Round 5 - Day 81

So there's a home-buyers strike going on in Melbourne. Hey, I've been on a Ferrari-buyers strike for twenty years, and I will not give in! Stupid. But if these stories are making the papers, then the great housing boom in Australia might finally be over. Thank Christ. But I shudder to think what will happen to all those young couples who earn 50K a year who bought or built half million dollar houses. People think if you buy a house, you've sewn up your future. You're set. That might have been true twenty years ago when houses were affordable, but I don't think it's true at the moment. It might be true in another twenty years, but not after a lot of pain. Look what has happened in Ireland, the U.K., Spain, America. People are in all sorts of trouble because they bought an over-valued asset with the assumption that its value will only increase. A house is only worth what people will pay for it, and what people will pay for it is based on how easy credit is to get from the bank. When the banks make it tougher to get money, fewer people have access to money, prices go down. That's what is happening. And when the house across the street won't sell at 50K less than what you paid for yours, you have no equity any more. It's gone. You are paying more than you can afford to keep an asset that is worth much less than what you bought it for, and will be for the next ten years. You can sell it and lose your down-payment, at least, as well as all the money you've spend paying interest on the mortgage, but then you're back to square one looking for a place to live, except this time you have no money. Or you can wait it out, praying you don't get laid off, trying not to hit the wife or kids, trying not to drink too much, not being able to afford a night out at the movies or a holiday to Queensland ever.
As soon as it became speculative, it got dangerous. The smart people bought ten years ago, and sold last year. Or early 2008, if they were geniuses. The smart people have spent the last two years getting ready, getting liquid, getting rid of any asset that they can't sell in five minutes so they are ready when the world falls apart again like it did in 2008. Do you think they are going to let themselves be caught out twice? Not a chance in hell.
Watch for the politicians and bankers to come out of the woodwork this year and position themselves as the mavericks, the ones who warned everybody of the impending doom before it happened. Look out for bankers and politicians warning people about being indulgient or reckless, so when the shit hits the fan, they can say, well, I warned you! Ask them if they supported the doubling of the first home owners grant in 2008 when it was clear the bubble had popped, effectively zombifying the housing boom, damning millions of young people who have since mortgaged their lives away in a propped-up, DOA housing market to a life of slavery. Ask them if they support negative gearing, which inflates rents. Or, more to the point, ask if they have recently sold any their own investment properties. Bet you they have.
Will it be as bad as it is in America? Or Ireland? Or Spain? Probably. Why would it be any different? The Spanish have an expression they use when they talk about their housing boom. Instead of saying "Back in the 2000's,...", or "During the housing boom,...". They say "When we were rich, ..." Is that what it's going to be like in Australia? What effect will there be on the economy, on society, when millions of "working families", to use one of Acting Assistant Regional Manager Kevin Rudd's favourite phrases, are under incredible pressure week after week for years on end, watching their dreams of a secure retirement vanish, with a mortgage they will never pay off, stuck in a house they can't afford but can't sell? Have a look at America. How's it going there? An absolute catastrophe.