The charts that suggest the housing bubble is out of control
Date
February 24, 2016 - 3:44PM
John McDuling
Associate Editor, Digital
Jonathan Tepper, a UK based economist and founder of research house Variant Perception, is convinced Australia is in the midst of "one of the biggest housing bubbles in history".
The Australian Financial Review reports about how he and local hedge fund manager John Hempton scoped out the apparent epicenter of this bubble, Sydney's western suburbs, and walked away thinking it was even worse than they'd originally thought. It's a fascinating story.
In a subsequent report to clients, obtained by Fairfax Media, Tepper uses the following charts to support his thesis.
"Australia is the only country we know of where middle-class houses are auctioned like paintings."
Photo: Fiona Morris
'Australia is simply in a league of its own when it comes to mortgage lending.'
http://www.copyright link/content/dam/images/g/n/1/w/h/n/image.imgtype.afrArticleInline.620x0.png/1456276293768.png
And a rising share of these mortgages are 'interest only' loans
http://www.copyright link/content/dam/images/g/n/2/0/y/u/image.imgtype.afrArticleInline.620x0.png/1456276293596.png
"The Australian housing bubble could not have become as ridiculous as it is without the help of easy financing," he writes.
"Over the past few years, over 40 per cent of all new mortgages originated have been interest-only mortgages.
"This is truly Ponzi financing, where home buyers only make money if their houses keep rising in value," he writes, later describing interest only loans as a "disaster waiting to happen."
The negative gearing effect...
http://www.copyright link/content/dam/images/g/n/2/1/u/8/image.imgtype.afrArticleInline.620x0.png/1456276293489.png
It is one of the most contentious issues in the national political discourse at the moment.
Tepper
likens negative gearing - the ability to claim losses on leveraged investment properties as a tax deduction - to startups during the dot com bubble burning through their cash.
"Only in a bubble could losing money on housing be viewed as positive," he writes.
Housing prices are totally out of whack with...everything
http://www.copyright link/content/dam/images/g/n/2/2/g/x/image.imgtype.afrArticleInline.620x0.png/1456276293402.png
They keep going up.
And up.
But almost everything else - wages, GDP, and rental income, else remains stagnant.
Except for debt, of course
"It is very difficult for a foreigner to understand just how crazy the Australian housing bubble is." he writes.
"You have to be there to observe the mania first hand.
Australia is the only country we know of where middle-class houses are auctioned like paintings."
It's not like we are getting too reliant on property, or anything....
