Transcription
Well, holy flippity flip-flop flapping smokes, everyone. Everything that is happening right now is far, far worse than expected.
In this video, I want to be going over exactly what is happening with the housing market because, like I was saying, prices are falling far, far quicker than anybody thought could have happened. And what I've been seeing a lot of people put out, or should I say most housing market data or housing market videos for Australia that's put out on YouTube, is done by either property investors or buyers' agents who have a huge bias to tell you that everything's going to be okay. House prices are going to be go to the moon.
I've also seen a big lie that's been put out there at the moment and what nobody's getting right, saying that house prices have never fallen more than 10% in Australia's history, when that is not true. And in this video, I'm going to be giving you guys a huge, huge deep dive on over 150 years of real estate data in history for Australia to show you how bad things are now and how bad things can get.
This is on top of the Australian economy already doing really bad. On top of that, we already have huge rate hikes that are hurting the Australian economy massively. And on top of all this, they've brought out the most aggressive legislation taxation on the housing market possible all at the same time. So, this is a recipe for disaster.
Now, also, something else I did is I went to look at how bad was leverage in the housing market, uh, in the US compared to how bad is leverage in the Australian housing market today. And guess what, people? Guess what I found when I looked at the comparisons between what caused the 2008 housing market crash in America and I looked at Australia's housing market today, and you are going to be shocked with what I found.
So, you know what time it is, ladies and gentlemen. Just go ahead and type one in the chat if everything is working fine, and then we are going to get into the news, the facts, and the data.
So, okay, first things first is this, everyone. Australian property market downturn, Sydney and Melbourne house prices plunge in severe collapse. So, this is no longer speculation. Just in a matter of four weeks, we are already seeing huge drops. And thanks for dropping ones in the chat. So, let's go and figure out exactly what's happening. Again, I'm going to compare this to 2008, and then I'm going to show you this history of the Australian housing market to show you that, yes, there have been much bigger declines of over 10%.
So, look at this right now. What's happening in Sydney and Melbourne CBD, for example? We're seeing some, uh, we're seeing properties in a Sydney CBD sitting on the market for more than six months. That's right. Almost half of properties in a Sydney CBD have been listed for over 180 days. Now, data for Melbourne's postcode recorded 460 out of 1,171 properties were selling for more than six months or more. So, the downturn is already here, but the trillion-dollar question is, how bad will it get?
So, we've already seen declines of 5 to 7% just in a matter of months. That said, but they've warned, uh, in this article that might not be enough. And he says, if prices fall more than 10%, the economic fallout will be ugly. And I'm going to show you why it'll be so ugly. So, go ahead. Let's go ahead and bring this up because, again, I wanted to figure out, okay, how bad was it in 2008 and how bad is Australia's situation?
So, in 2008, US home mortgage debt debt reached 73% of gross domestic product, peaking at $10.5 trillion. This was a massive surge compared to the 1990s when housing debt averaged just 46%. So, can you guys have a guess of what Australia's mortgage debt to GDP is now? Now, again, in 2008, it reached 73% in the US. This was the worst housing market crash that caused the biggest global financial crisis in recent decades. So, can you guess what it is right now? Well, it's actually higher than that. Australia's household debt to GDP hovers around 110% to 115%. But more importantly, we want to know what residential mortgages make up of that. It's nearly 75% worse than 2008, the US financial crisis. So, that's right, far, far worse.
But something else I wanted to figure out was what is Austral, what is the US, uh, households worth compared to the GDP and what is Australia's households worth compared to Australia's GDP to figure out how bad is this bubble? And this is going to be even more shocking to you. You guys, um, may want to sit down.
So, US GDP right now is around $31 trillion, according to Fed data. Now, how much is the US housing market worth total? Well, the US housing market has reached a record $55 trillion. So, that sounds like a lot. That's, let's put it simply, let's say, uh, the US housing market is twice US GDP. So, that's pretty expensive. But what is Australia's GDP? Well, it's $2.12 trillion. Okay, so Australia's GDP is $2 trillion. Now, remember, US, uh, housing market's GDP is two times. Can you guess how much times GDP the Australian housing market is and how big this bubble is? Go ahead and have a guess.
Well, that's right. The value of Australian homes hit $12.3 trillion. This is more than the entire GDP of Japan, India, and the UK combined. This is how crazy this housing market bubble has gotten. The Australia's housing market to GDP is now five times. That's right. Australian's homes are worth more than five times Australia's annual GDP. This absolutely dwarfed what it got in the 2008 housing market crash. And this is why the Australian government has done absolutely everything it could until now to keep house prices up. Because even if we just had a housing market decline of 15%, that will be more than Australia's annualized GDP wiped out in just one year.
Now, go ahead and bring this up as well. This is something that should really worry you guys. Australia's household debt is now the second highest globally, but borrowing is still breaking records. That's what I showed you guys before. Australia's household debt, I'll go ahead and bring up this chart, is 114% of GDP. This is absolutely insane. And this is a recipe for disaster. And this is why they're so desperate to avoid this bubble bursting.
Now, again, something I wanted to prove to you guys because I keep hearing this again and again and again, and it is wrong. People keep saying Australia has never had a housing market crash of more than 10% or should I say where the national average hasn't fallen by more than 10%, which is mostly spread from, you know, buyers' agents and property investors. But this is not true. I'm going to bring up this 150-year chart to show you the full history of the Australia's housing market, not just the past 20 years, because that is very short-term thinking.
So, I'll go ahead and move myself so you guys can see this chart here. We can actually see the biggest housing market crash was actually in the 1890s. This was after Australia's, uh, huge mining boom where prices actually crashed over 50% and there was no real growth for 27 years. Then, after the Great Depression, there was a big housing market crash of around 30%, and prices did not recover for 21 years. Then, from 1951 to 1962, there were 11 years of no real growth. 1975 to 1988, there were 13 years of no real growth. Then, the 1990s, the recession we had to have, there was 7 years of no growth. And then 2010 to 2014, there were four years of no growth.
Now, again, you may see the trend that I'm seeing, that since the 1990s, or should I say since 1997, we haven't seen a big housing market correction in Australia. And the reason for that is is because in the 1990s, interest rates were around 18% the RBA. And then what they've done after every single crash is they've dropped interest rates lower and lower and lower to where what we saw in COVID, where interest rates were dropped to zero. So, the Reserve Bank has always been able to respond to every single housing market crash with lowering interest rates.
But the reason why this time is so bad for the Reserve Bank is because they have a huge inflation crisis that is still, unlike they're trying to say, it is not under control. So, they cannot lower interest rates like they did in the past. And at the same time, housing prices have become a huge political issue, and the Australian government may not be able to bail out the housing market again like they've done in the past.
Now, again, the most recent housing market downturn we've had, because, again, if you say, well, look, you know, that's over 20 years ago. On a more recent example, we actually did have a big housing market correction between 2017 and 2019 during the banking royal commission. And that's right, yes, prices did fall more than 10%, unlike what people are saying.
So, I'll go ahead and actually dig deep to find this article from 20, uh, sorry, from 2019. We can see here this was at the peak of the Melbourne and Sydney housing market, uh, falling. So, this, look, it says, "Melbourne house prices fall at fastest quarterly pace on record as Sydney enters new territory." Now, again, like they tried to say prices will never fall more than 10% because it never had before. Well, look at this data that I found.
So, the New South Wales and Victoria Capitals, this is, this is talking about what happened in 2019. They fell 12.3% and 8.7% down from their respective peaks in July and November 2017, with values in those cities back down to levels, uh, last seen in July 2016. Now, I dug a bit deeper in the article because what a lot of people don't understand is when they have a headline of saying "Australian prices down 5%," that's just a national average, and what you really want to know is how will actually house prices be affected in my suburb because every single suburb is different.
Now, we can see here the upper end of the market is always affected much, much more, and the lower end of the market is more resilient. But we can see what happened here in 2019. The most expensive end of the market suffered the biggest falls. In Melbourne, the top end of the market fell 13.8% since its peak. And in Sydney, prices fell 14.6% of their peak. And they dropped 12.4% over 12 months in Melbourne, and they dropped 10.4% in Sydney. So, we can see here during downturns, the upper end of the market actually falls much, much more than this. And I even found some suburbs during that time fell over 20%. So, don't believe what they say that prices can only fall a maximum of 10%.
And unfortunately, there's no good news coming because look at this. We got this latest data from the RBA. "A hike too far. RBA says high rates are hurting but working." And there's a door to still, uh, have more rate hikes. So, they say here, "High interest rates are having the intended effect in the economy. The Reserve Bank says, but three hikes in three months may have pushed households too far." Well, again, like I showed in that data, it has pushed them too far, and this is causing the possibility of stagflation. That's where you have the unemployment rate going up, but prices and inflation are still going up, and, uh, interest rates coexist with little or no economic growth. That has been on the RBA's radar over the last few months, but was largely dismissed, of course, because the RBA doesn't want to admit it because everything they say affects the markets. So, they always have to speak very positive. Uh, this is what she said in her appearance during the Senate Standing Committee on Economics earlier this month.
Now, forecasts from both the Reserve Bank and the Treasury expect inflation to peak in June, but they're saying underlying inflation is not expected to fall back to their range until 2028. So, that's right, we're still going to have another two years of high inflation, and of course, much higher than they will admit.
Now, the RBA said the effect of its hikes were particularly being felt in a slowing housing market, while tax changes for investors announced in the federal budget were also causing buyers to pull back. So, make no mistake, everyone, we're having the perfect storm for a big housing market correction in Australia. And again, it will be more than 10%. We're already down 5.7% from the peak in many areas in Sydney and in Melbourne. And we're having three things happen at once for this perfect storm. The economy was already slowing. We've already had multiple per capita recessions. Inflation is high. The RBA is lifting interest rates. And also, there's huge political, um, you know, uh, conflict right now with immigration. So, they may not have record immigration like they've had before. And we're seeing, uh, the Australian government go after investors. So, investors are pulling out. So, pretty much, there's going to be no one there to catch the falling knife or to put a floor in prices until they come back down to reality.
So, now you may be thinking, well, what should you do? Well, I think at this time, it's still very, very early days. This is only one month after the budget. I think it is a good idea to do absolutely nothing. Don't buy, don't sell. Um, you know, obviously, if you need a home, you need a home, buy, go ahead. Um, if you don't care what happens to prices, for example, me, I don't care if my house goes up or down because I'm not planning on selling it anytime soon or moving anytime soon. But you, if you're looking to buy, I think there will be some big bargains coming over the next few months, and you may want to be doing everything you can, you know, working overtime or start a side hustle to try to save some extra cash because there will be some big bargains coming. But of course, what do you all think is going to happen in the Australian housing market? Do you think the government will come back and save the day, reverse a lot of these changes they've done? Let me know down below. You're awesome. Thanks for watching. I'll see you all in the next video.