The fallacy that Australia can continue riding the commodities train to untold prosperity built on leverage and cheap credit is quickly evaporating. House prices are inevitably following the same path in Australia as they have in other over inflated housing markets around the world. From the heraldsun:

Melbourne recession fear as property hit

PROPERTY values in Melbourne and every state have slumped, with more than 50 per cent of Australian homes losing value last month.

New figures obtained by the Sunday Herald Sun from property analyst Residex prompted recession warnings.

The last time all the states fell at the same time was just before the Great Depression and Residex chief executive John Edwards warned of tough times ahead.

"It looks as if we're moving into a one-in-100-year event," Mr Edwards said.

"To see an adjustment on a wholesale basis across the whole of the nation is incredibly unusual. Never in my life have I seen so many converging negative events."

Mr Edwards said the Australian property market had broken away from its normal pattern of interstate diversity that traditionally protected it from widespread downturn.

"It points to a situation where unless the Government and Reserve Bank take action, Australia could move into a recession," he said.

"The only other times this has occurred are before we've moved into severe recessions.

"I am a bit frightened by the numbers and . . . by the speed at which things are happening."

I think the speed with which the Australian economy is turning is going to surprise a lot of people including the RBA. Unlike the US, turning our economy around is not like turning the titanic, it can happen a lot faster.

The figures show negative capital growth for almost every urban and rural centre in Australia.

Houses and units, in Melbourne and country Victoria, lost value last month and in the last quarter.

The bad news is hitting the top end of the market as well as the middle and outer suburbs.

In Toorak, house values dropped 2 per cent in the three months to June compared with capital growth of almost 23 per cent last year.

In Brighton, Prahran, Mont Albert, St Kilda, Malvern and Glen Iris the data is similar, with house prices declining last month and in the past quarter.

In suburbs such as Port Melbourne and Richmond, which are strongholds for residential units, prices also have dropped over the past month and quarter, reversing the trend of last year.

Several bayside suburbs that are traditionally strong housing areas have also declined, with Mordialloc, Moorabbin, Mentone and St Kilda East and West suffering unit price falls.

Estate agents throughout Victoria said prices had fallen up to 10 per cent this year from the highs of 2007.

The market scare comes as bank interest rates continue to rise, further flattening a limp market.

Agents said the market was quieter now than during a normal winter and that buyers were sitting on their hands, even after inspecting a property that matched their needs.

Victorian property is now firmly in a buyer's market because the shortage of supply during winter is not generating competition among buyers.

The damning statistics add to a week of gloom for the economy, with figures showing housing construction has declined for the fourth consecutive month and demand for home loans fell 25 per cent in the four months to the end of May.

Soaring petrol prices, rising interest rates, the share market slump, increasing mortgagee sales, the rental vacancy crisis and housing affordability woes have been met with a drop in consumer confidence to its lowest level since 1992.

"There is no Australian family that isn't hurting," Mr Edwards said.

"If you have a mortgage, you're hurting. If you're renting, you're also hurting."

The Federal Government and the Reserve Bank had "dismally failed" Australians by focusing on inflation while failing to control credit.

"I think they need to let inflation run a little. That means adjusting interest rates down and they need to control credit," Mr Edwards said.

"It's too late to control it by interest rates.

"You control it by interest rates and you'll send us into depression."

The property market dragged its feet yesterday with an auction clearance rate of 62 per cent failing to excite vendors and estate agents.

Winter and the school holidays added to the market's woes as many buyers took a back seat at auctions.

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