Backyard Aquaponics
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Australia's housing situation is completely incomparable to the USA or UK we have a drastic shortage of housing that is currently growing at about 40,000 shortfall per year. Prices may stagnate or fall a little but there will not be a total collapse as seen in the USA.
China will be stronger for longer than most believe, they are just beginning to transition to a self consumption base. Growth in exports will fall however internal use will keep demand running for minerals. One problem will be the strong possibility of worldwide rapid inflation as wages in China start rising rapidly. If this is not offset by transferring labour production outside of China.

Sustainable house prices = 3x average annual income of a given area.
From what I gather, prices in Australia are 6x average annual income so the prices will fall by 50%. It's simply a matter of time.
It does not matter how drastic the shortage is if no one can afford it. If you get a mortgage for more than your income will support you will default. If you did not put 20% down in cash then the bank will lose money.

There is zero possibility of worldwide rapid inflation! We are in a worldwide deflationary environment. This will continue until the excess credit in the system is paid off or defaulted upon.

What would drive higher wages in China when their customers are purchasing less?

China’s long march to high wages
http://business.timesonline.co.uk/tol/b ... 149002.ece

60% pay rise for gadget factory workers to curb suicides
http://www.smh.com.au/technology/techno ... -xnza.html

Wages Up in China as Young Workers Grow Scarce
http://www.nytimes.com/2007/08/29/busin ... labor.html

Big wage rises for workers fan the winds of change in China and far beyond
http://www.brisbanetimes.com.au/busines ... -xqw2.html

There is more but I think that makes the point.

How does one determine sustainable? Isn't it also dependent on supply and demand?
In Australia you are still liable for the remaining debt you can't just walk away. Also the government has already shown a willingness to allow foreign buyers to invest and hold the property values. As I said over time there maybe an adjustment in the relative value to income but don't expect it soon.

Australia currently has very low default rates on housing loans (about 27,000 in 90 day default) high for us but still low overall.

Compared to USA we also have a lot of room to lower interest rates so if incomes do suffer and unemployment rises the Reserve can ease the interest rate pressure. However if inflation does occur the Reserve maybe stuck, I by the way don't think it extremely likely that inflation will occur India and other countries will hopefully offset the impact of rising incomes in China.

China is in the same position that US was during the last depression. They are the world's largest creditor. Massive population shift from rural to urban. Terrible working conditions giving rise to unions.

Those conditions didn't result in wage inflation in the US until the depression had run its course.
(BTW, the NYT article predates the GFC by a full year!)

Demand doesn't matter if the product isn't affordable. A hair dresser can demand a $600,00 house (and was able to get a mortgage for it at the height of the bubble) but she still can't afford it.

Sustainability is determined exactly as I said "Sustainable house prices = 3x average annual income of a given area."
Banks have successfully used this and a few other formulas for at least 100 years. Every single time this formula has been disregarded, a housing bubble was blown then popped.

From Karl Denniger:
Had we enforced 10% down payment minimums and a 36% back end ratio, along with qualification on terms no more "hinky" than a 30 year fixed-rate note as a matter of Federal Law in 2000 there would have never been a housing bubble in the first place.

If the average household income in an region is $100,000, then the maximum total debt load of said household would not be able to exceed $36,000 annually. This would cap housing expense around $28,000 a year for most people if they decided to finance a single car and have a small credit card balance. If we assume hazard insurance and property taxes run $5,000 annually (probably reasonable for most of the nation) this results in $23,000 available for mortgage payments, capping the average home price in that region at $321,282.

Now apply this to regions where average household income is about $100,000 and tell me what you think of the sustainability of our housing market at today's prices - but more importantly, look at history.

OK 2 more points then I'll let it go (I think).

1. Our default rates were very low too... till they weren't.

2. Lowering interest rates can't help (or it would have in the US). Everyone who needs money has too much debt already. You can't cure too much debt by borrowing more money.

I've been telling my friends for ages our house prices are way over priced but of course no one likes to listen. My house cost 110,000 10 years ago when I was earning 50 grand a year. Now the median house price is 449,000 in my suburb and going up. I can't think of anything else that has gone up 400% in the last 10 years...

Oh hang on.... Iron ore has gone up about 500% in the same period......

Hows that for a segway back on topic...?

segways have gone up 500% too since the military started using them as moving targets for sniper practice

hows that for a derail ?

Want a bet... there's been a decade of underlying inflation due to "globalisation"... and more particularly the role of banks in "managing/financing" global credit and stock trading....

While the virtual value of derivitives... and subsequent reality might have lead to the GFC...

The ultimate, and underlying cause has yet to be addressed... the inbuilt inflation related to skimming of virtual transactions.... and market and currency manipulations....

They ARE inflationary... and ultimately someone has to pay... and you can bet your life in wont be the parasitic pirates of the banking sector...

No... just as unfolding in Greece and Europe... it will be the average person.. who suffers the next decade of cuts to services, wages, jobs, superannuation, civil liberties etc...

And ultimately... IMO... to no avail....

For Greece... and possibly other European countries... will default of their debt... and in the interim... both internally, and with the contribution of other EU countries.... print money to try and prop things up...

As in fact has the US Federal Reserve.... the US is more than technically insolvent and bankrupt... by any definition...

You watch the "rapid rise in inflation" as the inevitable consequences of failure of global banking/financing... and supposedly... "free trade" & "free markets"...

But IMO... the ultimate aim of "glabalisation" in the vision of the banking sector... was complete control and dictatorship of ALL economies worldwide anyway...

And that will involve bloodshed and subjucation of democracy, civil and human rights...

I tried to explain to many people what had to happen to housing 3 years ago. The best story was about a guy who escaped from jail and when they caught him a few weeks later he had bought 2 houses - no money down!

When that story failed to impress people the the greater fool theory was running its course I showed them this:

Hope you can read it - had to make it smaller.

Yes, it's a bit different Down Under but the result will be the same.

Rupert, your soooo close. They WERE inflationary (and ultimately no one will be able to pay)! The housing boom exploded the monetary supply worldwide. $600,000 mortgages were loaned into existence for houses worth $100,000. Those mortgages were bundled into bonds which were had derivatives made to protect incase of loss. Then derivatives for the derivatives (CDOs squared!). Each layer expanded the monetary supply.

Now it's all happening in reverse. Each dollar in existence has multiple claims on it. When the hairdresser defaults on the $600,000 mg, the bank will eventually eat at least half that loan. Then the price of the bonds based on the mortgage falls because it doesn't have the cash flow to make the payment. Then the derivatives kick in. The guy who sold the protection never had to prove he could pay! And now he can't (AIG). And so on.

That's true enough about the US housing market.. things are different here in OZ... still over-inflated, but for different reasons... and not sold/bound by the stupidity of "derivitives"...

But the fundamental problem still exists CJ.... skimming money/fees/rates/profits... of financial transactions, especially "virtual" transactions"... IS INFLATIONARY...

Heck... you can't even argue that the banking sector has a base "productive value"... in real terms...

The gold/silver standard was abolished under Reagan... any "value" the banks have, and/or lend against... is now essentially either "virtual", marginal... or completely non-existant...

Somebody/labour... has to back the value of the system... and currently has doesn't have that backing...

Therefore... it is essentially creating/printing money... OK, call it debt or credit... it's the same in the end...

It's a classic definition of inflation....

How we went from Super profits tax to housing prices is a mystery but... here's my two cents on the housing market.

The lending practises in Australia is different to that of the US... with two major differences that made the Australian housing market more resilent than that of the US...

1) There are stringent lending guidelines to determine that you are able to make your repayments... the loc doc loans in Australia were the closest to the US lending practices... and the loc doc loan only make up 5 or 10% (cannot remember which) of the lending market, hence 90% (or the remaining) is made up of full doc loans.. people who has been deemed via the stringent lending guidelines that they are able to make repayments...

2) If you default on a loan in the US, the bank can only sell the house and whatever they get back from the sale, the balance they would have to absorb as loses... In short, the mortgage is secured against only that property... As far as I am aware, you can walk away without further commitments...

In Australia, if you default on the loan, the bank can sell your house and by law come after you for the difference, and you will have to sell other assets to repay the balance...

Yes, the credit bubble WAS INFLATIONARY. The bubble is deflating so it is now DEFLATIONARY. All we need to do is wait a given amount of time to see who is correct! I think in 1, 2, 3 years out the following assets will be worth less do to deflationary forces:
Stock markets;
Housing prices;
Wages;
Commodities (gold & oil being something of wildcards)

Unlike say, global warming, it should be very clear who is correct in a fairly short period of time. Cash is king during deflation but I have no idea how the Australian dollar will be compared to other currencies.

Also, banking is a parasitic activity which is OK until it starts to represent too big a chunk of GDP. And it was Nixon who took us off the gold standard. Reagan was the one who said "deficits don't matter."