We still have a housing bubble, but rising debt unexpected – Steve Keen

Bearish economist Steve Keen remains emphatic there is a housing bubble in Australia, but says high debt levels are keeping it from deflating.

Following the release of ABS June house price indices showing a quarterly gain of 0.5% and big revisions to the March figures suggesting no fall, Keen admitted that he had got it wrong on households deleveraging

“…it appears that [house prices rose] because mortgage debt has accelerated. So I guessed wrong” he tweeted on August 1.

Yesterday, Keen adjusted his views on the rate of decline of Australian house prices blogging that Australian house prices declines were now tracking the “slow bleed of Japan, but nowhere near the decline experienced in the USA”.

“By this point—two years after house prices peaked—US prices were down by just over 20%. Instead, Australian prices are down by just over 9%, which is indistinguishable from the Japanese fall of just under 8.9% at the same point in its house price deflation,” Keen blogged.

Then with a heavy dose of irony he went on to note the differences between Australia and the US could be that “There is no Australian house price bubble.”

 But this comment though was preceded by an “irony alert.”

And today he confirmed to Property Observer that he is still very bearish on the housing market.

“I was being ironic: I'm emphatic that there is a debt-driven bubble, and the only reason it hasn't deflated is because debt levels have remained high,” he said.

Keen says this acceleration in debt levels won’t last and he will provide his reasons when he next blogs in the coming weeks – he is currently recovering from knee surgery.

Australian Financial Review columnist Christopher Joye has hit back at Keen's contention that Australian mortgage debt has accelerated in a post on his own blog.