For the past few years, homeowners just about everywhere have been able to finesse life's problems by thinking "at least my house is going up." This home equity accretion allowed them to buy stuff on credit, safe in the knowledge that even as they maxed out yet another credit card, their net worth continued to rise. They felt smart and confident, in other words, and so, continued to behave in ways that the modern world defines as normal and natural.
But now that's ending. Home prices have stopped rising in many places, and in a few canaries in the financial coal mine, have begun to plunge. Here's what "plunge" means for Australians:
House prices 'falling by over $1,000 a week' in Sydney and Melbourne, Deloitte says
The boom time is over and we're now officially experiencing the "house price fall we had to have", according to Deloitte Access Economics's latest business outlook.
It has found what many had been predicting: prices are dipping as interest rates are rising, with our biggest cities feeling the winds of change most keenly.
"Our house prices here in Australia had streaked past anything sensible by way of valuation," said Deloitte partner Chris Richardson.
"Now, finally gravity has caught up with that stupidity and prices are falling.
"In Sydney and Melbourne, housing prices are falling by over $1,000 a week."
Prices had surged across the country over the past five years as historically low interest rates have driven Australians to load up on debt, while investors had also cashed in.
Not if, but by how much
Housing forecasts have gone from disagreement over whether home prices will fall to debates about how much they'll decline.
"There are more falls to come, particularly in Sydney and Melbourne, because the prices there got silliest and you're seeing a range of pressures on it."
Mr Richardson names three particular factors putting downward pressure on prices.
1.Banks are raising interest rates: "Even though the Reserve Bank has done nothing."
2.Banks have become cautious: "You've seen the banks being more careful with the loans they're giving. Those loans are slower and smaller than they used to be."
3.Less money from overseas: "Foreign buyers are a bit more cautious."
The Deloitte report reflects recent data from Thomson Reuters, which shows changes in the rate of residential property price growth, year-on-year.
A falling line in this chart doesn't necessarily mean prices are dropping - simply the rate of growth is slowing - but if it drops below zero then prices are technically falling.
The above chart shows that the UK - which had an epic housing boom along with, not coincidentally, one of the world's most extreme consumer credit bubbles - now has falling home prices. Australia just tipped into negative territory, with Canada right on the cusp.
In each country, a reverse wealth effect is kicking in. Homeowners are seeing their home equity - aka their net worth - stop growing, and in some cases, drop by shocking amounts. In Australia it's $1,000 a week, which is enough to darken the mood of pretty much anyone not in the 1%. A consumer with a dark mood is an unenthusiastic shopper, because new debt accelerates the decline in net worth.
As home prices fall, so, therefore, does "discretionary" spending. Australians will continue to eat and to air condition their bedrooms, but they'll cut way back on vacations, new cars, etc. And the debt-based part of the economy will suffer. This will cause stock prices to fall, knocking another leg out from under the average citizen's net worth and making them even less likely to splurge. And so on.
Credit-bubble capitalism depends on mood, which makes it fragile. That fragility is about to be on full display pretty much everywhere.