Tuesday, August 22, 2006

Lessons from Australian housing boom?

Not the first article we've seen drawing parallels between the property booms in Australia and America, but Reuters serves up some interesting points in this piece, entitled "Australia's housing tale holds lessons for US".

Key points from the article:

1) While similarities exist among these property booms, it's likely that eventual outcomes will be influenced by differences between the two.

2) Goldman Sachs economists studying the issue felt a housing slump would have a more pronounced effect on the American economy.

"They argued that a downturn in housing would have a far greater impact on U.S. consumption than in Australia since American consumers had largely used equity withdrawn from their homes to fund spending.

While Australians had withdrawn just as much equity as Americans -- equal to about 10 percent of disposable income -- they spent far less of it."


3) Differences in the national economies. Australia is being kept afloat thanks in part to its strategic role in resource market. A bull market in commodities and natural resources is enriching the country and floating its share market higher. This has helped smooth over any losses suffered in the housing market.

"The global commodity boom came just as the housing market was tipping over and saved Australia from a likely recession," said Su-Lin Ong, senior economist at RBC Capital Markets.

"What will save the U.S. as their housing market turns? Consumers are in debt up to their eyeballs and fiscal policy is maxed out," she warned.

Interesting reading for anyone who has been following the "real-estate bubble" debate.