affordable housing on the horizon...

Australia has the least affordable homes in the world for one main reason; the housing mania over-speculation fueled by unprecedented credit expansion of the last decade. This resulted in our housing bubble becoming the biggest in the world; http://au.pfinance.yahoo.com/b/peter-boehm/1113/

Yet we're led to believe that our bubble is somehow different because of our supposed housing shortage and a rising population. Supply and demand dictates the price of goods and services, but not financial assets. A demand driven financial mania causes over-speculation in a market which results in an unsustainable run-up in prices which inevitably leads to a bubble then a collapse. We've seen this same pattern re-occur in financial markets around the world since the beginning of financial speculation. From the tulip bubble, to the South Sea bubble, to the 1920s bubble, to the Dotcom bubble to the housing finance bubble in recent years. It's the same process played over and over again and every time people warn of the dangers the self-proclaimed experts tell us the same story; "but it's different this time". And every time we believe them because we want to believe and grow wealthy living the bubble dream. Until it all comes crashing down to reality and we say, but no one saw it coming...

A recent example is the oil bubble of 2008 which saw prices run up from about $80/barrel to a peak near $150 in July before plunging back below $35 in early 2009. No rationalization of supply and demand issues makes any sense. It was a purely speculative bubble that had to burst when the final buyer was enticed into the market, as every bubble does. Housing bubbles are no different and in the US we saw the final buyers enticed into the market (subprime on easy credit) and likewise here in Australia our most marginal buyers have now been enticed into the market near its peak (FHBs on a taxpayer bribe). And as history has shown, time and again, when the final buyer has entered a market the trend reversal and deleveraging process begins. Recent figures showing a plunge in housing finance is the early warning sign that Australia's housing bubble has finally reached its debt saturation tipping point. Unfortunately for too many mortgage holders, the only way Australia will see affordable housing again is after an historic housing price correction back down to long-term averages (about 40% below current prices). An asset price deflation and debt deleveraging cycle of this scale would take several years to unfold. But ultimately it would result in affordable and sustainable housing prices again.