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Broke Down Under
Townhall.com ^ | August 9, 2011 | Mike Shedlock

Posted on 08/09/2011 11:56:30 AM PDT by Kaslin

The housing boom in Australia is now an escalating bust. Many Australian homeowners put every cent they had into their homes and they needed double incomes to just scrape by. Unfortunately, those jobs are disappearing in a construction and commercial real estate bust. 

I warned about this event for years, but in Australia, like everywhere else "It's Different Here" until it's not. 

60 Minutes Australia picked up the Secretly Broke story in "The Big Squeeze". Click on link for a 60 Minutes video. Here is a partial transcript.

ALLISON LANGDON: To the world, Tracy and David Dodd are the very model of Australia’s relaxed and comfortable middle-class. They’re living the dream – three kids, a mortgage and a suburban family home on an acre block. But Tracey and David have been keeping a secret from their family and friends – they’re drowning in debt. No-one to look at you would think that you are struggling. 

TRACY: It might look like we have got everything but you don’t see the mortgage, you don’t see the loans. You don’t see everything and nobody wants to talk about it you know, because it is embarrassing. 

ALLISON LANGDON: Has it taken a toll on you both? 

TRACY: Mmm…sorry. 

DAVID: Oh it has – it has taken its toll but you’ve just got to do it. 

ALLISON LANGDON: Like most young couples, the Dodds invested their heart and soul and every spare cent they had into the ideal of home ownership – the biggest mortgage their double income would allow. But last June, Tracy lost her job in the construction industry and David was made redundant. Just to keep money coming in, he’s taken a lower-paying job. Ever since, the Dodds, like tens of thousands of middle class families have been going secretly broke in the suburbs. 

TRACY: We went from having a really great income including a company car, fuel card, phone – things like that – to basically losing all of that. 

ALLISON LANGDON: So do you have more money going out each week than what you’ve got coming in? 

TRACY: Absolutely. 

ALLISON LANGDON: How much difference are we talking about? 

TRACY: Probably – it’s getting very embarrassing – probably about 400 bucks…$400. 

ALLISON LANGDON: This is the outskirts of the Gold Coast. When you look around and see the big, shiny new houses, the nice lawns and two cars in the driveway, you can’t help but think, ‘life must be pretty good here.’ But this version of the Great Australian Dream is just a facade – nowhere is mortgage stress being felt more keenly than right here. And the figures are staggering – one in 50 families are at risk of losing everything. The number of Australians behind on their mortgage repayments by more than a month is at an all-time high. Areas of mortgage stress can be pinpointed right around the country. Mostly in areas, that just five years ago, were booming. Families who borrowed to the limit in the real estate gold rush are the ones who are now struggling to pay their bills. 
Blame Galore 

The story continues with Phil and Sandra Box who claim they never did anything wrong. Of course they did. So did Tracy and David Dodd. 

Not only did they pay too much for a house, they had no cash cushion if one or more of them lost their job. 

Up until May 2011 or so, I received numerous emails every week from persons in Australia telling me how Australia was different, how China and commodities were a sure thing and would keep housing afloat, and how the Australian stock market would not sink. Those emails continued but at a dwindling pace for another month or two. 

This is what the Australian stock market looks like now. 

$AORD Daily Chart 

 

click on chart for sharper image 

Poof - Just like that 20% evaporated since Mid-April. Moreover, China is clearly slowing which will put a damper on commodities. Indeed the world appears poised for another global recession. 

The RBA was actually thinking of hiking last week. I said they wouldn't and it would not matter one iota once the housing bust got underway. The housing bust has now smashed commercial real estate as well. 

So who is going to be hiring now? 

Flashback January 2, 2011: 
Australia Heads For Economic Crunch; Similarities Between Australian and Chinese Stock Markets; Global Property Bubble Cycles
The party is over in Australia. Many anti-dollar investors and Pollyannas living down under just don't realize it yet. Nonetheless, Australia faces an economic crunch as family finances collapse under the burden of record debts, rising interest rates and utility bills.
Flashback January 10, 2011: Australia's "Tulip Mania" About to Crash; 44% Jump in Property Listings Proves the Proposed Housing Shortage is Gargantuan Myth; Playable Actions 
For years I have been hearing about a housing "shortage" in Australia. That myth has been shattered by latest stats that show a 44% jump in property listings. 

I rather doubt those interest rate hike are coming. I would guess there is one more hike at most. Then at some point there will be panic cuts by the Reserve Bank of Australia. 

History suggests it will not matter one bit once. 

Remember the housing "shortage" in Florida? People stood in lines overnight and entered lotteries for the right to buy condos. Others were going door to door making offers on homes that were not even for sale. 

From that aspect, it sure looked like there was a shortage. There wasn't. It was nothing more than a speculative mirage much akin to the shortage of quality tulip bulbs in the year 1635 during 
Holland Tulipmania

Playable Actions 

The day of reckoning has finally arrived for Australia. A day of reckoning awaits Canada, China, and the UK as well. It's too late now to do much of anything except 

I am curious, did anyone down under reading that post exit the stock market and pick up some popcorn? 

Flashback April 13, 2011: 
Housing Denial in Australia Feeds Off Same Myths We Heard in the US
It is amusing to watch Australian analyst after analyst cite the same silly myths regarding housing that we saw in the united states. 

Five Facts 

  1. It's Not Different in Australia
  2. There is Not a Shortage of Housing
  3. Australia is in a Bubble
  4. Now is Not a good time to Buy
  5. It's Better to Sell Now than Next Year 
May 13, 2011: Economic Bust in Australia:Near-Record Corporate Bankruptcies, Employment Drops Unexpectedly; Rise in Bad Home Loans;Record Low Property Transactions 
Those looking for bad news can find plenty of it in Australia, which in my opinion is soon headed for recession and rate cuts. 

RBA Calls For Unemployment Rate to Drop

What the hell is it that the RBA sees that I don’t? The property bust is underway and going to accelerate, retailers are going under, and consumers are tapped out.

How exactly does that translate to lower unemployment rate?’

Norris Way to Optimistic

I disagree with the CBA chief executive Ralph Norris on nearly every point.

Except for my economist friend Steve Keen, I have to ask: Has anyone down under learned anything from the property bust in the US?

May 16, 2011: Australia Real Estate Bulls Trot Out Every Cliché Known To Man 
Select Clichés from the Article 


Alternative Mish Suggestions 

  1. Trading up now will greatly increase losses
  2. Tourist properties will be especially hard hit
  3. Now is a poor time to buy in general
  4. Wait 5 years, then see what prices are
  5. In the meantime, rent

Australia's bust has just started. Expect a 5-year decline minimum. As a point of reference, the US housing bust will be 6 years old this summer.
July 10, 2011: Permanently High Plateau Theory Touted for Australia Housing; Real Estate Agents Refuse to Disclose Sale Prices 
At the height of every boom, bullish clowns inevitably come out of the woodwork touting the "permanently high plateau" prices will not drop much theory. 

Such a theory is presented in the Herald Sun although one might not quickly spot it because of the headline 
Decade of pain for Melbourne's property market
August 4, 2011: Eighty-Five Australian Building and Construction Firms Go Under in a Month; Crazy to Buy a House in Australia Now 
The implosion in Australian housing is now in full swing as Eighty-five building and construction firms go under in a month

Uncertainty? What Uncertainty? 

Peter Jones at Master Builders Australia is blaming "uncertainty". The irony is that it would make far more sense to blame "certainty". 

It is quite certain that Australia's housing bubble is now in crash mode. It is equally certain there is not a damn thing the Reserve Bank of Australia or any of the home builders can do about it. 

Crazy to Buy a House in Australia Now 

If you live in Australia and are thinking about buying a home, here is everything you need to know in a single sentence: 
It's still a crazy idea to buy a house in Australia at the current prices.
This story is so sad because Australians had every warning in the world. All they had to do was watch the US housing bubble burst. However, you cannot explain anything to anyone with a firm conviction "It's Different Here". 

Australian homeowners are now finding out they do not own their home. Instead, their home owns them.


TOPICS: Australia/New Zealand; Business/Economy; Culture/Society; Editorial; Foreign Affairs
KEYWORDS: australia; australiahousing; housingbubble; housingmarket

1 posted on 08/09/2011 11:56:32 AM PDT by Kaslin
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To: Kaslin

Sounds familiar...sadly.


2 posted on 08/09/2011 12:04:17 PM PDT by moovova (Our country, AAA. Our credit rating, AA+. Our president, FF-.)
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To: Kaslin

I don’t have an ounce of sympathy for those that get into debt as deep as they can in order to sustain a lifestyle that is above their means.

I’ve always lived in modest homes, and my wife and kids did not suffer ill effects. In fact, they fondly remember the home they grew up in.

I may not be Dave Ramsey approved debt free, but I’m darn close.


3 posted on 08/09/2011 12:13:38 PM PDT by brownsfan (I miss the America I grew up in.)
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To: Kaslin
The Aussie Lib government is bound and determined to put into law a carbon tax scheme. That will work out really, really well. If the normal Australian citizens, who are not the algore loonies, don't smother the carbon tax crap in its crib, it'll grow up to be a big, hairy, money grubbing, Australia destroying monster.
4 posted on 08/09/2011 12:15:45 PM PDT by JPG (Yes She Can!)
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To: brownsfan

I agree with you completely


5 posted on 08/09/2011 12:28:34 PM PDT by Kaslin (Acronym for OBAMA: One Big Ass Mistake America)
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To: Kaslin

There would be some highly beneficial effects if people stuck to housing they could actually afford.

Older city neighborhoods would be revitalized with an influx of younger, productive families. That housing stock would get fixed-up and the residents would start caring about local schools, streets, etc. They would stop voting for the sort of candidates the “taker” class elects to City Councils, and would throw a break on the decline of civilization in our cities in general.


6 posted on 08/09/2011 12:28:34 PM PDT by Buckeye McFrog
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To: Buckeye McFrog

Good observations.


7 posted on 08/09/2011 1:59:42 PM PDT by Tax-chick (Do you know why I love reptiles? It's because they don't play guitars.)
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To: Kaslin; brownsfan
4.Wait 5 years, then see what prices are 5.In the meantime, rent

I am not sure about that advice.

Obviously, those who borrowed the maximum, like the couple interviewed, are in dire straits if their income falls - which is a natural event during a recession.

But rents are very high in Australia. And they seem to stay high. There has not been the extent of building housing stock which one sees in the USA. If there is a burst of inflation, one might pay rent for five years, and then be worse off.

Best advice is to buy only what you need, and like brownsfan on this thread, be modest and frugal. Don't grab for a lavish property. Many Australians want a 'show off' house. They are very mistaken.

8 posted on 08/14/2011 12:37:06 AM PDT by BlackVeil
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To: Kaslin
I saw local housing markets implode during the oil crash beginning in '82 here. It took five years for housing prices to bottom, although the dynamics may be different there.

I've never been one to try and keep up with the Jones', instead, I'll wait and catch up with them at the auction sales for pennies on the dollar.

9 posted on 08/14/2011 12:47:20 AM PDT by Smokin' Joe (How often God must weep at humans' folly. Stand fast. God knows what He is doing.)
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