House Price Crash

House price crash is a scary term, particularly if you owe a lot of money on your house because you borrowed money based on a estimate you were given as to its value.

The good news is the term house price crash is just a media name which gives a sensational description to house prices falling.

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If you went in to your property purchase with your eyes open you would know property prices can go up and they can come down.

That is a fact, perhaps what is more relevant is that over longer periods of time house prices have a consistent pattern of rising however there have also been periods of time where there has been a decline and some times even a sharp decline in value of house prices, depending on the severity of falls it is open to intereptation as to what consitutes a house price crash.

What is a house price crash

The normal reference for a description of a house price crash would be what happened to house prices as shown in the 1930's depression in the USA where the average house price fell over 30%.

Below is diagram from marketoracle.com which highlights what has happened to house prices in the last few years in both the USA and the UK, as you can see property prices rose by well over 100% in both countries in the years 2000 to 2006 but there was a substantial fall in median prices from early 2007.

This would also be considered a house price crash.

Australian house price crash

Will Australian house prices experience a similar house price crash ?

If house prices go down negative equity is bad news, especially when in Australia you consider the large number of new home buyers that have recently purchased property thanks to government incentives.

If a person has borrowed money to purchase a property and there was a substantial fall in house prices that person could be faced with a situation known as negative equity.

It is not hard to imagine how this would happen in fact it is a harsh reality for thousands of people in the USA where a fall in house prices has resulted in home owners with a bigger amount of debt or a larger mortgage than what is the estimated value of the property.

This is what was at the heart of the global financial crisis and it all comes down to house prices, because yes they do go down as well as go up.

Banks have been and continue to lend money to house and property purchasers to levels between 80 to 95% of the value of the property, this is fine while values continue to rise, but you can see the problem if house prices fall.

On a loan that was for 90% of the value the price only has to fall 10% and you are now holding an asset where your debt levels are the same as the amount owing.

When you consider house prices have tripled in most parts of Australia in the last 20 years it easy to see there could be a correction to more sustainable prices or levels.

Many property comentators in Australia are predicting a correction in property prices in Australia one who has received a lot of publicity of late is Steve Keen his blog http://www.debtdeflation.com/blogs/ raises many good points on the over use of debt in the Australian property market.

There will always be a chance of property prices falling after such a long period of capital growth, whether this will result in a house price crash is yet to be seen.