While Barnaby may not have spoken about private debt, it is arguably the great threat to Australia’s economy. The first to suffer from excessive debt burdens are the thousands of overextended First Home Buyers.
From The Australian:
Australia is in the midst of an unsustainable housing bubble that could burst at any time, warns the man who predicted the global credit bust of 2007.
Edward Chancellor, of US investment bank GMO, says the Australian economy is yet to emerge from the global financial crisis, despite the widespread belief it has escaped the worst of it ahead of the rest of the world.
Mr Chancellor, whose Crunch Time for Credit? was published in 2005, estimates Australian house prices are more than 50 per cent above their fair value – a once in 40-year event. “If house prices were to revert to their historic long-term average (ratio of average price to average income) they would fall quite considerably,” he told The Australian.
He described Australia’s banking system as a “cartel” and said luck rather than skill had allowed the Australian economy to fare better in the global financial crisis than other developed economies.
“My view is Australia had a private sector credit boom just like the US and the UK and it had a real estate boom,” he said.
“Those are the facts and you can’t paper over them.
“In this environment, house prices rose last year and that seems to me to actually have exacerbated the problem.
“The problem is the bubble and that hasn’t gone away.”
A key area of concern for Mr Chancellor was first-home buyers. As interest rates rose, the ratio of their mortgage repayments to their income would rise to very high levels, he said.
“It’s the rising interest rates, particularly with real estate bubbles, that tend to generate the collapse,” he said.
Another potential trigger was China, particularly if the demand for iron ore, coal and liquefied natural gas were to collapse.
“We would see the Chinese demand for Australian commodities as being potentially vulnerable,” Mr Chancellor said.
UPDATE:
The latest housing data says that our housing bubble – fuelled by years of easy credit, the First Home Owners Grant, and propped up during the GFC by Rudd Labor’s doubling of the FHOG – is now running out of control.
From The Australian:
Australia’s established house prices soared 20 per cent in the 12 months to March, deepening fears that a house-price bubble would emerge, and at the same time clearing the decks for a further rise in interest rates tomorrow.
The annual rise in house prices was the fastest ever recorded by the Australian Bureau of Statistics data series, which began in mid-2002. A rise of 4.8 per cent over the fourth quarter of 2009 was the second-biggest quarterly increase.
“This is a shocker,” said Rob Henderson, head of Australian economics at National Australia Bank. He added that the Reserve Bank of Australia now needed to get more aggressive, and acknowledge the need for a restrictive policy stance.
Barnaby Is Right 
Comments