Could The End Of Australia’s Housing Boom Spell Disaster For Its Economy?

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Argentina may have trumped Australia’s might on the football pitch in the World Cup, but we’re still reigning champions of another kind altogether – economic can-kicking.

Compared to Argentina’s cyclical inflation and debt crises, Australia is accustomed to prolonged economic stability. It took the pandemic for the country to enter a recession after nearly thirty years without one.

Despite a few months of pain, record-low interest rates and government stimulus larger than anything seen before quickly refloated the economy. The size of this stimulus was so substantial that it not only righted the ship but rapidly drove Australia into an unparalleled economic boom since the original mining boom at the beginning of the 2000s.

Australia’s unemployment rate plummeted to its lowest point since the early 1970s when full employment implied that any individual capable and willing to work could land a job—even with closed borders reducing necessary labour supplies.

Argentinians likely felt the repercussions of a tumultuous World Cup final, yet hundreds of thousands of Australians are now also experiencing a financial hangover.

As the pandemic commenced, Australians entered with almost $2 trillion in personal debt. Approximately 60% of this was mortgage debt, and 33% belonged to property investors – credit cards and other loans made up the remaining 8%.

As of November 2022, Australians have bolstered their debt pile by an astounding 15%, amounting to nearly $2.3 trillion. All this growth is due to the purchase of housing- we even managed to reduce our other personal debts by over $18 billion in that same time frame.

The wave of cheap borrowing was so powerful that Jefferies banking analyst Brian Johnson estimated that about half of the central banks’ loan portfolios had been originated or refinanced during the pandemic.

The significant reduction in borrowing capacities implies further price falls. It will take time for higher interest rates to affect prices fully, so they will likely continue to fall as interest rates continue to rise.PropTrack senior economist Eleanor Creagh said.

Nationally, the average borrower who purchased in January 2022 would have been paying $2,438 a month if they had been on a standard new customer rate of 2.49%. However, with the three percentage points of interest hikes that the RBA made in 2022, their minimum repayment will turn upwards to $3,503 – an increase of 44% less than one year.

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