At this point the euro zone crisis is a well-bludgeoned, departed equine that doesn’t deserve a lot of ink. However, the knock-on effects just keep on coming and one of them is beginning to shake the very foundations of Australia… literally.
The euro zone did not so much fall into a new abyss, it simply failed to climb out of the last financial chasm.
After the crisis of 2008-2009, most economies steadied themselves for a moment. A few just kept spiraling down, including Greece, Italy, Portugal, etc. These countries have been in recession for years, trying to unwind the go-go days of credit-driven hyper-consumption that included buying new homes and gadgets.
While the drop in property prices in the PIIGS countries is well documented, what about all the other stuff they are buying less of? This is where the supply chain backs up… and overflows…
The euro zone is the largest single export market for China. As the euro zone slowed down, it bought less and less “stuff” from the cheap manufacturing hub of the world. The Chinese, ever ready to put on a brave face, kept manufacturing, even though their sales were slowing down. You can only keep this up for so long.
Apparently, “so long” came and went some time last spring. China is now firmly in a manufacturing recession and is posting industrial numbers last seen in the dark days of 2009.
So what do the Chinese do? They finally slow down their production, which means they stop buying as much of the raw materials they once needed to make all that stuff.
Who is a large supplier of natural resources to China?
Australia, of course, who weathered the recent downturn quite nicely due to its abundant natural resources and China’s seemingly inexhaustible demand. Now that China’s appetite has lessened, the Aussies are beginning to feel the pinch.
And no market in the land down under is more at risk than housing.
What Shoots to the Moon… Must Come Down Again
While the rest of the world experienced a property boom, Australia experienced a property moon shot, making the gains in other countries look like a speed bump. The ever-increasing profits showered on the small country as they sold their goods overseas fueled this boom.
When the rest of the world went bust, the Aussies just “dug a little deeper” and kept on moving. The country seemed all but untouchable, until now.
We are now getting more and more reports from our Australian subscribers about the lack of demand for housing, particularly along the gold coast. Properties used to sell quickly and for premiums. Now they languish on the market with little interest.
While moderately priced homes seem to be OK for the moment, the higher priced habitats are showing signs of strain.
For years we’ve warned our friends down under to sell their Australia property before the market implodes.
You see, the problem with real estate is that, unlike stocks, there is no readily available, liquid market that can be accessed on any given day. Instead, real estate requires a buyer to make a sizeable investment. If there’s any whiff of risk, a seller can find himself staring at a “For Sale” sign in the yard for months, or even years, as prices walk steadily lower.
Now, we are reaffirming our call on Aussies to protect themselves!
If you are of a mind to move, now is the time to take the plunge… while the market is still functioning.
As the global economic crisis deepens, real estate prices in Australia will most likely find themselves sinking ever lower, just as they did in the U.S. and other countries.
Welcome to the (declining Australia property value) party, mates.
Ahead of the Curve with Adam O’Dell
Australian Dollar Due for a Pullback
Currencies reflect the relative strength or weakness of a country’s economy.