Bro­ker News Inter­view: Is the bub­ble set to burst?

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I was inter­viewed on the peren­nial topic of Aus­tralian house prices by Aus­tralian Bro­ker News. The seg­ment, “The Big Story: Is the bub­ble set to burst?”, includes two indus­try rep­re­sen­ta­tives as well as me. I enjoyed how the 5 minute story was put together, and I think you will too. Click below to watch the Aus­tralian Bro­ker News item.



As seen on Brokernews.com.au

About Steve Keen

I am Professor of Economics and Head of Economics, History and Politics at Kingston University London, and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous private debts accumulated globally, and our very low rate of inflation.
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  • richyEV

    Excel­lent work. Thanks for what your doing to try and get some sense out there. Much appre­ci­ated by all des­per­ate ‘would be’ first time buy­ers like myself.

    Best Wishes from the UK

  • Trips

    Great work Steve! 

    You are cer­tainly get­ting the right mes­sage out. It may inter­est you and your read­er­ship to know that there are cur­rently two Getup cam­paign ideas that have gained a large fol­low­ing and a high num­ber of votes in a rel­a­tively short period of time. 

    They are: Stop­ping tax breaks for prop­erty investors and 1st Home Buy­ers Strike.

  • ken

    A rea­son­able sce­nario seems to be that as bor­row­ing drops off, the gov­ern­ment increases bor­row­ing to try and keep the econ­omy on track. The ques­tion is then is when (maybe deficit 10% GDP) would the for­eign spec­u­la­tors start unload­ing our dol­lar, and our mir­a­cle econ­omy unrav­els?

  • Lloy­die

    My ver­sion of future events:

    Credit impulse is falling. Long term cap­i­tal appre­ci­a­tion for prop­erty looks remote. 

    Neg­a­tive gear­ing = annual loss mak­ing. Demand for credit tapers off fur­ther. Build­ing con­struc­tion reduces. Hous­ing stock for sale rises. Con­struc­tion, finance, real estate and related legal jobs evap­o­rate. Rinse and repeat. 

    China hous­ing bub­ble pops late 2011 or early 2012 adding to uncer­tainty. see: http://www.sbs.com.au/dateline/story/watch/id/601007/n/China-s-Ghost-Cities

    Aus­tralian Govt guar­an­tees bank debts, bank deposits and spends 10% of GDP to off­set pri­vate credit delever­ag­ing. We learn noth­ing from the Irish, US and UK

    RBA drops inter­est rates by 3–4% but banks do not pass on full inter­est rate cuts (or any cuts at all) as whole­sale fund­ing costs rise due to dete­ri­o­rat­ing loan books and falling credit rat­ings.

    Bank pro­vi­sions for bad debts increase. Eco­nomic mir­a­cle turns out to be an eco­nomic mirage.

  • Glen Davis

    Where do these guys get this 200000 houses less than required?
    Dont they know we have 800000 empty homes?

    And that guy say­ing the media is talk­ing up the bubble.……is he kid­ding?

  • @ Lloy­die

    Don’t agree with low­er­ing inter­est rates — RBA and Swan need to pro­tect the Banks so inter­est rates remain on hold or increase a tad to attract hot money deposits that can be invested in the real estate mon­key busi­ness — but we shall cer­tainly see who is right 😉 er, soon — just look for the Organ Grinder.

  • Glen Davis, you are spot on! Aus­tralia has a huge over­sup­ply of empty homes just wait­ing to flood onto the mar­ket as soon as the spec­u­la­tors realise the jig is up and panic sell into an already sat­u­rated mar­ket. This blog debunks the short­age myth very eas­ily.….

    Aus­tralian Hous­ing Short­age — Myth Busted!

    Right now we’ve got auc­tion clear­ance rates plum­met­ing, huge build-up of empty stock, FHBs nowhere to be seen. The mar­ket will def­i­nitely crash this year. It’s col­laps­ing under it’s own weight as we all knew it would!

    Rob.

  • eco­nom­icmi­nor

    Ken,

    The way I under­stand the sys­tem is that when the for­eign buy­ers balk, the cen­tral banks print. This dri­ves down the value of the cur­rency in rela­tion­ship to resources includ­ing food. Or as most peo­ple relate, food, fuel and real things go up in price. House prices ris­ing was a con­se­quence of a directed monetization/securitization of debt which was just a way to cre­ate new money into exis­tence.

    How gov­ern­ment mon­e­ti­za­tion affects hous­ing is rather com­plex. As the gov­ern­ment prints, this keeps bond rates down until some­thing hap­pens to cause worry or worse panic and bonds are sold off in fear of tak­ing a loss due to ris­ing prices of goods and ser­vices. You may still get a dol­lar returned but by then it will only buy 80 cents worth of goods. So at some point inter­est rates will rise and that has puts down­ward pres­sure on house prices. 

    The other thing is the destruc­tion of real pur­chas­ing power from the ris­ing prices of what you need, like food and fuel. This dimin­ishes the real value of wages earned and unless there is a mech­a­nism of reval­u­a­tion of wages like COLAs, then the real dis­pos­able incomes of the pub­lic declines mak­ing the money avail­able to ser­vice debt also decline. Thus more defaults and more houses on the mar­ket.

    So in any real world model, house prices will even­tu­ally decline to some level of real afford­abil­ity. This actual value is uncer­tain as we have no clue as to the level and extent that mon­e­ti­za­tion will under­mine the cur­rency and real incomes or what hap­pens in the rest of the world that also affects com­mod­ity prices.

    Best of luck to us all.

  • speckie

    This clip is excel­lent. Glad you posted it. Apart from your com­mets the views expressed are hilar­i­ous. Does Lisa Mont­gomery really expect any­one to believe that first home buy­ers will look to buy in fringe or regional areas and that our high prices are the result of lazy and unre­spon­sive state gov­ern­ments not releas­ing enough land for devel­op­ment. And what about Andrew Hawking’s state­ment that “…there seems to be a lot of hype with regard to a bub­ble that’s going to burst.”
    And what is it with real­tors and mort­gage bro­kers? Is there an indus­try code that says that they have to slick their hair up or pull it back. Shesh!

  • Hi Speckie,

    Yes it’s weird–and I won­der whether it has any­thing to do with the tim­ing of Jes­sica Irvine’s “the lady doth protest too much, methinks” piece in today’s Fair­fax press:

    Burst­ing the bub­ble of house price pho­bias

  • Trips

    Would I be too cyn­i­cal in think­ing that per­haps Chris Joye had some­thing to do with Jes­sica Irvine’s lat­est arti­cle? He seems rather overly enthu­si­as­tic in his praise for her recent efforts on his blog. 

    I also seem to remem­ber Ms Irvine singing a much dif­fer­ent tune last year in her arti­cle about “Cast­ing off the chains of home own­er­ship.”

  • ferb
  • pb

    There is a cam­paign in GetUp call­ing First Home Buy­ers to with­hold pur­chas­ing
    more details here

    http://suggest.getup.org.au/forums/60819-campaign-ideas/suggestions/1595687-first-home-buyers-property-buyers-strike?ref=title

  • Excel­lent idea. I’ve just posted and voted for it. I’d rec­om­mend that every Aus­tralian res­i­dent on the blog do so as well.