Albo’s housing depression has begun

The great bond yield back-up has so far proceeded pretty much in lockstep between the US and Australia. Australia is lagging behind the US cycle by a quarter or so owing to our vaccine and RAT problems which is why our yield curve has not flattened as fast but it has been trending in the same direction indicating economic trouble ahead:

But, in the past few weeks, there has been a change. The US long-end has attracted a bid but the Aussie long-end less so. This has resulted in a sharp widening in spreads:

This can be seen also in interest rate forward markets which have begun to price rate cuts in the US in 2023, but in Australia, the terminal rate is still climbing:

This week’s wages decision gave it a kick along but the widening of spreads predated that. More important is the energy crisis.

By protecting mining at the expense of everybody else, the Albanese Government is embedding a very inflationary energy price pulse that will inject roughly 5% (!!!) into the CPI over the next year. This is widening yield spreads to the US and will, before long, put upwards pressure on the currency as well.

Just as the world and Australia plunge into recession, the RBA will confront a very sticky core inflation problem forcing it to hike even more. We all know where that is going to land hardest.

Albo’s housing depression has begun.

Houses and Holes
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  1. Que?

    “This is widening yield spreads to the US and will, before long, put upwards pressure on the currency as well.”

    Surely the wider the spread the more the AUS $ goes down?

    Or, HnH, are you saying: if the RBA keeps hiking and the Fed tops out then the AUS$ will go up? That I’d agree with

  2. pfh007.comMEMBER

    “..Albo’s housing depression has begun…”

    Necessity can be the mother of invention.

    Now is the time for Albo to resuce Aussie housing that is being held hostage by the banking cartel.

    The rescue plan looks like this.

    1. Offer new home owners a rebate of a large chunk of the state and local government levies imposed to force the first owner to pay most of the servicing costs of new land for housing. Those public services should always be paid by the community as a whole so that the public understand the real costs of endless population growth. If the federal government picks up the tab it might both take population growth costs more seriously and pressure the state and local governments to stop gold plated requirements.

    2. Offer new home owners a rebate of the GST paid on the purchase of the new house. This will be simple to administer and means that the states don’t miss out on any GST revenue.

    Steps 1 and 2 will significantly lower the cost of new housing.

    3. Set up a home lending authority that is authorised to conduct first mortgage lending to first home buyers up to a fixed multiple of their income for a fixed interest rate of 3%. The home lending authority will fund the mortgages by selling bonds to the RBA.

    4. Remove capital gains tax on new housing for the first investor. This will make building new housing stock much more attaractive for investors than punting on the existing housing stock where they will have to pay capital gains tax.

    5. Dont touch negative gearing – why? Simply to avoid unecessary opposition.

    6. Set a residential vacancy rate target of approximately 4% as a permanently target for public policy. Without sufficient buffer stock in the market the housing market will remain prone to spruikers promising amazing capital gains. Restrict immigration until the target has been acheived.

    All this plan involves is the allocation of capital to new housing construction in a way that does not involve:

    1. Relying on our bloated and incompetent private banks who prefer funding speculators and spivs having a punt

    2. The first user pays all system of funding public services for new housing

    3. Whale mortgages imposed on new home buyers.

  3. Just as the world and Australia plunge into recession, the RBA will confront a very sticky core inflation problem forcing it to hike even more. We all know where that is going to land hardest.

    Good! What a world, where the parasites cant just pump the bubble again. Younger generations have been experiencing unhinged inflation for over a decade, it just happens to be in the household’s single greatest expense, a family home.

    Uncorking the inflation genie bottle is the best thing to ever happen to Australia longer term. Demand side/supply side/expectation side, they nailed them all…. AT ONCE! Risk free ‘asset’ speculation coming to an end. Maybe now we can finally start to structurally rebuild the real economy, instead of protecting asset prices for Boomers and Gen X.

    • Leroy Huggins

      Excuse me for being cynical. Any rough spots in the Australian economy and the calls will just go out, and be answered, for more migration. Which will underpin more economic activity, more borrowing, more debt, and the complete sellout of the Australian landmass and people. There is nothing to celebrate here. We don’t get anything to celebrate until the population is sufficiently awakened as to what has been done to them for the last 60 years – which may, it must be said, actually never happen.

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