Last week I quoted Jonathan Tepper of Valiant Perceptions. He expects to see a price decline of 30% to 50% in Australian housing. Well didn’t he get hammered. The vested interests were out for blood, and that continued over the weekend.

One of Jonathan’s observations was questionable practices by mortgage brokers. That certainly got Australia’s biggest mortgage aggregator, Australian Finance Group (“AFG”), agitated. The argument  by AFG is that delinquencies are low as is unemployment. Apparently this means Australian real estate is not in bubble territory.

Of course delinquencies and unemployment will be low until they are not. AFG has around 2,600 mortgage broker members and manages around $100 billion in mortgage finance. A bursting bubble would be a disaster for AFG. As an aside, the Australian Securities and Investment Commission is currently investigating mortgage brokers.

And now some bad news for real estate. MasterCard’s SpendPulse report tracks retail trade in a number of countries worldwide. The latest report for Australia shows that household retail spending is slowing, and at an increasing rate in recent months.  Where MasterCard tracks spending in other countries, a slowdown in spending on household goods is highly correlated with  a housing downturn.

I will end with an example with which I am familiar, perhaps you can decide whether this is bubble territory. A house in the Inner West of Sydney was bought by a developer for $1.0 million. He demolished the house and within 7 months built a  new house for $0.7 million. It sold at auction for $2.2 million. The family that bought were transferred out of state and re sold the property – six months after buying it – for $3.3 million. So from $1.0 million to $3.3 million in about a year. Move along, no bubble here.

29 February 2016 Markets