A few days ago I mentioned that Australia is in a housing bubble. The easiest way to gauge this is to compare Australian household debt/disposable income (DPI) to the US peak before the global financial crisis. After all, household debt is the fuel for a housing bubble.
Australia’s current ratio of 150% (or 1.5 times DPI) is higher than the US peak of 1.3 times DPI during the housing bubble. And far higher than the current US ratio of 1.1 times DPI.
No time to be complacent.
At the moment I am reading “The great big short inside the doomsday machine” which is a good explanation of the problems caused in the American housing market that precipitated the GFC. There some interesting anecdotes in it as well. For example a Mexican fruit picker on $14,000 dollars a year being loaned over $700,000 to buy a house (he had a ‘thin file’ which meant that he had a high credit rating because he never borrowed a cent).
I just can’t see any comparisons between the Australian Housing Situation and the US experience because Australia does not have a massive subprime market fuelled by complicated financial structures dreamt up by the US bond market. I am sure everybody was scared by what happened in the US and that is what keeps people out of the housing market and has been depressing price growth but no way is the system the same here.
Anyway I recommend reading it.