One more property bubble for the road?

There was a time when I’d have gotten all upset about the march of the property bulls. The bleating of property rent-seekers Mssrs Joye, Switzer, Wargent and the army of media carpetbaggers is enough to anger any sane person. But not these days.

Why have I given up on it? Two reasons. The first is exhaustion with the younger generations. Today’s mortgage uplift is being driven by first home buyers. The much-hated specufestors are deleveraging. Nor are there foreign buyers driving up prices. It is now a bid solely from those that are most marginlised by property prices. If they want to bid them up again to the detriment of themselves then who am I stop them?

The second is investment-based. Whatever outlook you have, if Australia is about to embark on one final property bubble for the road then it will be the last. This is not a difficult conclusion to draw. The last few episodes of the bubble have had some underpinnigs. The surge through the millennium was driven by regressive tax policy changes. The surge before the GFC was supported by huge household income growth. The surge after the GFC was fiscal policy driven. The last episode, after the mining boom went bust, was triggered by mass immigration, Chinese money, corrupt lending and the arrival of secular stagnation that crushed interest rates forever.

If our grand bubble managers get another bout of property inflation going this time then it will have no underpinning at all. No demand from population growth nor foreign capital. No income nor rental growth to support it. It will be a purely financial bubble, engineered by the creeping nationalisation of the Australian banking system.

If Australia wants to go that way then go to it. It’s the path to a permanent zombie economy that will never be able to support the very asset prices it seeks to promote, especially so as it will also face the deflation of many of the supports of previous cycles:

  • household income will decline as China goes ex-growth and we decouple;
  • rents will decline as mass immigration never returns to previous levels;
  • foreign capital will decline for both reasons;
  • policy supports will eventually decline as well, as the imperative to economic restructuring becomes irresistible.

Most important of all will be the nationalisation of the banks via the RBA. This has already begun via the Term Funding Facility (TFF) which is refinancing relatively expensive private debt with free printed money:

This will drive mortgage rates down to 1%, a level from which they will never return, barring some MMT revolution.

As the RBA nationalises the 38% (and falling) proportion of bank liabilities that were formerly supported by markets to trigger lower mortgage rates, bank margins also keep falling because the remaining 62% of deposits cannot get any cheaper. The endpoint of this internecine stupidity is crushed bank margins and zombie lending which, in the end, will kill of any property resurgence all by itself.

For what it is worth, I remain of the view that Sydney and Melbourne have already reached zombi status. They have already entered the four deflationary forces mentioned above so I can’t see property prices there going anywhere fast.

The other capitals have spent years getting relatively cheaper so can still grow, and seem to want to as the RBA takes us into the Japanese order of broken banks.

Just don’t expect it to last.

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


  1. GunnamattaMEMBER

    I must confess this has been my line of thinking, and I think it has precedent in what the Bank of Ireland did in the wake of the GFC crash there. I have no idea if it can work here – with our already extreme levels of indebtedness, the precarious competitive position of any employee in Australia vis their like counterpart almost anywhere else. But it certainly appears that is what ScoMo and the government would like.

    • There might be a little pretend bubble blip into Xmas but we are going to have a global credit shock over the next 6 months that’ll be greater than the GFC
      It’s going to be F UGLY and it’s going to push up interest rates up
      The next move in property into Q1 2021 is down and this move down is going to triggered by an overnight credit shock driven by a rising USD into a crisis that’s going to hit emerging markets and spread to developed markets
      The AUST banks won’t survive in their current form
      We have already started into a decade long property bear market in both residential and commercial property


      This property crash will be into rising interest rates
      CB are finished, they are already at zero, negative and unlimited printing

      No one can prevent this crash

      • GunnamattaMEMBER

        Agree with all those points mate, but the simple fact of the matter is I still think that is what the government wants.

        I have just been chatting (skype) with a mate bemoaning quite rightly IMO, the lack of meaningfully trying to use the COVID stimulus to provide a bequest for future generations – Snowy Mountains, fast rail, energy transformation (away from coal to solar wind etc), whatever.

        But what is our government doing? – tax cuts, weighted to the one section of society we know is highly unlikely to go and spend, and sparking a first homebuyer surge amongst the one section of society we know will will be trapped the longest in the most insecure jobs, servicing the worlds largest mortgages, paying the worlds most expensive electricity bills, for the worlds most expensive parcels of land. Just maddening.

      • macaroni jewelerMEMBER

        I’m betting that MMT by another name along with TFF will get the LNP to the next election, June-August.
        Then stand back and watch it all unravel…
        A careerist party politician’s concerns are, self preservation, power and promotion.

      • The real outlier here is the one no economist (outside the odd credible one) is talking about: inflation in 2021.

        What do policy-makers do? “Oh, it’s temporary!”


        • Inflation dream on
          Where’s the demand spike?
          where’s the supply disruption?
          where’s the exchange rate collapse?
          where’s the capital account inflow?
          where’s the price /wage spiral?
          Must be Claytons Inflation that you’re talking about.

          • Money supply inflation. The only credible measure.

            I trust you’ll be good enough to return here eat humble pie when the time comes? Excellent.

          • Over what time horizon are you talking?
            Clearly over a long enough time horizon we have at least 200 years of price inflation and that trend will doubtlessly continue because of money debasement. But Inflation in my world is measured by a change in the price of goods or services (wages) and there is little to indicate an upward trend in either at the moment.
            Your best bet for serious short term inflation would be through exchange rate collapse but again to get exchange rate collapse you have to be voted the ugliest currency on the block (at the moment there are too many other choices besting the Aussie in the ugly outlook stakes)
            Exchange rate collapse could also come about through international liquidity collapse and to some extent we are seeing this but the RBA is stepping into the breach (for how long remains to be seen)
            Anyway exchange rate collapse causes imported inflation which we’ve all been conditioned to look through, so where’s the wage price spiraling (classic hallmark of an inflation economy mindset)

          • PaperRooDogMEMBER

            no chance of inflation despite money printing, it’ll all be sucked up paying off debit in a deflationary world

      • Wow – up to 62k signatures in only 2 days. Think it had about 5k last night.

        Interesting to see that Rudd still remains popular after his axing – not surprising that the Murdoch press haven’t touched this, but the ABC remaining silent is indicative of the level of LNP support and infiltration.

        • Rudd, to me, has been the most interesting of our ex PMs. He is a technocrat who appears to have a better understanding of big ideas and their ongoing influence over long periods of time. Others seem to begrudgingly recognize it even though they might not like either Labor or Rudd. As someone else pointed out on here, many moons ago, we are still discussing what Rudd put front and center when he was PM: tax reform, NBN, mining rents. History has rightfully, in my opinion, recorded his personal failings. His vision and attempts to modernize Australia have been brushed aside due to the focus upon those personal failings.

  2. Mike Herman TroutMEMBER

    An interest rate with a 1 in front of it means that a moderate mortgage becomes comparable to monthly rent. That’s quite the dilemma. Pay someone else’s mortgage hoping that prices fall back or at the very least stagnate or jump on in….

  3. As all the others recent “bubbles” it will last long enough until the next one. Betting for price crash has been foolish (&and very costly for many forever renters). “the markets can remain irrational longer than you can remain solvent.”

  4. Prices go up- everyone will jump in off to the races. All the property bulls and skinny suited RE wealth seminar guru arzholz off social media will be vindicated evermore. Prices come down- Jevons paradox will kick in, everyone shut out to date/renting at mtg repayment levels will pull the trigger. Mortgage applications will soon be on mirrors- fog the dotted line, you’ll get whatever debt you want. In a bout of curiosity/ capitulation spoke to the mortgage broker last week. Can do 92% LVR (+LMI) for a $800k sydney IP no worries. Maybe its time to call it a day and savvy up. What doesnt kill Aussie housing only makes it stronger.

  5. Calling a housing bubble on the back of 10 houses changing hands in a market where 1000 normally exchange is not realistic. Sorry its just not.

    Victoria is the home of every great Australian recession – I am seeing apartments which once had a floor of $400k selling WELL BELOW $200k. 3 bedroom houses in coastal regions around Foster, Wonthaggi and beyond were a minimum of $500k last year – you can pick them up for under $300k now. Insanity.

    2 acres around Woodend, Mt Macedon, Hesket – minimum $1.5 Million – am now seeing 12 hectares and more for $800k

    I think its genuinely hilarious the way people think there is another bubble forming. How are people simply ignoring the fact that Job Keeper being reset is 7 days old ? That mortgage holidays are ending starting next week ? I mean seriously how can people just say – “oh we drove over a cliff – but we haven’t hit the ground- look how fast we are going, amazing, car is running better than ever”

    Its honestly quite strange.

    Went to buy some fish before – Flat Head tails are $70 kg.

    All fruit and vegetables are up around 20%

    Kmart / Target shelves are all empty – that’s not a joke, or an exaggeration – they are empty.

    United States is preparing for a national food security crisis. One in 4 Liver-puddlians has Covid, UK is going back into total lock down and the EU is about to shut the entire continent down.

    Which part of this is escaping people ?

    Our economy has had a MINIMUM 25% wiped off it – GDP be damned thats the reality. There are no renters, there are no holiday makers, there are no foreign buyers, there are no investors.

    • mackinnonsMEMBER

      Thanks for your perspective Casus. The idea of continued house price growth in the face of what’s happening was not sitting well with me, just couldn’t get my head around it. Your description seems more logical, makes sense so we’ll probably be wrong on the matter.

      • The idea of continued house price growth in the face of what’s happening was not sitting well with me,

        But that’s exactly what is happening in my trendy little northern NSW town. Houses selling literally the same week they are listed, prices well up on last year.

        • The90kwbeastMEMBER

          We’re clearly at the junction that any discussion of national house prices is meaningless due to different state’s takes on managing COVID. Need a state by state breakdown.

          • Not state by state but capital cities versus regional towns. There is a “fleechange” underway. Of course, in a few years when C19 is over, all the people who fled the cities will be trekking back. 😊 At a loss!

    • 40% of workers are on either JS or JK!!!!!! Nuff said.

      Spot on about food prices, mine up 14% last year and this FY so far up similar again. Flathead tails FFS, they’re like shooting fish in a bucket – not like they’re scarce, but most likely caught here, shipped to China, filleted there and shipped back.

      • Most of the our seafood processing is done in South East Asia – not China – it is absolutely RIFE with hardcore slavery – as in old school transatlantic slavery style stuff with people kept on boats at the point of a gun – really scary.

        The fish monger here in Melbourne said the supply chains in seafood were broken – particularly Melbourne whoelsales.

        People have been posting pictures on social media for weeks now about Kmart and Target being completely empty of stock.

        Inflation through scarcity is a real killer. Pumping cash into the economy at the same time – rofl.

        • macaroni jewelerMEMBER

          I live rural QLD, work remote WA… It’s a different story in these two places. I don’t get home now, but otherwise fairly normal.
          VIC is seeing the shitty end of the stick for certain.

        • Could kmart/target stock level be because of the shipping delays?! (Not talking the fake news delays caused by industrial action but the real ones caused by the big storm up north in the SE Asian shipping routes last month that delayed a lot of sea freight [delays then slightly compounded by industrial action])

        • Don’t worry, CPI is 1.3%. 🙂

          Run! Deflation is gunna kill us !

          The careers of a LOT of economists are about to die in a fiery inferno. And not before time.

      • No – just second hand apartments – as in NOT off the plan. Look around Carlton, Brunswick inner city – just put into Domain a maximum price of $300k there are lots.

        In and around Carlton (student apartments) they are asking around $180-190k – you could make an offer of $150k or less and pick it up.

        Old 70’s and 80’s “flats” were hitting $400k last year – these are down in the $200k in some parts.

        Again Ivanhoe through to Alphington, Eaglemont region has seen maybe 1 or 2 houses in over 6 months , total insanity.

    • desmodromicMEMBER

      The recession hasn’t yet hit in locations where mortgages are smaller. Steering and suspension specialist in southern vales of Adelaide “has never been busier. Everyone has cancelled overseas travel and is updating their 4WD”. I tried to book in for next week and can’t get a slot until mid November!

    • Agree 100%. As JK and JS are sucked out of the economy things are going to collapse. The sheer volume of money that has been poured in over April to August was huge and keep in mind everywhere opened up. The six month shutdown didn’t happen in Sydney, Brisbane etc. There just isn’t anywhere near enough private demand coming as the feds turn on the vacuum cleaner and suck dollars away. The tax cut replacement won’t do anything to move the needle, they’re the economy is in a soft spot kind of tax cut, not a global multi year recession. The government is worried about stock rather than flows, but everything spent on JK and JS won’t matter at all by the time we get to March next year. It’s the lack of flows of dollars that will sink everything.

    • “2 acres around Woodend, Mt Macedon, Hesket – minimum $1.5 Million – am now seeing 12 hectares and more for $800k”

      Got any links? Not what I am seeing on the ground but not much on the market it seems.

  6. The price will stay same over the next 3 years but father time said that’s 30% loses I felt uneasy and got just before the last dip and tempted to load up again on the rise but got that uneasy feeling back off went gold then the aussie

  7. reusachtigeMEMBER

    LOLOLOL!!! Boom times ahead, always!

    Seriously, it’s so farkn hilarious that youse freaks, once again, like many times before, screamed “it’s a crash”, like from Solar Boy, yet the reality is, again, as expected by good people, boom times ahead!

    Farkn awesome hey blokes!

  8. Population growth is coming back in two years. There’s always going to be more people wanting to come from somewhere. Businesses and other interests will always overrule any political pressure to maintain low immigration.

    There is a real scarcity of housing deliberately built into urban planning for Melbourne, and probably Sydney too, for several decades. It is planned that density will increase, with the underlying implication that people will not be able to afford a freestanding home because land prices will continue to rise due to enforced scarcity. This is the deliberate intention of planners.

    As for the first homebuyers, people have to move on with their lives regardless of economic conditions. Can’t expect them to put their life on hold. There are still plenty of people who want to buy and will jump in if prices drop.

    I dream of a major crash myself so I can buy a place and not have to live with my parents anymore, but I think it’s highly unlikely.

    • happy valleyMEMBER

      Probably take a bit longer than 2 years for the Indians to ever control COVID-19, so if Scotty and his LNP mates want to chance their arms and open the warm body floodgates then good luck to them with that. Also, I doubt that dear leader will want many of his people to emigrate unless it’s HKers trying to escape and dear leader seems to be the only dude that has got the flu under control but as it started there, he’s probably on top of what it is?

      • I don’t think we’d be allowed to travel to India – as I agree I doubt they’d get it under control in 2 years BUT …

        that won’t stop them bringing Indians here – 2 weeks quarantine and a test and you are fine. Even if you have it – just need 4 weeks quarantine – cheap at half the price.

          • It is actually all arrivals, not just permanent migrants (i.e. tourists etc), which in Sydney alone per the airport data for last year was >1,000,000 per month and each of those needs 14 room nights. Yes a few couples, but given how many single males from India make up our intake, I think you will need a LOT of hotels.

    • IMHO it’s the purchasing power of money that is being destroyed more so than real estate prices rising. Money just doesn’t buy as much quality assets anymore.

      • That’s what I have always thought – all the major currencies are devaluing simultaneously so there are only small fluctuations in the exchange rate but necessities (education/healthcare) and hard assets like gold and real estate are inflating. Also I think the USD is the only fiat with any significant backing so we can only cut rates undercover of the Fed. If the Fed increases rates we will be forced to increase which will collapse the housing market.

    • Couple weeks you’ll admit lockdowns were inappropriate

      Lockdowns are only appropriate if you care about vulnerable groups. Economically, lockdowns are bad news. If you have a touch of sociopathy (a common failing), it’s very easy to rationalize that vulnerable groups should look out for themselves.

      • Ahh yeah because there’s absolutely no non-economic damage to locking children inside, preventing them from going to school or having friends, during the most critical years of their lives

        Not to mention the effects on adults (including elderly) not being able to see friends, family or even other people’s faces

        • Thanks for illustrating the point that those with a touch of sociopathy will seek to rationalize the very lives of the vulnerable versus the economic damage, psychological stress and general inconvenience to others. The fact that these are not equivalent is glossed over by sociopaths.

      • Yeah ….imagine expecting morbidly obese people ( comorbidity most associated with COVID death ) to lose a bit of weight in order to survive. Much easier to simply shutter the entirety of healthy society and force everyone else to forfeit their lives instead.

        • You go, Fishing72! Let those fatties die!

          After all, being fat is just self-indulgence, isn’t it?

          Professor Lesley Campbell from the Garvan Institute of Medical Research in Sydney tells Fact Check there is good evidence that between 40 and 70 per cent of a person’s weight is inherited.”I want to let people understand the science is that obesity has high heritability and is not a ‘choice’ or ‘weak will’,” she said.Overeating studies have shown there is as much as a fourfold difference in the amount of weight a person will gain if fed the same high calorie diet, Professor Michael Cowley, a physiologist who works at Monash University in drug development for obesity and diabetes, tells Fact Check.One study by Canadian scientist Claude Bouchard took young adult identical twins, put them on a high calorie diet and found there was “significant” similarity within each pair of twins in response to overfeeding, with respect to body weight, percentage of fat, fat mass and estimated subcutaneous fat. There was about three times more variance in these measures among the sets of twins involved in the study than within the sets of twins.The study concluded that genetic factors “may govern the tendency to store energy as either fat or lean tissue and the various determinants of the resting expenditure of energy”.”The theme is set before the kid can reach the fridge door,” Professor Funder said.

          • “……if fed the same high calorie diet . “

            Yeah , we couldn’t ask the obese people who are disproportionately contributing to the shuttering of our country to lay off the high calorie foods could we ? That might be too onerous for the poor victims of their own greed.

            Now ask yourself why you’d post a link that even yourself wouldn’t find relevant unless it was anything more than a smokescreen for you to push your own subjective beliefs . Such as the unsubstantiated and unfounded claim that Australia should be locking up everyone instead of isolating the vulnerable.

        • “The mistake one makes is to talk to people” Sam Beckett

          Your blatant low intelligence prevents you from understanding that obesity is a disease, that hunger levels are genetically controlled (see twin studies), and that you can stamp your little smelly feet up and down all you like, but it will not change the fact that nearly half the population is overweight or obese, and more vulnerable to C19. M’kay?

          • Rikki StocksMEMBER

            Hunger may be genetically controlled, but there are no obese animals at the zoo. Ongoing calorific restrictions will eventuate in weight loss, much like your vehicle will run out of petrol if you don’t keep the fuel tank fed.
            Take a look at the story of Angus Barbieri – a 207kg man who for 382 days he ate nothing and reduced his weight down to a manageable 82kg.

          • there are no obese animals at the zoo

            So put people in cages and feed them a set number of calories → same result.

            Lots of sociopathic ideas doing the rounds here.

  9. Any support for property prices in WA will be compromised first by the reshaping of job keeper/ jobseeker in progress and then in 6 months by the likely elimination of job keeper as the zombie companies start to fold. If the headlines in the media is about large number of business closures then the consumer sentiment to borrow more could be significantly impacted as people just hunker down and dont spend because they cant get work. If at the same time covid is under control in all states and WA opens its hard border, FIFO for resources industry will start again and a lot of resource workers will move out of WA rather than continue to pay exaggerated rentals just to keep working. Real estate media is pushing the line hard in Perth media that prices are are only going to go up.

    On another note the area i live in is being subject to a lot of infill. The whole in fill scheme is being aggressively pushed by the local council and builders are getting pretty much any planning exemption they ask for unless residents get together and push back. Case in point a medium sized block on the other side of the suburb was going to have 7 units built on it. And the cherry on top is it was going to be all government subsidized housing. The nearby residents all got together to oppose it. Best they got from what i have seen after a walk past recently is the units have been reduced to 6 instead of 7. Maybe its a co-incidence but two houses next to that block have been put up for sale.

    There is a block just down the road from me that about 10 years ago was demolished and the current owner build a two story meg mini mansion on the block. I would estimate back then the entire cost of block purchase plus build would likely have cost 1 million plus. Its a very nice house. Very nice. Its the largest house in not only the current suburb but every surrounding suburb i would say. The owners family of 4 have lived there for 10 years since it was built. Walked past yesterday and now there is a for lease sign out the front.

  10. I totally agree with the intro.

    FHBs are the last stupid sheep jumping off the cliff.

    They might feel it’s a little breezy, but the stupid things don’t know they haven’t hit the bottom yet 😉

  11. Playing devil’s advocate:

    household income will decline as China goes ex-growth and we decouple;

    That’s an “if” and not “as”. The CCP are hell bent on avoiding any sort of contraction, and they’ll probably be able to do it for a decade into the future. Their economy is becoming more inward-looking. But they still need raw material inputs. I’d be happy to be proved wrong.

    rents will decline as mass immigration never returns to previous levels;

    C19 will probably go away in a year or two, if it follows the path of previous pandemics. Immigration will then slowly resume. I would not be surprised to see it turboboosted to make up for the ‘losses’ of the covid years.

  12. Yep it’s not logical but it is happening
    All that I can say is: Tonight I’m gunna party like it’s 1999 Tokyo’89
    I’ve seen this last blast on property before and trust me, it doesn’t end well.
    The economy ends up unable to function, the banks can’t ever undo this insanity so what we get is 3 decades of never ending recession , ceaseless recession.
    Have you ever wondered why the once mighty consumer electronics companies like Sony stumbled and fell? Not withstanding the management F’ups it was because simply couldn’t allocate capital and labour where and when they need to. Sony management had to believe it’s business plan because every other path led to financial ruin through balance sheet rationalization. There were plenty within Sony (especially within the product development community) who openly acknowledged the insanity of the official Sony product pathway.
    And to think the death spiral all started with overvalued RE.
    But Australia is different, we’ve got kangaroos and emus and nothing but over priced RE within our cities, so our industrialists have nothing to worry about.

  13. Increasing house prices is part of central bank policy as it leads to money supply increase.
    Which is why house prices will never be allowed to fall.
    As explained by the BOE.
    “Commercial banks create money, in the form of bank deposits,
    by making new loans. When a bank makes a loan, for example
    to someone taking out a mortgage to buy a house, it does not
    typically do so by giving them thousands of pounds worth of
    banknotes. Instead, it credits their bank account with a bank
    deposit of the size of the mortgage. At that moment, new
    money is created.”

    This bubble has a long way to run. Enjoy the ride.

    • This is 100% correct. A bank’s solvency is connected to the value of the assets that back the loans on their balance sheet. If property prices fall, lending usually falls too meaning money supply growth gets crimped and can go negative (deflationary), leading to a spiral. As bank balance sheets take a hit so their ability to lend is compromised and so the spiral continues.

      In general, money supply growth must remain positive (classic ponzi scheme) and if it doesn’t that’s where central banks step in.

  14. Yeah, nah, I really just don’t think it’s even possible at this point to fire up another leg of the property bubble. We’ll see, but I wouldn’t bet on it.

    • Tis interesting I checked a few markets I sort of follow on after reading casus belli’s comments above. Some of them have dropped in asking price and there are quite a few under offer. I’m guessing that in some markets in Vic in a few months those price drops will show up

  15. Increasing with Cameron Murray and Catherine Cashmore that property bust will happen 25/26 or thereabouts (some might even think 28). I think we are (Globally) in the very start of a bear and turbulent decade.

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