Disclaimer: The content from The Daily Reckoning Australia’s global cast of characters is their own view and opinion. It is not to be taken as investment advice.
Blame the Baby Boomers Again
It must be tough being a baby boomer. They get the blame for everything.
Not just for the population bomb, but demographic decline too.
Not just for global cooling, but warming also.
Not just for acid rain, but for rising sea levels too.
Not just for popularising recreational drugs, but for banning them as well.
For racism and political correctness.
For causing too high inflation, and too low inflation.
For pushing interest rates up, and for holding them too low.
For not saving for retirement, for using tax breaks to save for retirement, and for making saving for retirement compulsory.
Now the baby boomers are going to get the blame again. For the housing boom. And the housing bust. For lending too much, and then not enough.
First house prices rose out of reach for the millennials. They smashed their avocados in anger, as they had as toddlers 20 years before.
Now Australian house prices are tumbling, pulling the rug out from underneath anyone who managed to leap onto the property ladder.
It’s only a matter of time before the baby boomers get the blame again from people like Kate Moloney, 2012’s Property Investor of the Year. Here’s what she wrote in 2016:
‘In 2012, at the age of 24, Matt and I were crowned Australia’s Property Investor the Year (Your Investment Property Magazine)
‘Three years later, if we were to sell our properties, we would still owe the banks about three million of dollars (not including arrears interest and selling costs). We are currently in the process of sorting out the debts. The outcome at this stage is uncertain (despite living with financial cancer, happiness is a choice we make every day)
‘Life has been tipped upside down in the last two years. Goodbye success identity, can I have a new one, please? Ideally, my real one.
‘I live in Moranbah, QLD. Have been here for six years. The towns real estate market has dropped approx 75% in the last three years. The vibe is…depressing. Right now my mission is to shine a light on it and be of service to others in similar positions.
‘I have written a book called Bright Yellow Happiness its due out in 2016. I never wanted to publish it, but it feels like the right thing to do.
‘Despite “living with financial cancer” I am happy and empowered. I believe whole heartedly in personal development and empowerment. When they are combined with your everyday life, you become powerful, even in the face of challenging adversity.
‘Who knows whats [SIC] around the corner. At the moment, I am taking life day by day. My intention is to share Bright Yellow Happiness with the world in a soulful way, that’s true to me.’
It’s a devastating tale that’s being repeated across Australia today as property prices fall.
While the Moloney’s were busy building their property empire in 2012, as all true Australians were supposed to, I was warning about the dark secret growing on Australia’s bank’s balance sheets.
The authorities didn’t let me publish my analysis for long though.
Today, my warnings are mainstream news. The Australian Financial Review has the latest:
‘Property prices could ultimately fall by 25 to 30 per cent from their peak, marking the worst downturn since 1890, according to an independent equity market analyst who has modelled the impact of tighter lending standards likely to result from the Hayne royal commission.
‘Douglas Orr of Endeavour Equity Strategy, last year predicted property prices would fall 20 per cent. But he has now downgraded his forecast based on the "new revelation" late last year that all, or almost all, mortgages written between 2012 and 2016 had used the Household Expenditure Measure to assess borrower expenses. He warned of a rise in loan defaults as recent buyers found themselves in negative equity.
‘“Applying a more realistic benchmark would reduce the borrowing capacity of high-income householders by half, thus curtailing their ability to bid up properties”, he said.’
So far, the housing bust hasn’t impacted the economy much. But will it?
It’s only a matter of time before Australia faces a recession, a banking crisis and a devastating plunge in property and stock prices — something entirely new to Australians today.
No doubt the baby boomers will get the blame again.
But when will the property bust infect the rest of the economy?
It took America’s sub-prime crisis two years to strike home. House prices began falling in 2006. In 2007, hedge funds wobbled. In 2008, all hell broke loose.
Australia must be close to crunch time.
The banks know it. They are raising interest rates against the cycle and during a downturn. And they’re rejecting half of mortgage applications.
Gold’s price is at an all-time high in Aussie dollars. If Hayne’s royal commission were to recommend the appropriate fines for the bank’s misconduct, it’d leave the entire sector insolvent overnight.
Worst of all, this time around, Australia’s guardian angel is causing more problems than solutions.
I would like to leave you with this, from the Australian Financial Review:
‘Australian banks are generally safe, stable, well-managed, well-supervised and highly rated by international credit agencies who advise Australia’s global lenders.’
Until next time,