Friday, 29 March 2019

Australians Households wealth drops $260b in just three months as debt hits a record 200pc of income

Best Asia real estate editor's comments:

Sometimes I wish my predictions didn't come true, especially the one that I made two years ago that Australian was going to collapse. And the one I made earlier this year that the entire Austalrian economy would be hurt by falling Real estate prices.

Unfortunately this is just the start.

Before it's all over as Baron Rothschild said "the blood will be running the streets" and there may be some buying opportunities then. 

That could be two years now.

If I was an Australian holding any properties in Brisbane, Adelaide, Sydney, and Melbourne I would sell at whatever I can get right now before I lose another 10 to 50%.

I would take that money and relax, or possibly retire in Bali.____________________

By business reporter Stephen Letts

Updated about 8 hours ago
PHOTO: Australians have seen their per capita wealth fall more than $12,000 in the past six months. (ABC News: Patrick Stone)
RELATED STORY: Australians face $700b wealth wipe-out from world's riskiest debt levels: Morgan Stanley
RELATED STORY: Australia just entered recession on a per capita basis
RELATED STORY: Australia to see world's worst 2019 house price fall

If you felt a bit poorer at the end of last year, you're not alone — Australian households dropped a lazy quarter of a trillion dollars in wealth in the three months leading up to New Year's Day.

Key points:
In real terms, Australian households lost $170b on their properties and $140bni n shares in the fourth quarter last year
Household debt as a per centage of household income spiked to a new high of almost 200pc
The "wealth effect" has hit residential property hard with related sectors now starting to shed jobs.

According to Australian Bureau of Statistics data, household wealth fell $257.6 billion in the fourth quarter as the housing and equity markets tanked.

The 2.1 per cent fall in household wealth is the largest since 2011 and follows a 0.1 per cent decline in the previous quarter.

In real terms, taking into account inflation, the news was even glummer, with wealth down more than $310 billion — made of $170 billion in real holding losses on land and dwellings and $140 billion on financial assets.

While eye-watering in size, the losses were not surprising given housing market retreat was accelerating (the fourth quarter house price index dropped 2.4 per cent) and the ASX tumbled around 10 per cent over the quarter.

"Household wealth per capita decreased $10,198.10 to $404,319.80, following a $2,263.70 fall in household wealth in the previous quarter," the ABS said.

"This is the first consecutive decrease in household wealth per capita since the December quarter 2011."
PHOTO: In real terms, Australian household wealth fell by more than $300b in the fourth quarter (Source: ABS)


Household debt hits new high

The worrying news out of the figures is, while household wealth is falling, the household-debt-to-income ratio hit a new record just shy of 200 per cent.

The figures show not only are households less wealthy, but household disposable incomes are falling too. This so-called "wealth effect" is in turn crunching consumer spending and the retail sector.

"Household gross disposable income fell 2.6 per cent to $312.7b from $321.2b in the previous quarter," the ABS said.

"When other changes in real net wealth, commonly known as the wealth effect, is added to household gross disposable income, household gross disposable income adjusted for other changes in real net wealth fell from $182.1b to $15.8b," the ABS calculated.

Big squeeze as spending grows
Consumers are largely responsible for the weaker economic growth figures. But while the economy is still expanding, why are households feeling the pinch?


UBS economist George Tharenou said even though, "Household liabilities fell over the quarter … income growth collapsed even more."

"[This meant] the household debt-to-income ratio lifted to a record high of 199 per cent in Q4."

Mr Tharenou said while levels of net wealth were historically high, at more than $10 trillion, critically the "household wealth effect" is driven by changes, not the level, of wealth.

"This is consistent with an ongoing drag on consumption ahead as spending slows to weak income growth."

Mr Tharenou said he was "calling the end" of the household super leverage cycle", which saw household debt triple since 1994.
Housing jobs falling

Mr Tharenou said other data released by the ABS pointed to weakness in the jobs market, particularly in the housing and construction sector.

Jobs at risk as house prices fall
Job advertisement data indicates the banking royal commission and house price falls may have already curtailed career opportunities in finance, construction and retail.

"ABS job vacancies — a key lead indicator the RBA has been focussed on — slowed further in February to … a 2-year low of 9.9 per cent year-on-year.

"This suggests decent, but slowing, employment growth ahead. Indeed, most lead indicators are already weaker."

Employment by industry showed job losses were accelerating in housing, down more than 4 per cent over the year, the worst downturn since 2012.

Real estate and rental services also fell, as did retail and manufacturing jobs.

"More broadly, 'public-dominated' industries boomed [+4.8 per cent], but 'private-dominated' fell to a cycle low [+1.3 per cent]," Mr Tharenou said.


"After construction employment spiked to a roughly 100-year high 10 per cent share of total jobs, it's just starting to fall now, and will likely continue ahead given house prices slumped the most on record.

"With a per-capita recession already, unemployment is likely to rise."

Although, somewhat strangely, the ABS figures also showed a relatively strong increase in job vacancies within the construction sector.

"Across the industries, the strongest area was construction, where annual growth rose to 11.6 per cent from 8.1 per cent," noted ANZ economist Felicity Emmett.

"This is reassuring, and suggests that weakness in residential construction is being offset by strength in the non-residential construction sector."

_____________________________________
Free Bali & Jakarta Real Estate Seminars - Earn 10% to 20% per yr. - Foreign Ownership Laws Clarified – Properties at 50% off – Limited opportunity to Earn 15% Per Yr. fully secured.
·        


Are you tired of traditional investments such as banks and bonds that only offer 1- 6% per year, which may not keep pace with the real inflation?

Do you want to become rich the way over 60 % of self-made multi-millionaires did?
According to PT. B.A.L.I., one of Bali's leading real estate experts for the past 15 years, who have thousands of satisfied clients, this is the “Second best time to purchase Bali Real Estate this century”.

“Second best time to purchase Bali Real Estate this century”.

They believe that recent changes in real estate laws for foreigners allowing them to obtain control of Bali Real Estate for more than a normal lifetime is creating a huge new demand for Indonesian and Bali Real Estate. Coupled with the fact that Bali Real Estate has just undergone the first correction in modern history with prices down as much as 50 % this has set the stage for *increases of 20 % to 100 % the next three to five years.

Free Bali Real Estate Seminars:
14 Yr Old
PT. Bali Affordable Lifestyles International

Whether you are a buyer, seller, broker, agent, investor, lessor or renter you can benefit from attending one of our Free Real Estate Seminars in Bali in April.

At these seminars PT. B.A.L.I’s Canadian President, a 23 yr. Bali resident who is married to a fully Licenced Indonesian Notaris will review the most recent real estate laws for Indonesians and Foreigners in detail.
Then they will also discuss the Past, Present, and Future of Indonesian Bali Real Estate.
Free Bali Seminar Schedule:
Bali Emerald Villas, Jl. Karangsari, # 5, Sanur, Bali, Indonesia.

(1) Wednesday, April 24 th. 18:30 - 19:45

(2) Saturday, April 25 th. 14:00 - 15:15

Click Here to Sign Up for Free Bali Seminar.

Free Jakarta Seminar Schedule: To Be announced

Free Seminar Topics:
At these seminars you will learn about:

>The Past, Present and Future of Bali and Indonesian real estate.
>Why a recent official clarification of foreign ownership laws allows foreigners to totally control Indonesian properties for up to 80 years.
> How to avoid legal problems and make sure a property is safe.
> How to avoid complicated real estate laws affecting Indonesians married to foreigners.
> Why this is the second-best time to buy this century.
> Where are the best locations to buy for maximum profits?
> What type of properties will offer the best investment potential of *10% to 20 % per year?
> Discover how you can sell your property fast for the highest prices and lowest commissions.
> An opportunity for a free listing on B.A.R.E.
> First Class Beachfront property at almost 50% discount.
> A Quality 5,000 m2 Bali Hotel with 12 bungalows, 3 pools and Restaurant for only $588,000.
> Low-cost properties with Luxury Villas starting as low as $158,888 for a three-bedroom 650 m² 3-bedroom, 4 - bath with private 9 - mtr. Pool in Sanur.
> Ridiculously low-priced ocean view building lots starting as low as $25,000 for 500 m².
> Brand New Bali Luxury Retirement Villas Starting at $228,000.
One time only opportunity to Earn 15% Per Yr. fully secured

Limited Seating: Free Parking.
Seating is very limited for these free seminars so please avoid disappointment and make reservations A.S.A.P. 

Free Bali Seminar Schedule:
Bali Emerald Villas, Jl. Karangsari, # 5, Sanur, Bali, Indonesia.

(1) Wednesday, April 24 th. 18:30 - 19:45

(2) Saturday, April 25 th. 14:00 - 15:15

Click Here to Sign Up for Free Bali Seminar.



Free Jakarta Seminar Schedule: To Be Announced.

You may also make reservations by Email: seminarsptbali@gmail.com or 
Tel: Office: 62-361- 284069 
For Bahasa English 62-8123814014 
For Bahasa Indonesia Call 62-8123632177

·         Location: Bali Emerald Villas, Jl. Karangsari # 5, Sanur, Denpasar Sel., Kota Denpasar, Bali 80228, Tel. (0361) 284069, Whatsapp 08123632177

Thursday, 28 March 2019

Earn 10% to 20% per yr. - Foreign Ownership Laws Clarified – Properties at 50% off – Limited opportunity to Earn 15% Per Yr. fully secured.

Free Bali and Jakarta Seminars
·        

Are you tired of traditional investments such as banks and bonds that only offer 1- 6% per year, which may not keep pace with the real inflation?

Do you want to become rich the way over 60 % of self-made multi-millionaires did?
According to PT. B.A.L.I., one of Bali's leading real estate experts for the past 15 years, who have thousands of satisfied clients, this is the “Second best time to purchase Bali Real Estate this century”.

“Second best time to purchase Bali Real Estate this century”.

They believe that recent changes in real estate laws for foreigners allowing them to obtain control of Bali Real Estate for more than a normal lifetime is creating a huge new demand for Indonesian and Bali Real Estate. Coupled with the fact that Bali Real Estate has just undergone the first correction in modern history with prices down as much as 50 % this has set the stage for *increases of 20 % to 100 % the next three to five years.

Free Bali Real Estate Seminars:
14 Yr Old
PT. Bali Affordable Lifestyles International

Whether you are a buyer, seller, broker, agent, investor, lessor or renter you can benefit from attending one of our Free Real Estate Seminars in Bali in April.

At these seminars PT. B.A.L.I’s Canadian President, a 23 yr. Bali resident who is married to a fully Licenced Indonesian Notaris will review the most recent real estate laws for Indonesians and Foreigners in detail.
Then they will also discuss the Past, Present, and Future of Indonesian Bali Real Estate.
Free Bali & Jakarta Real Estate Seminars - Earn 10% to 20% per yr. - Foreign Ownership Laws Clarified – Properties at 50% off – Limited opportunity to Earn 15% Per Yr. fully secured.
·        


Are you tired of traditional investments such as banks and bonds that only offer 1- 6% per year, which may not keep pace with the real inflation?

Do you want to become rich the way over 60 % of self-made multi-millionaires did?
According to PT. B.A.L.I., one of Bali's leading real estate experts for the past 15 years, who have thousands of satisfied clients, this is the “Second best time to purchase Bali Real Estate this century”.

“Second best time to purchase Bali Real Estate this century”.

They believe that recent changes in real estate laws for foreigners allowing them to obtain control of Bali Real Estate for more than a normal lifetime is creating a huge new demand for Indonesian and Bali Real Estate. Coupled with the fact that Bali Real Estate has just undergone the first correction in modern history with prices down as much as 50 % this has set the stage for *increases of 20 % to 100 % the next three to five years.

Free Bali Real Estate Seminars:
14 Yr Old
PT. Bali Affordable Lifestyles International

Whether you are a buyer, seller, broker, agent, investor, lessor or renter you can benefit from attending one of our Free Real Estate Seminars in Bali in April.

At these seminars PT. B.A.L.I’s Canadian President, a 23 yr. Bali resident who is married to a fully Licenced Indonesian Notaris will review the most recent real estate laws for Indonesians and Foreigners in detail.
Then they will also discuss the Past, Present, and Future of Indonesian Bali Real Estate.
Free Bali Seminar Schedule:
Bali Emerald Villas, Jl. Karangsari, # 5, Sanur, Bali, Indonesia.

(1) Wednesday, April 24 th. 18:30 - 19:45

(2) Saturday, April 25 th. 14:00 - 15:15

Click Here to Sign Up for Free Bali Seminar.

Free Jakarta Seminar Schedule: To Be announced

Free Seminar Topics:
At these seminars you will learn about:

>The Past, Present and Future of Bali and Indonesian real estate.
>Why a recent official clarification of foreign ownership laws allows foreigners to totally control Indonesian properties for up to 80 years.
> How to avoid legal problems and make sure a property is safe.
> How to avoid complicated real estate laws affecting Indonesians married to foreigners.
> Why this is the second-best time to buy this century.
> Where are the best locations to buy for maximum profits?
> What type of properties will offer the best investment potential of *10% to 20 % per year?
> Discover how you can sell your property fast for the highest prices and lowest commissions.
> An opportunity for a free listing on B.A.R.E.
> First Class Beachfront property at almost 50% discount.
> A Quality 5,000 m2 Bali Hotel with 12 bungalows, 3 pools and Restaurant for only $588,000.
> Low-cost properties with Luxury Villas starting as low as $158,888 for a three-bedroom 650 m² 3-bedroom, 4 - bath with private 9 - mtr. Pool in Sanur.
> Ridiculously low-priced ocean view building lots starting as low as $25,000 for 500 m².
> Brand New Bali Luxury Retirement Villas Starting at $228,000.
One time only opportunity to Earn 15% Per Yr. fully secured

Limited Seating: Free Parking.
Seating is very limited for these free seminars so please avoid disappointment and make reservations A.S.A.P. 

Free Bali Seminar Schedule:
Bali Emerald Villas, Jl. Karangsari, # 5, Sanur, Bali, Indonesia.

(1) Wednesday, April 24 th. 18:30 - 19:45

(2) Saturday, April 25 th. 14:00 - 15:15

Click Here to Sign Up for Free Bali Seminar.



Free Jakarta Seminar Schedule: To Be Announced.

You may also make reservations by Email: seminarsptbali@gmail.com or 
Tel: Office: 62-361- 284069 
For Bahasa English 62-8123814014 
For Bahasa Indonesia Call 62-8123632177

·         Location: Bali Emerald Villas, Jl. Karangsari # 5, Sanur, Denpasar Sel., Kota Denpasar, Bali 80228, Tel. (0361) 284069, Whatsapp 08123632177

U.S. Pending Home Sales Fall Unexpectedly in February

Economic Indicators9 hours ago (Mar 28, 2019 10:14AM ET)


© Reuters.

Investing.com - Contracts to buy previously-owned homes fell unexpectedly in February, adding a downbeat note to a real estate market plagued by mixed signals.

The National Association of Realtors said its pending home sales index, which measures signed contracts for homes where transactions have not yet closed, fell 1.0% to a reading of 101.9.

That was compared to a gain of 4.3% in January.

Economists had forecast pending home sales rising 0.1% last month.

NAR chief economist Larry Yun downplayed the reading, saying that the 1% drop after the surge in January was “not a sign of concern”.

"As a whole, these numbers indicate that a cyclical low in sales is in the past, but activity is not matching the frenzied pace of last spring,” he added.

Housing data has been painting a volatile mixed picture in recent months, with housing starts tumbling in February after a surge at the beginning of the year.

Yet sentiment among U.S. homebuilders held steady in March, sustaining a rebound from a three-year low on improvement in sales and a brighter outlook for the next six months, according to a survey by the National Association of Home Builders released last week.

Analysts expect the recent promise from the Federal Reserve to be patient with rate hikes will put a cap on mortgage rates, coupled with a solid labor market and increasing incomes to improve affordability for would-be homebuyers.

"The expectation is no change at all in the current monetary policy, which will help mortgage rates stay at attractive levels," Yun said.

Best Asia Real Estate Editor's Comments:
Editor Lawrence speaking at major investment 
conference in Hong Kong several years ago
There are several indicators recently the American real estate bull market may be coming to an end.

I've been batting virtually 100% on predictions in the American market for decades now.

In 2007 I issued a sell signal recommending everyone to get out of American real estate after I read an article about American housewives having house selling parties instead of Tupperware parties.

I reasoned that if housewives are bringing their friends over to sell them real estate only so they could make a commission the market had topped.

Sure enough in a couple years following my prediction American real estate dropped as much a 70% in places like Las Vegas.

In 2009 I recommended relatives and friends to start buying who lived in America at those depressed prices. They have been very thankful.

Now it has been 10 years of an uptrend and now violates my acid test.

My acid test for real estate any place in the world is quite simple. If I can't buy a three-bedroom home or apartment and rent it out for positive cash flow the end is near.

The current downtrend pending home sales could be a warning that that acid test is failing in America now.

The millennials and under 30 crowds are probably not too concerned if they have a good job.

The 25% of  Americans that are baby boomers are probably living through hell right now trying to figure out how to continue to live in their home that they were born in.

Then you look at the cost of living in America and you wonder how anybody over 60 can live there.

Every problem has a solution:

The solution for 25% of the population that is now entering retirement, commonly known as a baby boomers, is quite simple to move to a location where you can afford to live.


 While you're doing it choose a location that has clean-air clean water low crime and most importantly a low cost of living.



If I was living in America right now, I would certainly be considering moving to Bali which compared to Sydney and Auckland is 60% to 70% less expensive to live.

The bonuses are you have great year-round weather. 

Your children and grandchildren will want to definitely want to visit grandmother and grandfather in Bali which this week was ranked the fifth most sought after destination in the world by TripAdvisor.

For Asians is a number one destination in Asia.

We have already begun to design and implement Bali Luxury Retirement Villas is suited to the baby boomers.  




For only $220,000 they can live in their own private 200 m² 2000 square-foot Two-bedroom large villa with private swimming pool in a great location 15 minutes from large towns and within a short five-minute walk from the beach.

Find out more by click on these links.

Bali Luxury Retirement Villas

Learn more and about the entire Bali real estate market which has already had its first correction in modern history and prices are down as much as 50%.

You're welcome to attend one of my forthcoming free seminars in Bali and Jakarta next month. See details below.


Free Bali & Jakarta Real Estate Seminars - Earn 10% to 20% per yr. - Foreign Ownership Laws Clarified – Properties at 50% off – Limited opportunity to Earn 15% Per Yr. fully secured.
·        


Are you tired of traditional investments such as banks and bonds that only offer 1- 6% per year, which may not keep pace with the real inflation?

Do you want to become rich the way over 60 % of self-made multi-millionaires did?
According to PT. B.A.L.I., one of Bali's leading real estate experts for the past 15 years, who have thousands of satisfied clients, this is the “Second best time to purchase Bali Real Estate this century”.

“Second best time to purchase Bali Real Estate this century”.

They believe that recent changes in real estate laws for foreigners allowing them to obtain control of Bali Real Estate for more than a normal lifetime is creating a huge new demand for Indonesian and Bali Real Estate. Coupled with the fact that Bali Real Estate has just undergone the first correction in modern history with prices down as much as 50 % this has set the stage for *increases of 20 % to 100 % the next three to five years.

Free Bali Real Estate Seminars:
14 Yr Old
PT. Bali Affordable Lifestyles International

Whether you are a buyer, seller, broker, agent, investor, lessor or renter you can benefit from attending one of our Free Real Estate Seminars in Bali in April.

At these seminars PT. B.A.L.I’s Canadian President, a 23 yr. Bali resident who is married to a fully Licenced Indonesian Notaris will review the most recent real estate laws for Indonesians and Foreigners in detail.
Then they will also discuss the Past, Present, and Future of Indonesian Bali Real Estate.
Free Bali Seminar Schedule:
Bali Emerald Villas, Jl. Karangsari, # 5, Sanur, Bali, Indonesia.

(1) Wednesday, April 24 th. 18:30 - 19:45

(2) Saturday, April 25 th. 14:00 - 15:15

Click Here to Sign Up for Free Bali Seminar.

Free Jakarta Seminar Schedule: To Be announced

Free Seminar Topics:
At these seminars you will learn about:

>The Past, Present and Future of Bali and Indonesian real estate.
>Why a recent official clarification of foreign ownership laws allows foreigners to totally control Indonesian properties for up to 80 years.
> How to avoid legal problems and make sure a property is safe.
> How to avoid complicated real estate laws affecting Indonesians married to foreigners.
> Why this is the second-best time to buy this century.
> Where are the best locations to buy for maximum profits?
> What type of properties will offer the best investment potential of *10% to 20 % per year?
> Discover how you can sell your property fast for the highest prices and lowest commissions.
> An opportunity for a free listing on B.A.R.E.
> First Class Beachfront property at almost 50% discount.
> A Quality 5,000 m2 Bali Hotel with 12 bungalows, 3 pools and Restaurant for only $588,000.
> Low-cost properties with Luxury Villas starting as low as $158,888 for a three-bedroom 650 m² 3-bedroom, 4 - bath with private 9 - mtr. Pool in Sanur.
> Ridiculously low-priced ocean view building lots starting as low as $25,000 for 500 m².
> Brand New Bali Luxury Retirement Villas Starting at $228,000.
One time only opportunity to Earn 15% Per Yr. fully secured

Limited Seating: Free Parking.
Seating is very limited for these free seminars so please avoid disappointment and make reservations A.S.A.P. 

Free Bali Seminar Schedule:
Bali Emerald Villas, Jl. Karangsari, # 5, Sanur, Bali, Indonesia.

(1) Wednesday, April 24 th. 18:30 - 19:45

(2) Saturday, April 25 th. 14:00 - 15:15

Click Here to Sign Up for Free Bali Seminar.



Free Jakarta Seminar Schedule: To Be Announced.

You may also make reservations by Email: seminarsptbali@gmail.com or 
Tel: Office: 62-361- 284069 
For Bahasa English 62-8123814014 
For Bahasa Indonesia Call 62-8123632177

·         Location: Bali Emerald Villas, Jl. Karangsari # 5, Sanur, Denpasar Sel., Kota Denpasar, Bali 80228, Tel. (0361) 284069, Whatsapp 08123632177
LOCATION MAP__

Wednesday, 27 March 2019

Will Australian real estate debt ignite a recession?

Best Asia  Real Estate Editor's Comments. 
Below these comments is an interesting article because it confirms what I warned about earlier this year that a rapid fall in Australian real estate prices could cause severe problems for banks and the overall economy of Australia.

Before it's all over it could be the worst economic nightmare n Australia's modern history.

"Worst economic nightmare In Australia's modern history"

Especially when the China trade talks continue to be in limbo thanks to Trump, causing a downturn in Australia's largest export, minerals. 

Before it's all over it will not be pretty as homeowners lose their homes to banks that are failing.

Foreigners, primarily Chinese who bought Australian real estate site unseen in many cases over the last decade will finally throw in the towel when prices are down 20% to 30%. 

They will take on the attitude better to get out with 50% than nothing. 
I saw it happen in Hawaii in 1980 when I issued a sell signal for real estate the Japanese had bought everything in sight 5 to 10 years earlier.
Lawrence issuing a sell signal
for Hawaii real estate In1980
Before was all over the Japanese were selling at 50% to 70% off what they paid for it. 
By the way, nobody believed my prediction then.

It is not going to be pretty.

As I've said many times in the last two years "if you own Australian real estate better to sell now at 1% -5% below the market because before it's all over you could be selling at 50% off today's prices".

It happened in Las Vegas in 2007 after I gave my infamous, radically disliked prediction that American real estate was going to collapse.

Nobody believed me then! The same as nobody believed me two years ago when I made my first predictions on Australian real estate prices collapsing.

And nobody's believing me now that Bali real estate has already started to go back up.

But that's okay. As a Verified contrarian, I've learned over the past 50 years of investing if everybody agrees with you, your probably wrong.

"If everybody agrees with you-you're probably wrong"


Your Money hosts the "property punch-up of the century".
Analysis 26 Mar 2019, 6:06 pm

Jack Derwin Digital Journalist, Your Money

The property market is always a hot topic, but could a crash be on the way, derailing 29 years of continuous growth and creating an Australian recession?

While it might sound like a worst-case scenario, it’s exactly what economist John Adams predicts will transpire.

In a much-hyped debate on Money Talks this week, Adams went head-to-head with Coolabah Capital founder and Australian Financial Review columnist Christopher Joye on that very topic.

Watch: Adams v Joye on Money Talks, Monday 26 March 2019

It came after weeks of sledging over Twitter.


John Adams@adamseconomics


It even drew the attention of News.com.au, which quoted Switzer’s dubbing of the segment the ‘property punch-up of the century’.

Here’s how it went down.
Deadly debt

Adams has been arguing publicly for years that Australia’s high debts levels threaten to destabilize the entire economy and create a domestic recession.

“We had an admission from the Reserve Bank of Australia in 2007 that the amount of credit in the economy at that point was bigger than the 1880s and the 1920s. Why is that significant? Because we had a depression in 1892 and 1931,” Adams explained.

“Today the debt is [even] bigger than 2007,” he added.

Household debt to GDP (Australia)

“This is the biggest level of domestic debt we’ve ever had, both in normal terms and proportional terms as well.”
The real estate recession right hook

So why does that matter and what does it have to do with real estate?

“If we’ve got the biggest debt bubble in the history of this country, where is this debt? The debt is in property,” Adams said.

As house prices have risen around many parts of the country over the last three decades, and markets in Sydney and Melbourne have skyrocketed, buyers have been required to borrow larger amounts of money.

Read: Looking back at the housing boom

Accordingly, household debt growth has outpaced the economy, meaning the amount of debt relative to GDP rose significantly, as shown in the graph above.Adams and Joye sizing up in the Your Money newsroom before the debate

The problem with that debt is when it can’t be paid back.

“If we default on the debt – for example, if households can’t pay their debts and the banks get in trouble – then this could lead to extremely sharp falls in property, from 40 to 80 percent depending if the banks survive,” Adams explained.

In such a scenario, Australians would find their wealth disappearing as the value of their homes and investment properties crash while they still owe the original value of their mortgages.

In order to arrest the crash, Adams believes it would be possible that the RBA, the Australian government and other institutions would intervene, opening up a second worst-case scenario.

“They could stabilize house prices, the falls could be less than the more extreme forecasts but that comes at a cost, and the cost is the Australian dollar,” he explained.

As institutions intervene to save the property market and the banks that hold the weight of Australia’s mortgages, it would sink the Australian dollar as confidence wanes in the country’s ability to pay back foreign debts.

That, in turn, would drive up the cost of our imports, making goods more expensive and hurting the economy further.

“So what I’m saying is that [economic] Armageddon is either a housing crash or a dollar crash but we can’t get out of this problem because the amount of debt in the economy is unparalleled,” he concluded.
The counterpunch

So what’s the issue with Adams’ argument?

Firstly, the economy today isn’t what it was back in the 1930s, when home ownership was at around 30 percent, according to Joye.

Today it’s closer to 70 percent.

“It’s not just about debt. It’s about the serviceability of that debt. It’s about income and interest-rates,” Christopher Joye countered.



That’s because Australian house prices haven’t risen in isolation, according to Joye.

“Aussie household prices over the last forty years can be completely explained by income growth and the huge reduction in mortgage rates,” he explained.

“The average mortgage rate in Australia between 1980 and 1995 was about 12.5 per cent. The average mortgage rate since 1995 has been about 6 per cent,” Joye added.

That has helped more Australians borrow to buy a house, as mortgages became cheaper and their incomes grew, granting them more buying power.

While those looking to get into certain markets have long bemoaned the lack of housing affordability, according to Joye, property overall is actually trading at a discount.

“According to this analysis, if you take the 1980 price and gross it up by incomes and interest rates, it’s actually 3 per cent cheap compared to the theoretical fair value,” he said.

“Mortgage repayments as a share of income are actually quite low.”

That analysis is of course based on the current official interest rate of 1.5 per cent.

If interest rates were to rise, however, and mortgage repayments with them, then that would start to change.

“[For example,] if you think interest rates are going to go to 2.5 per cent, houses are 3 % expensive,” Joye said.

“I don’t think that there’s any compelling case at all that there’s going to be this cataclysmic 40 to 80 percentdrawdown in house prices. Unfortunately for John he’s going to be proven relentlessly wrong like other experts in the past.”
The common ground

While those arguments form the crux of the debate, Adams and Joye did agree on a couple of key points, particularly on Australia’s debt problem.

“I’ve argued that Australian debt levels are excessively high, I’ve argued that consistently but I don’t think we necessarily have a debt bubble,” Joye said.

Importantly, Joye also conceded that if a global recession was to be triggered overseas that that would spell serious concerns for that debt and how Australians would repay it in a crashing economy.

“All bets are off if we go into a global recession, we’ll have a big problem.”
The verdict

Money Talks host Peter Switzer said that, while it was up to viewers to decide who won the debate, for him the winner was clear.

“I think Joye confidently batted off most of John’s points and was a better debater,” Switzer concluded in his post-debate write-up.

“Some might call it a knockout to Chris but I’d make it a points decision by a healthy margin.”

It’s a decision that won’t be shared by everyone.

View image on Twitter



John Adams@adamseconomics


My debating opponent @cjoye claimed last night that a housing bubble only started in 2013!

This graph ends the debate. 28 years has blown the mother of all debt bubbles! The LARGEST in Australian history!

Get Ready! ECONOMIC ARMAGEDDON is coming!
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Watch debate highlights in the above and see the entire episode in full here.

Read more: What is ‘quantitative easing’ and can it help the Aussie economy?
More: Why other people’s unemployment is your problem too
More: Did Australia just enter a recession?

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