Why an Australian Housing Crash Should Keep You Up At Night

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 Markets and Money

From the Archives…

The US Deficit of Deceit
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In Praise of the Eureka Rebellion
2012-06-19 – Dan Denning

What Could Possibly Go Wrong With Infrastructure Investment Bonds?
2012-06-18 – Dan Denning

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.

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6 Comments on "Why an Australian Housing Crash Should Keep You Up At Night"

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Tony Morris

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.

grindstone cowboy

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.

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… Read more »
grindstone cowboy

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.


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@#$

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… Read more »
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