Sep 11, 2013

House price boom could be our biggest economic problem

While we wait for the fairies of confidence to sprinkle some magic dust on the economy, we should pay attention to house prices. Glenn Dyer and Bernard Keane report.

Housing prices

A surging Australian dollar to near three-month highs overnight will help to bring a big dose of realism to all this talk of expectations and confidence driving a weak Australian economy higher. As US economist Paul Krugman said, the “fairies of confidence” and the “imps of expectations” are nothing but ephemera in the greater scheme of things, there to wave their wands when all else fails. We saw this yesterday when the sharp rise in business confidence in the National Australia Bank’s August business survey, but little or no impact on weak trading conditions.

Today it was a big rise, to a three-year high, in the Westpac/Melbourne Institute Consumer Sentiment survey for September, the highest level since late 2010 (when which government was in power? Why the Gillard government).

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3 thoughts on “House price boom could be our biggest economic problem

  1. Bernie Green

    Back in the day and prior to the boom, you couldn’t get a loan-to-valuation ratio of 90%. But if you had been able to it wouldn’t have been such a big deal, it would have been a smallish amount compared to the loans being taken out today. Not only that, but now people seem to pick up an investment property or two to negative gear.

    In the even of a crash, it will be the mother of all crashes.

    All of this housing boom “get in now before you miss out” rubbish is being talked up by the mainstream media for the reasons you state. Just another example of how unhealthy their far reaching influence is.

  2. drsmithy

    “Could be” ?

    It already is. Property prices in Australia haven’t been clsoe to reasonable for 10+ years.

    Ridiculously high property prices are a drag on the entire economy, and the massive level of debt they have created should terrify anyone who considers its implications.

  3. steven keech

    China puts its foot on the credit brake, China puts its foot on the credit accelerator, this is all they at their disposal, credit expansion.
    Aussie dollar strengthens and we keep cutting interest rates and blowing a huge housing credit bubble.
    The more both countries continue on this path the more catastrophic it will be for both.

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