Juggling Dynamite

Real estate, the most widely owned and highly leveraged asset class globally, has historically led the deepest economic downturns. Has a housing bubble ever burst without devastating pain across the economy and society? Unfortunately, not. It is far better not to pump real estate bubbles with government incentives and excessive monetary stimulants in the first place.

New Zealand is in a recession, and home values are more than 17 percent lower than the post-COVID peak. In Ireland, a massive house price surge and crash in the 2000s saw house prices in Dublin more than half.

So, does Australia need a crash, and what would that mean for all of us?

Some economists think recessions are needed occasionally to reset the economy. In this episode ABC business editor Michael Janda explains how a shock wave would ripple through the economy if the housing bubble bursts. Here is a direct audio link.

This is happening not just in New Zealand, China and Canada; despite best efforts to extend and pretend, price discovery is also spreading through many US housing markets. See WSJ’s Biden’s Mortgage “Relief” fuels higher housing prices. Reventure’s Nick Gerli reviews the details in the video below.

The US government is currently stopping over 1,000,000 defaulted mortgages from going to foreclosure under the FHA mortgage program. The result is another Subprime Housing Bubble, one that could cause huge declines in home prices around the US if it’s allowed to burst. Access housing data on Reventure App to track inventory and forecasts: www.reventure.app The WSJ just broke a story uncovering how the Biden administration continued to offer mortgage relief to defaulted homeowners well after the pandemic was over. Right now there are over 300,000 seriously delinquent mortgages being blocked from foreclosure by these regulations in 2025. Here is a direct video link.

Despite cooling inflation, a falling interest rate and steady employment numbers, more and more Canadians are missing payments on their loans and mortgages. Andrew Chang explains what’s going on. Here is a direct video link.

Also worthwhile, see Can the US Auto Industry Survive without Canada?

President Donald Trump says he wants every car sold in the United States to be made domestically, a move which experts say would disrupt the entire North American auto sector for years. Andrew Chang explains how interdependent the Canadian and U.S. auto industries are, and the widespread impacts of severing a 70-year partnership.

Well before the rising layoffs and economic disruptions in the first quarter of 2025, the global economy was registering a recessionary rise in unemployment and excess capacity, along with an accelerating decline in world dollar liquidity (WDL).  Hoisington’s Q4 2024 Review and Outlook explains the historical significance of these key indicators. Here’s a taste:

Factories across the world are growing increasingly idle. Global industrial capacity utilization (CAPU) has fallen significantly, and a rising unemployment rate has followed suit, signalling that the available factors of production globally are progressively more redundant. The reason this is relevant is that since 1990, this thirty-four year correlation is consistent with the U.S. experience where data has been available for seven decades. As such, CAPU appears to be the dominant supply-side variable in determining inflation in the United States, China, Japan, U.K. and the EU.

In the United States, CAPU has plummeted to levels lower than at the start of all of the cyclical recessions since 1967.