The warning tone has been sounding since 2002. Beep-Beep-Beep-Beep.
In an interview titled “Mixed feeling on the real estate bubble” featured on Inside Business in October 2002, reporter Zoe Daniel said “Residential property, the most lucrative asset market in Australia worth a trillion dollars – and rising and ringing warning bells.” Zoe went on to interview other people in the story :
The then Reserve Bank Governor, Ian MacFarlane was quoted “This situation is one that we at the Reserve Bank are not entirely comfortable with.”
David Murray, the then CEO of the Commonwealth bank said “And the sooner that realism comes back into the market, the better off all of us will be.”
And Prime Minister John Howard indicated “I think it’s very strong. Some of the talk about a ‘doomsday scenario’ and the ‘bubble bursting’ has been exaggerated.”
2nd October 2002 – “Housing real estate building bubble, Costello Howard fly high”
Fast forward to the present and this week Australians were undoubtedly being prepped for the inevitable housing crash.
It kicked off on the weekend with the current Prime Minister Kevin Rudd and his essay published in the Sydney Morning Herald. When explaining the cause of the current Financial Crisis, Mr Rudd indicated one of the causes was “skyrocketing” housing prices “soar[ing] far above their true long-term worth, creating paper wealth that millions of households used as collateral for their growing debts.”
On Tuesday, current Reserve Bank Governor, Glen Stevens suggested affordable housing as one of the biggest challenges the whole nation faces right now.
Stevens warned of a major run-up in housing prices – or a property bubble – as low interest rates and cheap credit spur speculation in the market.
Buyers are set to squabble over the chronic undersupply of affordable housing in Australia, pushing up prices.
It’s a “quite disturbing” problem, Stevens said, which could leave Aussies over-leveraged and facing “asset price deflation down the track“
On Thursday, it was now Future Fund Chairman, David Murray’s turn to talk housing bubble. In an address to the American Chamber of Commerce luncheon, Mr Murray expressed his concern that Australia is a capital-poor country relying on overseas borrowings to keep the economy growing. “We asked them for the money to build larger houses, more square metres per house, year on year, and we ask for the money to put less and less people per house at the same time.”
He believes our obsession with housing could threaten supply of money into Australia, as lenders wonder if Australia will provide the best return on investment considering most other countries have experienced a correction in house asset prices.
I think our friends around the world who have a habit of saving money and helping us with it, are entitled to ask, “Is this the best return for my precious savings dollar?”
Also during the week at a symposium at Sydney University, Dr Fiona Allon said it should be remembered the US crisis came out of the housing market, and Australia should not think it is immune.
“Australia’s weakness actually was in its housing bubble, and I don’t think the dimensions of that have really played out fully,” she said.
“Levels of household debt in this country are generally equivalent to American levels of debt, and they’ve actually been even more than levels of household debt in the US.”
After seven years since the start of the housing bubble in Australia, the beep-beep-beep warning tone changed to woop-woop-woop this week. With banks starting to raise interest rates, and unemployment spiking, now could be a great time to evacuate the housing market. Are Australian’s are being prepped for the inevitable?
» Households front and centre of financial crisis – The ABC, 31th July 2009.
» Aust ‘must adopt new approach to housing’ – The ABC, 30th July 2009
» Mixed Feelings on real estate bubble. – Inside Business – 20th October 2002.