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.
for Markets and Money
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Deep in the Stock Market Trenches
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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