Home sales slump for 3rd month in a row PROPERTY SYDNEY

The number of new homes sold fell for the third straight month in July, a report shows, prompting calls for a new federal government to implement a three point plan to tackle the problem.

The latest HIA/Jeld-Wen New Home Sales survey of Australia's major residential builders showed that the number of new homes sold fell by seven per cent in July 2010, the third consecutive fall.

Sales were down by eight per cent over the three months to July to be two per cent lower than a year earlier.

HIA Chief Economist, Dr Harley Dale, said that the severe decline in new home sales highlighted the need for a new government to implement a housing action plan.

"There needs to be a re-doubling of efforts to reduce the impact of regulation, development charging, and excessive taxation on the cost of new housing supply," Dr Dale said in a statement on Monday.

"This action needs to include considerable federal level engagement, without which Australia's dwelling shortage will continue to increase, placing avoidable upward pressure on existing home prices and disadvantaging households seeking to purchase or rent a dwelling."

HIA wants the new government to state their commitment to pursuing three key policy priorities: a new housing cost reduction program, a housing and development ministry recognition and support for small business.

Detached house sales fell by 7.3 per cent in July 2010, while sales in the multi-unit sector fell by 4.1 per cent.

"Large volume builders assess that the confidence of people enquiring about building a new home weakened over the four month period to July. Clearly higher interest rates and the unwinding of fiscal stimulus have had a negative impact on new home building this year," Dr Dale said.

On a state by state basis detached new home sales fell by 12.9 per cent in Victoria, 7.6 per cent in Queensland, 3.1 per cent in New South Wales, and two per cent in Western Australia.

Sales increased by four per cent in South Australia.

Prime minister Julia Gillard and her Labor government are in caretaker mode since last Saturday's federal election resulted in a hung parliament.

Ms Gillard and opposition leader Tony Abbott are in talks with five lower house independents and one Green about forming a government.

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New risks threaten house price bubble - Property Sydney

Gerard Minack, a senior economist at Morgan Stanley, predicted two years ago that house prices were set to experience a dramatic 30 per cent fall by this year given rising unemployment.

''Australian houses are much more overvalued than US houses; indeed, on some measures, our houses are arguably the most expensive in the world,'' Minack said.

''My very simple take on it - the bigger the bubble, the bigger the pop.''

But with no snap crackle or pop, and debate still raging whether there has been a bubble, Minack last week revised his script to envisaging the bubble deflating, not popping.

''Dodging the worst of the global financial crisis didn't demonstrate that there's no bubble. In my view it just showed we dodged the prick,'' he said.

''I'm not persuaded by arguments that houses are sustainably priced. Most measures suggest house prices are around 40 per cent above fair value. However, the risk of big price declines in the near term seems low.''

Minack points out that much of the discussion about the residential market future overly concentrates on owner occupiers despite a jump in taxpayers reporting rental income jumping from 608,000 in the late 1980s to about 1,765,000 now.

He notes the percentage of landlords claiming a rental loss (that is, rent not covering interest and other costs) has risen from 50 per cent to 70 per cent over the past decade.

With broad-based job losses appearing unlikely, Minack now sees the more imminent risks to property price growth as the

banks tightening credit and negative-gearing landlords departing the market due to low capital appreciation.

Ignoring the fact that investment property for many is their nest egg in the absence of superannuation, Minack envisages property investors becoming disillusioned with the ensuing widespread disposal of their investments. ''This is an investment that depends on capital gain for its payback. With net income not even covering interest charges, this is a classic Hyman Minsky Ponzi scheme,'' he says.

''The real return on residential property over the next decade is likely to be negative.''

Minack also took aim at the Reserve Bank deputy governor, Ric Battellino, who recently said that 75 per cent of household debt was held by the upper 40 per cent of income earners.

''It is simply wrong to assert that rental properties are largely owned by high-income households: losing on residential property investment is largely a middle-class affair,'' Minack writes.

''Taxpayers who earn $80,000 or less own 80 per cent of all loss-making properties.''

His 10-year negative return timeline forecast is offered without explanation. But the prospect of a price plateau rather than a pop is a much more plausible position for Minack to now embrace. This is especially so for Sydney which recorded a slump and then negligible price growth for many years after the last investor-inspired boom that peaked in 2004.

Some further excessive froth in Sydney pricing that was evident by late 2007 and early 2008 was removed by the global financial crisis fall-back.

It wasn't until late 2009 that Sydney's median house value finally surpassed the $568,000 peak of early 2004, according to Australian Property Monitors. At its worst, during the global financial crisis, the median was 6.5 per cent off its earlier peak. It's now at $625,000.

But Minack, who lives in Mosman, has only to sound out another economist, Stephen Koukoulas, to know that many neighbourhoods across Sydney are going nowhere fast.

Koukoulas, now based in London as the chief global markets strategist for TD Securities, sold out of Mosman earlier this year for $1,175,000. The Mosman house had traded at $1,285,000 in 2007.

Mosman's pricing is problematic, but Minack's abandonment of his bubble pop forecast is especially intriguing as Melbourne's price juggernaut has put it in a more precarious position than Sydney.

Melbourne's dwelling price growth over the past decade sits at 174 per cent compared with Sydney's 83 per cent, according to Australian Property Monitors.

Over the past five years it has been 66 per cent in Melbourne and 17 per cent in Sydney.

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