Australia’s housing market “insane” : Jonathan Tepper

At nine thirty last night, I sat in my allocated seat – G-6, in cinema ten of Event Cinemas’ Marion Megaplex. As a “renter class” citizen, I had just paid the budget price of $12.50 (Cheaper Tuesday) to see The Big Short, a true story of hedge fund manager, Michael Burry, who diligently discovered the American subprime housing bubble unfolding and boldly shorted it.

As the previews rolled, it became increasingly apparent I was the only one in this session. I had the entire cinema to myself. No chip packets rustling, no one chatting.

Waiting for the film to start, I pondered to myself. Why is the cinema empty? Is it a reflection of Australia’s complacency? Are any other cinemas in the complex, empty? Should I be shorting Amalgamated Holdings, the owner of Event Cinemas, instead of the banks? Just how much disposable income has our housing bubble leached from everyday Australians, that they can no longer afford cheaper Tuesdays?

And last, but not least… If a film is projected onto the screen, and there is no one to see it, does it still show?

Granted, I had taken 6 weeks to watch it. Had I not been overseas on the 14th January, when The Big Short opened on the big screens in Australia, I would have been eagerly in the audience that opening night.

But the timing was somewhat perfect.

Today, on the front page of the Australian Financial Review was an article by Anne Hyland. It was towards the bottom of the front page, where yesterday lobby group, the Property Council of Australia, had paid for a banner advert promoting the benefits of negative gearing (Don’t play with negative gearing), a tax incentive thought to be contributing significantly to Australia’s ballooning housing bubble. Hyland wrote:

It was like a scene from the film The Big Short. A hedge-fund manager and an economist pose as a gay couple on a combined income of $125,000 and tour Sydney’s western suburbs viewing housing developments and meeting mortgage brokers for research to determine if there’s a housing bubble.

The conclusion is it’s worse than they thought.

I could immediately relate.

As the story goes, a misplaced phone call to hedge fund manager, Mark Baum (played by Steve Carell) alerts him to a credit default swap being placed on the American housing market. Curious to understand why someone would short something as safe as houses, Mark Baum undertakes extensive research. He visits suburbs with high mortgage defaults, talks to mortgage brokers and interviews hookers with multiple investment properties funded by time bombed adjustable rate mortgages. Later he visits the American Securitisation Forum in Las Vegas and ratings agency Standards and Poor’s. The more he digs, the bigger the scale of the fraud becomes.

Had you watched 60 Minutes on Sunday night (Home Groans), you will already know what Hyland is referring too.

Australian based Bronte Capital’s chief investment officer, John Hempton has been showing founder of Variant Perception, Jonathan Tepper around town for the past couple of weeks.

Jonathan Tepper had predicted the housing bubbles in the United States, Ireland and Spain. In Spain, according to 60 Minutes, he was made enemy of the state for simply telling the truth.

During a weekend auction in Sydney, Tepper described the irrational frenzy as “mad”. “I’ve never seen anything like this in my entire life. This is truly crazy,” he remarked on 60 minutes.

Tepper says the price to income ratios for Australian housing is totally out of wack and predicts falls in house prices of between 30 to 50 per cent for Sydney and Melbourne.

“Have no doubt it will burst, the only question is when,” he told 60 minutes reporter Ross Coulthart.

The Australian Financial Review today reveals Tepper and Hempton has been touring suburbs across north-west and south-west Sydney, and has met with some 20 mortgage brokers. Mortgage brokers had repeatedly encouraged the two, posing as a gay couple, to lie on loan application forms about their income.

They have also spoken to many investors who were able to get revaluations on their investment portfolios to increase equity for further speculative property purchases. “We met one who was able to do this 20 times in a year with their property portfolio.”

Mortgage brokers were upfront what big four banks would revalue investment properties quickly. “They wanted to put you in 10 to 15 apartments. The only way they could do that was getting the bank to revalue the property so you could borrow more money. They were acute about which banks had bad practices.”

2012 Property Investor of the year, Kate and Matt Moloney featured predominantly in the 60 minutes report. They are now close to bankrupt, owing the banks millions. One of their downfalls were accumulating too many investment properties, too rapidly with little to no equity.

According to the AFR, “Tepper writes of getting a ride with an Uber driver who said he had his own house, had bought five investment properties in Queensland with no cash deposits, and went guarantor for his daughter who bought a $2.2 million home.”

In Tepper’s report, he warns “Australia now has one of the biggest housing bubbles in history”. Australia’s real estate assets to GDP is now 3.8 times. Ireland and Japan, two of the world’s largest housing bubbles in history, had multiples of 3.5 times at their peak.

Hempton discloses has a short on the Australian housing market. Tepper has told 60 minutes, he will probably do the same.

» Uncovering the big Aussie short – The Australian Financial Review, 24th February 2016.
» Home Groans – 60 Minutes, 21st February 2016.
» The charts that suggest the housing bubble is out of control – The Sydney Morning Herald, 24th February 2016.


  1. Shorting the banks it likely to be more dangerous than the housing bubble itself.

    I put a stop loss on CBA shares @ ~$53 years ago… Thank god it never got triggered…. Got to see them hit ~$90 LOL.

    It’s all about timing when things are at these extremes.

  2. I would like to thank all the “Mum and Dad Investors” of Australia, the Government and the Property marketeers for making us look like the dumbest people on the planet.

  3. If property is way overvalued, the banks are way overvalued.

    If the banks are way overvalued, then the stock market is way overvalued.

    If the stock and property markets are way overvalued, then superannuation and investment portfolios, and household wealth in total, are way overvalued.

    If superannuation and investment portfolios are overvalued, then taxation revenue is way overvalued.

    If taxation revenue is way overvalued – especially compared to government expenditure – then the currency is way overvalued.

    This madness is pernicious. And when it ends, in a flaming inferno of defaults, it is going to hurt everyone.

    Two generations will pay a high price for this folly. At least.

  4. @ 3 Rent Seeking Missile

    If you want to see what will occur check a 30 year Chart for the Japanese Nikkei index. 25 years on an it’s still at 1/3 of it’s peak…..

    This translates into an XJO of ~2000 points…..
    Then the next problem…. as Australian’s have 60% of their wealth tied to property, that will halve……
    But with the ASX lingering at 2000 points can you imagine how the super funds will look?????

    Don’t let anyone tell you superannuation is great. Just like the housing market, it’s stuffed. But only a select few with foresight can see it.

  5. Tepper hasnt reveled anything new. what he said has been common knowledge for years for those with their finger on the pulse.

    As for shorting, well thats been done by some of the worlds greatest punters, sorry investors , Jessie Livermore , Souros, etc. But I guess these guys dont get lumped in with the rent seeking crowd because they are “producing” something useful.. lol

  6. On the same subject here is an interesting summary of the article “The Stock Market Says Housing is in Trouble” published today (25/02/16) by Greg Canavan,from The Daily Reckoning:

    “–The Coalition has lost the plot. It’s gone into full fear campaign mode. But they haven’t worked out which lie to tell consistently. Assistant Treasurer Kelly O’Dwyer said that Labor’s policy would make housing more costly (don’t ask me how) while a day later a foaming at the mouth PM said it would crash the market.

    –That’s Democracy in action, Aussie style. Appeal to the lowest, dumbest, most self-interested group/s in society and you gain power.

    –Meanwhile, the RBA says there is nothing to worry about, and that loan standards are good. But just a few days ago, bank regulator APRA released data showing that total bank exposure to residential mortgages was $1.19 trillion, of which an astounding $462 billion were interest-only loans.

    –So 40% of the debt backing the housing market is interest only? That’s Ponzi-like finance, folks.

    –Good thing the housing market in Australia is different. For now anyway. But the message from the market says that is about to change.”

    –The end of article–

    In the moments like this I am glad I’ve got dual citizenship.
    My heart goes though to all hard, honest working people that may be caught in the process of the housing downfall.
    But as for all the greedy speculators, investors, real estate agents, brokers etc, etc they can go to hell and burn in their own debt!

  7. Can anyone tell me if someone who declares bankruptcy is still liable for the loan in Australia?
    I’ve been debating this with a few people. Someone pointed this out to me:

    Which says: “If there is no money left after the property is sold and the mortgagee is still owed some funds, the mortgagee can lodge a claim in the bankruptcy but cannot chase you for the rest of the funds.”

    Obviously people lose some or all of their deposit if they are underwater.

  8. @Matty Do you think that people might try and short Mortgage insurers instead? Are they at greater risk from a downturn?

  9. @8 Murad

    Sounds like a good idea….. Except the LMI’s are separate companies….. Often owned by the banks! Independent? I don’t think so.

    This is the funny thing about the Australian property scene, it’s so full of un-truths, myths and out-right lies that the situation is far, far worse than what guys like Tepper even think.

    As @6 Capitan Rex states, 40% of RMBS are interest only. This is nothing but a ponzi, a ponzi relies on new investors, to pay the old investor….. _ve gearing is a ponzi, as the current investor CAN ONLY make money when a new investor enters……

    So, a little island has RMBS>GDP, a property market valued at 4XGDP, and 50% of new mortgages are interest only… As a developing nation (economically developing ie: we import capital) this is insane. At some stage the foreign lending will slow, and it doesn’t matter what the RBA does, as interest rates WILL soar. The wrath that is to hit these smugg A holes will be magic.

    I know there will be bank bail outs, and market protections implemented, but this beast is so large that I’m not sure they can overcome this when it hits it’s full stride in reverse.

  10. I have to give labor credit.
    They know that the next government, whoever it may be, will be dealing with this bust.
    They can, and are, exposing it for what it is, they can blame the current govt for it and continue to scare the horses.
    If they win on this platform the wheels are already in motion for the destruction of housing and they can argue that they grandfathered and are making subtle positive changes.
    If they lose? Hey, we all know that the next election is not one you want to win anyway.

  11. Just for anyone interested, NZ net migration was out today and 1300 kiwis more headed home than came to oz.
    Anyone who reads Macrobusiness would have seen the correlation between recession and NZ net migration.
    I am out west and people are flooding out of WA and the layoffs continue.

  12. what I’ve noticed is that very few Australians have any deeper level understanding of economics and virtually no technical analysis skills. a friend of mine who is a multimillionaire says to me after I’ve said “the overwhelming evidence is that Australian property is going down a lot. watch 60 minutes, read this site”. he replies “youre being negative”. a lot of Australians confuse ones outlook on life with price levels. you can still be an optimist and believe that house prices are going down. i mean if one generation was allowed to get into property when mutliples were 3x median family income, why cant another?
    we’ve got to dismantle the “property investment” culture and replace it with “i bought a house to live in”. this in the long term is what is best for society. price falls will allow the more natural clearing rate to be met and this will flow on to the construction sector. i reckon price falls will make the housing construction sector actually work better, because more lower income families will be able to buy a newly built house. the “invest” culture should be directed to the traditional wealth generating sector, the manufacturing sector,
    thank you,

  13. Bring it on. I work with people who are leveraged at 10-15 times their annual income with little to no understanding on what they’re even doing. I heard one say the other day, “It’s easy, if I can do it anyone can”, it’s ridiculous and all based on false equity. It’s disgusting how long this countries leadership has displayed ignorance to the NG sacred cow given the obvious rife it has caused. All the talk about fear of correction isn’t relevant when you consider the inter generational consequences of letting this rampant practice continue.

    I’m a Gen-Y and quite frankly appalled by the instant self gratification of my peers. The more is better mentality astounds me, very few people in my extended circle will settle for an apartment or townhouse, everyone wants the big house now, and with cheap credit and loose lending… Guess what.. They can get it…. Plus a few IPs for themselves and “set themselves up”. Few in my generation have seen hardship, even Baby Boomer neighbours still spruik the “Get in now” still believing the “up-up and away” with prices story. Ask further though and there’s no understanding on their behalf as to why their houses have triple in value in 15 years, they think it’s the status quo, then pass this advice in to their kids (along with security on their own property) and we wonder why Gen Y has the biggest appetite for debt in this Ponzi scheme?

    Then you have those with the hide to claim that they’re being strategic in what they’re doing and displace shame on this who don’t do the same, like our Maloney friends and supporters circa 2012-13!!

    I seriously sit back and wonder what the hell this means when the Baby Boomers exit and want to dump their IPs to buy better Winnebago’s to tour the country in.

    Until then.

  14. And on that note… Kate Maloney is a fool who is past her 15 minutes of fame. She’s like a crew member bent on Mutiny only after being given her marching orders. Let me guess, she wouldn’t be talking about this if we were still a few years off this part of the economic cycle. She obviously had no concept of risk exposure, probably parented by a naive Baby boomer.

  15. Kate and the other couple interviewed for that 60 minutes piece couldn’t quite express what is needed to be said. The banks are clearly at fault (and ably aided by the politicians).

    20 years ago bank managers would insist that you had a 20% deposit and a stable income in order to protect their depositors. Now there is no due diligence. The tax payer can bail them out and the deposit holders can bail-in them in.

    So bankers have become ticket clippers… intermediaries, who don’t do any work to protect either of the parties they intermediate between and who also endanger other parties (i.e. taxpayers and the broader economy) through their recklessness.

    The whole finance industry has become like that. Clearly the industry needs regulating.

  16. @ David C

    Great comment.

    Yeah when you stand back and look at the finance industry, it is nothing but a bunch commission gobbling ticket-clippers.

  17. When you look at these comments in light of the purpose and success of the original report to create a hedge fund profit, I wonder,

    1 how many of the comments above are real? They do seem one-sided, part of a campaign.

    2 what responsibility does 60 minutes have for checking on the accuracy of someone making such claims? channel 7 was fined for presenting the claims of “wildly wealthy women” property spruiker Dymphna Boholt as fact.

  18. Clarifying my own comment, @15. njc, and hopefully answering @7. Murad, from the Secured debts table,

    The first row, House mortgage:

    If I go bankrupt:

    Can the creditor continue to demand payment?

    Will I still have to pay the debt after my bankruptcy ends?
    No, but it is most likely that either the trustee or mortgagee will sell your house

    If I enter into a debt agreement:

    Will the debt be included in my debt agreement?
    You must disclose the creditor and the creditor can decide whether to participate

    Can the creditor continue to demand payment?

    Will I still have to pay the debt after my debt agreement?
    Yes, if you wish to keep the house

  19. Neil,

    I agree to a certain extent. Many of these financial gurus create self-fulfilling prophecies. The last year of property speculation in Sydney and Melbourne was preceded by claims of a new boom. The dumb money then went out and made it happen. They’re probably not feeling too well at the moment. A case of debt indigestion.

    But on your first point, most of the commenters here have been commenting on this topic for some time. In any case (to quote John Maynard Keynes):

    Markets can remain irrational longer than you can remain solvent.

    On your second point, I don’t think I have to go to Moranbah to be certain that there are a lot of houses sitting empty and they were sold at the peak for unreasonable amounts of money. Someone bought them.

    Also, the “expert” interviewed by the 60 minutes reporter didn’t seem completely committed to shorting the Australian market. He didn’t say that he was definitely going to do so. Anyone who was paying attention would have picked that up.

  20. I read the original article and I can’t believe there’s so many follow up articles being published defending the strength of the housing market and the integrity of bank lending. Why so defensive?

    I guess it is a discussion that needs to be had. Am glad the government is tackling the negative gearing excess too as this tax deductions leak is going to make any attempt to raise tax revenue impossible if people just make more deductions using more negatively geared properties.

  21. Good friends, just went to a auction today, Lane Cove Sydney. A 100 year old 2 bed bungalow in original condition on 600 sq.meters of land. No extensions or cosmetics had ever been done to this property. The house sold for 20% more than the reserve price of $1.4 million. There were 50 to 60 people present. Half were curious neighbours watching the event. The other half was made up of a few Indians but mostly Shanghaiese and Mandarin young couples, mid twenties to late thirties. From this group there was only 3 couples bidding. From these sales we can clearly see that Sydney is no longer part of the OZ real estate market. The young locals cannot buy unless they or their parents are part of the 1%. As is the case with the Chinese buyers. Today Sydney is part of the Chinese real estate market. Like I’ve said before, there are 85 million CCP members in China. We are a big continent with a small population. OZ is desirable to all the worlds, especially Asia’s elite. For this reason alone, I cannot see Sydney real estate coming down unless the overseas investors pull the pin for whatever reasons. This is a direct result of neo-classical economics. Today banksters are prime ministers and they own everything we think we own. Debt does not create wealth.

  22. @Jake. That would never happen as it would put downwards pressure on some Liberal backbenches multiple IP portfolios. Turnbull can’t even make changes to NG without upsetting these guys.

  23. @ 56

    Totally agree. I can’t see a drop in Sydney or Melbourne when we have wealthy Chinese lusting after those property markets.
    The wealthy Chinese are in a bidding war with each other, we are irrelevant.

  24. Yes, I also don’t think Melbourne or Sydney are going to drop much, if at all, while our government persists with policies that keep the bubble propped up. What with rampant foreign buying including all the illegal buying going on, low interest rates, and negative gearing; even if there is a downturn, there are too many people waiting on the sidelines.

    In any case, even if Labor were to get in, I doubt they would change the negative gearing laws while there is so much loud opposition. There needs to be an even louder protest from those priced out of home-ownership, but at the moment, young people are too accepting of the situation. Maybe it’s because they have never seen a world without a growing housing bubble.

    But don’t expect the boomers to make it easier for the young if the young aren’t even complaining much.

  25. Just saw on the news tonight that Malcolm has declared much needed Neagtive Gearing reform by the LNP is ‘dead and buried’.

    So that’s it folks, the Ponzi is here to stay as I don’t see Labor winning the next election.

  26. In my opinion the housing bubble in Australia wont crash on something internal unless severe unemployment occurs. I think an external trigger causing reduced access to credit will be the spark. Australia is all in, there are powerful vested interests to prevent change and house price growth has to continue to keep the economy rolling. This makes a future crash more devastating.

    Another credit crunch will occur for the simple fact that ypu can count on people to be greedy. Central banks have flooded financial organizations with cheap money which devalues its importance. It has to be that somewhere in the world this money has been misinvested for the possibility of quick easy gains and a mistake will eventually be made evident that will crash the system again. Its a messed up world when U.S inflation is seen as a bad thing for stock markets because rate rises will take away this cheap money that elites use to inflate asset prices such as stocks and housing.

    Its just the waiting that is unnerving. Housing bears have been right to raise alarm but because the crash has not occurred yet, they wont be listened to. For me as a Gen Y I cant win. If housing doesn’t tank ill be priced of owning my own residence. If it does crash i can expect a massive tax bill into my fifties to support all the boomers who will lose big time on any crash and be reliant on the pension.

  27. @njc
    Thanks for that-I missed that table when I was digging. Makes sense the way they’ve laid it out. I can see a lot of people taking that option if TSHTF. Which means…a lot of creditors with NPLs on their books.

    @9 Matty
    The 40% interest only loans is a scary stat when I see it.

    I always think that if people or entities are paying interest only then they’re pretending to be solvent.
    It’s like saying you can swim when you’re wearing floaties.

  28. @56
    Thanks for the snapshot of that. One question I keep wondering about is whether the Chinese can sustain the debt bubble they have built up. Plus their capital outflows have been insane this year. Much of it being parked in real estate around the world.

    Would be interesting to get an idea of how much the Chinese are borrowing to buy property or whether they’re just ‘smurfing’ the money straight out here.

  29. If you want to short the housing market, short the banks. They are currently preparing for the biggest crash since the Tulip Mania. The government already has $380 billion in place to bail them out (not enough). If you have multiple mortgages assume the impact position and kiss your financial ass goodbye.

  30. @32 Murad

    The simple answer is no. The Chinese cannot sustain their debt bubble. When it gets too scary they move it into the Shadow Banking system. This part of their financial system alone has grown more in a few years than the entire US banking system has in its entire history.

    Current estimates are they cannot sustain their debt wherever it is beyond June this year. In order to keep it going, on current metrics, they would have to be growing their economy by 38% a year just to pay the interest. Officially Chinese growth is 6.9% pa. Unofficially insiders claim it is more like 2.4%, outsiders are looking at the indicators and are estimating it is in fact negative (ie China is in the process of contracting).

    Major manufacturing shutdowns and civil unrest are inevitable and starting to happen in some provinces already. The capital flight of recent years is the PRP elite trying to get their kith and kin and embezzled money out and safely stashed before the shtf. Going to interesting when it all blows up and the PRP start public witch hunts for the missing cash 🙂

  31. All i know is that when i bought my first property a while ago, the banks were strict in what they were prepared to lend us. Told us how much we needed for a deposit and how much they were prepared to lend. Fast forward to about two years ago when we went back to borrow money to get into the Sydney property market. This time they asked us ‘how much do you want?’ I had done my calculations (even including a interest rate rise in the future) and said maximum $900,000. They said ‘you can have more, why dont you go for $1.3 million? We said we didnt want to borrow that much money. This was a big red flag for me. How many people would jump on an opportunity like that without thinking how they would service that level of debt? A lot i would say…

  32. Sorry peeps…while I’d like to agree that it should all come crashing down, I expect it will not. There are too many vested interests such as Govts, Govt entites, councils, developers, various lobby groups, banksters, etc. If prices look like falling, what do they do ? Restrict land supply, increase immigration and possibly make it easier for “cashed up” foreign buyers to buy here.

    After all, they have their interests to protect. I would expect (though cannot prove) that, beside politicians, many high level Govt officials also have vested interest in property.

    Game over, laughing boy !!

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