Australia’s world record housing boom is ‘officially’ over, UBS says

A global investment bank has called the end of Australia’s world record housing boom, saying the golden years are “officially” over after home prices fell in Sydney for the second month in a row.”

There is now a persistent and sharp slowdown unfolding”, ending 55 years of unprecedented growth that has seen home values soar by more than 6500 per cent, UBS economists wrote in a note to clients on Thursday.

….recent weakness in auction clearance rates and anaemic price growth over the past five months suggested “the cooling may be happening a bit more quickly than even we expected”, economists George Tharenou and Carlos Cacho wrote in their note, downgrading their growth forecast for 2017 to just 5 per cent.

Not quite a Minsky moment but something to watch closely if you hold bank stocks.

Wikipedia gives a good summary of a Minsky moment:

A Minsky moment is a sudden major collapse of asset values which is part of the credit cycle or business cycle. Such moments occur because long periods of prosperity and increasing value of investments lead to increasing speculation using borrowed money.

The spiraling debt incurred in financing speculative investments leads to cash flow problems for investors. The cash generated by their assets is no longer sufficient to pay off the debt they took on to acquire them.

Losses on such speculative assets prompt lenders to call in their loans. This is likely to lead to a collapse of asset values.

Meanwhile, the over-indebted investors are forced to sell even their less-speculative positions to make good on their loans. However, at this point no counterparty can be found to bid at the high asking prices previously quoted.

This starts a major sell-off, leading to a sudden and precipitous collapse in market-clearing asset prices, a sharp drop in market liquidity, and a severe demand for cash.

Source: Australia’s world record housing boom is ‘officially’ over, UBS says

One thought on “Australia’s world record housing boom is ‘officially’ over, UBS says

  1. […] at 8600 would warn of another test of primary support at 8000. With low capital leverage ratios and Sydney house prices now falling, the sector may be headed for testing […]

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