The charts that suggest the housing bubble is out of control [The Age]

Some numbers we should be savvy of, especially in a time when the bears are chanting the word ‘bubble’.

Residential mortgages as % of total loans: > 60%.

In 2015 – More than 50% of the loans were interest-only. The impact of property ownership on GDP – $182.5 billion. Ownership of dwellings is second at about $147 billion. Coming in third, surprisingly was mining – $140.9 billion.

‘Australia is simply in a league of its own when it comes to mortgage lending.’

– – –

The charts that suggest the housing bubble is out of control
by John McDuling, Associate Editor, Digital
Source – The Age, published Feb 24, 2015

Jonathan Tepper, a UK based economist and founder of research house Variant Perception, is convinced Australia is in the midst of “one of the biggest housing bubbles in history”.

The Australian Financial Review reports about how he and local hedge fund manager John Hempton scoped out the apparent epicenter of this bubble, Sydney’s western suburbs, and walked away thinking it was even worse than they’d originally thought. It’s a fascinating story.

In a subsequent report to clients, obtained by Fairfax Media, Tepper uses the following charts to support his thesis.

"Australia is the only country we know of where middle-class houses are auctioned like paintings."“Australia is the only country we know of where middle-class houses are auctioned like paintings.” Photo: Fiona Morris

‘Australia is simply in a league of its own when it comes to mortgage lending.’

And a rising share of these mortgages are ‘interest only’ loans

“The Australian housing bubble could not have become as ridiculous as it is without the help of easy financing,” he writes.

“Over the past few years, over 40 per cent of all new mortgages originated have been interest-only mortgages.

“This is truly Ponzi financing, where home buyers only make money if their houses keep rising in value,” he writes, later describing interest only loans as a “disaster waiting to happen.”

 

The negative gearing effect…

It is one of the most contentious issues in the national political discourse at the moment.

Tepper likens negative gearing – the ability to claim losses on leveraged investment properties as a tax deduction – to startups during the dot com bubble burning through their cash.

“Only in a bubble could losing money on housing be viewed as positive,” he writes.

Housing prices are totally out of whack with…everything

They keep going up.

And up.

But almost everything else – wages, GDP, and rental income, else remains relatively stagnant.

Except for debt, of course

“It is very difficult for a foreigner to understand just how crazy the Australian housing bubble is.” he writes.

“You have to be there to observe the mania first hand.

Australia is the only country we know of where middle-class houses are auctioned like paintings.”

It’s not like we are getting too reliant on property, or anything….

 

Read more: http://www.theage.com.au/business/the-economy/the-charts-that-suggest-the-housing-bubble-is-out-of-control-20160224-gn2b46.html#ixzz417WEL2Zc
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