Australia’s Housing ‘bubble’ In Plain English

If you want to buy a house maybe watch this first.

Also I didn’t talk about rents because the video was long enough. Basically rents closely follow incomes because people pay rent with their incomes (not with loans). House prices can diverge from incomes because people fund buying a house by way of loans and not incomes. Loan size is only dependent on bankers deciding whether that loan can be re-payed by you on current conditions (not future conditions, interest rates, income, assets etc) and whether they want to make more or less money depending on the size of the loan they give.

Also there are other factors such as ‘negative gearing’ (tax write off’s for housing investors who run at a rental loss against the loan which cost the Australian tax payer billions of dollars), Chinese and foreign investors who have been buying large ammounts of real estate in recent years, leveraging and equity to buy more houses, Australia’s AAA credit rating, the housing construction boom and interest only loans used by investors. All of these items depend on house prices increasing for these items to remain positive. Non of these items are more important then the fundamentals mentioned in the video but may have contributed in some way to the current conditions and possibly may also contribute to a correction (pop). Trumpflation (Trump may raise global interest rates by massive spending on infrastructure in the USA) is another factor also.

Also, one last point. If you owe more money on your home then your home is currently worth (negative equity), the bank can make a ‘margin call’ on the difference which they may ask for you to pay immediately. For example if you have a loan for 0,000 and you home is only worth 0,000 then the bank can ask for the ,000 immediately. If you do not pay the difference the bank can re-posses your home, sell it at auction and then you still have to pay the difference between the sale price and what you owe on the loan. It’s a way banks cover their ass. In the above example you would have no home but still owe ,000. Food for thought.