Guy Debelle of the Reserve Bank of Australia assures us that improbable events will probably not happen. Specifically, Debelle says the chance of a housing crash in Australia is, 'not something that keeps me awake at night.' We'll have whatever bottle of wine he's drinking with dinner!
Seriously though, why do we insist on bringing up the obvious fact of how ridiculously overpriced Australian housing is? Is it because we want people to buy shares instead of homes, so they'll need our share-tipping newsletters? Is it because we rent rather than own and are profoundly bitter and jealous? Or is it because your editor is a self-centered American projecting our American experience on an Australian housing market that we don't really understand?
It's none of those things. We write about an Australian housing crash because it's a threat to your financial wealth. That's it. It's one of those improbable financial events that have an oversized impact on your life if and when they happen. That alone makes it worth analysing and offering a contrary view on.
Besides, credit booms are always obvious to central bankers in hindsight. You can count on many in-depth stories into how it all happened by the same newspapers that derive revenue from the real estate, mortgage lending, and construction industries today. A little advance warning when you're in the middle of a credit bubble can prevent you from making a mistake it takes you years to recover from, if you recover at all.
And for what it's worth, the standard arguments made by the people whose professions depend on rising house prices - no oversupply, higher lending standards, low unemployment - aren't arguments for why housing can't crash here. They're only arguments (some of them not even valid) for why it hasn't crashed yet. No sensible person would dispute that paying half a million dollars for a house is crazy. At a national level, it's an enormous misallocation of capital and savings. But that's a story for another day.
Dan Denning
for The Daily Reckoning Australia
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About the Author
Dan Denning is the author of 2005's best-selling The Bull Hunter (John Wiley & Sons). He began his financial publishing career in 1997 and has covered financial markets form Baltimore, Paris, London and, beginning in 2005 Melbourne. He’s the editor of The Daily Reckoning Australia and the Publisher of Port Phillip Publishing.
Comment by Tony Morris on 9 July 2012:
The housing market slump in Australia is turning into a full blown crash. Walk into one of the 'Big Four' banks and ask for interest rates offered for term DEPOSITS. The time periods (TEN YEARS offered by ANZ and five years by CBA)and the comparative spread of rates for sums up to $2 million should be warning enough.
Comment by grindstone cowboy on 7 August 2012:
ah ah no way will there be a crash, governments wont let it happen. all theyre policies are aimed at keeping prices high. they stoke demand with first buyers grants, neg gearing,rent assistance then limit sellers with capital gains tax. any serious slump jack up fhg's , up neg gearing deductions to 200%, give all renters rental assistance , whatever it takes.
Comment by Baz on 20 August 2012:
Oh dear, poor old grindstone cowboy really is living in the twilight zone.
Just have a look at how much housing stock is already for sale, and not moving, and its getting worse as each week passes.
The government cannot save the day every time, they do not have the resouces to stop a crash of this magnitute, nor should they waste our tax $ trying to, in fact we are in this mess because they meddle to much in the market as it is.
This is a cycle and it must and will sort the market out and everyone just needs to strap themselves in and enjoy the ride.
Comment by grindstone cowboy on 13 September 2012:
ok so no one is buying but no one is selling either, mexican standoff . sellers are still true believers repeating all the cliches to themselves. theyre not making land anymore except apparently in spain, us etc. take a drive through the country towns ,heaps of abandoned and derelict houses owned by rich old buisiness farts and farmers. they prefer to let their places to rats and possums or burn em down than sell or rent for a embarrassing loss.
Comment by Trevor on 14 September 2012:
God forbid that housing should come down to a level where young people/families/singles and average people can actually afford a home. Property investment in these times is both stupid and immoral. But as they say, Karma will always bite you inthe a@#$
Comment by uggs on 9 January 2013:
There is no doubt that Australia is in the early stages of what will probably be the worlds worst housing crash, one thing is for sure it at the very least is going to drop housing prices by a minimum of 65%(have a look at big charts by steve keen)or possibly much worse. Governments will not be in control of this, in fact they are far less influential than most people would believe, but most people simply do not understand where money comes from in the first place so remember this, the borrower is always in the servitude to the lender. basically governments borrow money from banks with an interest bill attached. just ask the good old US of A who is going into 1.25 trillion worth of debt each year now standing at over 16 trillion borrowed mostly from the US federal reserve which uses this deceptive name but is actually a private bank that has nothing to do with the US government or its peoples. if governments printed the money we would not have to pay tax at all they could simply build eg a hospital with the money they printed and would be in no debt at all from this. These banks simply create the money out of thin air and charge you interest on it, housing loans included and whom said that we all live in an insane asylum called planet earth.