【Bloomberg】World’s Most Housing-Exposed Economy Faces Ultimate Stress Test

Australia’s A$7.1 trillion ($5.2 trillion) housing market is facing the ultimate stress test -- the first recession in almost three decades -- and passing with flying colors for now.

Economists had predicted property prices would tumble 10% or more as Covid-19 swept Australia; now, they’re scrambling to reverse those forecasts to gains of 5-15% in the next couple of years. Policy makers have switched from worrying about plunging prices to being on guard for excessive exuberance.

A recent Saturday auction at the Sydney suburb of Forest Lodge -- around 2.5 miles from the city center -- captured the bullish mood. About 30 people gathered in front a four bedroom Victorian terrace up for auction. The bidders -- ranging from younger professionals to middle-aged people -- kicked off at A$2.4 million and moved up in increments of A$10,000, then A$5,000, until the hammer came down at A$2.74 million.

It’s a dynamic that’s emerging in other countries as low interest rates fuel asset prices. While the housing strength is good news for the economy’s recovery, to housing bears -- who have been proved wrong time and again for a generation in Australia -- further gains risk fueling the bubble that is destined to pop one day, leaving a trail of bad debts.

READ MORE