Chris Joye has followed-up on his fine work recently, with a stinging rebuke at the widespread complacency on display over the risk of an Australian housing bubble. From the AFR:
Residential property is the biggest source of household wealth and underlies the most important asset – home loans – held by Australia’s colossal and concentrated banking industry, which accounts for 30 per cent of the sharemarket’s value. There is $4 trillion of housing and $1.3 trillion of debt held against it. It is our most significant investment class…
…anyone not investing serious time contemplating housing hazards, including the prospect of destabilising bubbles, should wake up…
Capital gains exceeding incomes is OK, for a period. But with the major banks leveraged 80 times across their $1 trillion home loan books, one-third of all new mortgages approved with loan-to-value ratios greater than 80 per cent, nearly 40 per cent of loans accepted on an “interest only” basis, 20 per cent of borrowers fixing at historically low rates for only a few years, and the household debt-to-income ratio not far from its highs, there is little room for error…
You can ignore these threats like the US Federal Reserve did before 2007, or confront them and reduce the probability that history eventually repeats itself.
Well put. And all the more important given that the warning comes from a former industry insider. Commentators, regulators, and policy makers should take note.
