Contrasting housing data released in the US and Australia in the past day shows the extent to which the two economies differ at the moment.

According to data released by the ABS yesterday, house prices in Australia’s capital cities are still growing strongly. The data shows that the price index for established houses in Australia increased 3.1% in the June quarter 2006, compared with the movement of 1.1% in the March quarter 2006. Although the nation’s mining boom city, Perth, showed the biggest gain in the second-quarter (11.9% — a massive 35.4% for the year), each capital city recorded strong growth.

As reported in the SMH, the Housing Industry Association (HIA) said the figures confirmed an ongoing housing shortage, with an estimated shortfall of 25,000 dwellings across the country — adding weight to John Roskam’s contention (that high land prices are the fault of state governments holding back the supply of land.

Conversely, in the US new-home sales fell by 4.3% in July, fuelling fears that the US Fed has tightened the economy too far and a recession is imminent. US housing is now clearly on the retreat after five booming years, leaving builders with little choice but to reduce prices. In contrast to Australia, the declining value of US housing will decrease the amount of money available for equity draw-down, reducing consumer spending. The US housing boom over the past five years drove consumer spending and economic growth, and now fears are creeping into the market that we could see serious declines in those areas.

Some particularly grumpy analysts, for example Ed Leamer, director of the UCLA Anderson Forecast, say the soft-landing scenario for the US economy is now a “fantasy”. Also on the pessimistic tip, Merrill Lynch analyst David Rosenberg says the chances of a recession are between 40% and 80% in the coming year.

Although Henry pays heed to those fretting about the short-term future of the US economy, he is far more worried about the long-term picture — global trade imbalances continue to put the value of the dollar at risk, which could send US borrowing costs soaring.

Read more at Henry Thornton.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey