Daily Voice News – Economic Collapse
Will housing bubble pop in 2017?
AUSTRALIA is in the midst of the greatest credit-fuelled real estate bubble the country has ever seen. When it pops it’s going to devastate the economy, and quite possibly take the big banks with it.
That’s the warning from Lindsay David, founder of LF Economics, author of Australia: Boom to Bust, and resident doomsayer of the Australian economy. But is he right, or have we heard this all before?
Since publishing his book last year, Mr David has made a name for himself issuing dire warnings about the coming property market crash and railing against the government and particularly the finance, insurance and real estate industries.
Since 1996, Australia has experienced a nationwide boom in housing prices, with real and quality-adjusted prices rising by 121 per cent to 2014, “the largest and most persistent price growth since records began in 1880”.
He claims there are clear parallels between Australia today and the US and Ireland pre-2007. “People think you’re crazy, but slowly but surely I see a lot more people coming around to the idea,” he said. “But when everyone knows there’s a bubble, it’s too late.”
When you can get better deals on vacant land in Malibu, California, two kilometres from the beach with a view of the Pacific Ocean than you can in Alice Springs, there’s something very wrong, he argues.
Between 1996 and 2014, housing prices and mortgage debt outpaced economic fundamentals like inflation, GDP, rents and incomes. “When you look at it today, between end of 1996 and 2014, household debt outpaced inflation at a rate of 10 to one,” he said.
He points out that new home buyers in Sydney will spend around six-and-a-half years worth of savings, assuming they saved 30 per cent of their income, for a 20 per cent deposit to buy a median-priced home.
Of 16 English-speaking cities, only residents of Vancouver spend more time saving for a deposit than in Sydney. Homebuyers in Melbourne, Adelaide, Perth and Brisbane will spend 5.78, 4.30, 4.09 and 3.97 years respectively.
The .9 trillion mountain of household debt in Australia has been fuelled by the “Irish-style wealth creation model” of home buyers and investors borrowing heavily from the banks to flip houses for the next buyer, who takes out even greater debt to speculate.
The biggest victims are young home buyers and middle-income earners who are either “priced out altogether or leveraged through the roof”.
“The more debt the banking system pumps into the market, the more home buyers it creates. When people wonder why there’s 20 people buying a house at auction, it’s because you’ve got more banks giving out loans,” he said.