"Chinatown"-Official media of Chinese Australians
Australia is in the biggest credit-driven real estate bubble in history. Once the bubble bursts, it will destroy the economy and will most likely hit the Big Four banks.
This warning comes from Lindsay David, the founder of LF Economics, the author of "Australia: Boom to Bust" (Australia: Boom to Bust) and an analyst who predicts that the Australian economy will face disaster. But is his warning correct? Or have we heard all these prophecies before?
David warned of the upcoming real estate market collapse and criticized the government and the development of the financial, insurance and real estate industries.
Since 1996, Australia has experienced a nationwide housing boom. From 1996 to 2014, the real price of houses and their quality-adjusted prices rose by 121%, which was "the largest and most lasting increase in house prices since records began in 1880."
He said that there is a clear similarity between Australia today and the United States and Ireland before 2007-"People will think you are crazy, but slowly I can be sure that I see more people begin to accept this view. . But when everyone knows that there is a bubble (in the housing market), it’s too late."
Between 1996 and 2014, the growth of housing prices and mortgage loans exceeded economic fundamentals such as inflation, GDP, rent and income. David said, "Look at it now. From the end of 1996 to 2014, the growth rate of household debt has exceeded the inflation rate by a ratio of 10:1."
Assuming that buyers of new homes in Sydney save 30% of their income and buy a middle-priced home requires a 20% deposit, it will take them about 6.5 years to save enough down payment.
Home buyers adopted the “Irish-style wealth creation model”. Investors borrowed heavily from banks and then sold their homes to the next buyer who borrowed more money for speculative activities. These activities pushed Australian households’ debts to pile up. 1.9 trillion yuan. The biggest victims are young home buyers and middle-income earners.
"Either you are squeezed out of the market because of high housing prices, or you increase leverage."
He said: “The more debt the banking system injects into the market, the more debt is created by home buyers. When people wonder why people in their 20s appear at auctions to bid for homes, it’s because there are more debts. Many banks provide you with loans."
"Sydney's housing prices are not as high as they seem. Because of the shortage of housing, everyone miraculously has 90 yuan in their pockets. Banks must issue more loans so that housing prices can stay high."
As long as new buyers are unable or unwilling to apply for more loans than previous buyers, the entire market will collapse.
David pointed out that 2017 was when the housing market bubble burst, and it will start in Western Australia. If the Perth market collapses, then this will begin to affect the lending capacity of the banking system.
However, Alan Oster, chief economic expert at the National Bank (NAB), said that there is no housing bubble in Australia, and the "bubble threat theory" has been said for several years. He said: “First of all, supply and demand are really important factors. Look at the Gold Coast after 2007, and then look at Sydney now. We didn’t say that everything is fine-you should say that this is a house. There is a purchase problem, but the housing market is in good condition at this stage."
Article reprinted from Australian News Network
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