Ratings agency Moody’s believes a severe economic shock should see Canadian house prices plunge as much as 44 per cent. The assessment has Canada joining the ranks of Australia, Spain and the United Kingdom in the club of high flyers where a run-a-way housing market has seen housing market fundamentals shift from sustainable to “overheated”.
“As with Australia, Spain and the U.K., we expect house prices in Canada to suffer the most due to the misalignment of current house prices with historic fundamentals,” Moody’s said.
According to Moody’s, house prices in Canada has “far outstripped” growth in incomes, leaving the country exposed to significant shocks.
After a brief period of cooling, house prices in Australia could be about to make a short term resurgence. Unusually low interest rates (easy money) was one of the contributing factors to house asset bubbles around the world, and it would appear the Reserve Bank’s three per cent cash rate setting combined with the unrelenting property spruiker has the green shoots sprouting once more.
But with asset prices and household debt still sitting at close to records high, our market, like Canada’s could be just an economic shock away from tipping. Just in case, the RBA has quietly increased the Committed Liquidity Facility to $380 billion…
Stock markets hitting all-time highs in recent weeks have triggered renewed talks of GFC 2, a more severe and damaging version of GFC 1. After much of the world spent more than they earned for a good portion of last decade the only ‘solution’ governments have found so far is to go on bigger spending sprees to help stave of recession. Leaders may literally avoid recession and in making these bubbles bigger, plunge countries into depression.
The majority of the world’s financial issues sit unresolved, slowing forming into a head. China turned to fixed asset investment to stave off the effects of the GFC, in turn leading to a large fixed asset and debt bubble. America has lost count what round of quantitative easing they are now in, not to mention the fiscal clift, sequesters and debt ceilings. Eurozone is simply a mess, and now Japan has joined the bandwagon with the aim to end years of deflation with a boost to its quantitative easing programs.
As Nouriel Roubini outlook stands, “short-term bullish, long-term catastrophic.”
» Moody’s ‘stress’ analysis assesses 44% decline in Canadian housing prices – The Financial Post, 11th March 2013.
» Mother of all bailout funds – The Age, 6th March 2013.
“But with asset prices and household debt still sitting at close to records high, our market, like Canada’s could be just an economic shock away from tipping.”
This has been my train of thought for the past year or so. Australia’s economy is stable(ish) with small slips up/down but generally growing slowly, but we’re small potatoes and if one of the BIG potatoes was to jolt us I dare not imagine the consequences. It seems we’ve been walking the tightrope for years now, here’s hoping we can make it to stable ground before someone pushes us all off.
Negative Gearing has made our irrational property market, rational.
Noticed the article had a typo. The Committed Liquidity Facility is 380 BILLION, of course at no cost to the banks and taxpayer guaranteed. With bank leverage at 26-30% if there is a problem which causes a run on the banks even 500 BILLION will not be enough. Thank you Mr Swan I’m sure you will be happily retired by the time it hits the fan.
What’s the bet that Commonwealth Bank shares hit $80.00 by June, and by next June they are worth less than $10.00. After all, our big 4 banks are paying increased dividends sourced from Ben Bernankes profit printing – printing press and not from mortgaged stressed homeowners drowning in debt and behind in their payments.
Alot of redundancies occurring now. Yoda reckons 2014 will be a shocker for unemployment and house prices. Those that are patient may pick up houses at more realistic prices then.
But its always a great time to buy , right?
Yoda say ‘why is Frank Lowy at Westfield flogging off his $685 million investment of property if its going to go up in value?
The townhouse behind where I rent isn’t selling at even 50k below what they paid back in 2008. Any offers. Maybe its because I believe in outdoor toilets and showers??Haha
http://www.guardian.co.uk/money/2013/mar/12/newbuy-mortgage-underwriting-scheme-expanded
So the UK government is planning to underwrite mortgages to ‘second steppers’ in a bid to throw more money at the banks and encourage those in, or on the verge of, negative equity to take on more debt, cunningly exacerbating one venal iniquity and one social catastrophe with a single deft measure. The article from The Guardian compliantly states that the main problem is that ‘second steppers’ can’t secure enough of a deposit currently to take on a bigger debt. Clearly lower prices would be no help whatsoever!
If you want to know what will happen to Australia in the future, look at what’s happening in the UK now. Australia hasn’t even reached the ‘denial’ stage yet.
Can I get twitter feed from this excellent site? If so, how?
Thanks.
Thankyou for fixing the typo. The problem with the big 4 banks is that they are 60% funded by short term deposits (6 months or less) from which they fund 25 year mortgages.
This imbalance will cripple them when real estate values fall into negative mortgage equity and foreign banks refuse to lend to them due to their risky situation.
@In Vino Veritas – Thanks for pointing it out. $380 million clearly is pocket money in a market as overheated as ours!
http://www.afr.com/f/free/blogs/christopher_joye/rba_quietly_increases_banks_bailout_ksLcB6WlebkzfQ89p3pPAK
@Yusuf
China been doing exactly the same thing, which can only delay the bubble bursting, Banks will run out of money sooner or later.
@DX
” … delay the bubble bursting”
It is not about China, Australia or any particular country to be specific. It is much more fundamental and complicated than that.
Actually, I doubt it will ever burst. The numbers could just pile up and written-off easily by a coordinated top-echelon that hold meetings behind a closed door.
Banks, especially the Central Bank, have much more clout than you and I could ever think of …. Those GFC and insider dealing are not something new. So does Enron etc in the year 2000s.
The role of media and democracy are very important in holding those involved accountable for their actions. This time you are not dealing with corporate that is chased by regulators per se. This is the SYSTEM itself.
THE exposure and THE leak to the Press / Public due to the advancement of information technology; proliferated by young high-tech firms like Google, Facebook etc are new. THOSE entities facilitate the information sharing (like this website) that bring “light” to these events.
Only the “insightful” will prevail in this sort of games ….
Ups …. haha So do Enron etc in the year 2000s (HIH anyone? QBE?)
Another Ups … ONLY the “insightful” will prevaile in these sort of GAMES …. haha