Canary in the Coalmine? 

“Severe Collapse” of Home Prices Might Trigger a “Financial-Institution Crisis” in Australia: OECD Frets about the Banks

Australia’s household indebtedness, mostly tied to mortgages, and mostly owed to the above big four banks, reached 200% of net household disposable income, the highest ratio in the world. Even Canadian households can’t keep up with that. And US households, after the Financial Crisis, just fell off the mortgage wagon:

Australia debt to income 200%

And this housing downturn is happening even as Australia’s central bank (RBA) has kept interest rates at a record low 1.5%, which stimulated the housing market until it didn’t. 

So “a start to policy-rate normalization is now firmly on the horizon.” And “Though there are risks” to this “gradual tightening” envisioned by the OECD, “it could potentially bring welcome unwinding of the tensions and imbalances that have accumulated from the low-interest environment, notably housing-related issues.” 

Which should have been done years ago before “the tensions and imbalances” got so big that they threaten to trigger the next financial crisis.

DYI:  Why report on Australia’s woes??  Remember just prior to the 2008-2009 down turn when Iceland’s banks collapsed [Sept. 2008]??  Most folks just scratched their heads not realizing that was the kick off to a massive world wide economic recession/depression [depending on country] only a few months later.  Will Australia be the canary in the coal mine?  I don’t know.  What I do know the U.S. and many other countries have severe economic imbalances and the beginning has to start somewhere.  If it is Australia; so be it.

Till Next Time   

DYI