Why Deniers Of The Australian Housing Bubble Will Be Proven Very Wrong

Australian Women

Australian financial firm Commonwealth Bank recently went on a road show defending the state of the much maligned Australian real estate market.

Their presentation has been lambasted as a shoddy, false interpretation of what is really a serious situation just waiting for a trigger.

The best take down of the argument comes from David Llewellyn-Smith, and we note the details of his slide by slide take down on each page, so you can see just how sceptical he is of the presentation.

While David Llewellyn-Smith isn’t calling for the bubble to burst anytime soon, he’s certainly questioning the argument Commonwealth Bank has presented.

Here's the overview of the presentation

Source: Commonwealth Bank and Henry Thornton

Sounds like Commonwealth know more than you...

But Commonwealth Bank may be handpicking its data to reflect its thesis, according to David Llewellyn-Smith.

Source: Commonwealth Bank and Henry Thornton

But everyone in Australia lives near the beach.

David Llewellyn-Smith argues that while yes, 83% of the Australian market might be coastal, that also means that is 83% of the housing market.

Demand for coastal property has been a constant trend in Australian history, according to Llewellyn-Smith.

Source: Commonwealth Bank and Henry Thornton

But this bubble has been growing much longer than this.

This population growth slide doesn't explain how prices were still up 120% for 8 years before these charts start, which Llewellyn-Smith says was a product of dramatic increases in demand for investor mortgages.

Source: Commonwealth Bank and Henry Thornton

Easy credit will not last forever.

Llewellyn-Smith says that using the easy credit environment as a defence against the housing bubble thesis is actually more of a reason for it.

He also argues that the bank gives no explanation as to why they think the current inflation, commodity prices, or labour demand environment will continue.

Source: Commonwealth Bank and Henry Thornton

Household debt does not look good.

Australia is number two on this graph, only behind the UK. The U.S. and Germany have more healthy debt positions. This is not a good or positive defence, according to Llewellyn-Smith.

Source: Commonwealth Bank and Henry Thornton

This is ok, besides the fact it is so high.

No argument here from Llewellyn-Smith.

Source: Commonwealth Bank and Henry Thornton

The past does not predict the future.

This argument is fine, according to Llewellyn-Smith, but relies on several hidden assumptions that assume the past can predict the future. Which is pretty much the antithesis of what happens when a housing bubble bursts.

Source: Commonwealth Bank and Henry Thornton

History, does not tell the future.

Source: Commonwealth Bank and Henry Thornton

They argue potential losses could be low.

Source: Commonwealth Bank and Henry Thornton

Assumes that the economy will continue on glowingly.

Source: Commonwealth Bank and Henry Thornton

Not as bad as the U.S., yet.

Source: Commonwealth Bank and Henry Thornton

Debt is a big deal, and leverage gas been rising.

Source: Commonwealth Bank and Henry Thornton

Population growing, but that can't halt the threat, can it?

Source: Commonwealth Bank and Henry Thornton

But the Australia bubble may not be the only one out there...

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