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Michael Marquette’s “View from the Bridge”: Spending Frenzy, Recession, and Real Estate

by Marquette Turner Luxury Homes

in Special Reports, View From The Bridge

We aren’t in a recession apparently so let’s spend extra money this weekend celebrating! The confusion that I have discussed in my previous articles that people must be feeling is just getting worse. In Australia we require two consecutive quarters of negative growth to declare an official recession, so with the latest figures in positive territory (albeit only just) we are saved from that terrible “R” word.

The fact that the Government spent $12 billion handing out “free cash” to encourage spending is of course beside the point as we have for the time being avoided a recession. The Government borrowed this money so increased public debt but let’s worry about that later – the Federal election is next year which is surely more important than worrying about debt levels in years to come.

By now you have probably detected a decidedly cynical tone and if you have you are 100% right. We have a Government that is spending more than ever before and we will see in time if that is the right or wrong thing to be doing. The debate will continue to rage as to whether they are encouraging people to spend unnecessarily and in doing so increasing consumer or household debt.

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My problem with the current attitude of our Politicians is their desire to return things to how they were. We do not want things to return to how they were because that is why we are in the position we are in right now. I repeat this almost every time I write but the fact is that in the last decade the credit fuelled housing price boom has resulted in household or private sector debt increasing from $700 billion AUD to over $3.5 trillion AUD.

Our population has not increased by a factor of five times, nor have wages and nor has GDP. So why do we want to return to the way things were? Credit card debt has spiraled as financial institutions have handed them out like corn flake packets and now with unemployment teetering we have to consider that people will spend on their credit cards simply to survive – further increasing our debt levels.

Banks are not as willing to lend to business at the moment and seem intent on hitting business hard in terms of high interest rates to subsidize the home loan market. Credit card interest rates are absurdly high, despite the Reserve Bank setting rates at the lowest point in generations. All of this worries me enormously as the fundamentals are not in place to actually fix the root cause of the problem which is to stop spending on credit.

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We have become a nation obsessed by consumerism and living the high life, well beyond our means. The spend now and pay later attitude is coming back to hurt us and in terms of real estate the implications are obvious. We are relying on population growth to fuel housing demand and to stabilize housing prices. Sustainable, affordable housing plans are poor and we run an enormous risk of an increased number of people who are unable to live where the jobs are – in the cities.

With banks lending less to business and making life difficult for entrepreneurs it’s inevitable that unemployment will rise, debt servicing will become all the more difficult and defaults are inevitable.

We live in a wonderful country but if buyers cannot live close to their jobs due to cost, inadequate transport and banks playing the tough lending game we are in trouble. Add horrendously high interest rates on credit cards and housing prices simply have nowhere to go. In saying this we have forgotten to mention inflation and the impact it may have down the track. Add this to an already full pot and the future is looking interesting.

I’m not excited by the news from RP Data that housing prices have stabilized. Statistics do not tell the whole story and a wise friend once told me that his profit had increased by 40% on the previous year and that 98% of all statistics were made up. Statistics can tell all sorts of stories – Make up your own mind.

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Marquette Turner Luxury Homes on MarquetteTurner.com

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