The Bubble Is Popping?

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The Australian housing market is one of the most expensive in the world. Everybody here just continues to agree to pay far over the value for a house, just because they can, whilst also expecting the bubble to continue growing. And for a long time this has worked for a lot of people. People have charged and received exorbitant prices for homes, because people just believe no matter what they pay, it will sell for much more. 

But is this game finally ending? 

“Misalignment in housing prices, combined with the expected rise in interest rates as central banks normalise monetary policy, suggests a significant risk of a correction in housing prices.”

The IMF said that in Australia this year house pries may be as much as 50 per cent above what a median household can afford, indicating unaffordable housing.

“The average household would need to spend more than 40 percent of its disposable income to afford housing priced at the median,” it said.

“Spending a large share of disposable income on housing-related expenditures is often considered to be a sign of unaffordable housing."

Trying to predict when the Aussie housing market is going to crash, is seemingly impossible. I have been waiting for the housing bubble to crash since the early 2010's. I know people who have been expecting it quite a bit longer. All the signs are there of a coming big crash, but again and again they manage to kick the can down the road. It's remarkable. It's like the economic rules don't apply. 

The Labor government is planning to ramp up immigration next year to record levels, for several reasons. Maybe that will have the effect of maintaining the housing bubble for longer. If it does, it will be at the continued expense of average Australians who are increasingly becoming mortgage slaves; husband, wife and sometimes more. 

Once a house loan was a manageable, if still significant, part of the working man's income. With simple living he could work outside the home, his wife could manage the home and the kids had clothes, food for school, and decent, but basic, holidays. Now it takes mum and dad both working for an ordinary family to provide a similar basic lifestyle. Sometimes that doesn't work. I know people who are renting out half their home just to keep it. Increasingly adult children are staying home well into adulthood, even with a spouse and kids, or moving back home, to save for a house. 

A correction needs to happen, will 2023 finally be the year? Maybe, maybe not. But one thing is for sure, government policy is not making life easier for the average Aussies. The average bank though is making out like bandits.