Chris Joye continues his excellent recent work today at the AFR in which compares this housing cycle with those past and concludes:
In 2001 and 2002 annual per capita disposable household income growth was more than 6 per cent. Again in 2007 and 2009 disposable income growth was more than 8 per cent and 6 per cent, respectively.
The earnings experience of families in 2013 is markedly different. Disposable incomes are only growing at a 3 per cent annual clip.
This is the new normal, where incomes track wages much more closely after disposable earnings benefited from a range of one-off boosts over the past two decades, including tax cuts and the advent of multi-income families. This boom is therefore different: it is driven less by purchasing power and much more by cheap money.
He declares the cycle unsustainable. Put another way, when the RBA is forced to intervene, because there’s so little income growth in the economy owing to the terms of trade and capex corrections, the downside for housing is much more fraught than in past cycles.