I noticed in today's press that a large number of fairly expensive houses being put up for auction in my suburb yesterday and that all were passed in. The story was much the same across Melbourne. A plausible guess is that either those with big mortgages are trying to 'sell up' in anticipation of a possible housing price collapse or that 'smarties' are just trying to lock in tax free capital gains with thoughts of buying back more cheaply in a year or so time.
Several people have asked me what to do about the imminent recession and I have hedged the issue. I am not a qualified financial advisor and like most economists I do not know how the current crisis will pan out medium term. I do think that a recession in Australia is inevitable but the severity of this is unclear. Moreover, I agree with Gregory Mankiw that we cannot rule out a really severe recession - the D word is not redundant yet, although it seems unlikely given enhanced macroeconomic management prowess. The escape clause that it 'might' happen reflects ignorance of the current situation. Policy makers are guessing.
Most of the standard advice that I hear dispensed is that those with a lot of debt should lighten up a bit lest asset prices take a sharp further plunge leaving borrowers with hefty debts assets of diminished value. That sounds very plausible but, to be clear, this advice is:
(a) Possibly incorrect - with lower interest rates residential real estate may be more resiliant than we expect.
But this seems unlikely. There was pressure on house prices prior to the current financial crisis. There will be quite a few fixed interest mortgages held during a period where prices seem likely to slide a lot.
(b) Probably too late given that, as observed, the wealthy are already trying to 'sell up' without success. It will become increasing difficult to abandon the sinking ship.
(c) Socially disfunctional though individually rational given that it worsens the downwards pressure on prices of such things as real estate.
Meanwhile here is a cheery, optimistic very American guide to riding out the slowdown. Opportunities abound according to Business Week even though on balance you might lose your shirt. As a people Americans as a people are too optimistic - they need to understand that intent and resolve are not everything. Optimism is a bias.