Gerard Minack: Australia's Ponzi Borrowers Inflating Housing Bubble
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From The Australian:
LOCAL property investors have become Ponzi borrowers in a market that is 40 per cent overvalued, Morgan Stanley’s top strategist says.
In a bearish note to clients yesterday, Morgan Stanley’s chief strategist, Gerard Minack, warned that the housing bubble could be pricked if the banks tightened credit or middle-class landlords started losing money and decided to sell.
He believes owner-occupiers have too much debt, and that investors are riskily relying on capital gains to repay their loans and interest.
Compounding the problem was ill-advised policy such as the government’s first home-buyers grant, which had the effect of lifting house prices 40 per cent above their fair value, Mr Minack said.
“Buying an asset that’s over-priced never ends well,” he said.
“The real return on residential property over the next decade is likely to be negative, in my view. Owner-occupiers have played a game of financial chicken, competing for property by taking on increasingly imprudent amounts of debt.
“Investors have become Ponzi borrowers — Hyman Minsky’s term for borrowers who rely on capital gains to repay debt and interest — in the belief that housing is a sure-fire long-term investment. History shows it isn’t.”
Australian Bureau of Statistics figures show overall average house prices rose 18.4 per cent for the full year to June, with Sydney prices rising 21.4 per cent — the most since the bureau began recording the figures in 2002.But the rate of growth has been slowing in recent months as rising interest rates feed through the national economy.
The Commonwealth Bank, Australia’s largest bank by market value, warned last week it could be forced to raise rates independently of the Reserve Bank.
Read the original story at Israel’s Financial Expert
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