With higher mortgage lending rules and ever rising interest rates Australia Housing is crashing and a depression Looms. Why a depression? Simple. The wealth effect is gone and going into reverse. What does this cause. People stop buying. A simple effect of less wealth. Quantitative easy over the last ten years is the cause.
Country’s around the globe are crashing. South America is in complete chaos with inter country migration at levels not seen in years. Every country in the world is on the brink. Don’t believe it? Canada is also on the brink of a major downturn in it’s economy. Bank rates are rising putting a dampening on the wealth effect. Less spending and rising interest rates can only lead in one direction. Economic Depression.
What exactly is a Depression anyways? This is when everybody runs out of money. Making money king. A simple answer to a simple question. With trillions of dollars sloshing around in the system but only finding it’s way to the top, a problem looms. Upper classes are rolling in the dough because they have it all. Lower classes and retirees are getting less and less of the trillion dollar pies. Much like the great depression the wealthy were richer than ever but the masses were much poorer.
Australia is a major economic power and the collapse of it’s housing prices and wealth effect will be a shock wave around the world. You might think a ten to fifteen correction in the housing market might not be that much. A snowball effect could happen. Running away downhill with no way to stop it. An out of control downward spiral. It just could effect spending and cause multiple layoffs in the housing sector. Construction would stop. No one will want to build if they are going to lose money.
Certainly I do not want to be an alarmist but the exact same thing is going on in Canada and the U.S. of A. Rising interest rates to stop and rake in the trillions of dollars sloshing around in the money system. This money is causing many problems with the poor. Homelessness is on the rise. Wages are not rising to keep up with inflation and housing costs. Housing prices are starting to crack and just might be about to reverse.
We could be entering a world trend. Baby Boomers are not going to like their house prices dropping just when they are about to retire. Once the downward spiral grows momentum it might not be able to be reversed. Can Canada turn face and start lowering interest rates to prop up housing and keep the stock market afloat. What do you think?
Australians should prepare for the “longest and deepest” housing downturn in the country’s modern history as the full effects of tighter credit and rising mortgage rates are felt, a leading economist has warned.
House prices fell across Australia for the 11th consecutive month in August, values could slide by 12% over the next four years. Property prices in Sydney and Melbourne may decline 15% by 2020. Falling house prices were also blamed for a down turn in retail spending in July. Figures released showed that spending on non-food items fell, with an especially sharp fall in household goods and department store spending. Continued home price falls in Sydney and Melbourne will depress consumer spending as the wealth effect is now going in reverse. Melbourne and Perth are leading the decline.
Tighter bank lending standards, poor affordability, rising unit supply, falling price growth expectations and fear of missing out. This is turning into fear of not getting out for investors. Pushing prices down in cities which have seen strong gains for the last 5 years.
A crash landing remains unlikely in the absence of much higher interest rates or unemployment. Although it is a risk given the difficulty in gauging how severe the tightening in bank lending will get. Standards in the face of the royal commission and how investors will respond as their capital growth expectations collapse at a time when net rental yields are around 1-2%.
Canada and the U.S. could be next. Australia’s housing troubles sound eerily similar to our own housing crisis here at home. Cracks are appearing everywhere and interest rates keep climbing and are expected to climb more. If the housing construction slows down due to falling prices unemployment will spike. Wealth effect decreasing will rise stopping spending in it’s tracks. What does curtailed spending cause. Deflation. What is Deflation? Falling prices. How do you stop it. Lowering interest rates. What if you can’t lower interest rates. Your Fucked!