Morgan Stanley chief strategist Gerard Minack has today warned clients that Australia’s housing bubble is 40 percent over fair value and could be popped if banks tighten credit or the loss making landlords start to sell.
He claims investors have become “Ponzi borrowers”, relying on capital gains to service massive property loans. Data from the Australian Taxation Office show rents has not covered the costs of an investment property since 2000 and hence property depends upon capital gains to make money.
Already this year, we have seen banks start to tighten credit. In January two of the big banks dropped loan value ratios to as low as 80%. This has caused mortgage approvals for owner occupiers to plunge 28% over the year.
Last month we saw investors start to desert the market with loan approvals for investors also falling. The number of houses on the market is rising consistently, suggesting that loss making landlords are in fact starting to dump their investments as the forecast of large capital gains dissolve, something that is needed to sustain their loss making ventures.
» Morgan Stanley analyst bearish on housing market – The Australian, 17th August 2010.
» Housing bubble trouble for the middle class – The Sydney Morning Herald, 17th August 2010.