Aussie Housing blowing Bubbles

I’m extremly busy at the moment. I’ll provide an update soon, but it the meantime I’m going to just link to some interesting things I would have written about if I had the time.

2 bubbles remain

from the Daily Reckoning- Australia

The Australian housing bubble seems to be getting a lot of press lately. The World Socialist Web Site (WSWS) has thrown a real left ball* with its article on the matter:

“Household debt in Australia is now a higher percentage of GDP than in the US. If Australia has so far dodged the worst effects of the global crisis, this is because its private sector has not yet-in stark contrast to the rest of the world-deleveraged, that is, reduced its ratio of debt to assets. Such a development could be triggered by a significant fall in house prices, the first signs of which might be now emerging. Despite the housing bubble, the number of mortgages entered into by owner-occupiers (as opposed to investors) fell for a fifth consecutive month in February and was 22 percent down from the June 2009 peak.”

* cross between “coming out of left field” and “throwing a curve ball”

Wednesday’s Daily Reckoning pointed out that even the heroic International Monetary Fund has decided to have its two cents on Australian property:

“In its Global Financial Stability Report published last night Australia time, the IMF wrote that, “The dramatic rise in residential property prices in recent years, especially in Australia, Ireland, the Netherlands, Spain and the United Kingdom has heightened concerns of an asset price bubble and thus the likelihood of a sharp price correction.”

A more reliable evaluation comes from Jeremy Grantham, who has done a detailed study of bubbles and concluded that two remain: The UK and Australian housing bubbles. Check out an interview of him here – but be warned the interviewer is awful. Grantham also has some harsh words for central bankers, which makes the interview doubly worth watching.

Gen Y is coming to their property buying senses and may be the first to stop buying into the sucker’s game of relying on capital gains and ignoring cash flows. But it may not be by choice. The Age reports:

“More young Australians see themselves as lifelong renters as the dream of home ownership fades, a new survey has found.

“The prospect of onerous debt has soured the hopes of more than half of generation Y members surveyed in a poll of new home buyers and perspective purchasers this month.”

Regardless of whether it’s a rational response to unaffordable housing, or just the end of a bubble, homeowners could soon be hit hard if Gen Y doesn’t start buying. Especially overleveraged and invested “home” owners. Funnily enough, gen Y might find themselves with relatively affordable housing when it’s all over. Hopefully the bubble mentality will have disappeared for good.

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2 comments

  1. Having left the Australian property market for good, if I could give any advice to GenY, it would be DON’T BUY!

    All they have to do is sit and wait for the bubble to burst, then they’ll be looking great to clean up the bargains that the previous generation have no choice but to sell.

    It’s really not rocket science. I just hope enough of them have the sense to sit pretty and trigger the bubble crash. It’s about time prices corrected Down Under. Banks have been getting rich for way too long.

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