Australian Real Estate At The Brink

While Northern Australia suffers from floods of Biblical proportions, the Southern (big city) property market seems poised for a devilish fall as the Oz Tulip Mania is about to crash. The Aussie answer to David Rosenberg, Steve Keen, has been on this for two years, and last summer Jeremy Grantham weighed in as well. Now Mish piles on, noting that the purported eternal housing shortage is a myth of Biblical proportions: property listings have surged in a flood tide by 44% last year, an indication of panic listing at the peak.

Steve Keen noted before Christmas that a large Australian bank, Westpac, had been dumbing down its lending standards to keep the bubble afloat. He commented on Mish’s post, adding to his series that explains the recent bubble in simple terms:

One factor that I’m following closely in all this is what Biggs, Meyer, and Pick called “The Credit Impulse”: This is the change in the change in debt.

[A]ggregate demand in a credit-driven economy is the sum of GDP plus the change in debt, [and it] follows that change in aggregate demand is the sum of the change in GDP plus the acceleration of debt.

Australia got out of the crisis in 2009 by exploiting the upside of this factor: if you can encourage people into debt, then aggregate demand grows as debt accelerates–so even slowing down the rate of deleveraging gives a positive boost to demand. …

That’s how the USA looked a bit better in recent months–you slowed down deleveraging. But since Australia went from marginal deleveraging to releveraging, the acceleration in debt was all the more extreme–and we had a apparent boom.

That appears to be ending now, since though the Credit Impulse is still positive on a yearly basis, it’s turned negative in the last few months.

Mish gives the following recommendations, and expects they will also soon apply to Canda, China and the UK:

  • Exit the Australian stock market
  • Get out of the Australian dollar
  • Pick up some popcorn
  • Stay on the sidelines and watch the collapse unfold

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About Duncan Davidson 228 Articles

Affiliation: NetService Ventures

Duncan is an advisor to NetService Ventures, where he focuses on digital media and the mobile Internet.

Previously he was at four start-ups: Xumii, a mobile social service based on a Social Addressbook; SkyPilot Networks, the performance leader of wireless mesh systems for last-mile access, where he was the founding CEO; Covad Communications (Amex: DVW, $9B market cap at the peak), the leading independent DSL access provider, where he was the founding Chairman; InterTrust Technologies ($9B market cap at the peak), the pioneer in digital rights management technologies, now owned by Sony and Philips, where he was SVP Business Development and the pitchman for the IPO.

Before these ventures, Duncan was a partner at Cambridge Venture Partners, an early-stage venture firm, and managing partner of Gemini McKenna, a joint venture between Regis McKenna's marketing firm and Gemini Consulting, the global management consulting arm of Cap Gemini.

He serves on the board or is an adviser to Aggregate Knowledge (content discovery), Livescribe (digital pen), AllVoices (citizen journalism), Xumii (mobile social addressbook), Verismo (Internet settop box), and Widevine (DRM for IPTV).

Visit: Duncan Davidson's Blogs

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