With Sydney house prices rising 39% and Melbourne house prices 22% over the three years to June 2015 the question of whether or not we are in a housing bubble has surfaced on multiple occasions recently.
There are generally two sides to this debate.
In the red corner – those whose incomes/prosperity are tied housing related industries
- e.g. bankers, brokers, builders, real estate agents and of course politicians
- this group won’t call a bubble because it’s not in their best (financial) interests
- while not on the front-line, included in this group are those in secondary industries indirectly tied to housing – like the electronics retailers and hospitality operators, if the market crashes and people lose their jobs then less people go onto to buy lattes and TVs
- don’t be too harsh on these guys, most are just doing their job
And in the blue corner – those whose incomes are NOT tied to housing related industries
- e.g. market analysts, economists and journalists
- this group is becoming increasingly vocal about a bubble because:
- it’s more attention grabbing, so it attracts more readers; and/or
- as Alan Kohler said last week it’s safer to predict disaster than sunshine because you can never be proven wrong… If you predict disaster and it doesn’t happen you can always get away with “it’s just a matter of time”, but if you predict sunshine and disaster strikes you look stupid
- this is probably where the joke comes from that economists have predicted two out of the past nine recessions
I’m interested in examples of exceptions to these generalisations.
If specific people (or groups of people) come to mind please join the conversation and tell me about them.
