“I was hopelessly wrong on house prices. Ask me how.” It’s about time I answered that question, isn’t it?
In a nutshell, I got the cause of the Aussie House Price Bubble right, but the direction of the cause wrong. The fundamental determinant of house prices is mortgage debt. I thought that — as had happened in Japan after its bubble economy burst — the Australian economy would start to de-lever after the GFC, and that this process would take house prices down with it. This is what happened in the USA and most of the First World. READ More: