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Australian Housing Market About to Plunge?

Endless Suburbia

Endless Suburbia

There is no shortage of bad news. It’s all the rage, but not a lot of news is particularly helpful. For example, the knowledge that the Dow Jones index is now half of its high in 2007 is wonderful but no one is able to guess where the bottom of the market is. Predictions that the Dow will reach 5000 points before it rises are looking realistic, or even somewhat optimistic. On the other hand, I would take no serious notice of stories of rioting and protesting. These events are not as spontaneous as they may seem. Anyone who has been involved in activism can tell you that a demonstration, even a riot, is not easy to trigger except through careful, coordinated effort. That is, until people are hungry, at which point you can very well predict real, disorganized chaos.

In Ireland, there are predictions that housing prices will topple by 80% (eighty percent), owing to an exodus of migrant workers as well as native Irish. There are three hundred thousand empty homes for a population of a little over four million. That’s some serious imbalance!

But what about Australia? The housing market has been flat, mortgage defaults are rising steadily, but there is nothing as dramatic as what is happening in Ireland or Iceland.

There are about 250,000 temporary residents in Australia at the moment. I couldn’t find the break-down of these, but my guess is that most of these are issued on basis of employment or study in Australia. Let’s say that about 150,000 dwellings are occupied by these temporary residents. They are a significant part of the rental market.

What would happen if suddenly they all left due to loss of employment? Certainly nothing would match the scale of what occurred in Ireland, but it would be enough to give the rental market around the country a good shake. Add to that the precipitating rise in unemployment generally and the sharp increase in mortgage defaults this would cause, and pretty soon those investment properties will start looking rather unattractive to own, if you are one of those who bought in the peak of the market.

Most people are gamblers at heart. They are reluctant to sell at the beginning of a downward trend, as they ignore or fail to recognize the telltale signs of impending doom. They wait until the downward trend is at its fastest and, in desperation, sell. Others hold on until the bottom or until their hand is forced. It is this knowledge that lets the market manipulators make their “easily killings”.

There are not many people who are alive to tell you this, but one of the most important things people fail to do, shortly before they die of a fatal accident, is to listen to the little voice inside saying “hmm…that’s a little odd…”. Most people just shrug and keep going.

If you look at the Australian economic situation and read about the self-congratulating politicians, the up-beat talk of Australia’s resilience and how wonderful it is to have a banking cartel, you might well think “this is rather odd”, given how desperately bad things are everywhere else. Very odd indeed!

Whereas most people, even though they are rather pessimistic already, are hoping and holding on, anyone who has sold up to eliminate debt has done so just in time. The full depth of the economic problems is yet to be plumbed. It is only at that point, when one can say with some certainty that the bottom has been found, that one can then make estimates of the fallout. At this point, it looks like there is no end in sight.

With the culling of capital and the destruction of productive capacity, there is going to be a glut of unemployed men (and women) with nothing to do. Furthermore, today’s families are indebted to an unprecedented degree. What will happen when they do get hungry? I am sure that the respective Governments of these people have tidy answers. Population reduction could well occur (temporary or permanent, as a result of war), which would put further downward pressure on real estate prices.

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