The Party’s Over For Australia’s $5.6 Trillion Housing Frenzy

The Party’s Over For Australia’s $5.6 Trillion Housing Frenzy, by Tyler Durden.

Early this month, we discussed whether the world’s longest running bull market – 55 years – in Australian house prices had come to an end. …

Measures to tighten credit standards and dissuade overseas buyers (especially Chinese in Sydney and Melbourne) have finally begun to bite. …

Sydney prices fell in October, for the second month running, and poised to lead national prices lower. …

After five years of surging prices, the market value of the nation’s homes has ballooned to A$7.3 trillion ($5.6 trillion) — or more than four times gross domestic product. Not even the U.S. and U.K. markets achieved such heights at their peaks a decade ago before prices spiraled lower and dragged their economies with them. …

The increasing treatment of housing as a financial commodity has seen borrowers rush into a byzantine maze of mortgage-related products. That’s made banks very profitable, but very exposed. …

When the housing market bubble bursts, the Australian banks will probably go under and require massive government printing to bail them out so shareholders and lenders don’t lose their assets.

After all, it would be asking too much for government to do the right thing — to let the banks go bust, then immediately nationalize them so their day-to-day banking functions carry on, then in a couple of years sell the banks when they are profitable again. That way shareholders and bank bond holders lose, as they should for owning or lending to a failed business. The rest of us get to continue using the banking system, for which there is a market that has nothing to do with bank lending.

Apartment building bubble? No, say it isn’t so….