Yep, it’s a secular decline in house prices ahead. The only question is how long it takes and how deep it goes. Lower for longer whatever.
All bubbles have their weak spots. In the US sub-prime bubble it was securitisation. In theory, the US could have kept borrowing Chinese dough and pumping house prices forever if both parties were willing. But what broke was the discipline of the merchant banks that were doing the intermediation. They created uber-toxic assets as trillions of dollars flowed their hands and their greed led them to find ever more elaborate scams to clip the ticket. It was similar in other markets around the world which all collapsed when securitisation did.
We have some similar dynamics in our bubble. Offshore capital is recycled as liar loans for housing punters to temporarily boost bank profits. That has been constrained by the royal commission and house prices are falling. But I do not think that that is the key vulnerability.
