Forced End of “Ponzi-Like Leverage” & “Fraudulent Lending” Turns Australia’s House Price Bubble into “Property Bloodbath”

What banks & housing markets in Sydney and Melbourne are facing in 2019.

As investors are fleeing Australia’s housing bust, sales of new houses have plunged to record lows, and home prices in the Sydney and Melbourne metros have dropped 12% and 9% from their respective peaks in mid and late 2017. Combined, the two metros account for about two-thirds of residential property value in Australia. A two-decade-long housing boom, interrupted by only a few minor dips, led to two of the most magnificent housing bubbles in the world, and they’re not “plateauing” or anything.

The over-ripe bubble was pricked not by rising interest rates – the Reserve Bank of Australia’s policy rate remains at record low – but when bank regulators finally started to crack down on some of the bank-lending shenanigans required to inflate that kind of bubble, and when the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (RC) was established in December 2017 to investigate those shenanigans and then started “revealing an epidemic of crime.”

“The financial regulators, APRA and ASIC, have now been sufficiently embarrassed by the findings of the RC to force banks to adhere to responsible lending obligations,” writes Lindsay David, of LF Economics, in a report on the headwinds that the market and the banks face in 2019. The regulatory crackdown “restricts lenders’ ability to conduct business as usual,” he says, and this has “resulted in a credit squeeze.”

Speculative investors who purchased more recently have been impacted the most. Some of them may try to sell either because they fear further price drops, or because they “have been caught out in the tsunami of IO [Interest-Only] loan resets.” But selling at survivable prices will be tough, as buyers at those prices have evaporated, “primarily due to stricter loan serviceability requirements,” as a result of the regulator crackdown, writes Lindsay David who has for years been warning about mortgage fraud and the now unfolding housing bust in Australia.

“These developments risk turning the current minor credit squeeze into a looming credit crunch,” he says in the LF Economics report.

The “so-called ‘property bloodbath,’” he writes, “is the inevitable outcome of the irrational exuberance driven by debt-financed speculation that has seduced and mesmerized a large proportion of society into becoming over-leveraged.”

And the report points out how some of the banking shenanigans contributed to the bubble on the way up, and how curtailing them is contributing to the downturn now:

Australia’s house price growth model revolved around Ponzi-like leverage, with lenders systematically accepting the unrealized capital gains of a property as a substitute for a cash deposit to borrow to purchase another property during the boom period. This has resulted in many property purchases using 100% financing, forming a clearly excessive cohort of speculative buyers that otherwise wouldn’t exist if lenders had adhered to responsible lending obligations.

The declines in Sydney and Melbourne house prices since the peak in 2017 have diminished some of the unrealized capital gains, leaving speculative property buyers, particularly those who recently purchased, at or close to negative equity. Without enough unrealized equity to make a large so-called cash deposit, this cohort of buyers will increasingly be shunted to the sidelines with no ability to purchase.

The report by LF Economics then lists a slew of headwinds that will put further pressure on this still over-inflated market as it heads lower and on the banks. Here are some of them, quoted from the report:

Mortgage application rejections: The rate of rejections has skyrocketed by over 1,000%, half of all new applications are rejected, 90% of those with pre-approval have their loan sizes reduced and refinance rejections have increased from 5% in 2017 to 40% in 2018. This is the outcome of the RC prompting lenders to abide by responsible lending obligations. With credit becoming tighter, rejections are likely to keep on rising, causing some potential borrowers to wait on the sideline.

Interest-only-loan reset shock: Approximately A$120 billion in IO loans will reset to principal-and-interest (P&I) loans over 2018, 2019, 2020, and 2021, tapering off thereafter. Banks and regulators have already softened their stance on these borrowers, allowing some greater time to sell [the property] or extending the IO period for a while longer. Nevertheless, with debt repayments rising anywhere between 20% to 50% upon conversion to P&I, many recent borrowers will be placed under considerable financial stress.

Class action lawsuits: A supportive legal and financial environment for class action lawsuits has hit fertile grounds with the RC revealing widespread criminality and misconduct in the financial services industry. Driven by the profit motive, experienced litigators will fund numerous class-actions on behalf of those harmed by the industry. In doing so, this may bring more criminality to light, reduce industry profitability, and force banks to adhere to the rule of law in a way the captured regulators have not done in decades.

Foreign buyer exodus: China is the largest source of foreign investment into the housing market, in terms of both the number of purchases and value of investment. With China’s central government ramping up capital controls to stem the outflow of capital and imposing jail time for those facilitating such flight, purchases of new and established dwellings have fallen considerably. Furthermore, there is mounting evidence the Chinese government is now forcing the sale of properties owned by nationals and repatriating foreign currency back to the homeland. This will particularly affect the off-the-plan apartment complex market.

Rent slowdown: The annual growth in nominal rents is very low and negative in real terms. Sydney is particularly affected given that nominal dwelling rent growth is falling by -3% annually and more so in real terms. With current construction rates delivering a considerable flow of new houses and units, nominal rents will continue to decline into the near future, harming the balance sheets of investors, especially those who are heavily negatively-geared [investors with rental properties that have negative cashflows whose only hoped-for benefits are capital gains and full tax deductibility of losses].

Construction faults: With the Opal Tower and aluminum-cladding scandals, the media and public have become more aware of the veritable plague of construction defects within the mass of apartment complexes and townhouses…. OTP [Option to Purchase contract] buyers may choose to relinquish their deposit rather than purchasing a potentially defective dwelling and bearing the future costs of rectification. In some cases, rectification costs are greater than the purchase cost of the complex, leading to an expected negative value.

Expense benchmark crackdown: The RC indicated that lenders could not rely solely on expense benchmarks such as the HPI, HEM and internally-derived estimates [to determine if ongoing household expenses render a loan unaffordable]. Lenders must perform due diligence and obtain verified expense information from borrowers. This will significantly reduce the maximum loan size that can be originated, given such benchmarks have woefully underestimated actual expenses of borrowers, often by half or more.

Comprehensive Credit Reporting: CCR is currently 50% active and will be 100% active by July 2019 as lenders are obliged to provide relevant borrower data to credit agencies…. It also allows lenders to take into consideration any and all existing debts of borrowers, such as a Smart Loan.

Bank funding and capital raisings: International money markets have provided remarkably affordable funding, enabling lenders to originate large and risky loans. But they now face cost pressures. If house prices continue to fall, there are risks of credit downgrades stemming from lower profitability and rising non-performing loans (NPLs). This will likely cause wholesale funding costs to rise, particularly short-term rollovers and future hybrids, or other capital offerings despite backdoor coverage by the RBA. APRA is also requiring the major banks to raise tens of billions of dollars more to boost Tier 2 capital buffers, diluting earnings.

For 2019, LF Economics anticipates nominal house prices (not adjusted for inflation) to drop between 15% and 20% in Sydney and Melbourne, on top of the drops suffered in 2018 and 2017. “While forecasts of -20% falls in a calendar year alone may be dramatic, some commentators will point to the significant run-up in prices over the years,” Lindsay writes. “This fails to note that housing is not a simple unleveraged ETF; it is a highly-leveraged play, amplified by fraudulent lending practices and Ponzi finance, with implications for financial stability on the downside.”

And CoreLogic of Australia is getting outright gloomy: “Can we still describe this as an orderly slowdown in housing conditions?” Read… I’m in Awe of How Fast the Housing Markets in Sydney & Melbourne Are Coming Unglued

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  111 comments for “Forced End of “Ponzi-Like Leverage” & “Fraudulent Lending” Turns Australia’s House Price Bubble into “Property Bloodbath”

  1. MD says:

    Their economy maybe nearly totally dependent on China (problems ahead with that, too) – but they’re about to learn a lesson the Japanese learned 30 years ago. Same in London, and not a few other places.

    ‘Implications for financial stability’ – indeed. But that’s the inevitable consequence of rampant speculation and gambling predicated on cheap credit. Once the bigger fool is no longer there to buy, the unwind is spectacular.

  2. 2banana says:

    8-10x income to buy

    40:1 leverage

    Zero downpayments

    Full recourse loans

    Economy tipping into a recession

    How badly is this going to end…?

    • Shawn says:

      I should ask the lower to middle income Aussie family who bragged to us about owning three houses in Sydney, how are they doing. I suspect for them it’s going to end very badly.

  3. Rosebud says:

    Australias baby boom peaked sooner than in North America. 1960/61. So if fertility rate correlation is economic causation, as Harry Dent surmised, a housing bust is coming elsewhere.

    • MD says:

      The bursting of speculative, fear-and-greed (and fraud…) driven asset bubbles has nothing whatsoever to with age or demogaphics…once the price of said massively-overvalued asset starts to fall – ie, it becomes a liability – then people stop buying it, for reasons which are obvious to even a small child.

      As true for houses as for tulip bulbs.

      • 2banana says:

        Even more with housing purchased on the greater fool theory on the way down…

        A tulip doesn’t have property taxes, maintenance, insurance, squaters, utilities or need for the lawn to be mowed….

      • Rosebud says:

        As someone who was born in January 1962, and lives in his automobile for the greater part of 6 years, i couldnt disagree with you more.

      • Add to that the Chinese never buy into any falling markets of any type. The Chinese only buy into rising markets. This is what needs to be told to the homeowners in Australia who’ll lose everything by not listing and watching home prices falling another 30 to 40 percent. Home prices rose from $600,000 to 1.2 million since 2012. Prices have fallen back to the one million dollar market and without Chinese buyers prices will retract to the $600,000 mark.

    • Rabbi Putin says:

      Rampant immigration (the supposedly legal kind) has swelled the bubble. Of course boomers and Xers are still to blame because they cheered on the immigration.

      • alex in san jose AKA digital Detroit says:

        Rabbi you’ll have to apply the law of “cui bono?” or “who benefits?”. Our present administration rode into place on anti-immigration sentiments, and our working class does not benefit from a flood of immigration one bit. But the big business owners love it.

        • WES says:

          Alex: Add in foreign money laundering! That hurts local’s ability to afford a home too.

  4. nick kelly says:

    The model for Oz may turn out to be Ireland. The banks were so overloaded with sour loans they would have collapsed without the gov guaranteeing them. The guarantee for a monster loan from the EU was apparently faxed from a pub.

    Lesson for Oz: courtesy of Irish econ Prof Morgan Kelly who predicted the crash: you just have to guarantee deposits, NOT bonds.

    • Les Francis says:

      Deposits in the big 4 banks are gauranteed up to AU$ 250,000.

      Responsible lending practices will crash the housing market. Already been stated by analysts.
      The government is already wiggling out of the interest only loan boondoggle. Relaxed requirements.

      Housing prices have grown by more than 50% in just a few years. What goes up will come down. The political problem is all those holding overvalued property. 11% of mortgages are already “officially” underwater. A few more percentage point drop of prices will see those underwater loans rise to 20%+. Then the fireworks will start.

      • HowNow says:

        It’s inconceivable to me that people in the finance and banking industry did not know that interest only loans, for long-term debts, could only be inflationary – that is, it would INFLATE home values – and that those home prices would inevitably hit the fan. That’s equivalent to a medical doctor prescribing narcotics to a patient with no pain. That medical license would be pulled.

        Piaget studied levels of intellectual development from infancy on. I wonder what happened to the banking industry? It went in reverse. Will regulators be dispatching diapers to the boardrooms?
        Really… how friggin’ stupid was that – interest only loans for million dollar properties?

        • Javert Chip says:


          This kind of crap, regardless where it occurs, is both a banking and regulatory failure (it’s called “regulatory capture”), and it’s happening in a neighborhood near you.

          The question asked in your comment (” Will regulators be dispatching diapers to the boardrooms?”), seems to indicate a common & naive misconception: only bankers do “bad” stuff and humble but virginally-pure regulators will step in to save the day.

          Of course all this is politically driven: any regulator stepping in at the beginning of a bubble to protect the longer-term (aka: longer than the next election) will receive exactly zero support from politicians. In the mean time, bankers are 100% back-stopped by taxpayers, and bubbles continues until it collapses of their own weight.

  5. OutLookingIn says:

    Australia and Canada now in the same boat. Troubled water.
    We are witnessing the roll over of 2 real estate bubbles.
    The recent drought in Canadian real estate sales, makes it the longest negative streak since… you guessed it 2009! This amid a general countrywide roll back of real estate prices, wiping out the past 2 years of gains.
    The Canadian government along with the Royal Bank of Canada, are so concerned that they are looking at lengthening mortgage amortization for first time buyers. Making it cheaper in the short time to buy, yet paying more long term because of interest expense. It looks like the Canadian consumer is not biting, because of the huge amount of household debt load they are carrying.

    • nick kelly says:

      It is very common to lump Oz and Canada together.
      Yes both have overextended RE, but I suggest the liar loans are a larger % in Oz.

      Apart from being significantly larger than the Oz economy the Can economy is more diversified.

      For example: ‘Canada is currently the ninth-largest auto producer in the world, and fourth largest auto exporter by value, producing 2.4 million vehicles and exporting $48.8 billion worth of vehicles in 2016.’

      Yes there are plants closing but no one sees production ending as it is in Oz. There are also very large parts outfits; e.g. Magna.

      BTW: I am not proclaiming higher virtue in Canada. The geography is very favorable for supplying raw materials to the US. Apart from the forests this is the main factor in making Canada the world’s largest exporter of pulp and softwood (34 B in 2016)

      • OzMan says:

        “Yes there are plants closing but no one sees production ending as it is in Oz.’

        Days (Years) late on that comment – there haven’t been any autos produced in Oz now for a long, long time.

        • zoomev says:

          Not even a cottage industry?

        • Julian says:

          I wouldn’t call it a “long long time”. Auto production in Oz stopped in October 2017 which would be about 16 months ago, so nearly 1 1/2 years ago.

          Maybe your timescales are different, but for mine I don’t consider the last quarter of 2017 “a long long time ago”. I’d go back at least a decade or two!

    • Paulo says:

      As they say, RE is local. As I have said in the past, Vancouver stats and TO skew the numbers for Canada. Prices are definitely not dropping on Vancouver Island as the flood of retirees and weather refugees continue to push the market. Example: Father-in-law bought a lovely home in Campbell River 5 years ago for $320,000. It is now worth approx. $530,000. A house in this price range sells very very quickly; days to a few weeks. Where I live, about 45 minutes west of CR, there is 1 house for sale and 1 piece of property. 10 years ago there would have been 20-30 for sale, some for years. A guy down the road just sold a shack on Facebook, (FB for God’s sake), and the guy who bought it probably paid 100K more than it was worth.

      Coincidentally, some Aussie friends will be selling their estate here this spring, and are moving back to Australia. Homesick.

      and: OT
      As per the post the other day, (I’ve been away), I would definitely buy a subscription to WS by the year. This is the only site I would do so.

      • jon says:

        Paulo, You’d need to wait for sometime to see the clear pic.
        Although real estate is local but impacted by global events..

      • Matt says:

        Prices aren’t dropping on Vancouver Island?! Your data is about a year out of date, my friend. Check out Garth Turner’s blog at

    • The lengthening of the mortgage amortization from 25 to 30 years may only be for first time buyers. It’s said it will give the first time buyer 12 percent more buying power. So after the April budget home prices in the GTA will push upwards again while the entire Vancouver area continues to fall.

  6. kevin brown says:

    You can add NZ to the Aussi property bust. Exactly same thing here, people borrowing way too much relative to incomes. Also our mortgage market is dominated by the big 4 Aussi banks especially ANZ group which is the biggest mortgage lender in NZ. Prices are down about 10% yoy in Auckland. Kevin Brown

  7. kk says:

    The wizard of oz’s secret was, of course, that his power was all smoke and mirrors. L. Frank Baum wrote the story as a metaphor of America’s economy in 1900 (the yellow brick road being the gold standard, the slippers were to represent coming off silver etc). Looks like Oz is in a world of illusion.

  8. kam says:

    Australia’s economy grew faster than W.C. Field’s could chug a cold beer, directly due to the China economy gaining all the U.S. jobs and the Central Banking trickery of the “Wealth” effect for the anointed and the poverty effect for the unwashed.

  9. Stephan in NY says:

    Great reporting. I just looked up homelessness and vacant units for Australia and found out the following:

    Homelessness is up quite a lot since 2011 in major cities:

    – up 48% in Sydney
    – up 36% in Darwin
    – up 32% in Brisbane

    Should note that 27% of Australian homeless are children.

    In terms of vacant units, I saw a report claiming one in 10 Australian dwellings are empty, half of all Chinese buyers leave their properties empty and Chinese buyers in New South Wales bought up one quarter of the new housing supply.

    Now I know that things tend towards the extreme before people notice, but I fundamentally feel that after awhile you just have to say the government is slacking off its moral obligation to provide for its people so that it can sell off the country.

    • OutLookingIn says:

      The 3 life sustaining staples:
      Any government that fails to provide the above, will fail. Sometimes peacefully, often times violently. As the French aristocracy found.

      What do the people want?
      Bread Madame.
      Then give it to them.
      There is none Madame.
      Then let them eat cake.’

    • Javert Chip says:


      %age without absolute numbers are meaningless (speaking as a retired CFO):

      o you quote a 48% increase for Sydney homeless with no absolute numbers. Hypothetically, if you started from a base of 2 homeless, growing to 3, that’s a 50% increase.
      o you hypothocate a governmental moral obligation to provide for the homeless; how about a moral obligation for the homeless to get a job (or to institutionalize mental cases)? ps: I flipped burgees to get thru college, so I know what “unskilled labor” is all about – been there & done that.

      Yes, I understand there are homeless individuals. Based on what I saw as a resident of San Francisco, the periodic “census of homeless” was about as accurate as counting angles on the head of a pin. With San Francisco’s new tax & homeless count, the per-capita homeless expense is about $40,000. Of course, a huge %age of this is absorbed in “bureaucratic overhead” (AKA good paying San Francisco government jobs).

  10. Unamused says:

    “Capitalism is the extraordinary belief that the nastiest of men, for the nastiest of reasons, will somehow work for the benefit of us all.”

    – John Maynard Keynes

    • HowNow says:

      Sounds right, but, whomever said it knew a thing or two about memes…

    • Dan says:

      Well, all this money printing that has caused all the bubbles right now are the result of Keynesian economists in centrals banks. So, John Maynard Keynes certainly didn’t provide a better alternative; in fact he provided a far worse alternative.

      • Unamused says:

        You have been woefully disinformed, Dan. If you knew anything at all about Keynes, you would know that he would not have approved of these policies. You’d be better off getting honest information and not merely flail at convenient scapegoats.

        • kam says:

          Keynes did open the door for deficit spending. And he provided little guidance for the optimum formula for “pump priming” for any given economy. And especially for an economy where “government” is the largest single actor.

      • Javert Chip says:


        You & Dan are not arguing over the same thing:

        Dan is correct in the modern definition of what is called “Keynesian economists”.

        Unamused is correct in that “… Keynes… would not have approved of these policies”.

        The modern version of “Keynesian” has ben materially distorted by politicians.

    • Javert Chip says:


      Yea, but hardly anybody, except socialists, believe that statement.

      Adam Smith’s quote “I have never known much good done by those who affected to trade for the public good” is more on target.

    • nick kelly says:

      Well I don’t know if I’d say all the work by Jobs, Wozniak, Gates etc . on the INVENTION and development of the micro-computer was ‘nasty’ but I think it’s safe to say the profit motive played a part.

      That’s why I can comment with a 2 nd hand computer that cost $200
      that has way more power than a million dollar mainframe when the kids started.

      And puleees don’t try and say this was done by govt labs or something.

  11. Debt Wazoo says:

    > Furthermore, there is mounting evidence the Chinese government is now forcing the sale of properties owned by nationals and repatriating foreign currency back to the homeland.

    Hi Wolf, extremely interested in the source/evidence for this.

    Not doubting it, just want to know the mechanics. A move like this will have massive effects far beyond just Australia.

    Spill those beans!

    • Wolf Richter says:

      I will ask Lindsay David of LF Economics, whose reporting this was.

    • Mark says:

      Hi Debt Wazoo, you would have been interested to watch this week’s edition of “Four Corners” on ABC TV. “Interestingly”, this episode is NOT listed on their website. There may be some “problem”, and since it involves China, might be touchy.

      The program followed two pretty tough ex-cops/mil chaps as they sought to persuade a Chinese national to hand over Gold Coast real estate deemed to have been improperly purchased. The plan was to sell the land and return the funds to China, taking a commission for their efforts. The particular case examined was blocked by court decision, but it was said that recovery efforts will continue nonetheless.

      The Gold Coast operation was contracted by a company established in Hong Kong. Using retired Western nations law enforcement officers in “bounty hunter mode” to attempt to recover money illegally sent out of China is another line the Chinese government is employing. It seems China is attacking this problem with multiple techniques, and given their determination, one would expect them to meet with some success.

  12. Shizz says:

    I was watching this a while back thinking about how much the Guptas reminded me of folks I knew here in the states in the run-up to 2007… Wonder how they are fairing now?

  13. GBCredit says:

    Didn’t we just blow through this exact scenario in the US back in 2007-2009? Does no one recall zero down… doc….110% loan to value….zero interest….adjustable interest…wild appraisal based…… loans.

    Jeeezzz, maybe I just dreamed the whole thing! If it was a dream, it didn’t end well.

  14. GP says:

    Dumb speculators who invested own money will get wiped out.

    Panic buyers who didn’t want to get priced out of the market will be the collateral damage.

    Smart speculators who invested lender’s money will walk away unscathed.

    Dumb lenders who lent own money will be in bad spot.

    Smart lenders who sold their loans will walk away just fine.

    There will be big hoo haa over ‘greedy’, ‘evil’ banks and poor victims resulting in bunch of new regulations.

    Circus of life repeats so often.

  15. Tim says:

    1 year ago my apartment in Sydney was valued at $800k. It sold on the weekend for $685k. Still more than I paid for it, but not good news for my neighbour who paid $825k for her identical apartment.
    At the same time, the bank which had previously approved lending me $850k will now only lend $500k.

    • Stephan in NY says:

      That’s a real problem about these housing bubbles. On the one hand, you want prices to come down to help out with affordability. On the other, you don’t want to hurt the people who own property…especially those that bought in at high prices and will end up with negative equity if prices go down.

      I had read a report in Vancouver and they were very explicit about wanting to protect existing owners. What they ended up doing was a foreign buyer tax and a vacant unit tax to take the foreign money out of the residential market, which I think makes sense since housing should be for people to live in.

      But I would agree, it makes things difficult. And your story is pretty terrible in terms of just average people getting caught up by market forces.

      • Dan says:

        Those are called fools and flippers. They deserve what’s coming to them. I’ve done stupid things in life which hurt me big time including losing $1 Million in dot com bust. I didn’t go around crying and asking people to have mercy on me; I was a fool, and paid for it through the nose. So, I’d say pass the pop corn, and let’s watch all these fools who were bragging so much get crushed like insects.

        These fools don’t just harm themselves; there are so many negatives consequences for their foolish and greedy moves. One very obvious consequence record number of people being homeless. So, I have zero sympathy for these fools and flippers.

      • Keeper Hill says:

        A house is a liability. People should not assume appreciation at all.

        • Paulo says:


          I disagree. I have never lost money on my homes and having one paid for allowed me to retire at age 57, wife was 55. I am a blue collar working guy.

          If a house is a liability, then what is rent? People have to live somewhere, so you either own it or rent it. Taxes, insurance, upkeep costs run me about $200 monthly. Rural tax rates are low, but we pay for our own water , septic, etc ourselves. Pump septic tank every 5 years for $300 and the well was paid for 10 years ago. Garbage pickup mandatory for $135 per year.

          A home is definitely not a liability and bought carefully with deliberation home ownership is a big advantage. My kids bought homes in their twenties and will have them paid for by age 55 at the latest.

          Having said this they did not buy in Australia at the peak of a housing bubble.


        • Keeper Hill says:

          Paulo below, you answer your own question. Leave your house for a while and see what happens. Be late on prop taxes and see what happens. You can take great care of your home and a neighborhood can turn to shit. See Detroit. Guess what happens to your value. It is a liability.

        • RagnarD says:

          If banks are now only lending up to $500k for said apartment, where
          Do you think valuation of that apartment is headed?

        • RagnarD says:

          As you are clearly a long time reader of Wolf Street, I find your
          Retort, “i disagree. I never lost….” as completely unfathomable.
          Do you really find your personal single data point experience as an argument???

        • Gian says:

          I have done nothing but made money, lots of it, in RE for many, many years now, as have many of my friends and associates. This includes renting, flipping and selling when the time is right. Thank goodness for people like you, perpetual renters are a landlords dream come true.

        • RagnarD says:

          Ur logic is That if I call out Paulo for using his one personal experience as justifying “you never lose money in real estate” as meaning therefore RagnarD must be a renter?

          And the logic goes, Gian and Paulo have never lost money in RE, therefore no one ever will.
          Got it.

          I guess history begins post 2012?
          And let’s talk to some Aussies in two years.

          It’s unbelievable that u two read wolfsteet – articles like this very one – and STILL conclude that no one will ever lose money in RE.

      • Maximus Minimus says:

        Responsible, innocent, home owners caught up by market forces. Huh, haven’t seen that type for a long time. How about speculating on rising house prices.

      • Javert Chip says:


        Average people didn’t “…just get caught up by market forces” (a wonderful, guilt-free euphemism).

        They were greedy. Let’s call it what it is.

    • Wondering says:

      So a number of questions:

      1. Was that apartment your PPR?

      2. If so where are you living now? Are you going to buy another place to live or are your renting?

      3. If the bank only approved lending you $500k, you are not going to be able to buy much in or around Sydney for $500k – anything decent anyway.

      4. When (if) you buy you’ll have to fork out all those neat, nifty fees including stamp duty to the NSW state government – on a $750,000 purchase that is going to set you back about $30,000.

      5. Add in moving costs, RE agent costs on the sale, rent until you buy (if your PPR) and another moving cost, other fees and you are out a substantial chuck of money.

      6. If it wasn’t your PPR then you also owe a bunch of tax to the government in addition to the other costs and fees.

      So the question is was it worth it?

      • just says:

        3. You are making the assumption that they don’t have any money to contribute toward the purchase. That he would be only spending the amount capable of being borrowed. Unlikely.

  16. Bill from Australia says:

    On the bright side, 40% of houses in ASSTRALIA are owned outright .

  17. Dan says:

    There was guy with username “Lee” who used to come here and spew Australian real estate brochures all the time with stories of so many immigrants coming to Australia need housing and that the price of housing in Australia will never go down.

    Where are you now Lee? I have a feeling he is being chased by people that he sold $1.5M shacks to; let’s hope the mob chasing him won’t do the unthinkable :).

    • Les francis says:

      The Australian ponzu RE market is led and spruiked by vested interests from all levels of government down.
      Immigration requirements,
      Lack of available land
      First home buyer market
      Investment market
      Are all talked up.

      The housing and construction industry is keeping the economy afloat.
      Any wonder even the government talks it up.

    • Lee says:

      I still read the blog once in a while but haven’t commented as when I pointed out all the wrong predictions put by LF Economics that never panned out and still haven’t, my post was censored.

      (Iron ore mining companies and banks to go bust among others………checked the price of the mining companies lately?)

      And unfortunately, for you I have never been in the RE business and never will be.

      Immigrants are still coming to Australia and there has been a change from Chinese to Indians. Our area has had an influx of both over the past four or five years. I suspect many of them sold in the very high priced areas and bought here because of the good location, good environment and relative ‘cheapness’ compared to other areas.

      And FYI I never stated that RE wouldn’t go down. I stated that the RE market would change when the following happens:

      1. Immigration falls; or

      2. Government policy changes (which it has) – both in terms of tax and forced changes to lending criteria of which the major push has been the RC.

      And by the way, the banks here have gone from one extreme to another. Granting credit to a few people that probably shouldn’t have qualified to rejecting people that would normally qualify based on ridiculous over the top screening.

      For example, buying a pizza will now disqualify you from getting a loan.

      And if you want to know, the little area where I live is still doing quite fine. Last year the area had about a 10% increase in price.

      There are numerous new RE developments in and around the village with $1.5 million ‘shacks’ being torn down and new properties being built on them. Demand is still strong and people routinely still get top dollar for nice houses, townhouses or land that can be subdivided.

      And if I have one huge complaint about the area is that the city council has approved too much development in out little area. it is slowly changing the nature and character of the village.

      We are still ‘cheap’ compared to many other areas. We offer good amenities and a good environment.

      We had a huge turnover of properties in my little area of the suburb (the village area) the past couple of years in the 7 figure range as a result of older people dying or going into nursing homes. The area where I live is generally an older area where sales are usually a result of one of the above. The only house for sale on the street is one where the lady is suffering from dementia and has had to go into care.

      We have some streets here where there have only been one or two sales in the past 25 years and now that pattern of buy and hold will continue.

      Once you move away from the village area to ‘new’ areas that have been developed over the past ten or fifteen years or so one finds the cheaper, smaller houses on small stinky sized lots that sell for much cheaper prices. ($500k or so). Those areas have never had the prospect of much, if any, in the way of capital gains as they basically have nothing going for them in terms of location, size (400 square meters or so of land ), or uniqueness.

      There are many areas in Australia that still have increasing or stable RE prices and so far we are lucky that we live in one such area.

      • Wolf Richter says:

        Lee, you said, “I pointed out all the wrong predictions put by LF Economics that never panned out and still haven’t…” So let’s see.

        The iron ore price collapse did serious damage to the housing market in Western Australia… now there is — or was — a lithium bubble in Western Australia, but prices are already way down. So here are a few things I just fished out that might enjoy:

        In 2016, warned about mortgage scams and consequences (check):

        In 2016, warned that housing bubble would implode (check):

        In 2015, warned that the banks are too exposed to mortgages and could take down the economy (getting closer):

        In 2015: negative gearing threatens banking system (getting closer):

        • Lee says:

          Well since you haven’t published the original post and the followup post and you control what gets posted here, there must be some real fear on your part to show where he was wrong.

          No right of reply shows just how bad those predictions were.

          And again I’ll say sayonara and this time with an added ‘bakayaro’

        • Wolf Richter says:


          You got to post your long comment. When it got picked apart by several folks, you don’t get to argue with everyone. This comment section is not for endless squabbling. For years, you have lambasted this site whenever someone said that Australia’s housing market and banks were heading for trouble. Then they headed into trouble, and you stopped posting. Fine. Now you posted again, to show how right you were or something, and how wrong we were. Fine, you got one shot. You don’t get to argue after that.

          Based on your many comments in the past, you’re a very reasonable guy except when it comes to Australia’s housing and banks. Suddenly, your comments turn into a troll-ish broken record. Not sure why that is.

          At any rate, no squabbling here.

      • Dan says:

        You don’t comment anymore because there is no way you can sell the idea of buying a property in Australia in a market that is in free fall; if you did try to sell those ideas, you will get hammered here.

        You said “I suspect many of them sold in the very high priced areas and bought here because of the good location, good environment and relative ‘cheapness’ compared to other areas.”

        Man, you don’t give up, do you? good location and good environment, and they lost $250,000, and will eventually lose $500,000.

        You said “I never stated that RE wouldn’t go down.” Yes, you did, many many times, and even when you weren’t saying it, you were clearly implying it.

        You said “the banks here have gone from one extreme to another. Granting credit to a few people that probably shouldn’t have qualified to rejecting people that would normally qualify based on ridiculous over the top screening.”

        Granting credit to a few people? By few people, you mean millions in Australia? Everyone now knows it was ponzi scheme.

        I don’t have time to respond to all the nonsense that you write. I just wanted to pull you out in the open to see if you for people to remember the nonsense that you were telling them back then.

        And you are a RE agent, or at the least a flipper. No one is going to invest as much time you did to prop up property markets just to give their opinions.

        • Lee says:

          DAN: You are so full of bull shit that it is ridiculous.

          And no I’m not RE Agent and I’m not a flipper.

          Totally wrong as is your post.

        • Javert Chip says:


          History is a bitch.

          Especially documented history.

          Especially documented history in the words of the guy who proves to be catastrophically wrong.

    • Jason says:

      Nice one Dan. I too was aghast by ‘Lee’s’ comments. His comments were also similar to many of my clients who had their economic qualifications granted by the local pub…

      • Lee says:

        Why don’t you let my school’s know your opinion about the credentials they granted me.

        I’m sure they’ll be interested in your opinion of their MBA program.


        • Javert Chip says:


          You did’t really type an English sentence, but I parsed it as ” Why don’t you let my school know your opinion about the credentials they granted me”.

          OK; mine’s Harvard. So, to Thunderbird, we think your 2012 ranking (last I could easily get) is about 89th (

          Turns out, it doesn’t matter where you graduated, it matters what you did with the education. Unquestionably promoting an Australian real estate bubbles is not a good demonstration of alumni performance. Just saying.

  18. Bobber says:

    If Australia RE is like the U.S. back in 2008/2009, then maybe the Australian central bank will be doubling down by promoting more speculative excesses if prices keep falling. Apparently, the goal of central banks is to prop asset values until a large segment of the population cannot afford shelter.

    • Javert Chip says:


      I seriously doubt the “goal of central banks [was] to prop asset values until a large segment of the population [could not] afford shelter” is an accurate statement.

      More probably, the central bank and then-empowerd politicians were genuinely trying to prevent the economy from imploding into a 1929-depression-redo. I would hope we agree imperfect humans in that massively complex economic environment didn’t have a perfect understanding of all the attendant collateral issues; they certainly didn’t perfectly understand how to disengage once the trauma was past,

      Silly, highly untrained/experienced people using personal prejudice, 20/20 hind-site and the jumbled words of others are, well, amusingly irrelevant.

    • nick kelly says:

      The Oz $ is not the US $ or the Japanese yen. It would go into free fall if it tried a Fed or BOJ QE.

  19. Bankers says:

    I know – the mean, median, average, gini, rates, mortgage type, regional location, hedonics etc. for any comparison using price to income

    but that sheds a bit of a global perspective. Maybe it is just saying western wages should go down, or foreign wages increase, or… or… or… plenty of ways to look at this. The global property index by IMF is another startling chart if you look at global house prices take off since 2000, dip into gfc, then take off again.

    What is going on so ? Lots of cheap money I guess, globally. You have countries like the US where mortgages got pegged low fixed, or Denmark in a subsidised protected market, others have their own stories, for Oz and Canada I guess they are going to think up something if they have to. Problem is Oz and EU rates are already low low, Japan and Denmark are negative but have a different social dynamic. The US is affordable (I told you about it before you told me to tell you about it, I get that that is not what a lot of people are experiencing)

    As a whole though, as in a global picture, well is it head nodding, head shaking or heavy metal time ?

    • Unamused says:

      =>As a whole though, as in a global picture, well is it head nodding, head shaking or heavy metal time ?

      Real estate racketeering is conducted for the benefit of profiteers, and the patterns and trends show that things can get pretty out of hand before the deregulators step in to break up the party, at least for a while. Once things have cooled off a bit it’s time to gear up the next bubble. There’s plenty of them going on at any one time, so pays your money and takes your choice.

      Conditions aren’t likely to improve at all for the common folk. Their role is to be fleeced, and they’re very reliable about falling for the swindles, stupid sheep.

      All very disappointing. How much really do people have to overpay before they get the uneasy feeling they’ve been swindled? Real estate racketeering really isn’t the problem so much as it’s symptomatic of the larger, deeper, terminal problem, which is human stupidity, carelessness, recklessness, wishful thinking, belief in angels, refrigerator-level learning skills, and the absence of responsible adult supervision. And that leads into your real problem:

      How’s that Australian heat wave going? Now that it’s let up a bit maybe it’s no longer an issue, huh?

      I used to care, but I take a pill for that now.

      • HowNow says:

        Dylan used to care, too, but things have changed.

      • Bankers says:

        There are places only fools step in, the rest are already owned, and if you try to create your own confiscation is often the result. So it is no wonder angels are rarely observed nowadays.

        You are convinced of AGW ? That must be frustrating, but not nescessarily wrong. Nature is much more powerful than mankind, just as infinity refuses our contemplation .

        • Unamused says:

          =>You are convinced of AGW ? That must be frustrating, but not nescessarily wrong.

          I’m just keeping score. If you want an esthetic appraisal consult an art critic.

          Runaway AGW is already underway. Science doesn’t care what you believe, and like I said, I take a pill for that now.

        • Bankers says:

          Esthetics are human, without them a person would not be able to attribute worth. Science is not alive, how could it care,

          That is one reason I left university, I did not agree with destructive analysis of the creatures I love.

          Self justification is a display of uncertainty , empathy is a strength, they should not be confused to the point of arrogance, for oneself if not for the sake of others.

          Blaming the results of a science for one’s own state falls short.

    • Lee says:

      “Problem is Oz and EU rates are already low low”


      An adjustable rate mortgage around 5% is low?

    • Javert Chip says:

      I have zero idea what “heavy metal time” is , but I offer an alternative view:

      o Depending on how you count the beans, 500M have been lifted out of abject poverty in the last 10-15 years (a lower percentage of the human population lives in abject poverty that at ant other time in human history; thank you very much capitalism)

      o Most of those lifted out of abject poverty live in what (President Trump) calls “shit holes”

      o With increasing wealth per-capita, the every-present class of bad-guys have figured out how to concentrate & steal portions of it. In addition to the usual western-world suspects, we’re talking about you, Mr Putin, Mr Maduro, Mr Xi, Mr Alvi, Mr Díaz-Canel, etc, etc, etc (plus about 25-50 million of your complicit minions)

      o BIG SURPRISE: people who have earned/stolen lots of money in shit-holes DO NOT WANT TO ACTUALLY LIVE IN SHIT-HOLES

      o These newly “anointed” rich folks actually want to live in New York, Paris, Sydney, Toronto, San Francisco, Vancouver, LA, Denver, London

      o Newly “anointed” rich people are not fighting to move to Havana, Caracas, Cairo, Moscow, Volgograd, Lima, Santiago, Port Morseby, Guadalcanal, Ulaanbaatar, Tashkent, Riga or Chongqing (not all of which are absolute shit holes)

      o Indigenous citizens in the western world also want to live in desirable places (San Francisco, not Topeka)

      o BINGO! Supply & demand + stolen money = increasing prices

      Got little to do with mean, median, average, gini, rates, mortgage type, regional location, hedonics etc – TOO MANY PEOPLE WITH MONEY WANT TO MOVE TO SAN FRANCISCO.

  20. Jim says:

    ‘The Big Short’; remember Brad Pitt’s character:

    “In the USA, approximately 1500 people per year die if unemployment goes up 1%, while globally it is around 30,000 per year for each 1% increase in unemployment. For the USA: Labour force in US: 160 million Labor force, total. 1% increase in unemployment: 1.6 million people. “

    As for Australia, the transition will be hard. 27+ years of recession free existence. A whole generation without knowledge of hard times.

    Where I am Darwin, many people are significantly underwater. Even the government isn’t hiring.

    One thing is for certain. Australia is sitting upon a Gold Mine of resources, and will do just fine. 5th largest amount of resources, with 25+ million people. The long term future will be fine. Short term pain.

    • Unamused says:

      I think you’re supposed to give us a rousing chorus of ‘Waltzing Matilda’ when you post things like that.

    • KFritz says:

      Transcribed verbatim from YouTube from the movie: “Here’s a number. Every one percent unemployment goes up, forty thousand people die. Did you know that?”

      Perhaps it’s different in the book?

  21. Cyclops says:

    Central Banks are mostly responsible for post 2008 RE bubble. They extended low low mortgage rates forever creating this worldwide RE bubble and the new homeless crisis!

  22. Jack says:

    “when the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (RC) was established in December 2017 to investigate those shenanigans and then started “revealing an epidemic of crime.”

    Epidemic of criminal activity by the so called ( big four) that’ll go totally unpunished! Why?

    – There are always smaller scapegoats to sacrifice on the altar of these sham RCs!

    – The Real underlying reason is almost always the ( regulator) sleeping on the wheels or better still ( on the take)! Yup
    Corruption is rife so long as ( revolving doors practices) continue in the so called ( Free market) that has NOTHING resembling Free except the Name!

    so the saga will continue until the Total wipeout that shall we hope will cleans the arteries of this ( sick body of Economic mismanagement).

    You really can’t hope for anything when No bankers serve a jail term! Stealing millions will get you a free ticket to freedom!

    • Unamused says:

      =>You really can’t hope for anything when No bankers serve a jail term!

      The wages of sin are excellent, but it’s mostly about the bonuses.

      Bankers rule the world, subject only to the opinion of other bankers. Other corporatists and politicians are really just their proxies who mostly know their place, like it or not. They’re discreet about it because it’s a bit awkward, but it’s not as if it’s any secret.

  23. Toronto Man says:

    I hope Toronto will follow the meltdown as in Sydney and Melbourne LOL. I’m now in Toronto and the real estates here are so expensive to buy and own for my own living (not renting out to others) considering we are only making the typical salaries as the office workers… (CAD 60,000 – 85,000 / year BEFORE taxes) LOL….

    Worsen, the new immigrants who are making perhaps around CAD 20,000 – 55,000 / year doing works that Canadian born persons refuse to do such as working in Tim Hortons coffee chains, driving taxi cabs, cleaning in office buildings and food courts, security guards and retirement homes as personal service workers (PSW) only dream of buying homes for themselves and their immediate families to live in.

    A little more than half of the entire population in Toronto are not born in Canada BTW. So more than half of the population in Toronto are immigrants such as myself LOL…

  24. RagnarD says:

    What does it mean to have “all cash buyers” from China, a country that is blowing the biggest debt bubble of them all? It comes as “all cash” to Oz/Canada/USA, but must have debt payments tied to it from China, no?

    This seems to imply that the Chinese can take out huge loans in China, buy overseas with “all cash”, default in China and remain the owner overseas real estate? Obviously this practice wouldn’t necessarily be limited to the Chinese, but they seem to be the largest practioners, no?

    And if the Chinese buyer later sells the property his money is successfully laundered? If this what is going on at huge scale and helping to blow out these real estate bubbles? That is, print money for nothing in one country and use the cash to buy real assets in another country?

    Or am I missing something?

    • Ben says:

      I would add that the talk in the past few years in Australia is that the Chinese speculators were apparently only borrowing the deposit amount in China and the bulk of the purchase price was borrowed from truly stupid Australian banks.
      I think you are right that when China crashes these Chinese property speculators will try and seek refuge in their offshore acquisitions. Here in Australia the expectation is more that we will crash sooner than they will and that the Chinese speculators will flee back to China (where they will be totally untraceable – non recourse loans anyone?) and default on their Australian loans. But I guess it could easily happen the other way around.
      Concerning your comments about borrowing cheap money in one country and “investing” it in another country, I don’t think you are missing anything. I am perplexed that the central banks aren’t concerned that so much of the stimulus that is supposed to goose their local economy actually boosts someone else’s. Fine they are all scratching each other’s backs these days, but not to an equal degree.

    • Ethan in NoVA says:

      Wouldn’t the bank in China demand collateral for making the loan? Or is it different there?

    • nick kelly says:

      There are 1.2 billion people in China, which has a very unequal distribution of the US DOLLARS and euros earned in sweat shops.

      We talk about the one per centers. Think a tenth of one percent, or one thousandth and you still have a very large number of legitimately wealthy Chinese. Legitimate in the sense that their dollar wealth exists.

      • RagnarD says:

        Understood. And yes, as an American, I don’t mean to disparage other money printers, as they are just trying to keep up with Uncle Sam.
        And, as you note, it is USA dollars flowing that way via our trade defecit, and then coming back to US/USA as RE investment.

  25. yngso says:

    According to Martin North – there is no greater expert on this than him – the housing bubble was caused by credit being too cheap, loans too readily available.
    This of course, my words, is a direct consequence of the Fed and all the other main central banksters keeping interest rates too low for the last decade.
    An all-of-a-sudden dovish Fed can’t save the day. The cake is baked and can’t be unbaked. The damage is done…

  26. Willy2 says:

    – Off topic: Barry Ritholtz had an interesting take on the real estate market in the US. He looks at data from Zillow and the amount of realtors in every state. Perhaps Wolfstreet can dedicate a blog post on this topic using this data ?
    – Ouch. Real estate inventory up some 36% in the Dallas-Fort Worth area. (Source: Zillow see below)
    – The amount of realtors in Texas is now larger than in the previous housing peak before 2008.

  27. Ronnie says:

    Who is cheating who
    Who’s car is parked next door
    And who don’t care anymore.
    Zero sympathy, the drug was greed, you know it….. they knew it. The greeds free, until it ain’t!

  28. vAP says:

    Aussie is a first class place with unreal beaches, weather, and so much to see and do. The home prices have skyrocketed big time. The Euro’s want out of their rip off countries and will try to move to the USA or Aussie, and who can blame them. The drop in home prices may be temporary.

    • Willy2 says:

      – No, the drop in prices won’t be temporary. Because A LOT OF mortgage holders will be faced with much higher mortgage costs in 2019, 2020 and 2021. That means that the rise in mortgage related costs go up by some 40 to 70% (!!!!) percent. And these households were already struggling in 2017 and 2018.

  29. Willy2 says:

    – The managers of APRA and ASIC were former high level (australian) bank executives of the australian banks and they didn’t want to be “tough” on their friends in the australian banking sector.
    – We saw something similar here in the US. All Treasury secretaries since say 1995 (with perhaps one or 2 exceptions) came from Wall Street. These folks aren’t going to “too tough” for their former friends from Wall Street, right ?

  30. This is the best video I’ve seen yet from an unbiased source on youtube discussing the topic here as well as negative gearing which is never mentioned on Wolfstreet.

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