history repeating?

Always good to learn from history, particularly some of the finance stories coming out of the woodwork just prior to the GFC.

The following is an interesting article from Feb 2007 written in the US regarding housing and their rising mortgage default rate.

http://www.moneyweek.com/news-and-charts/economics/the-truth-about-us-mortgage-default-rates.aspx

Also note that at the time of this article the unemployment rate was nearing its lows:

http://www.google.com/publicdata?ds=usunemployment&met=unemployment_rate&tdim=true&dl=en&hl=en&q=us+unemployment+rate

This is interesting (for me anyway) as I always thought that rising unemployment would cause the asset deflation but apparently it would seem to be the other way around. Now, as rising mortgage defaults are the smoking gun I figured I'd have a look at Westpac's Basel II Pillar 3 report to see if there is a case of rising mortgage defaults here.

http://www.westpac.com.au/docs/pdf/aw/ic/Pillar3_Report_Sep09.pdf

You can see on page 17 that the number of impaired loans has roughly doubled for Westpac over the past year along with their losses, yes they did also increase their residential loan book, but only by a more modest 20%.
The next report for Westpac comes out around February 18th with updated figures, if the number of impaired loans has increased again it would be a cause for concern, a flattening or reduction would imply smoother sailing going forward.

The final thing to point out to anyone cheering for a 40% drop is the US unemployment statistics, when you have big drops in property prices you get sharply rising unemployment due to falls in retail spending/construction activity/banks merging or closing and so forth, if you don't have a job you can't get a property no matter how cheap. Be careful what you wish for, I personally would like to see a flattening or softening over several years.

Property Investors looking to get on here should keep their eye on the mortgage default rate as a good indicator of future outlook, another string in the bow if you will.