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17 May 2016

Bank Credit: Australian Residential Property

‘History doesn’t repeat itself, but it does rhyme’ is a famous quote by Mark Twain.

We looked back at research on past property crashes in Australia, yes they have occurred but we needed to go back, really far back in time.

The first property crash was during the 1890’s on the back of the gold rush and the second property crash was during 1930’s on the back of The Roaring 20’s and easy money (Chart 1).

Both events share a common leading indicator, once bank credit exceeded 40% of Australian GDP the property market busted not long after. The other key indicator was mass unemployment which was present during both busts.

And how does this relate to today?

Well today bank credit is around 125% of Australian GDP or over 3 times the level of past busts (Chart 2). We are in trouble.

Fortunately there is no mass unemployment and that is the biggest reason for why property prices have not significantly fallen.

The one piece of good news is that property prices did only fall by 30% during those two previous busts which is much better than the 50% fall in property prices experienced in North America and Europe during 2008.

WARNING, past performance is no guarantee of future performance and most importantly, the above comments do not constitute Personal Advice.


At Newealth we are always looking to support and promote our clients wherever possible and if you have any ideas or comments, please feel free to email me or to call me on +61 2 9267 2322.

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