Excellent points Sequioa. IMO Unemployment was not the pin that began the popping of this bubble in our now 1 speed economy (WA looks to be te only state with the engine running), if anything unemployment will however play its part by driving down prices to the next level when it rises as forecast. You need to look at employment levels on a state by state basis also to be accurate. Demand for Credit will dry up even further creating further unemployment and bringing houses prices to a canyon. Of course it will, less people in work means less demand for mortgages obviously, but funnily enough a sudden change in peoples beliefs/attitudes to 'value' and 'trends' in property is what really got the ball rolling down hill here. Just look at the state of the economy as it is with so much of peopes incomes going in to housing. It's The crash we have to have IMO. Shiller an excellent economist predicted all this in early 2010, including China's bubble. An interesting little reflection at this point in time from the 730 report;
KERRY O'BRIEN: Australia's housing downturn was relatively short-lived and we're now heating up again quite substantially in most cities. What's your instinctive reaction to that?
PROF. ROBERT SHILLER: I would imagine that it has bubble aspects to it. But, you know, maybe I shouldn't say; I'm a foreigner, I'm not ... I was recently in China and I got to talk to a lot of people. And I could smell and sniff a bubble there. What I mean by that is I could see that people's judgments were influenced by rising prices, and the rising prices were amplifying for them optimistic stories, and that's what happens in a bubble. We've seen this happen in the United States. I've been doing questionnaire surveys, and during the - in 2003, when our boom was going gangbusters, we were seeing 15 to 20 per cent expected returns for 10 years. People thought it's gonna go on forever. I know because we've done questionnaires and asked them. And it was a wild expectation. It was generated out of excitement from the real estate price increase. And we know that the cities where prices were going up more, there were stronger long-term expectations. These expectations were ultimately violated because the prices came down, but - so I don't think they were rational expectations; they were bubble expectations. And there's an easy tendency for this to happen again. So when I hear that in Australia prices are going out rapidly, I'm inclined to suspect that something similar to what has happened in China is happening. And I think that the Australians may well be deceived, just as we were in the United States, by the sense that prices never fall here. That Australia hasn't seen any significant drop of prices, that seems to mean, in a very intuitive way of thinking, that it can't happen here. But that's exactly what ultimately makes it happen.
