Debelle says no risk of housing bust (updated)

From the SMH:

Australia is not at danger of a collapse in the housing market, a top central banker says, again playing down concerns that Australia could suffer price falls like those seen in the United States or parts of Europe.

Speaking at a mortgage conference, Reserve Bank assistant governor Guy Debelle said he was more concerned about the outlook for the European Union and the uncertainty that was causing globally.

There was a “day of reckoning” coming for the EU at some point but nobody knew how it would play out, said Mr Debelle, who heads the central bank’s financial markets unit.

Asked about fears of a housing collapse in Australia, Mr Debelle said there was no oversupply of housing in the country, households were well able to manage their debt levels and mortgage arrears remained very low.

“This (housing risk) is not something that keeps me awake at night,” he added.

Fair enough. But I’m not sure how you can worry about a “day of reckoning” for Europe that isn’t also some kind of reckoning  for Australian assets.  Go long FHOG?

Update: Here’s the podcast and slides from the Panel Discussion (his comments from 12 minutes in): Remarks  

David Llewellyn-Smith
Latest posts by David Llewellyn-Smith (see all)


    • That is no elephant. Some emails from dodgy mortgage brokers. It’s been happening for 5 years (and probably for many before that), and still we have no massive spike in low-doc arrears.

      How long are we supposed to wait for this low-doc frenzy to unravel if 5 years isn’t long enough? 6 years? 7 years? 10 years?

      • 5 years ago? Heard the odd story when I was developing back then. Come ’09 and it was a completely different story. The shonks seem to come out of the woodwork where there’s a free money inspired frenzy.

        The dodgy brokers are a larger component than you think. Let’s not forget their bread and butter is people who can’t get a loan by simply picking up a phone and calling a lender.

        I think we’re witnessing it. If it was never going to happen and the fundamental drivers were sound, why isn’t the market still growing at 10%? Why are refis that drove consumption for so long, so challenging and why is half the economy in an endless whinge and supposed recession? Fact is, people borrowed far more than they should have and it’s now slowly consuming the rest of the economy. Many shouldn’t have been given a car loan, let alone ten times that amount. Where there’s smoke there’s fire. Keep watching.

        • Jumping jack flash


          I remember some time ago where some lenders were exposed as having their models approving loan amounts that would leave the borrowers with an income less than poverty level after repayments.

          even on a 200K combined income, if you’re left with less than poverty level after debt repayments, then that is what you live on.

          And then factor in continuous and likely out of control rising costs of living.

          It is little wonder everyone is crying poor, even those “rich” people earning 150K+ household income. Think of the commotion that happens when various politicians try to say some level of income is counted as rich, or middle class welfare cuts out at 75K household income… all these massively indebted jump up and down and ask how they are meant to live… while standing in front of their two new luxury cars and a massive house…

          The number of dollars you get from working each week is pretty much irrelevent these days, it is the amount you have left after giving the bank it’s share that matters.

      • tsport100MEMBER

        The final appeal was dismissed just last Friday!! The bent spoons @Firstmac dragged this case on through appeal after appeal for the last 3 years.

        The battlers who had the moral backbone to withstood this Macquarie Bank BS had to find someone willing to cover the $3 million in legal expenses it took to see the process through.

        Now the precedent is set, there is no question the millionaire factory will have to wear the losses from a large % of dodgy sub-prime loans…

        About 90 per cent of loans in the Macquarie securitised funds are low-doc, hence why they threw Millions at a legal case over a couple of modest mortgages.

        Macquarie are now fully vested in propping up their own share price with a massive buyback. Looks like Macquarie are leading the race to be the first AU bank to go bust due to sub-primes!

        • Charming bunch over at the masters of the universe.

          It really was a high point in the the human capacity for selfish rapacious greed when the investment banks decided to get into bed with the street loan con-men to squeeze more more money out of the boom.

          There won’t be any angels weeping if this group goes down – what a vile pack of b.ds

  1. One word for you, Mr. Debelle.


    Mr. Debelle looks to be young enough to perhaps not have witnessed its effects first-hand.

    • Are you pointing out to him the historically low level of unemployment? How does this affect his view that households were able to manage their debt levels well?

      • In all circumstances of housing busts, unemployment was low beforehand. This empirical observation has been proved by Prof Keen and others as the monetary affect of extra credit in the economy chasing a relatively same number of existing housing stock (i.e a bubble doesnt require overbuilding) creates new employment. Once that circulation goes into negative territory, jobs are lost and unemployment rises.

        Australia is not deleveraging outright – credit growth for housing is still positive. The rate of change is slowing down however.

        Debt servicing levels are not at the GFC high when interest rates were much much higher – but they are higher than the previous recession because the stock of debt is 3 times as high. For continued positive credit growth, interest rates must continue to fall to keep the same fairly high levels of debt servicing and therefore retain the same employment levels.

        We’ll know more on Friday when private credit figures come out again…

        • Nothing has been proven until after the event. Similarities are not concrete blocks.

          I think that Debelle will be sleeping very soundly tonight. A small correction was what they wished for.

          • After the event? How about 800 years of events?

            “1. Asset market collapses are deep and prolonged. Declines in real housing prices average 35 percent and stretch over six years. Equity prices collapse an average of 56 percent over a downturn lasting three-and-a-half years. Thus, the most recent crisis seems quite typical.

            2. The aftermath of banking crises is associated with deep declines in output and employment. Unemployment rises an average of 7 percent over cycles lasting more than four years on average. Output falls more than 9 percent over two-year periods, and it has taken about four-and-a-half years for output to fully recover.

            3.Government debt surges an average of 86 percent in real terms. The main cause is not spending but a decline in revenues”


            Reading Debelle today and the hand wringing spruikers, any concerns that it is indeed different here has been quashed.

            Clueless. Maybe LVO/UE needs a pop-up banner on every login : “Unemployment LAGS housing corrections and THEN creates a feedback loop as money circulating in a services based economy slows slowly to a trickle.”

          • Prince, they are certainly not throwaway assumptions, and he appears to be more than up to the job.

          • Just to be clear, I am inferring that if he is thinking in the same throwaway “She’ll be right mate” hubris you are Peter, he shouldn’t have the job.

            Nobody knows how they really feel/think. Open mouth operations aside, the RBA can;t come out and say what they think. That is realpolitik.

          • We’ll agree to disagree then Peter.

            Hubris is the natural national state of being in Australia – 20 plus years without a recession, due to a housing bubble will do that – ’tis why you and others consider your position a “considered opinion” and why others are considered “bears” for questioning that position.

            Cheerio, I need a drink after listening to that discussion…

          • Yes I can see that hubris is the natural state, but it’s not my natural state.

            My apologies for being correct.

          • 20 plus years without a recession, a housing bubble and a mining boom. Is it any wonder we the conventional wisdom has become that it will continue forever?

          • Hi jelmech – I think that the correction we are having has ended it for now. Check out the house price graph since about 1950 and you will see that corrections are quite normal. The debate is really about the size of the correction.
            How to chisel a quid out of it – probably in the luxury end if you have time (and you will need time) but for the most part a highly leveraged investment in housing won’t be the best investment in towm, unless you have a need for family accomodation, in which case the payout may be your enjoyment of your own home – each of us has a different value on that.
            You could do worse though, and many will.

          • Thanks Pete But I must assure you time is not on my side.
            I’m a westcoaster as you prolly know but most definitely not a cityite.
            So I do not really get the RE issues that get kicked around here n elsewhere.
            I find the numbers boggling.
            Such a naif am I. happy but:=)

          • Jelmech, I too am (currently a West Coaster) and not into the property debate. One thing I don’t get – the whole PF jibe that goes on here at MB. I have observed his comments to be fair, courteous, and when requested, helpful.

          • Surely that comment is not one to be deleted. It is supportive of a genial contributor to this site. Unlike so many comments of a more vitriolic nature.

          • Jeez, 3d you never miss an opportunity. PF is courteous, but like you he’s a vested interest and deserves thorough questioning. Any close examination of his positions shows a propensity to back flip. Not least across platforms for differnet audiences,

          • Incorrect H&H – I don’t backflip at all. However it has become quite obvious that posts from anyone who knows more than the bloggers here get routinely deleted – which is why 3d1k is often deleted.
            It does suit the group think position to delete me, and to rather dishonestly stir up the pack of rottweilers amongst the commentors here.
            Where is Mav, Rusty penny, velcro and Coolnick anyway – have you given them the day off?

          • LOL. What is this? The astroturfers alliance?

            How terrifying is your pack of rottweilers! All four of them ripping at your flesh.

            The only reason so little of 3d1k gets deleted, about 1% of his comments (and despite requests he be banned from a number of readers) is the same reason you are free to comment here.

            That is, despite your and his vested interest, the arguments you make often make sense.

            Readers provide a more than capable offset when you both stray beyond reason

          • Lorax, my position has never been that it will last forever.

            I was actually referring to economic growth lasting forever, and the dangerous consensus developing in Canberra that bad things can’t happen in Australia anymore.

            When central bankers start saying that house prices can’t crash, its time to worry. Didn’t Bernanke say much the same around 2006?

          • Good to know I am always on top of your mind, PF.

            Oh, and all those bites – nothing personal, just trying to keep you honest.

          • Fair reply. I’m a solitary person who works for myself, I’m hardly an astroturfer. I wish I was paid by an industry, but unfortunately that’s not the case.
            On the subject of vested interests – every single one of us here has a vested interest in housing, and I would not rank as highly invested as many who point their fingers.
            A truly honest register of vested interests would reveal some major surprises.


          • Lol mav – no you are mellowing. I’ve had some shockers follow me around on websites before – I would prefer that you criticise what I said rather than what you think that I might have said, but it’s a free world.

      • I’m not trying to point out anything to Mr. Debelle – he no doubt has his reasons (suggested by others below) for not mentioning the unmentionable.

        Others also, I’m sure, have their reasons for not wishing to contemplate that which has happened before, and will happen again.

        • Postscript:

          The “others” mentioned in the second paragraph are not the “other” referred to in the first paragraph.

          Just to head off any misunderstanding at the pass 🙂

      • Historically low levels of unemployment could be construed as a diversion from mean, in that many sectors overcapitalised during a boom.

        This could mean a margin of workers could find themselves unemployed if mean reversion occurs.

        If a large enough numbers of laid off workers find themselves unemployed, and a sizable numbers of these are mortgage holders, then forced sales could potentially see a sudden price decline of material proportions.

        This shcok could arise as that leveraged assets, such a property (not many people pay cash outright for a house) tend to have their prices set at the margins.

        That’s how I interpreted Julius’ comment, and made some seemingly rational iterations from there.

      • To call a 5%+ rate of unemployment ‘historically low’ is incorrect. It was much lower from the mid 40s through early 70s, typically around 2%.

  2. I doubt Debelle is prepared to stoke the flames of a housing crash on the back of an Eurozone outcome which is unknown. Would have been highly problematic, not to mention unprofessional, for him to have said anything other than what he did.

    • McPaddyMEMBER

      Have to agree with you there 3d1k (nice photo, btw). I thought the same thing when I read the article. With the RE market tracking down steadily (the best of all possible outcomes and what the RBA is presumably targeting) why risk frightening the horses?

    • Oh, I’d say the underlying outcome for the EZ is well known; 1+1=2 after all.

      Bonds will be defaulted and/or currency will be debased (and/or created anew, then debased). Nothing else CAN happen, the unknown is a matter of timing, not underlying outcome.

      The can kicking is about stretching it out long enough so that the plebs get caught up in Creeping Normalcy… and to give the banksters time to offload as many of their bad bets as possible (as well as place new bad bets).

      It used to be unthinkable that Greece would exit the EZ. Now it’s all but a given and will no longer be a “surprise”. The same argument could be made about Spain and Italy today, but that too will change. Then will come France, and oh, look! Rapa Nui has no more trees! Well, it must have always been that way… let’s build another monolith!

  3. So.. “We’ve reached a permanently high plateu”?

    Ridiculous. Unemployment was low when the US crash began. And when either Europe, China, Japan or the US go, the rest will follow and we can see how it goes.

    I propose confiscating the assets of all these spruikers and liars in the future to pay for the welfare for those who end up suffering.

    • Would be nice, but it’s they (pollies/bankers) who are more likely to confiscate our wealth.

  4. “Asked about fears of a housing collapse in Australia, Mr Debelle said there was no oversupply of housing in the country, households were well able to manage their debt levels and mortgage arrears remained very low.

    “This (housing risk) is not something that keeps me awake at night,” he added.”

    I’ve read crap like that before…

    An oldie from raveswei

      • “You read raveswei? I didn’t think anyone did that.”

        Probably only those people who are interested in the presentation of factual data and the reasoned analysis of same.

        Anyone not interested in such things would probably just read your comments here on Macrobusiness.

        • Amazing – could you point out the factual data on ravs site. Everything I have seen from him is rubbery and cherrypicked.

          • “Everything I have seen from him is rubbery and cherrypicked.”

            I guess you would know.

            Still, rubbery and cherrypicked data is still one step ahead of platitudes and anecdotes.

  5. Well, judging by the article I think that the SMH churnalists have put some words in his mouth.

    The title would more accurately be “Debelle unconcerned about housing bust risk”, or “Debelle indicates that he thinks that housing bust risk is very low”.

    “No risk of housing bust” doesn’t seem to be exactly what he said.

  6. Listening to this in full..

    wow – really spruiking and pushing the Canadian mortgage securitisation model…

    and the comments around “no housing bust” were personal, including an attack on Prof Keen (which is expected in Australia these days), and the only argument presented was “there is no oversupply”.

    Wow. still listening through…

      • check out the bottom of the post, the mp3 of the panel discussion is attached.

        Very interesting discussion – I’ve been to some mortgage broker presentations/discussions before – some realism creeping into this one for sure. Although hubris is abound in spades, which is to be expected in that industry.

        • Thanks Prince I’ll have a listen now. BTW “15% annual growth in house prices that house price appreciation” sounds very similar to that QLD government YoY housing projection last week.

    • Mining BoganMEMBER

      Does he also talk about the new lending rules in Canadia designed to slow melt the bubble there?

      Or did he miss that bit?

      • Nice to see some politicians finally cracking onto the problem – even if they are the same ones that caused it in the first place 🙂

      • Yep, for all their crowing about the Canadian model, it seems these mortgage brokers don’t read Canandian newspapers or generally catch up with the latest developments.

        If they hear about the new restrictions on > 80% LVR mortgages limited to a maximum of 25 years, they will run away faster than you can say CMHC.

        • Coming soon to a housing market near you!

          Oh, bugger….I just rolled over and fell off the edge of the bed.

  7. Aside from government policy that artificially inflated demand for housing,
    credit growth pushed up house prices, and credit growth is an increase in the money supply, so you could say that house prices rose due to growth in the money supply that was largely being used to purchase bigger and better houses. We could afford to do this while household incomes rose. Now, with a falling terms of trade, and an exchange rate on the way down (those two usually go hand in hand), then real incomes should fall. This will necessitate deleveraging, of which a lot is tied up in housing. So, house prices should fall, and the bigger the fall in household income, the bigger the fall in house prices. I happen to think China is kicking the can down the road and in big trouble, so a fairly significant collapse in housing surely isn’t out of the question, is it? Did Debelle mention anything about the possible consequences of a falling terms of trade and Australian dollar and its effects on our ability to maintain current rates of credit growth? (Credit growth has largely continued above inflation since the GFC). It probably didn’t, because the government doesn’t tend to want to create panic and highlight large risks. They’d have to be aware of it behind closed doors though. So, what heed should we pay government employees’ public thoughts on the economy? Very little, I think.
    And regardless of credit growth and our ability to sustain it, all you’ve got to do is look at Steve Keen’s work on credit acceleration know that housing is going to be under significant strain for a while yet.

    • Correction: regardless of whether credit growth is low in real terms (as it is now) or negative in nominal terms, prices can still fall, as Keen pointed out. Currently prices are falling with low real growth in housing credit.

  8. Perhaps the dire looking – state budgets of most states (WA excluded) will tip the residential property into a bust. The question is, which state will be daring to hit up some annual property taxes on the owner occupiers first.

      • Port Macquarie rates up 15.33% this year – Kempsey Shire 11% – believe most of the NSW north coast got hammered.

        Just as well we’ve got inflation under control 🙂

        • Iron HorseMEMBER

          City of Tea Tree Gully in SA has put up rates on commercial property owners only by 30%. They are skint and by hitting up commercial/retail/industrial users they are trying to keep the residentail rate payers happy(ier) Don’t know how happy the residents will be once all the shops have shut down due to increased outgoings….

          They had originally tried for a 50% rate increase but ‘relented’ due to the outcry.

      • Did she offer to shout the panel a night out on her credit card at the end of the day?

        • Yes, lol (a little less than some at HSU may have offered?). But she did offer lunch for panel in a couple of years if online mortgage lending was not 10% of the market.

          Definitely a credit card job.

  9. Cognitive Dissonance

    Blah Blah Blah………we have heard these sort of reassurances before from people with simular CV’s

    • Seems like no time at all since the Spanish Prime Minister was assuring the world that a bailout would definitely not be necessary.

      Can’t remember whether that was before or after the Greek bloke did something similar 🙂

      Anyone wearing a suit has a real credibility problem these days.

  10. Guy Debelle is grooming up to be another Boom Boom Battelino (Remember him?).

    This Undersupply furphy is a zombie that never dies – despite the Census showing 1 million zombie households.

  11. What is quite disconcerting about these pronouncements ‘from high’ is NONE of the ‘monetary wizards’ understand the simple concept that 96% of all money that comes into existance is as a result of the simultaneous entry on a bank balance sheets of… credit = deposits

    The credit maths is simple… Debelle is either lying or an idiot.

    • Has ‘anyone’ in the contemporary ‘money = banking game’ read this?…

      Or are we possessed with the same fraternity of numbnuts?

      Nothing is new, except if you profess to be an expert and know nothing….

      “In every criticism of the social distribution of wealth made public prior to 1918, the
      assumption is implicit that money or purchasing-power is confined to legal tender, and
      that bank deposits, etc., on which cheques are drawn, are deposits and withdrawals of
      legal tender only. This is in part equivalent to saying that banks and financial institutions
      only re-lend money which has previously been lent to, or deposited with, them. There is
      also a nebulous idea involved, I think, to the effect that the man who grows, e.g. a ton of
      potatoes, also grows the purchasing-power of a ton of potatoes. The facts are far
      otherwise, as no doubt large numbers of potato-growers could testify. Given a fixed
      amount of legal tender, and assuming legal tender to be the only purchasing-power, no
      amount of production would increase it. Probably a minimum of nine-tenths of the
      immediately available purchasing-power in the world arises out of bank loans or their
      equivalent in bills discounted. These loans and the purchasing-power which they create
      have no automatic relation to either production or consumption. This question has
      aroused a good (86) deal of controversy and has been treated at some length in previous
      volumes. But a short and, I think, conclusive mathematical demonstration is available
      which may serve to dispose of the matter.
      Let Deposits = D
      Let Loans, etc. = L
      Let Cash in Hand = C
      Let Capital = K
      Then we have
      = L+C
      Liabilities = D+K
      So that L+C = D+K
      Differentiating with respect to time, we have–
      dt +
      dt =
      dt ; K being fixed,
      dt = 0
      Assuming that the Cash in Hand is kept constant
      dt = 0.
      which means, of,course, that the rate of increase, or decrease, of loans is equal to the rate
      of increase, or decrease, of deposits.
      Now this theorem that bank loans create bank deposits, and the deduction from it that the
      repayment of bank loans destroys deposits, (87) is vital to an understanding of the
      process we have been discussing. The deficiency between purchasing-power, and goods
      with money prices attached to them, can be made up (at any rate to a large extent) by this
      process of creating bank money. This enables the business cycle to be carried through.
      And conversely, the refusal to create fresh money by banking methods or otherwise,
      whatever the cause of this refusal may be, is sufficient to paralyse both production and

  12. Discussion of the housing market in Australia reminds me of the Simpsons episode where Homer drops a pig that he just BBQed and has to chase it, saying “It’s still good! It’s still good!”

  13. The alternative to Guy’s comments would be for him to say “Australia is in danger of a collapse in the housing market, a top central banker says, noting his concerns that Australia could suffer price falls like those seen in the United States or parts of Europe.” Now that was never going to be his theme, no matter what he or the RBA might otherwise suspect!

  14. Greenspan in 2006:

    “We’re not about to go into a situation where prices will go down,” Greenspan, 80, said in response to questions Thursday evening at a reception in New York hosted by the Bond Market Association. There is “no evidence home prices are going to collapse.”

    I dont find Debelle’s comments comforting in the slightest.

  15. What the heck do these monetary-policy insiders know that all the rest of us don’t? Are they covertly pumping newly-created fiat money into the mortgage industry?

    My brain-wave is that if most mortgage debt carried by households who have financed since about 2008, is newly-created fiat money, then that proportion of household debt can simply be abolished without any economic harm as the value of the underlying assets falls, and the politicians and monetary policy poo-bahs can look like saviours.

  16. I scrolled down thru PF’s waffle…can someone contact me if anything is other than ‘ex bank johnnie debt seller’. My bet is he is akin my old mates from school that ‘joined the bank’ because their TEE score was crap and I’m going back to 82.

    Keep at it PF those A’s are close. Good luck to you, flogging debt for 3 decades. God, may my children never be a worthless individual like a debt flogger.

    • I showed your ‘time to buy’ tripe to my son. You are a champion.

      He tore your rubbish to bits. Maths is our thang.

      Thanks for the laughs.