House Prices - a disaster about to happen

The Possum at his web site has an interesting series on housing – lots of ideas, thoughts and comments on display.

I do like the fact Poss that you have gone “out there” and offered your thoughts and ideas - but my sense of it is that the time for properly managed policy responses has long gone. Now we are in unchartered waters - the housing market has a life of it’s own and “policy” - is pretty much redundant.

A major factor influencing house prices is “emotion” - how else to explain the fact that for at least three years the “punters” have been buying houses at seriously overvalued prices.

The OECD have been saying for at least those three years that OZ house prices are 50% overvalued. It might be that *some* of us are deaf but the rest of us have been in denial. The truth is that we have been paying too much because we think that we will be bailed out - either by the banks or by government.

Perhaps that should be re-phrased as - we think that we will make a serious killing while other punters keep buying and paying too much. And in the event that the music stops - then we will be looking for someone to bail us out - because isn't that what always happens?

And the reason is because that is the expectation and the history of the place. When was the last time that Joe punter had to wear the consequences of his decisions? Greed is a powerful emotion and greedy punters think that they will be saved from their own stupidity - by *someone* - often a taxpayer.

And in truth it will likely happen. Because we have been pouring our spare cash into non-productive housing investment and not into real business activity, we have come to believe that this is all OK.

My sense is that we are about to find out how the “market” works - and some of those folks who were flashing around someone else’s money will end up in deep doo-doo.

The question is - “do we save them from their own stupidity”? Or “do we let the market perform it’s function”?