Why Australia may not be the next “big short”


Via Gerard Minack:

There are risks aplenty in Australia, centred on expensive houses, high leverage and low saving. Some investors are more bearish: they see Australia as the next ‘Big Short’. That’s a tail risk, but remember both that there are some macro offsets to housing weakness, and that markets this year have already moved to price in some downside risk.

The bear case on Australia is easy to make: house prices are at nosebleed levels relative to history and relative to global peers (Exhibit 1); households are highly leveraged; the household saving rate is low and national net saving rate is negative; and there is much less room to cut interest rates now than in prior cycles. While all these things have been true for some time, the new news is that house prices are now falling. Importantly, this is the first house price decline in Australia not associated with RBA policy tightening or rising unemployment. The housing market spontaneously started to combust.

The full text of this article is available to MacroBusiness subscribers

$1 for your first month, then:
Cancel at any time through our billing provider, Stripe
About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.