POP! The real estate bubble has burst
The Great Australian Land Bubble burst at 10.30pm AEST on Monday 11 April 2011, according to Prosper Australia campaign manager David Collyer.
“The era of towering prices – of superhuman personal sacrifice by every young couple to fund a mortgage to buy a simple home – has just come to an end,” Collyer said.
“Now comes the grand unwinding, where house prices go into free-fall, owners despair, buyers sit on their hands and our banks call in ‘underwater’ loans where payments are not being made, selling homeowners up for whatever they can recover.
Australian house prices have been receding since April 2010 according to RP Data. The supply of houses has exceeded demand since then.
“Falling values and falling volumes over an extended time are decisive indicators of a new bearish trend,” Collyer said.
“Throughout the Buyers Strike, Prosper has characterized the bust as ‘Imminent’. We now say the inflection point has arrived: Australian prices have passed Top Dead Centre.
“The fatal puncture was delivered in the Housing Finance figures from the ABS on 6 April. They were shocking – the lowest in 32 years – and followed three months of similar dismal commitments. First home buyer commitments showed the largest fall.
Overnight, US commentator Mike ‘Mish’ Shedlock of Mish’s Global Economic Trend Analysis pointed to the bust. Shedlock is not a larger or more important figure than the IMF, the OECD, The Economist or Jeremy Grantham and others who have issued stern warnings of our bubble and impending bust. But the onus of proof has now reversed: the narrative has moved decisively from ‘prove we are in a bubble’, to ‘prove the bubble has not burst’.
“Australians would never trust a home-grown expert, but slavishly follow the work of overseas economic seers. Shedlock pointed out ‘The emperor has no clothes.’ This observation can be made by a small boy and abruptly, decisively change perceptions,” Collyer said.
The Rudd government took a major risk with the First Home Owners Scheme – more correctly described by Steve Keen as the First Home Vendors Boost – and gave the Australian market another leg up even though our peer countries had turned decisively down. This merely delayed and worsened the terrible costs of the return trip.
Rudd was determined to see the bubble did not burst on his watch. The FHOG is now discredited; anathema to Gen Y buyers who observed its effect and learned it simply inflated prices and went into the pockets of sellers.
“This wilful waste of taxpayers’ money merely increased the anger and frustration of first home buyers.
“The federal government has no further tricks in its bag. I can’t think of anything it can do to turn public sentiment around this time.
“Global investors will short sell the Australian banks directly and drive them down. The banks are an excellent proxy for the Australian housing market. Investors know exactly what to do, having already participated in the US, the UK, and the European property crashes,” Collyer concluded. ENDS
David Collyer owns ANZ shares.