JonoP

Hah hah, yeah. It is worse than 49% for the larger players – Westpac has about 60% of capital secured against housing and I think capital reserves of about 9% of lending. So, a circa 15% drop in house prices will leave them insolvent. The Aussie economy is toast. It is not if but when….. When the banks become insolvent, the govt will have to underwrite them. And then we will see the ‘aussie miracle economy’ exposed in all its glory.

ING are a Dutch bank who were badly burned by the Iceland debacle. They appear to be planning to loose lots of money in Australia as well. The sheer stupidity of these organisations is breathtaking.

And another thought. When the Aussies go cap in hand to the IMF for a bailout (which they will have to a year or two after the Govt has bailed out the banks), I reckon the IMF might just make removal of negative gearing one of the conditions of the loan. As I said, just a thought........

Hah hah. a WHOLE 5000. That is a TINY number. Remind me, how many first time buyer grants were handed out in that period and how many 'investor' loans were approved? I fear the bulk of the purchasers were actually Aussie natives, speculating on house prices and using easy credit. This 'foreign investor' angle is just a myth propagated by the property industry to try to justify the unjustifiable bubble in prices. I have been in Fiji for a week. The tone in media has changed significantly over the course of that week. Reality is biting - the truth about the banks reliance on external funding is seeping out now. And Rudd appears to have killed the mining boom at the same time. Not long now......

And you of course can provide lots of examples of countries where there was little wage inflation and where house prices trebled in less than ten years and then leveled out? Thought not................

And it is even more established that assett price bubbles destroy economies, fool Talking to Aussies about house prices is like telling young kids to to touch a hot fire place. You tell them why it is a bad idea, and how much it will hurt them. But they do not listen and eventually they have to find out themselves the hard way. I cannot believe a whole nation are acting in such a dumb fashion. Maybe it is the quality of education in Australia? Oh well, I will keep on taking the money until the bubble bursts.

And Japan, and the UK, and Ireland, and Spain, And Portugal, And Lativia, and Lthuania, and Iceland, and France, and Bulgaria, and Dubai and and and....well, just about every western economy..... Australia is just two years behind the curve. To be fair, Australia IS different to the rest of the world......and the difference is that the debt levels are worse than the rest of the world. tick tock :-)

Here is the most succinct summary of how the property bubbles destroy economies I have yet read. It was penned by Willem Buiter, chief economist at Citigroup "The sovereign debt problems encountered by most advanced industrial countries are the logical final chapter of a classic 'pass the baby' (aka 'hot potato') game of excessive sectoral debt or leverage," Buiter said. "First excessively indebted households passed part of their debt back to their creditors - the banks. Then the banks, excessively leveraged and at risk of default, passed part of their debt to the sovereign," he explained. "Finally, the now overly indebted sovereign is passing the debt back to the households, through higher taxes, lower public spending, the risk of default or the threat of monetization and inflation." And that statement, in a nutshell, sums up why the Aussie property market is toast. Aussies have the highest level of personal debt in the world. And it is almost all property debt. Even with the much vaunted ‘return to surplus’ in three years time, the Aussie government will be crippled by the amount of debt they will need to take on to bail out the big four. http://www.marketwatch.com/story/the-second-debt-storm-hits-nations-2010-05-14?pagenumber=1

Hah hah, yeah, cause investors are the only people who can borrow enough for a deposit which will allow them to borrow enough to take out a mortgage. Bubble? There is no bubble here....! :-) And yeah, Mortgages maxed out in the UK at about 130K PCM at the peak of the bubble. So, when you scale to population size, about where the Aussies are now. Of course, at that point the UK had a 'housing shortage' - according to the housing industry anyway. Strangely, the 'shortage' seems to have disappeared, even though the UK has been building less houses than ever these last few years. I really am getting a tremendous sense of déjà vu here…… The one bit of sense in that last article that Bardon posted was the stuff about there being no housing shortage. There may CURRENTLY be too little housing to fulfill the amount of CREDIT demand that is chasing it. But the amount of credit can dry up overnight. As it did in the UK.

And there you have it. The frankly stupid statement that sums up all that is wrong with the Aussie property market. The only explanation for the guy penning a line like that is that he is thick. And people PAY for his advice? The people who benefit from high house prices are: Banks (temporarily) Developers (temporarily) Government Tax Collectors (temporarily) Home owners WHO NEED TO DOWNSIZE and buy a smaller house Investors (temporarily) The rest of the population of Australia, i.e the bulk of the populace, are disadvantaged by high house prices. Of course, many Aussies will using rising house prices as security against taking on mre debt. Perhaps this is what he means by 'benefit'? The guy is a knob.

Hah hah, that was a blip not a slump. I fear it was not the 'bottom of the cycle' that you may have hoped for. That is yet to come. And it is getting closer......... Did I see something about prices falling in china? http://ftalphaville.ft.com/blog/2010/05/06/222046/chinese-property-developers-begin-price-war/ That will kill the Aussie resources boom nicely. And did I see something about a sovereign debt crises in Europe? That should drive the cost of that capital the Aussie banks need to import even higher. 10% mortgage interest rates anyone? Of course, when the crash gets going properly, it will get really interesting. The Rudd government is spending money like water on the assumption that the good times will last forever. When the two trick economy (digging stuff up and selling the same house backwards and forwards to each other for ever increasing amounts of debt) grinds to a halt. They will need to find the money to continue to finance their commitments. I wonder what tax breaks they might look to remove to raise more money…..? Negative gearing costs how much a year? Is it $5bn or $8bn? I forget…. I would hate to be carrying loads of leveraged debt right now……….

Hah hah, I note the rather sad looking FTBs in the article photo have the usual flat screen TV/new furniture etc that we know and love from the housing crashes across the world. Wonder if they have any credit card debt as well well as an unaffordable mortgage.....?

Double post

And in return I thank YOU for subsidising the 40% tax relief I receive on my rent each month via LAFHA Of course, there is a difference, as when the crash starts, you will own the responsibility for paying back all the leveraged debt you have signed up for, whereas I will be on the first plane out of here. What was the headline I just heard on ABC this AM? Something about 90,000 recent first time buyers being forced out of their home by the recent interest rises….? Not long now….

They were never going to touch negative gearing when an election is imminent. I know that and you know that. The interesting thing for me is the impact negative gearing will have on Aussie government finances when the crash starts. Although my understanding of the topic is not great, it would appear that as investors start to lose more money on their houses (which will be standing empty) they in turn will try to offset this against their taxable earnings, which will mean the government will have to give more tax back to the investors, at the same time that government tax revenues are falling. That should prove to be the test of the longevity of the negative gearing model. And as for the Aussie super having $1 billion accumulated, that may be true. But, the super funds are NOT lending it to the banks via securitised mortgages – they view MBOs as too risky. Funny that. Which is why the Aussie banks are reliant on the international money markets (and this reliance will be their down fall, as we all know). But - back to the much more attractive topic of Vino - as a newbie Pom to the victoria region which Vineyards should I be putting on top of my list? And also - how the hell do you manage to combine visiting vineyards with the driving to and from them? This question has been puzzling me and I would love to know the answer?

Dunno about a global cult but it is very good.

Hah hah, as opposed to 'The Age' or the 'Sydney Morning Herald' or those other powerhouses of economic thought leadership you base your 'investment strategy' on? And Residex are almost certainly as bent as a bottle of crisps as well. They are telling you what you want to hear and I suspect you are paying them for the privilege. Nice! Globally, the ONLY people who think that the Aussie property market is healthy are: The aussie press (full to the brim of property adverts) The aussie banks (lets face it, the are screwed when the crash starts, 60% of their book is residential property…) The aussie analysts (who make money from selling market ramping reports to gullible numpties) The aussies realtors (no need to comment here…) The aussies reserve bank (who are either dumb or terrified I cannot make up my mind which it is) Soooo…..Bardon, you reckon (based on your theory of cycles) that this bubble will run until 2016. What if it does not? What is your exit strategy if, say, the bubble goes pop in 2011? I am curious…

It is not a big call. It is what the IMF, Economist and FT to name but a few are all stating. Australian Economy = Hubris. It is only the poor old Aussies that cannot see it. There again, Australia has never been famed for its economic prowess eh? Anyhow, you should not be so touchy about people having a pop at the Aussies. You should be more open minded. I do not mind people having a pop at the UK, especially where it is justified. And Aus has some really nice attributes. Unfortunately though, a high level of economic intelligence spread across the mainly bogan property investing classes is not one of them. Never mind though, the climate is lovely!

RP Data and Rismark are about as credible as Dick Fuld. As the ruins of the Australian economy are sifted through after the forthcoming crash, I expect a bit of attention will be focused on how they manipulated the market to their own end by blinding thousands of gullible Aussies with their bull$it. There again, this being the land of economic ineptitude and blatantly ramping charlatans, they get away with it. I suppose the media focus will be on why the four big banks went tits up. .

Congratulations! The Aussies are the winners You must be very proud!

I am struggling to identify this 'bubble' you speak of. Is is the little blip in the middle of the graph?

There was an amusing article I read on the way in to work this morning. News.com.au are publishing it here. This is classic bubble prose. When you first read it, it appears to across as all ‘oh, how terrible, something must be done, the poor indigenous purchasers’ However, When you deconstruct articles of this nature, what you get is: Estate Agents looking for a reason they can ‘justify’ the frankly farcical rises in house prices A strong ‘buy now or miss out forever’ message An evil scapegoat (the ‘foreign buyer’ that can be blamed for the poor FTB’s plight. But, most important of all, these articles are written to try to stoke a sense of futility around even thinking that the bubble can be calmed down. Hence all the waffling about lack of data. The reality is, every single person who imputed to this article wants the bubble to continue. It is classic disinformation. This type of bull$it was all too common in Europe/the US prior to the crash. One would have though the Aussies would have learnt…but apparently not. I am not sure if it is pride or lack of education/common sense that will be the root cause of the forthcoming Aussie depression.

You are kind of both right. Ireland is split in two. Northern Ireland and Sothern Ireland. Northern Ireland is part of the United Kingdom and still ruled by London whereas Southern Ireland is a republic, a country in its own right. You could call a Northern Irish person British (which they may or may not like depending on their religious allegiances) but you could not call a Southern Irish person British.

Calm down dear! It is only an internet post! And, although I have been living in Aus for over 7 weeks, I have not, until today, been called a Koala. So thank you for that. I feel it is a key step in my cultural integration. WRT to Aus house prices, it would be stupid to guess dates. As it has been said ‘markets can stay irrational longer than investors can stay solvent’. So I do not know exactly when it will happen. But the longer it takes to happen the worse it will be as your fellow Australians are digging themselves more and more deeply in to debt every day. Your countrymen hold the highest level of personal debt in the world. I turn on the TV and get blasted with ‘consolidate your debts’ adverts. House price multiples are way, way above long term average earning, multiples yet there is a sense of desperation to take ‘get a foot on the ladder before they rise higher. Your argument (I think) is that Aus will be saved by the resources boom. Well maybe, maybe not. To date the resources boom has not removed your requirement to import capital (which is what will ultimately get you) and quite frankly, you seem to be spending the proceeds of the boom before you actually get the cash. Your argument is that Australia can defy the laws of economics because, well, it is Australia. My argument is that it cannot. House prices are kind of periphery. I was right about the UK, Ireland and the US. I suspect I will soon be right about Spain. And within the next couple of years, I will be right about Australia. And by right, I do not mean that their house prices crashing, I mean their debt bubbles bursting. House prices will, eventually, fall as a result of the debt bubble bursting.

Northern Rock was killed by borrowing short and lending long. As will these two bit Aussie players. Or am I mistaken, are they getting all their funding from indigenous retail deposits as opposed to short term paper on the international money markets? It is funny really, the smaller Aussie banks have been screwed in the credit crunch as they were not govt guaranteed. So they could not borrow money (or keep their retail depositors) and thus they could not lend money. If you are a bank that cannot borrow or lend, there is not much point in existing. You could view this as their last desperate gamble really - relax margins, credit standards, whatever, just get that loan book moving……. Seen it all before in less bogan countries. Yawn.