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| Graph from Economist.com |
Australians have gone heavily into debt to buy houses that cost more than ever, especially the land component; and there's no sign this trend will end anytime soon. Mortgage debt has more than quadrupled from 19% of GDP in 1990 to 84% in 2012-- as high as that of the U.S. at its peak where mortgage debt as a percentage of GDP has fallen from 86% in 2009 to 68% in 2012. Negative gearing and easy lending combined to push house prices higher. Looking at affordability as a function of disposable income, both the ratio of total debt and interest payments to disposable income are very high - see the chart below. Widespread mortgage fraud to gain bank credit is asserted by Denise Brailey, the president of the Banking and Finance Consumer Support Association (an organization dedicated to protecting the public against predatory financiers).
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| Graph from Seeking Alpha |
Australia's economy is experiencing increasing reliance on overseas funding, becoming more interlinked with China's growth and business cycle. The Chinese economy grew at 7.8% GDP in 2012, the slowest since 1999, and an increase in global commodity supplies could cause a sharp reduction in Australia's incomes and employment. Australia linked up with China in direct currency trading in March and this puts the country in a tenuous position if trade between the two countries slowed dramatically and would prompt a severe correction of home prices which some feel could take price all the way back to the 1990's.
