Indeed – at least in nominal terms, as inflation will eat away at the real value of the property anyway.

As a result, the movement in the housing market will depend on a number of factors, such as how much financial stress homeowners are under, and what proportion of property is owned by investors.

“We cant just keep selling each other our homes in order to make a continual profit (again as we saw in the US) at some point the pool of potential buyers drys up and the market stalls”

Which is what we are seeing around the world now – ultimately prices have moved out of line with fundamentals, and we are going to see some sort of downwards movement (in real terms).

One issue I didn’t see addressed above is the decidedly un-commodity like nature of housing. It’s a slow moving beast driven in large part by emotion – nothing like the forex market or oil futures etc etc. As we saw in the U.S. home owners tend to hang on to outdated ideas of how much their home is worth irregardless of what the market is saying. If they can and do hold on long enough then perhaps the market will agree with them eventually. Perhaps this is contributing to the lower amount of stock available as owners sense its a buyers market and prefer not to list.

Another issue worth exploring is at what point housing becomes affordable within a given metro area based on median household income. We cant just keep selling each other our homes in order to make a continual profit (again as we saw in the US) at some point the pool of potential buyers drys up and the market stalls.

Well that depends on whether society values the welfare of those that don’t own property more than those that do – as fundamentally it is just a transfer.

The reason I said it would be a good thing is because it would imply that the downward correction in the housing market would be slower and longer – rather than sudden and sharp. A slower correction would have less of an impact on consumer confidence – and as a result would not push the economy into a recession (by causing a sudden sharp reduction in aggregate demand – hard out Keynesian style).

Good on the real estate blog for going out there and calling a turning point – if they are right then it will be a very good thing 🙂

Wouldn’t it be a better thing if they fell to a better affordability level (eg) 3 times the average wage?