Eye2theLongRun

This is the classic case of illusory wealth. ‘Level and trajectory’ of house prices creating risks for recent buyers – Reserve Bank Financial Stability Report (msn.com)

In the article there are two statements:

1. Household wealth has grown by 27% so people have plenty of wealth and ability to withstand shocks. They then say more than half of this is through growth in home values – housing. That’s the RB
2. Then Core logic say much the same. People have plenty of scope because their property has risen in value and they are wealthy.

NONE of that is liquid. It is not cash. It depends on

• The housing market staying up there
• Strong liquidity in housing markets
• Willingness of credit providers to take illiquid houses to secure the credit card

BUT

• You cant sell “bits” of houses
• A house takes six (6) weeks to settle…. No money for 6 weeks
• When liquidity drops vendors fix that by selling for less and prices go down
• So attempts to “drive liquidity into the market” reduce prices

The problem then is that lending is secured against illiquid assets which cannot be readily crystallised into cash in a timely fashion.

Property increases may produce a number of things. Immediately Realisable (liquid) Cash is not one of them.