Those few warning of a housing crash are “scaremongers” – now playing out in Australia.
By Lindsay David, Australia, founder of LF Economics:
Since the end of the Second World War, there have been more than 40 housing bubbles across the globe, and they all ended with a hard landing. One of the housing bubbles already written in the history books as one of the greatest of all time was the Irish housing bubble of the last decade.
And when you look through these history books (or YouTube for better entertainment), you find a remarkable trend between those who identified or failed to identify the forthcoming collapse of their housing bubbles.
And just as concerning for Australia’s case, it’s the arguments by those who deny the existence of a housing bubble in an attempt to justify the high and rising price of real estate. More specifically I am talking about Australia’s mainstream economists & bankers, politicians, central bankers, construction industry representatives and any other individual whose job it is to spruik the price of property and deny the existence of a housing bubble even when the data states that a housing bubble exists.
On the other hand, those few who argue the existence of a housing bubble always have one issue in mind: the irrational amounts of debt that households accumulate.
Now taking just a few minutes out of your life, watch this classic debate in Ireland between two Irish economists just before its housing market crashed. And ask yourself if the gentlemen sitting on the left (Jim Power) is making any similar arguments to justify the high price of housing in Ireland that the mainstream economists in Australia have been drilling down the throats of Australian society:[Wolf here: this video would be hilarious, now with hindsight, if it weren’t for the many tragedies the subsequent implosion of the Irish housing bubble caused . And of course, we’re now hearing the very same stuff once again in the US.]
If you believe the current state of the Australian housing market is any different to Ireland’s “Celtic Tiger” a decade ago, then you might want to think again. As per Morgan Kelly’s argument in the debate, rents were not keeping up with price growth, and Irish people were mortgaging their lives away. Same appliers in Australia. And believe me, Australia has built more residential dwellings than physically needed.
So why do economists get it so wrong when it comes identifying housing bubbles? It’s called “vested interest.”
Except for the local housing markets that have already crashed across a host of mining towns, Australians are currently caught up in the myopia of a housing bubble. Not one mainstream economist has come out of their shell to call it. And the same economists claim that those who are warning of a housing-price crash are simply “scaremongers.”
Yet these mainstream economists never analyze the data and facts these apparent “scaremongers” present to the debate. Those who are claiming that Australia will experience a crash in housing prices (or a housing bloodbath in my case) all are arguing the exact same issue that mainstream Aussie economists will not go near discussing, and that is the roughly $2 trillion in liabilities on the balance sheets of Australian households.
This is quite frankly a sum of debt that will never be fully repaid by Australian households to their creditors. And for house prices to rise or remain stable, homebuyers need to borrow a greater sum of debt than the previous round of homebuyers. If for whatever reason they can’t, then that’s it.
The unfortunate reality in Australia is that mainstream economists are more often than not either employed by, or are outsourcing their services to clients that have too much skin in the housing market game.
Lets face it, if an economist from a major bank were to stand up and publicly say something like, “Australia is experiencing a housing bubble, it will burst and send the Australian banking system broke,” there is a good chance that the economist would one way or another lose his or her job.
Because our banking system has been fueling the debt fire while the Reserve Bank of Australia and financial regulator APRA drive the Titanic Australian housing market into an iceberg. This is what happened in Ireland, and that’s what will happen across this whole nation in the not too distant future as the economic conditions continue to deteriorate further.
So while the mainstream economists of the Bogan Empire continue to preach the Celtic Tiger mentality, don’t expect anything different than the same end result. That is a bust. By Lindsay David, founder of LF Economics, author of Australia: Boom to Bust and Print: The Central Bankers Bubble.
Is Australia’s current downward spiral “the result of Libs talking down Oz Economy?” Not quite. Read… Australia’s “Black Swan Moment”
Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.