Why house prices are going to fall 75%

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Took the fam to the Central Coast for a holiday recently. Lovely place.

The little one liked the beaches, the missus liked the landscape and I liked the serenity.

Even the dog had a ball. He had a romp on the beach with a bitch called Bow. His first romance.

tfw your first crush is twice your size.

Everywhere we went though, everyone, bloody everyone, talked about real estate. A random Boomer chick on the beach. The ferry driver. The pharmacist.

“Sydney prices have gone too high, so there won’t be any growth there for a while. People are finding out about here now, so the growth will be here for the next few years.”

“There are still some pockets where you can buy in the 400 range. You’d want to hurry up though, the money’s flowing out of Sydney to here now.”

“If you buy in Bateau Bay, buy on the sea side of the highway. There’s housing commission flats on the other side. You won’t get the same return.”

Return? I just want some sunscreen. We’re not buying a house, or moving here. It was just a holiday. But the topic of conversation, at least between strangers doing transactions in shops, is just how high Forrester’s Beach will go now they’re putting in the new light rail to Sydney.

I was already planning on writing a piece on the imminent and catastrophic housing crash facing this country when I saw Matty’s recent piece on the topic. Then this sealed it. It’s the final omen. I’m calling it.

The housing apocalypse is finally upon us.

Burn, baby. Burn!

Yeah, I know, it can’t happen here, it’s just a small downturn in the cycle, the long-term trend is up, there’s too much immigration for it to happen, the government won’t let it happen, there’s not enough land, whatever. I’ve heard all the arguments from the bubble-deniers. Here are three reasons they’re wrong, and we’re screwed.

Or, in the case of the young and prudent, we’re about to finally have a shot at something like the Australian dream that the Boomers took for granted.

We’ll enjoy all those renos you did for us. Thanks.

You better cut back on those smashed avo brunches, guys.

Old people these days just expect too much…

The first reason I’m certain that this is it is the Taxi Driver Indicator, which I just mentioned. It’s a classic indicator of a bubble top among serious investors. It’s when everyone is talking about an asset class. This happened with cryptos in December last year, with tech stocks in 2000 and gold in 1980. When everywhere you go people are talking about a given asset class, then everyone is all-in. People who would have bought, or have the capacity to buy, have. The moment arrives when there are no new marginal buyers to keep pushing up the price, and when that happens, confidence begins to erode. It’s only a matter of time before the panic, the freefall and the blood ensue.

We’re in the ‘confidence beginning to erode’ phase right now.

What will make this housing collapse a tale for the ages is how eye-watering our levels of household debt have become. We’d become so confident of infinity house prices, we gorged ourselves on debt like Michael Moore at a seafood buffet.

And the most worrying thing about that chart is that the parabolic increase in debt in the last few years has happened during a period of record low interest rates. Not only are house-horny The Block watchers betting on rising house prices, they’re betting on interest rates staying low. And when we look around at geopolitical risk, a hawkish Federal Reserve chair and Europe about to implode, that’s not as sure a bet as it used to be.

At the moment, the percentage of repayments covering interest is relatively low. It seems very unlikely it will stay that way for long, pushing out repayment costs and breaking households’ ability to repay.

Rising debt with declining interest rates.

Received wisdom would suggest that the risk would be most pronounced for the poorest and youngest Australians. That’s not the case, however. Martin North from Digital Finance Analytics has been doing some sound empirical research on the Australian housing debt supernova, and he’s uncovered that the highest levels of mortgage stress are among the most affluent postcodes. His research has also found that about one quarter of Baby Boomers, themselves on the cusp of retirement, have mortgage debt, mostly from investment properties they bought after leveraging up on the paid-for family home.

Oops.

It turns out the people who are most at risk are the ones who benefited most from the initial widespread housing bubble boom from about 1999 to 2006. It made them overconfident, and rather than sit on their windfall or sell and downsize to enjoy their unearned winnings, they doubled down.

And they seem to be having their ‘Oh shit!’ moment right

about

now.

But, I hear you ask dear reader, what makes me confident it’ll be 75%?

It’s because bubbles, even inter-generational ones like we’ve had in housing, always return to where they began in nominal terms. In fact, they usually over-correct and prices shoot past the point at which the bubble began. And our bubble, like most of the world’s real estate bubbles, began around 1999.

On average across the country then, prices have tripled since 1999. That means a two-thirds drop when the crash happens, with a shoot-past point to a low of around 75%. Like during the depressions of the 1890’s and 1930’s, cash will be king. The young, having the time to earn as they will, will benefit most. The old, or at least those with debt and precarious income, will suddenly not be making jokes about spending the kids’ inheritances. They’ll be offering to babysit.

And maybe that will be a good thing. If this crash also manages to cause a global sovereign debt crisis and make governments unable to fund the welfare state, we may get the white extended family back. The great replacer of the family, the socialist state, will be no more.

And it will be glorious.

So. Much. Patriarchy.

Big Sister won’t go down without a fight though. Expect some form of cryptocurrency-AI-drone SkyNet tyranny before we get there.

The third piece of evidence I use to anticipate a 75% drop in house prices on average across the country are house price to income ratios.

We can see that the real gains in real estate were made by those who owned in 1999. Since then, the house price to household income ratio in Sydney and Melbourne has doubled, and this was at a time when female workplace participation was increasing. Should house prices collapse, however, this will most certainly cause an economic depression. What’s worth remembering is that during recessions and depressions, incomes fall by up to 50%. This means a drop in house prices by two-thirds to three-quarters to return to the ratios of the 90’s.

I will feel pity for the hardworking people who will lose everything when the catastrophe comes upon us. Everyday Australians didn’t engineer this monster that has eaten the country. Crooked politicians in bed with slimy bankers did. They introduced negative gearing. They kept cutting interest rates to keep the thing going. They opened the floodgates for a demographic replacement which kept the Ponzi going for a few more election cycles.

They did it, not us. But we kept voting for it, with no thought for the future. And Boomers, I’m looking right at you.

Before this frenzy of debt, renos, flipping and consumption began, we looked like this.

Now we look like this.

Was it worth it?

Originally published at www.endtimesherald.com.

  • Repeal fake marriage

    I would give up much in the way of monetary value to see the socialist state eradicated and the gibs me dat’s hands wrenched out of my pocket.

    • thegentlemantroll

      To quote George Carlin, Baby Boomers have a simple philosophy: “give me that it’s mine”

    • Dammit just when I feel perfectly justified in my hatred for Boomers, you comment mate.

      I’m just memeing anyway. It suits the powers that be if the generations are at each others’ throats. The smug affluent Boomers will understand what it’s been like for the young soon enough. People who didn’t get caught up in the greed will be OK.

      • But they needed that third toilet.

      • Fat Yak

        Get off your arse and work like a dog for 40 years like us old fuckers have and you to can own 3 properties.

        • “Everyone else is a bludger”, say the most welfare-dependent generation in human history. Whatever.

  • Mattys Modern Life

    This article in The Australian today: https://www.theaustralian.com.au/business/property/fall-in-home-values-on-track-to-be-the-worst-since-records-began/news-story/41159d4985747425a5a78accf1b40f06

    For those who don’t have a subscription the first paragraph says it all:

    “Sydney has recorded its biggest monthly fall in housing prices in 14
    years and is on track to post the sharpest and longest housing price
    slide since 1980, when research­er CoreLogic began collecti­ng housing
    figures.”

    • Exactly. Socialism, the marriage of crony international finance and the state, caused this. We just want to be left the hell alone to take care of ourselves and our own.

      • Maximus

        Greed, of the individual kind caused this. When you see wives of FIFO electricians driving Q7’s and playing blackjack at the $150 minimum table. Well that’s as good signs of an imminent apocalypse as any.

        • Yeah, that too.

        • A deplorable NNYer

          Are they playing with their boyfriends on the side?

  • entropy

    What a sad legacy for a generation born of real heroes.

    Imagine saving the free world and living to see your kids sell it off to fund their own hedonism.

  • fimbulwinter

    Fuck yeah! Bring on the collapse and reset!
    Hey David, what time frame are we looking at in your opinion? Next year? 5 years? 30 years?

    The stock market is considered a leading indicator and the ASX has been spooked for the last 6 months or so

    • Surely there’s not long to go, right… but these bankster wizards might always have something up their sleeves that they can pull out of their vagene.

      • fimbulwinter

        I think they’ve tried all their tricks one way or another and it’s currently just momentum. But hard to say, foreingers flooding in doesn’t look like it will subside any time soon.

  • thegentlemantroll

    Fantastic news, There’ll be a lot of tears, heartbreak, anguish and despair amongst these unscrupulous speculators. I for one am truly going to enjoy the show. Maybe I’ll make Bernard Salt an avo sandwich.

    Just on the “cash is king” remark, I assume you were being metaphorical. The welfare state will certainly go through one last bloating and expanding phase before popping, as there’ll be a large outcry to “do something” to help the poor little greedy country-wreckers and we all know what a soft-touch our politicians are, especially considering they are tied up in the ponzi themselves. Keep your assets diverse and easy to draw upon at short notice. My guess is that at least one or two banks will go down, crypto is overhyped, volatile, difficult to transact and unproven in recession, the physical currency may become toilet-paper, and most NPCs wouldn’t know a precious metal even if it dropped on their head. Positives and negatives with all options. Have a plan B and be nice to anybody with a farm property. Avocados are high nutritional value and keep well for a decent amount of time.

    • fimbulwinter

      That is some wise words. Crypto is definitley very volatile, I reckon cash and physical assets will be the safest. That said, don’t get too many gold bars as there would be a lot of theft and looting. firearms would be a very valuable asset. The ability to grow your own veggies and survival/camping skills will be advantageous.

  • thegentlemantroll

    By the way, from the looks of the photo Montmorency High was an early adopter of the Safeschools program.

  • Bumpstock

    The Australian housing market has been one of the greatest criminal conspiracies since “We are God’s Chosen People.”

    When it crashes, there will be much wailing and gnashing of teeth.

  • Maximus

    Great story. Picture of graduates says more than 10 minutes of reading. One thing, I have a cat…. recently acquired by a walk-in who previously lived down the dirt lane. And neither Moi nor Mr Jones are pussies – speaking adjectively of course.

    • Antifa have a thing for cats, for some weird reason. It’s fun to troll them.

  • A deplorable NNYer

    Negative gearing is not viewed badly in other parts of the world. It is just called taking a loss on an investment.

    What is needed is increased land supply with much less regulation of land sub divisions. If this was done Australia could become affordable again. I cannot afford to live in Australia. The house I live in, in USA cost $74500, with 3 bedrooms. This is just under what I make in a year. I would pay about 10 times that amount for the same house in Australia.

  • No, it wasn’t worth it.