Why the bubble will not burst

There has been a lot of hype and talk over a movie recently, called “The Big Short” This movie was based around a few guys “shorting” mortgage backed securities based in the USA. The movie has caused quite a stir with a lot of viewers wondering whether the same thing could happen here in Australia. So I thought I would cover why this will not happen here in Australia. Here are some reasons why it won’t:

Credit Policy.

The Australian banks have a much stricter lending criteria. This means that borrowers who are approved for loans can generally afford to service them and have a reasonable amount of equity in those property invesmtents. In contrast, banks in the USA at the time of the GFC were lending to people who hadn’t provided paperwork and couldn’t service their loan. These were coined the nick name “NINJA” loans. No Income No Job Applicants.

No Recourse Loans.

In the USA they have the something that is very strange to Australians: The Non-Recourse loan. This is when if you default, you are able to hand the keys back to the bank and the bank cannot chase you for any losses. This is unheard of in Australia. If you default in here, the bank will chase you for any excess money and take whatever assets you have. This means that we have much, much fewer defaults in Australia.


Unemployment is Australia is very low. For the property market to drop in value there would need to be significant increases in unemployment across the capital cities.

Land Supply restriction.

While Australia is a huge country, it is made of mainly uninhabitable land. This creates a supply restriction to coastal/ city areas. This differs from the USA where they have vast amounts of habitable land stretching from coast to coast.