House prices in Sydney and Melbourne have been falling for over a year now (about 10% so far)
The average house price in those cities was about a million dollars so 10% is already a lot of wealth lost!
Basically Australia hasn’t had a recession in a long time! When America had the GFC in 2008, our stock market went down but we didn’t go into a recession because our economy was good because we had a good mining industry that was exporting a lot of iron to china who were booming/constructing (they aren’t anymore)
Australia has had low interest rates for a while now and basically Chinese investors were buying up Sydney and Melbourne and pumping up the prices.
It wasn’t just Chinese investors though. Investors here were taking advantage of the ability to get interest only loans for these houses and that’s also what caused the prices to go sky high.
House prices in Sydney and Melbourne are 11 times the average income now which is more than they were for Americans before their housing collapse.
Then the government put a stop to the interest only loans and the house prices couldn’t go up anymore and they started going down about a year ago.
40% of the home loans in Australia are these interest only loans. The bulk of them were made 5 years ago and the bulk of them have been expiring last year. More will expire this year and 2020.
2019 is when MOST of them expire and turn into principle and interest. When they do this the cost of them go up and puts a strain on the borrowers.
Now house prices have been falling for the last year very fast.
When house prices fall people spend less, their equity is destroyed, the equity they secured against cars, boats, other properties is also destroyed.
The Australian banks make up 20% of the Australian economy.
One person’s spending is another person’s income. So when one person spends less because their home loan repayment turned into principle and interest and cost more plus their house is falling and their equity is getting destroyed. They spend less, which causes someone else to earn less. Which causes the economy to go down.
If it plays out like the video explains. This could be very bad for Australia.
Here’s the video. https://www.youtube.com/watch?v=QIELN8C-7bQ