Christopher Joye, the head of research group Rismark International, believes the glut of speculation about whether or not Australia’s $3.5 trillion housing market is on the verge of imploding is unwarranted, according to his piece in The Business Spectator.
Joye, responding to American investor Jeremy Grantham’s statement that the Aussie housing market is a “time bomb” because house prices are “7.5 times family incomes,” says that the ratio is actually 40 per cent less than that figure.
Hedge funds world over are now shorting the shares of Australian banks based on what Joye sees as flawed price data and a misguided argument regarding the vulnerability of the country’s banks.
This, however, appears to ignore the fact that the Commonwealth has demonstrated that it will vouchsafe the liquidity of the banking system in the event that it is ever mortally threatened by guaranteeing its funding sources.
He then concludes that if you really want to question the strength of Australia’s banks, you have to question the strength of the sovereign, and that doesn’t make any sense.
If hedge funds want to construct a credible critique of Australian bank funding lines, they must in effect create a defensible case for a sovereign debt crisis. Given Australia’s extraordinarily low net debt-to-GDP ratio, this is an extremely arduous task.
Take a look at the relationship between Australian home prices and disposable household incomes on a per household basis over last 17 years shows there may be something to his argument.