst performers for the month at -3.4% and -3.3%,respectively, and also have the lowest returns over the one-year period, returning -32.9% and -31.6% respectively. Overall, more than half of the metro areas had record annual declines.”

Prices will continue to come down and that will persist through most of 2008 despite what the US government does. Some of the worst affected areas could possibly see price declines of -50% or more before the worst is over.

US Home Price Declines Continue

According to the latest Case-Shiller Home Price Index, US Home Prices continued to fall in October and the rate of decline actually picked up. Whilst I thought US home prices would continue to fall, I thought there would be a moderation in the depth of the year over year declines by now, from the report.

“The bear market continues; home prices are back to their March, 2004 levels.” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s. “Both composite indices and 14 of the 20 metro areas are reporting new record rates of decline. As of October 2008, the 10-City Composite is down 25.0% from its mid-2006 peak, and the 20-City Composite is down 23.4%.

In October, we also saw three new markets enter the ‘double-digit’ club. Atlanta, Seattle and Portland are reporting annual rates of decline of 10.5%, 10.2% and 10.1%, respectively. While not yet experiencing as severe a contraction as in the Sunbelt, it seems the Pacific Northwest and Mid-Atlantic South is not immune to the overall demise in the housing market.”

Three of the metro areas have given back, on average, more than 30% of the value of homes since October of last year. Phoenix remains the weakest market, reporting an annual decline of 32.7%, followed by Las Vegas, down 31.7%, and San Francisco down 31.0%. Miami, Los Angeles, and San Diego were close behind with annual declines of 29.0%, 27.9% and 26.7%, respectively.

Monthly data also do not show much improvement in the national housing market. All 20 metro areas, and the two composites, posted their second consecutive monthly decline. In addition, six of the MSAs had their largest monthly decline on record – Atlanta, Charlotte, Detroit, Minneapolis, Tampa and Washington. Most of the positive monthly data recorded in the spring and summer months, merely reflects seasonal patterns in home prices, as opposed to a turnaround in the downward spiral in national home prices.

Whilst price drops are big, they have only returned to beginning 2004 levels which suggests to me that they have significantly further to go.

US Housing Plunges to Record Lows

US Housing Starts fell to their lowest level on record since the census bureau started keeping records in 1959. From the Cesus Bureau:

Building Permits:

Privately-owned housing units authorized by building permits in November were at a seasonally adjusted annual rate of 616,000. This is 15.6 percent below the revised October rate of 730,000 and is 48.1 percent below the revised November 2007 estimate of 1,187,000.


Housing Starts:

Privately-owned housing starts in November were at a seasonally adjusted annual rate of 625,000. This is 18.9 percent below the revised October estimate of 771,000 and is 47.0 percent below the revised November 2007 rate of 1,179,000.

Completions:

Privately-owned housing completions in November were at a seasonally adjusted annual rate of 1,084,000. This is 3.3 percent above the revised October estimate of 1,049,000, but is 22.8 percent below the revised November 2007 rate of 1,404,000.

So once again the bottom-callers were disappointed but they are getting closer to being right. The low level of starts implies that excess inventory is being worked off. Making a dent in the sizeable amount of inventory is key to seeing a turnaround in starts. We may see a bottom in starts sometime in late 2009 but don't expect a V shaped recovery.

US Home Prices Continue to Fall

The September report of the S&P/Case-Shiller Home Price Index showed home prices down -17.4% from a year ago for the 20 city index and are off -18.3 for the 10 city index. From their peaks, the 10 city index is down -23.4% whilst the 20 city index has plunged -21.8%. From the report:

“The turmoil in the financial markets is placing further downward pressure on a housing market already weakened by its own fundamentals.” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s.

“All three aggregate indices and 13 of the 20 metro areas are reporting new record rates of decline. Looking at the returns of the U.S. National Index, prices are back to where they were in early 2004. As of September 2008, the 10-City Composite is down 23.4% from its peak, the 20-City Composite is down 21.8% and the National Composite is down 21.0%.”

The part in bold is interesting. Home prices are only back to levels they were in early 2004 as depicted in the chart below. Whilst the year over year declines may slow and even reverse in coming months, house prices will continue to come down to more affordable levels as the huge inventory of unsold homes is worked off.

US Building Permits & Starts Hit Lowest Level in History

The bottom callers must be exhausted by now. US Housing records continue to be smashed. Today, both US housing starts and building permits hit new historic lows. Records have beeen kept since 1959. Click here for the October report on Starts, Permits and Completions:

Firstly Building Permits:

Privately-owned housing units authorized by building permits in October were at a seasonally adjusted annual rate of 708,000. This is 12.0 percent below the revised September rate of 805,000 and is 40.1 percent below the revised October 2007 estimate of 1,182,000.

Single-family authorizations in October were at a rate of 460,000; this is 14.5 percent below the September figure of 538,000.

That beats the previous low of a SAAR of 709,000 set back in March 1975.


Housing starts:

Privately-owned housing starts in October were at a seasonally adjusted annual rate of 791,000. This is 4.5 percent below the revised September estimate of 828,000 and is 38.0 percent below the revised October 2007 rate of 1,275,000.

Single-family housing starts in October were at a rate of 531,000; this is 3.3 percent below the September figure of 549,000.

That beats the previous low of a SAAR of 798,000 in January 1991.


Completions:

Privately-owned housing completions in October were at a seasonally adjusted annual rate of 1,043,000. This is 10.2 percent below the revised September estimate of 1,161,000 and is 25.6 percent below the revised October 2007 rate of 1,401,000.

Single-family housing completions in October were at a rate of 760,000; this is 7.7 percent below the September figure of 823,000.

Completions have not yet hit record lows but remember that completions lag starts so you can expect them to go quite a bit lower in the coming months. didn't hear any bottom calling today, maybe they've finally given up?

US Home Prices Down 20%+ Cash Shiller

Both the 10 city and 20 city Case Shiller Home Prices Indices are now down more than 20% from peak to trough. I'm actually surprised that the year over year declines continue to increase, albeit at a slower pace. Remember that the Case Shiller numbers are for August and that recent data on new and existing home sales point to further declines in US home prices.

That shouldn't be surprising, on a 20 city basis, US home sales have reverted to price levels last seen in May 2004. So if you bought a home prior to 2004 there is a good chance you are still in front. However whatever gain you are sitting on will continue to erode or disappear altogether over the next 12 - 18 months

Another Leg Down for US Housing

BUILDING PERMITS

Privately-owned housing units authorized by building permits in September were at a seasonally adjusted annual rate of 786,000. This is 8.3 percent (±1.6%) below the revised August rate of 857,000 and is 38.4 percent (±1.6%)below the revised September 2007 estimate of 1,277,000.

Single-family
authorizations in September were at a rate of 532,000; this is 3.8 percent (±1.6%) below the August figure of 553,000. Authorizations of units in buildings with five units or more were at a rate of 225,000 in September.

Permits have equaled the low reached in January 1991. If permits fall lower (which I'm sure they will) you would have to go back to 1982 to see lower numbers.

HOUSING STARTS

Privately-owned housing starts in September were at a seasonally adjusted annual rate of 817,000. This is 6.3 percent (±12.0%)* below the revised August estimate of 872,000 and is 31.1 percent (±8.3%) below the revised September 2007 rate of 1,185,000.

Single-family housing starts in September were at a rate of 544,000; this is 12.0 percent (±8.3%) below the August figure of 618,000. The September rate for units in buildings with five units or more was 254,000.

Starts are now at their lowest since January 1991 whilst single family starts are at their lowest since February 1982.

HOUSING COMPLETIONS

Privately-owned housing completions in September were at a seasonally adjusted annual rate of 1,097,000. This is 11.7 percent (±14.0%)* above the revised August estimate of 982,000, but is 20.4 percent (±9.6%) below the revised September 2007 rate of 1,378,000.

Single-family housing completions in September were at a rate of 806,000; this is 17.0 percent (±11.5%) above the August figure of 689,000. The September rate for units in buildings with five units or more was 260,000.

Completions were higher but given that they follow starts they will fall sharply in coming months.

Also yesterday, the builder's sentiment index fell to record low of 14 in September. Given what has happened to the economy in late September and into October hsousing clearly has further to fall both in temrs of activity and prices. Soon we will crash through all records set in the last housing implosion in the early 1990's and there is a high probabiltiy that the lows of the early 1980's will be taken out as well.

Both the number and value of housing finance commitments excluding refinancings fell -2.0% in August. The number of housing finance commitments excluding refinancings is now back to levels not seen since October 2000.

As mentioned a month ago, this will be known as the Spring selling season that will not be.

UK Home Price Plunge Continues

Nationwide today reported that UK home prices fell -12.4% from the previous year and are now down -13.0% from their peak in October 2007.

The average home price has fallen from around 186k - 162k. The problem here is that the declines are showing no signs of slowing. Last month I said declines could top -15% before the year is out. That now looks to be a safe bet.

US Home Prices Continue to Fall

The Case-Shiller Home Price Index released yesterday showed new records in year over year declines. for the month of August. The 10 city composite index showed a -17.5% year over year decline while the 20 city composite showed a -16.3% fall. From their peaks the 10 city composite is off -21.1% whilst the 20 city composite is off -19.5% from the peak. Of the 20 cities surveyed, 14 recorded declines in July. David Blitzer of S&P had this to say:

“There are signs of a slow down in the rate of decline across the metro areas, but no evidence of a bottom” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s. “Little positive news can be found when cities like Las Vegas and Phoenix report annual declines as large as -29.9% and -29.3%, respectively, and all 20 cities are still in negative territory on a year-over-year basis. The Sunbelt continues to be the story, with the seven cities that basically represent that area reporting annual declines roughly between 20 and 30%. While some cities did show some marginal improvement over last month’s data, there is still very little evidence of any particular region experiencing an absolute turnaround.”

So the bottom callers will have to wait for another month, however I think they actually see a bottom until well into next year.

Still No Bottom in Sight for US New Home Sales

The bottom-callers continue to be disappointed today as new homes sales plunged in August to a 17 year low on a seasonally adjusted basis. From the census bureau:

NEW RESIDENTIAL SALES IN AUGUST 2008

Sales of new one-family houses in August 2008 were at a seasonally adjusted annual rate of 460,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development.

This is 11.5 percent below the revised July rate of 520,000 and is 34.5 percent below the August 2007 estimate of 702,000. The median sales price of new houses sold in August 2008 was $221,900; the average sales price was $263,900. The seasonally adjusted estimate of new houses for sale at the end of August was 408,000. This represents a supply of 10.9 months at the current sales rate.

On a non seasonally adjusted basis August sales were the lowest since August 1982. On the positive side the number of homes for sale is continuing to drop, although it should be noted that those numbers don't include cancellations which are still close to record levels.

US Housing Bottom-Callers Still Early

Regular readers may have detected a note of sarcasm and contempt in my comments regarding the constant brigade of cheerleaders suggesting that both housing sales and prices have bottomed in the US.

Data released today from the Commerce Department showed that the bottom is definitely not in yet. From marketwatch.com:

Home building weakens further in August
Single-family building permits fall to 26-year low

Home building tumbled again in August, with the number of new building permits for single-family homes dropping to a 26-year low, the Commerce Department estimated Wednesday.

Starts of new homes fell 6.2% to a seasonally adjusted annual rate of 895,000, the lowest in 17 years, and much weaker than the 955,000 rate expected by economists surveyed by MarketWatch. See Economic Calendar.

Starts of single-family homes fell 1.9% to a 17-year low of 630,000 annualized units.

Building permits for single- and multiple-family dwellings fell 8.9% to a 26-year low of 854,000 annualized units, with permits for single-family homes dropping 5.1% to 554,000, also a 26-year low. Permits for single-family homes fell to the lowest levels in at least 20 years in the Midwest and West.

"Starts will almost surely fall below the 1-million-unit mark this year" for the first time since 1945, said Patrick Newport, an economist for Global Insight. "In the fourth quarter, we currently project that starts will drop to an annualized 813,000 units, which would also be a record post-war low."

Click on the link for the full story.

We were getting used to seeing new 26 year lows in various housing statistics but thats the first time I've seen talk of a 60 year low. If you want a silver lining in these numbers it is that at least builders are building less houses. Still, with record numbers of inventory, both home construction and prices will continue to fall.

The Spring Selling Season That Will Not Be

The title above is meant to a prediciton about the upcoming Spring home selling season in Australia. The bull case is that with an RBA rate cut and more on the way, homebuyers will be encouraged to go looking for homes.

The bear case, or as I like to call it - reality is that this Spring selling season will fail to eventuate because of tighter lending standards and an already an embattled consumer up to theri eyeballs in debt and facing the prospect of falling equity in their homes for the first time in many years.

Today the ABS released data on housing finance commitments. Both the number and value of commitements excluding refinancings are off -30% from their highs.


Also today the abs released retail sales data for July showing a tepid rise in retail sales. It should be noted that the abs has reduced its smaple size for the retail sales data and therefore they now recommned that the trend data be used rather than the seasonally adjusted data and that is what is shown below.

As you can see, even in the recession of 91, retail sales never went negative on a year over year basis. Whilst retail sales are clearly weak, on the positive side, tax cuts in July in concert with lower petrol prices may give consumers some support, however I believe that will be offset to some extent by rising unemployment in the months ahead.

Robert Shiller on Home Prices

Robert Shiller is a leading expert on US Home prices and is the co-creator of the widely cited Case-Shiller Home Price Indices. Here is the most interesting quote from the interview for mine;

"There's a lot of misconceptions about home prices, people think that there is a strong historical uptrend to them. In fact by my data there is not. In fact home prices in the United Sates if you correct for inflation, in 1990 were about the same as they were in 1890."

Well worth a watch.

UK Home Prices Continue to Plunge

A couple of months back I noted on a previous post on UK Home prices that you should expect year over year price declines to exceed -10% before the year is out. Once again I've been too optimistic. UK home prices fell a further -1.9% in August bringing the year over year decline to -10.5%.

According to Nationwide, the average price of a UK home fell almost £5,000 in August. Home prices are down -11.5% from the peak in October 2007. Unlike the Case-Shiller index in the US, the trend in the UK doesn't look like slowing.


Whilst declines are only approximately half of what has been seen in the US, the UK declines have reaccelerated. Year over year declines could easily top -15% by the end of the year.

Is Australia poised to follow suit? Remember US home prices peaked on a national level around the middle of 2006, UK home prices didn't peak until October 2007. ABS data suggests Australian home prices peaked on a national level sometime in the first or second quarter of 2008. If double digit declines are in the cards for Aussie home prices, we're unlikely to get confirmation of it until well into 2009.

US House Price Declines Slow - Case Shiller

Case Shiller Home Price indexes continued their record declines in June, the 10 city composite showing a year over year decline of -17.0% from a year earlier and is now down -20.3% from the peak whilst the 20 city composite showed a year over year decline of -15.9% and is now down -18.8% from it's peak.

However the year over year declines have begun to slow. The 10 and 20 city index year over year declines increased by a mere 0.1% in June. As the Case Shiller report suggests:

Record year-over-year declines were reported in both the 10-City and 20-City Composites in June; however, they are very close to the values reported for May. The rate of home price decline may be slowing. For the month, the 10-City Composite was down 0.6% and the 20-City Composite was down 0.5%. While still falling, these are far less than the 2-2.5% monthly drops seen earlier in 2008.

Let's be clear here, prices are still falling on a national basis, however the rate of those declines is slowing. Although as the cliche goes (and this one cliche I agree with ) all real estate is local. Again from the report:

In June, nine of the 20 cities were up month-to-month compared with seven in May. Nevertheless, not one market is showing a positive return over the past 12 months and seven of the metro areas are reporting declines in excess of 20.0%.”

So it's not all bad news on the US home price front but nor is it time to break out the champagne and sing happy days are here again.

Also of note yesterday was the release of New Home Sales data. The headline showed that sales increased 2.4% in July, in contrast to a decline expected by economists. However the increase is only after the June number was revised down substantially. So the actual number of sales recorded in July was lower than market expectations.

Again I will reiterate that the revisions to prior months are a better read on new home sales than the current month's data which carries an 11.6% margin of error. Anyone want to have a guess what direction July will be revised to next month?

The chart below comes from calculatedrisk - the best site on the web for US housing analysis. It shows that the actual number of sales (not seasonally adjusted) was the worst July on record since 1991. CR sums this graph up well with this line:

As the graph indicates, there was no spring selling season in 2008.

The good news from the New Home Sales report is that unlike the existing home sales data, inventories are coming down as shown below by the number of new homes for sale.


So what to make of all this? Firstly US home sales and prices are still falling, however the rate of decline is slowing. Also on the bright side, new home sales inventory is coming down. However we are far from a recovery in the US housing market and still not at a bottom in terms of either prices or sales, although there are tentative signs that we are edging closer to that reality.

One more observation, and this is with respect to the Australian Housing market. There is much optimism, a lot of it based falsely on the idea that the Australian housing market is different, that RBA rate cuts will spur a frenetic Spring selling season in Australia. As we saw in the United States this year, there is good evidence to suggest that will not materialize.

Australia's Coming Housing Tsunami

I used to think I was on the bearish side. 12 months ago, most would have seen my views as extreme. The more I read recently the more I seem to be drifting back to the middle. Take the following article on Australia's pending housing tsunami as an example:

The Land Down Under Is Going Under

It doesn’t matter how many surfers there are in Australia—the coming surge of home foreclosures and bank failures will pulverize the economy. No one will be able to ride out this wave.

It’s not so easy to get a loan in Australia these days. For the first time in years, the cost of borrowing is going significantly up. That’s not good news if you are trying to buy or sell a house. It’s not good news for Australian banks heavily invested in the housing market, and it is not good news for the economy.

When credit markets tighten and the cost of borrowing goes up, those who rely on debt to function end up struggling to keep their heads above water. But what happens when a whole nation relies on ever-increasing levels of borrowing and debt to operate?

Australia may be about to find out.

Financial conditions are certainly “tightening,” says Australian bank abn amro chief economist Kieran Davies. Official and unofficial interest rates are rising, and lax lending standards are being toughened. Others are a little more pragmatic. “We are in the process of bringing the curtain down on what has been a super cycle for the Western world’s financial institutions, which was built on the willingness of consumers to increase their leverage [debt] at fantastic prices,” says investment bank Morgan Stanley’s chief economist Gerard Minack.

“The escalation in leverage over the past 20 years is completely off the scale. It is bigger than the 1890s property boom and bigger than the 1920s. It is bigger than anything we’ve ever seen, and I think we’ve reached the limit of how far these trends can go. The unraveling will be extremely painful.”

Why are financial conditions tightening? Just as in America, Australians have spent too much, and their debt is backed by grossly inflated assets. The difference is that the Aussie crisis could be much worse.

Australians may be the most indebted people in the world.

As ludicrous as it sounds, according to the Australian, Australians have been compounding their debt at an average rate of 15 percent for the past 20 years. In 1988, the average household had debts totaling 32 percent of its income. Now the average is a massive 160 percent of household income. As a percent of gross domestic product, household debt has reached 177 percent, almost a world record. Meanwhile, wages have grown at less than a third that rate.

Even with the recent tightening—which included the lowest level of bank lending in 25 years in June—Aussie households have $95 billion more debt now than they did a year ago. That equates to an additional $4,611 of new debt on average for each man woman and child in the country—in just one year.

“It’s like a debt tsunami out there,” says Sandra Saker, who manages a Salvation Army Service for families in Sydney suffering financial problems. “Five years ago, the maximum debt people came in with was about A$200,000. Now we see people coming in with over A$1 million.” But all this shouldn’t be too surprising for Australians. Home prices have been going through the roof.

Housing Bubble: Soft Underbelly of the Economy

Australian homes are arguably the most expensive in the world by some measures—no small achievement considering the massive run-up in home prices in the U.S., the UK and elsewhere. Since 1999, the median house price has soared an amazing 140 percent.

Several indicators show how extreme home prices have become. The house price to average income ratio in Australia is approximately 6. That means that Australians on average are paying more than twice as much for homes as Americans were before their housing bubble burst (in the U.S., the ratio peaked at about 3). The Washington-based International Monetary Fund says Australian house prices are overvalued by almost 25 percent when compared with the homeowner’s ability to pay the mortgage.

Assessed as an investment, Australian houses are also very pricey. On average, rents earn about 3 percent, versus the standard mortgage rate of 9 percent—which means that if the house prices do not appreciate, investors go in the hole about 6 percent a year.

“By every metric I can think of, Australian houses are too expensive,” confirms Gerard Minack. He is predicting that prices will fall by 30 percent over the next two years.

If Minack is correct, and home prices are not sustainable, the economy could be in for a big shock. Rising property prices was the catalyst that encouraged consumers to increase spending and keep Australia’s economy expanding despite the “Asian Flu” in the late 1990s and dotcom bust in the 2000s. And the housing and related industries are what is largely powering the economy today.

Approaching Tsunami

Unfortunately, it is increasingly evident that Australia will not escape the housing bubble meltdown plaguing the Anglo-sphere’s two largest economies, the United States and the United Kingdom. The same factors that popped these economies—rising default rates, rising borrowing costs, and slowing economic growth—are in play in the island nation.

The wave is already breaking. House prices in every major city in Australia fell last month—the first time such an event has occurred since just before the Great Depression. Sydney, Melbourne, Brisbane, Perth, Adelaide, Darwin, Hobart, Canberra—all the big boys went down.

“I panicked” upon seeing the data, said John Edwards, chief executive of Residex Ltd., a company that tracks property prices. “We’ve been doing this for 20 years and have data that goes as far back as 1865, and it’s really abnormal.”

“Australia is headed for a once-in-100-year real-estate slump,” he says. “I have never seen the convergence of so many negatives.”

And when the housing market goes, the economy will really feel it.

At first it will be real-estate agents and loan brokers that lose their jobs as sales slow. Construction workers will soon follow, as property developers find that new homes are not selling either. Next it will be the employees at home improvement stores like Bunnings and others.

But that is only the beginning. Once the average home owner on the street finds out that his house is worth only three quarters or half of what it was last year, then things will really start to deteriorate.

People are not so free with their money when they think they are poor, and especially when they think they are going to get poorer. In fact, they do the opposite: They begin to squirrel money away. Once consumer spending begins to contract, then the housing contagion will spread into the general economy. People won’t be spending on flat screens, cars and vacations. Business profitability will fall, and then the job losses will really get under way. Those already announced by Qantas and Starbucks are a harbinger of many more to come.

The resource boom won’t save the economy either. As a percentage of gdp, the mining and related resource industries originate approximately 8 percent of the total economy. Consumer and government spending account for 74.6 percent of Australia’s economic activity (as of 2006) and absolutely dwarf the real wealth-producing parts of the economy.

“It is amazing that in the midst of the biggest commodity boom ever seen [Australia has] still been unable to get a current account surplus,” says Gabriel Stein from Lombard Street Research. “They have been living beyond their means for 10 years.” Even houses in resource-rich Western Australia are falling in value.

And don’t forget what a collapsing housing bubble could do to Australia’s biggest banks.

Sydney research company Fujitsu Consulting estimates that 923,000 households will face “mortgage stress” by September. That is up from last year’s survey that found only 171,000 that were having trouble repaying loans. Since there are 6.9 million Australian households with mortgages, an astounding 13 percent of the total market could be in serious trouble. Any guesses what those kinds of default rates could do to Australia’s leading banks? They could quickly resemble the Bear Stearns and Northern Rocks of America and Britain. The share prices of Australia’s biggest banks are already plummeting.

Surf’s up: A massive wave of debt-induced economic problems is about to break on Australian shores. And Australia is about to pay the consequences of years of too much “easy money.” As investment bank bnp Paribas currency chief Hans Redeker says, referring to Australia’s currency: “The Aussie is going down, big time.”

TheTrumpet.com readers are warned to head for high ground. Australia is in the same position that America was in about a year and a half ago—just before its housing problems set off the global credit crunch that has since rippled through the global economy. Begin by reading “Ending Your Financial Worries” and Australia—Where to Now?

I'm not agreeing with everything in this article but it is hard to disagree with a lot of the broad trends that have been outlined. Australians are up to their eyeballs in debt, that is clear.

The idea that Australia is different because we have a lot of rocks in the ground that asia needs is simply nonsense. We have particpated along with the rest of the world in the massive expansion of credit that has driven up house prices to ridiculous levels and we will most defintely particpate on the way down.

No Bottom For US Housing No Surprise

It's been a while since I posted on US Housing. However there were no surprises unless of course you were expecting a bottom anytime soon. Here are the details in brief:

Permits were down -17.7% from June to a SA annual rate of 937,000 and were -32.4% below July 2007. Permits for single family homes fell -5.2% from June to a SA annual rate of 584,000 and were down -41.4% from July 2007. The lowest level since August 1982.

Starts were down -11.0% from June to a SA annual rate of 965,000 and were -29.6% below July 2007. The lowest level in 17 years.

Completions were down -8.7% from June to 1,035,000 and were -31.7% below July 2007. Completions of single-family homes dropped -7.2% in July to a SA annual rate of 791,000, the lowest since March 1983.

Remember permits are generally considered a better indicator of building fundamentals than starts, which can be heavily influenced by weather conditions. The sampling error on permits is also lower.

Completions follow starts by about 6 months. The decline in permits in July suggests further drops in starts next month. It will be interesting to see if the bottom callers start making noises today, I'm betting they will be conspicuous by their absence.