The charts that suggest the housing bubble is out of control, by John McDuling in the Sydney Morning Herald.
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”. “Australia is simply in a league of its own when it comes to mortgage lending.”
Housing price are totally out of whack with … everything. They keep going up. And up. But almost everything else – wages, GDP, and rental income, else remains relatively 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.”
This is limited to Sydney, Melbourne, and, to a lesser extent, Brisbane.
UPDATE: ‘Big short’ panic was a war by hedge funds on the banks, by Christopher Joye in the Australian Financial Review.
You see, Tepper’s clients had pre-positioned their portfolios weeks in advance of this publicity onslaught by short-selling bank stocks and lenders’ mortgage loss insurers like Genworth, and going “long” credit default swaps (CDS) that appreciate in value when investors think that bank repayment risks have increased.
So suddenly Hempton and Tepper’s “private research” became remarkably public on February 21, with Tepper appearing as an independent “expert” in an “explosive” 60 Minutes investigation in which he warned house prices would collapse 50 per cent. Then on February 23 The Australian Financial Review ran a 1,317-word front-page news story on Hempton and Tepper’s “research” that did not quote conflicting voices.
The financial market impact of this public relations exercise was truly astonishing. The major banks’ share prices plummeted up to 4 per cent on the day of the AFR’s yarn, wiping out as much as $15 billion in shareholder value. …
By the end of the day, there had been dramatic 18 basis point and 35 basis point increases in the major banks’ senior and subordinated CDS spreads, moves that had not been seen since the global financial crisis. …
A trader in Asia echoed the consensus when he said: “It’s pretty obvious this was a well-planned drive-by from the hedgies”.
…if you index the median Australian house price in 1985 by the growth in disposable incomes and the change in borrowing capacity flowing from declining mortgage rates (holding loan-to-value ratios constant), current house prices look slightly cheap.