My favourite story from the heyday of the U.S. housing bubble was about the hairdresser from Las Vegas who bought seven homes with no-money-down loans that she and her painter husband obviously couldn’t afford.

In Australia, where the bubble is still going strong and lenders who have learnt nothing from the U.S. housing bust are offering loans at 105% of property values, I finally found a candidate poster child story of mass insanity that I was looking for: the National and Regional governments are also in on the housing Ponzi scheme with the First Home Bonus scheme!

As if the 95% – 105% loans weren’t enough, first time buyers in Australia receive a $7,000 grant, a $13,000 bonus and in some regions a $6,500 extra bonus that can add up to more than $26,500, which can easily exceed the deposit required by a bank, if any. All these First Fools have to do is sign on the dotted line for a new house and of course, for a brand new mortgage to go with it!

Here is how the story ended for the hairdresser and her painter husband who bought those seven homes in Las Vegas with no money down:

So the painter and the hairdresser bought the seven houses, taking on a debt of $2.6 million. And the real-estate broker said, “You know, you’ve made a great investment because, based on my calculations about where real estate’s going to go in Las Vegas, within five years you’re going to have home equity of $1.3 million.” Well, you already know how this turns out.

Their monthly debt payment was $5,772. If you take their $60,000, and divide it by 12, you get $5,000; so their payments were more than their gross income between the two of them. So they took on $2.6 million worth of debt, with the hopes that the properties would be worth $4.4 million within a couple of years. That assumption meant that the price of those seven homes had to reach $286 per square foot. Now, I can tell you that those homes in Vegas today are selling for less than $86 a square foot.

So…if “no money down” loans were a symptom of the greatest housing bubble in America’s history, what does a taxpayer-funded cash bribe of $26,500 per freshly minted new mortgage tell us about Australia’s housing bubble?

Spoiler clue below:


…it has as good a chance of a happy end as a game of Jenga on the Titanic…