Global House Price Bubble Flares Up Again

The International Monetary Fund (IMF) has warned another devastating global housing crash, reminiscent of 2008, is on the cards if governments around the world fail to take decisive action. Global house prices are now at a level that could pose significant systemic risk to economies around the world.

In a bid to share “cross-country information, analysis on housing markets, and discussions on the effectiveness of policy response”, the fund has created a new website – Global Housing Watch.

According to the IMF, Australia had the third most expensive housing on a house price to income metric, and the fifth most expensive on a house price to rent ratio in the 4th quarter of 2013, noting they are “well above the historical averages.”

While over 20 advanced and emerging economies have taken action through macro-prudential polices, Australia continues to do nothing and this “benign neglect” has put Australia firmly in the sights of the IMF.

The Fairfax’s Clancy Yeates wrote last Thursday under the headlines, “House prices among world’s most expensive”:

Australian homes are among the most expensive in the world when household incomes and rents are taken into account, International Monetary Fund figures show.

As part of a move to push governments to act against housing bubbles, the fund unveiled comparative data on Thursday morning intended to underline the high cost of homes.

It shows rising prices have pushed two key measures of home values – the ratios of house prices to incomes and prices to rents – well above their long-term averages.

On Friday, British Chancellor of the Exchequer, George Osborne announced he will give the Bank of England the power to limit house prices to help limit financial instability.

It is common understanding the frothy housing bubbles that burst in 2007-09 were created by interest rates being set too low after the tech bubble. Cheap credit fuelled the housing bubbles.

But that was over 10 years ago, now only a distant memory. Lending Finance data released by the ABS on Friday show investor credit demand in markets such as NSW is out of control, once again fuelled by 60 year low interest rates.

Warwick McKibben, a former RBA board member told the Australian Financial Review last week he believes the RBA has cut too far, creating unsustainable booms in both housing and stocks.

Of course, macro-prudential controls, if used early, could have allowed the central bank to lower interest rates thus cushioning jobs, while preventing a destructive housing bubble from forming.

World economic system is ‘madness’ and close to collapse: Pope Francis

Pope Francis has made a scathing attack on the World’s economic system, calling it “madness”. He commented that some countries had a youth unemployment rate exceeding 50 per cent, and warning the global economic system is close to collapse because of a “throwaway culture” of greed.

“Our world cannot take it any more. Our global economic system can’t take any more. We discard a whole generation to maintain an economic system that no longer endures.”

“I think we are in a global economic system that is not good.”

Generation Jobless

With our country drowning under high household debt levels, a new crisis is looming – a entire generation of long term unemployed.

On Thursday, the ABS released labour force figures showing the jobless rate for youth aged 15-24 is now 13.1 per cent and the portion of young Australians with a job is now at lows not seen for two decades.

Piers Akerman of the Sunday Telegraph writes today under the headlines Increasing youth unemployment a threat to the ongoing stability of the nation, “FORGET Generation X, Y and Z; the real threat to the ongoing stability of the nation is Generation M — M for Missing.”

Akerman reports on quotes from Australian Chamber of Commerce and Industry (ACCI) CEO Kate Carnell saying a lost generation is being created. “There’s a clear disengagement and if they’re disengaged at 25, they’ll be disengaged at 45 and they’ll become long-term unemployed,” she said.

This comes at a time when the Abbott government has cut unemployment benefits for Australians under 30 in the recent Federal Budget. Once passed though parliament, anyone under 30 who loses their job will have to wait 6 months for unemployment benefits.

But as Dan Harrison of the Sydney Morning Herald reports, unemployed youth must apply for 40 jobs a month in the 6 months before obtaining benefits and be expected to pay their own way for transport, phone calls, internet and other expenses while they undergo a search for a new job. And don’t even consider Australia’s expensive housing – They will probably have to move back in with Mum & Dad.

Opposition Leader Bill Shorten said the changes would create a “forgotten generation of Australians – shut out of the workforce.”

This can’t be good for the sustainability of the Housing Ponzi Scheme, can it?

» Era of Benign Neglect of House Price Booms is Over – The IMF, 11th June 2014.
» It’s official: Australia’s property prices are out of whack – The Drum, ABC – 12th June 2014.
» Home prices outpacing earnings: IMF – The Sydney Morning Herald, June 12th 2014.
» RBA cuts went too far: McKibbin – The Australian, 13th June 2014.
» Reserve Bank of New Zealand lifts interest rates again – The ABC, 12th June 2014.
» Bank of England given new powers to bust housing bubbles – The Sydney Morning Herald, 13th June 2014.
» World economic system is ‘madness’, puts money ahead of people, Pope Francis says – The ABC, 14th June 2014.
» Increasing youth unemployment a threat to the ongoing stability of the nation, writes Piers Akerman – The Sunday Telegraph, June 15th, 2014
» Unemployed youth must apply for 40 jobs a month – The Sydney Morning Herald, 12th June 2014.


  1. I tend to exclude Belgium from the above graph in which case Australia would be the second most expensive property market after Canada. Australia and Canada property prices are driven by the insanity of borrowing and speculation.

    Belgium property prices are driven by wealthy French buying Belgium properties on the other side of the French border and into Brussels (where French is spoken ) to use as a residential address to escape the crippling wealth taxes imposed by the French Government. This will be short lived as it is driven by the smart money doing their sums and not the Greater Fool theory.

  2. And the IMF data is old – Q4 2013. We have seen quite a surge in prices early this year. The Australian Financial Review at the end of March claims we overtook Canada, and that we now have the most expensive housing in the English speaking world. House prices enter danger zone – 29th March 2014.

  3. “This can’t be good for the sustainability of the Housing Ponzi Scheme, can it?”

    I disagree. It can be sustained for quite a lot longer by continuing to allow foreign investors to buy properties in their multiples – and maybe that’s why the FIRB are doing diddly squat to even monitor those who bypass all the rules. I mean, come on, we haven’t even sold off half the country yet – there’s plenty more to offload.

    And in the meantime, while we allow endless towers of badly designed and tiny dogboxes to be erected, we are also building the slums of the future that will probably become the dwellings of the future poor who can’t afford to live anywhere else.

    So yep, I think the future’s been taken care of.

  4. @ Michael

    Great point about Belgium. France is a basket case: the rest of Europe isn’t far behind.

    Australian’s have no idea of how out of control this situation is.

    Was reading about USA’s housing recovery the other day. What a joke. The broad figures look great, but when reviewed critically you find that only the 1% are buying or building, and that the 90% are still holding underwater mortgages. In fact something like 40% of all house purchases in USA are in cash……Does that sound like mum’s and dad’s are buying back into the market to you?

    England’s economy is supposedly booming as well: of the back of RMBS…..Some european central banks have negative interest rates. IE. The bank CHARGE you interest in hope that you will spend your money rather than keep it in the bank stationary…….

    My oh, my…..The ‘Great Recession’, as the world knows it, was nothing compared to what’s gonna occur next time.

    Oh, and stop stressing about foreign buyers: It’s actually good for the country when local seller’s cash in on an overpriced asset, and buy back after the market collapses……except stupid Aussie’s buy back into the same overpriced market…..

  5. You guys all seem to forget Australia has strong fundamentals.

    We have low unemployment

    We have china and the US at our doorstep along with SE Asia and India gearing up

    If the Australian government thought that 95% of our finance being in housing was bad they would step in and stop it.

    Australia’s different just becuase a crashed happened in every other country doesn’t mean we will have one. First home owner grants. No stamp duty. Almost zero land and capital gain tax. Massive concessions if it looks like you will lose money. ZERO regulation on forign ownership. (We have a body but I’ve helped a LOT if chinese buy property in Australia using their kids but then adjusted wills and docs to give it to their friends and family back on mainland china and all you have to do is check a box on a form and say it’s yours not your parents of friends. It’s an HONOR system lol.

    Australia will do ANYTHING to preserve its culture wealth and property. As evidenced by the new first home owner grants coming out. They will never ever ever stop trying to protect the housing industry here. Which is why I have 4 units all in Sydney and Melbourne turning me 10%+ every year now for 5 years haha.

    Australian property is GREAT! Where else can you sell 40k of building materials for 1million! And be backed by the government every step of the way 🙂 the ones left holding the buck if it does crap out is the idiots stupid enough to be sitting on a home loan that can’t be paid for using the rent. Which is everyone who bought less than 5 years ago. Since then I’ve had rates fall, repayments drop and rent go up! It’s FANTASTIC!

    I’m sure it’s probably a nightmare for kids and anyone under 30 but who cares. They can either pay me rent or leave. There’s plenty more people who want to live in Australia. If I had kids I would probably feel bad for them but they have to learn property is about making money not having security and safety and being patriotic and loyal to Australia. the governments just a system in place to manage basic services but when there’s nothing for them to do they tinker with housing to make everyone ‘rich’ ride that wave and make some money!

  6. Mike,

    Thanks for reminding me of the Australian fundamentals 🙂

    Item by item, one possiblity after another,… listing all of them…

    It seems OZ government is already beyond limits to save the property market 🙂

  7. Mike – funny comments. The notion that Australia is different is ludicrous as we are interconnected into the global system. That goes and we will go.

    The Australia has and elephant in the room that no one wants to touch – unbalanced economy (60% of national assets as property), high levels of private debt, property market driven by investors (super funds and overseas).

    The house as an ATM will collapse in Australia at some point as it has done so elsewhere.

    You last paragraph is quite selfish….I’m all right and screw anyone I can trend on.

    A booming housing sector is not wealth creation….it is a long run inflationary binge that will end at some point and the wealth will evaporate. We are investing in things that are not productive.

    Some issues:

    1. CAPEX cliff as mining investment falls
    2. Over 45% of the economy is finance based – UK is 20% and US is lower
    3. Unemployment seems to be stable but many of the new jobs are part times/contracted
    4. US economy is tanking – it has never recovered as the ‘hard’ data shows
    5. China’s property market is starting to tank and we make see a ‘crack up’ boom and the liquidation of Chinese investments here
    6. Commodity prices (Iron ore) falling
    7. Europe is a bit of a train crash

    People can only come to Australia if they can dispose of assets in their country…

    But at least you are optimistic.

  8. @7 Mike, I trust you’re being flippant, and I know your facts are probably accurate, but you still sound like a very selfish person with not a care for anyone else but yourself and what profit you can make off the backs of others. Of course it’s your right, and as you say, you have government policy backing you all the way, but in so many ways you are just plain wrong – and that makes me very sad indeed.

  9. @Mike

    Yep you’re on the money there mate and top work too I might add. Free world and your opinion is appreciated even if it’s on the rash side. It reminded me about something my dad told me once, when arrogance, stupidity and money all come together.

    The CAPEX cliff is a good point. Do you actually produce anything to re-enforce this “sure thing” plan of yours in the big scheme of things or is it just your own little tax haven?

    Also, abstain from sex..if you have kids, WOW what a financial leaning curve you have. Then I’d bet all the money in my pockets you’ll end up visiting Centrelink each month, relying tax revenues created by young tax paying workers that NEED a home to top up the “income” of yours…

    That would look rather silly now wouldn’t it!

  10. BUSTED……..

    Mike you’ve been busted for being a greedy little selfish human being

    Watch out for the Karma train , toot toot….

  11. @ Mike, people like you are exactly why this Country is going backwards!
    Me, me, me, I, I, I, was the message I got from your post.
    Hopefully, you’re just trolling, trying to get a bite out of the realists who understand and can see the bigger picture. If not and you are serious in your proclamations. I feel very sorry for you and any future offspring you may produce.

  12. 1966 through to “78 Australia had true freedom and equality for everyone(exception for the true owners,of this land,the Aboriginies).Today the majority are SLAVES to the 1%.By the time an average OZ worker,can pay of a house in Sydney,he or she has to give the total amount,of all earnings,over a 100 year working career to the banks.WTF.

  13. Mike,

    I hope that was an attempt at humour . We must also remember that financial systems operate within human culture. History shows time and time again that massive inequality as you have outlined eventually lead to civil unrest and a change in the culture which will trump any financial laws. With large groups of dissatisfied youth we will see radical politics becoming more popular and you will potentially see all your wealth taken away over night. There is beginning to be fewer people in support of the current game and a conservative religious leader stating so really shows where this is heading. Look back further than 70 years and you will see a better indication of human behaviour.

  14. I would also like to point out when I walked into a CBD book store the other day, at the center of the best sellers section straight in front of you when you walk in, was Thomas Pikettys book, Capital in the 21st century. It’s almost reminiscent of the Communist Manifesto but the reach will be far greater.

  15. Advance Australia Fare! 1million dollars invested in RE=automatic citizenship.They are ‘changing the blood’of our nation.Our children, will be beggars, in a communist satanic NWO led by corrupt,criminal party officials.We need to, stand up,and say NO to Globalism.Our parent’s and grandparent’s gave us wealth through their hard earned toils.We are lucky and should be thankful to all of them.How will our children remember us?Massive debts deflating assets no industries no productive skills no jobs.This is not the OZ,i remember as a young man.Free trade of labour and goods must be replaced by Protection policies,as it once was.We need to bring back Christian values”Do to others as you would wish to be done to yourselves” is the only way.We can make this country Fair again.Do it for your children.

  16. @Matty “European economies basket case” ????????????????? Which ones Germany, Holland, Austria? The problems lies entirely in the Southern part of the continent and of course good old England (the nation that gave us the housing price bubble by way of bank deregulation0 .

    A sweeping generalization on your part fed by a strange perception that somehow the “Europeans” are a monolith block which they are not. An arrogant and ignorant assumption that somehow “they”are “all” doing badly.A line that is often pushed by most of our main steam media which is simply propaganda.
    I have just returned from “Europe” …Germany and let me assure you even without all the natural resources Australia has the economy is remarkably strong and yes housing is VERY affordable.

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