Leading economist predicts “insane” Oz property bubble will burst

A US-based economist and founder of an investment research service has told 60 Minutes he’ll probably be betting on an Australian mortgage bubble burst.

Channel Nine reporter Ross Coulthart interviewed Jonathan Tepper from Variant Perception for a segment called Home Groans, which aired on Sunday night.

“The best way to describe the Australian housing market is that it’s insane,” Tepper told Coulthart.

Tepper’s expert opinion of the Australian housing situation is not that dissimilar to The Big Short film, when investors bet on the 2007 global financial crisis and won.

“Everyone is borrowing more money than they should…and a lot of the mortgage brokers tell us that there’s very few checks by the banks,” he said.

Big Four banks NAB and CommBank made public statements to 60 Minutes today amid Tepper’s allegations that banks are not doing background checks on housing applications.

“NAB is absolutely committed to lending responsibly and sustainably to our customers,” wrote the bank. CommBank added that the “vast majority” of customers are meeting home loan repayments as it stands.

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In a social experiment described on the Channel Nine program, Tepping and hedge fund manager John Hempton posed as first home buyers in the Western suburbs of Sydney to test Australia’s property situation. What they found is a huge oversupply of apartments and housing in an overpriced market bound to burst.

"Australia now has the highest level of household debt to GDP in the entire world," John Hempton said in a report released to the Australian Financial Review.

Mozo recommends home buyers use an online rate change calculator to ensure they could comfortably afford to meet mortgage repayments if the banks enforced a rate hike in the future.

For instance, a borrower with a $500,000 principal and interest home loan and a 4.5% interest rate would see their monthly repayments lift by $217 if their lender increased rates by 0.75%.

As Jonathan Tepper said during his interview with 60 Minutes, “You need to ask yourself, can you afford this house?”

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* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate, loan amount and term entered. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

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