The bubble down under

5-year view of the ASX 200:

Source: Bloomberg

Australia has a huge property bubble that has yet to burst. The average home there, at AU$502,492, is priced at eight times average household income, compared to about three times income at the height of the US bubble (though higher in places like California and Florida). This is a country with a population density of just 7.3 per square mile, compared to 83 for the US!

Aussies are still in the denial stage, which says a lot about the nature of group-think, since they can look at the rest of the world and see the exact same dynamic at play, though a couple of years ahead.

China appears to be in about the same place, with prices even more out of whack with incomes and rents, twice as overvalued as the most overvalued California houses in some cases. Australia and China also have plenty of froth in their equity markets, though those resemble the US and the rest of the world.

What would happen to Australia if housing prices, stock prices and commodity prices all collapsed at once? Come to think of it, Canada is in a very similar position, and their housing bubble, while not as wild, has still yet to deflate.

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4 thoughts on “The bubble down under

  1. Are you aware of any ETFs or individual Aussie stocks that can be shorted (or inverse ETFs bought) specifically tailored to their housing market?

  2. No, I just use SPI futures on the ASX.

    Try googling ETFs and see what you can find. Also, I bet they have their own builders like DR Horton and Toll Brothers.

  3. India has a property bubble too … If only I could post some photos of the typical house that people pay $250,000 for in USD. Although most of the consumers in India and China use debt intelligently …. not to buy Pizza, Burgers, Clothes … they usually get into debt for REAL ASSETS …

  4. I’m an Aussie who has been living in Europe for the last 10 years. I just got back from Sydney today after visiting family and friends and I can tell you the whole property thing over there is a joke. My folkes live about 20km from the city centre in a very old fibro home and that has been valued at aud950000, the plot is 500sq meters. After speaking to friends and reading the papers I can see complete denial. If there was an easy way to short the Sydney property market I would back up the truck right now!!!

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