Eight months ago, this blog warned about Australia’s housing bubble in Australian, Canadian and Chinese Property Bubbles:

Everyone caught up in the frenzy of a bubble is so sure that “this time it’s different”. If their own bubble is different, why does it have everything in common with every other bubble that has ever burst? Such as, in Australia’s case, banks offering housing loans at 92%, 97% or 105% loan to value ratios, which unsurprisingly results in “strong” demand for loans? Or the fact that Australia’s housing stock has been valued at $4 trillion, which is a quarter of the US housing stock valuation pre-crash, even though Australia is twelve times smaller in both population and GDP?

All bubbles have in common three things: first, a speculative detachment from economic reality; second, a pool of greater fools that keeps growing in size with the addition of newcomers; and third, an inevitable self-fulfilling collapse phase once the newcomers start drying up and those inside the bubble start trying to sell to each other in exponentially increasing numbers.

My last September’s post also predicted this third collapse phase without attempting to time it (an almost impossible feat):

The more housing prices are disconnected from reality (price to income, price to rent), the bigger the household debt levels and servicing burden as a fraction of income, and the more brittle household budgets and with them, consumer sentiment, will become. Eventually, the pool of greater fools always runs out. It will not be at all surprising if or when psychological contagion from Chinese to Australian to Canadian home owners and banks causes their property bubbles to burst more or less in domino fashion.

Australia appears to have reached this third and most critical stage where newcomers are drying up. Good luck to Australia’s Banking system, it looks they are going to need it.

Here is a sample of the evidence for the beggining of the collapse phase in Australia:

1. Last year: Australia’s First Greater Fool Bonus:

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?

2. This February: Australian Banks on Unstoppable Path to Insolvency, Bailouts

A presumably disgusted Australian banking insider, going by the online nom de guerre “Deep T.”, analyses publicly available data for the Australian banking system and concludes that a massive financial systemic crisis Down Under is a question of when, not if.

3. A Couple of Weeks Ago: House Prices And The Credit Impulse

Of course, there could always be a change in government policy that entices people back into debt—as the First Home Vendors Boost did in 2008. However, governments might huff and puff to try to keep the house price bubble inflated—as the Victorian Government is doing in its current budget, with its supposed boost to First Home Buyers that in reality is a support scheme for Victorian house prices—but the likelihood of the little piggies rushing back into the straw house of debt is minimal, when Australian mortgage debt is already at levels that dwarf those in the USA. The Australian house price bubble is over.

4. A Few Days Ago: Economic Bust in Australia; Rise In Bad Home Loans; Record Low Property Transactions

THE State Government has confirmed that WA’s declining property market has hit rock bottom, with property activity last month falling to 16-year lows.
“The low April figure came on the back of March which was the worst for 14 years, and January and February which saw the lowest activity for nearly two decades,” he said.

5. Yesterday: Australian Real Estate Bulls Trot Out Every Cliché Known To Man

PROPERTY pundits are labelling it a buyer’s market. Clearance rates are low, the glut of properties for sale shows little sign of abating and prices are now negotiable.

Even the market’s most bullish supporters are bending before signs of softer conditions.

SQM Research group says the number of homes on the market in April doubled compared with the same period a year ago.

And SQM director Louis Christopher says: “Melbourne is now experiencing a massive oversupply of real estate.”

“If this continues into the next quarter, then we are likely to see considerable price falls over and above our existing forecast.”

Looks like it’s all over except for the crying in Australia’s housing and banking sector, and that one more ball is being passed to the IMF / G-20 to juggle.

6. And Today: China’s Real Estate Developers Struggle With Debt; Servicing China’s Total Debt Load is Problematic; Dramatic Slowdown in China Coming

China is going to slow, much more than anyone thinks. The commodity producers and commodity producing countries like Australia and Canada will take a hit. In contrast, the US, Japan, and Europe will benefit from falling oil prices. However global trade in general will slow, as will employment, and corporate profits.

London Addendum

London property prices are the mother of all bubbles, with all- parabolic charts over the last 15 years, defying even a 12% drop in prices in the rest of the UK.

However, timing the eventual ending of the London bubble is complicated by the fact that the pool of greater fools for London property has characteristics which are truly outsized relative to those of every other bubble. Everyone who makes a million or three anywhere on the globe is potentially in on the London property game.

As newly minted millionaires appear in Asia and Latin America, the London bubble could grow much bigger, for a long time. Only a deep and synchronized global downturn could stop this momentum coming mostly from emerging markets as they have now began the process of expanding their middle class.