Russian Roulette with House Prices !

Uncertainty in the financial market saw the prices of houses in Sydney retreat in price a few months ago, and now they have come roaring back.    In the last quarter prices rose by about fifty thousand dollars and once again the gap between home affordability and earnings is widening.

Many people are in financial debt up to their neck because housing has become the money roller-coaster.  They reason that if that pressure becomes unbearable they can simply slap the house back on the market and collect a nice profit because of house price inflation, and that is a truism as long as the bubble doesn't burst.

The sharp object hovering over that housing bubble is global warming.  The ice cap at both poles is melting and sea levels will rise in the lifetime of most of todays children and the first to feel the effect will be the most desirable homes fronting beaches.   We had a taste of that over a year ago when a storm surge undermined beachfront homes at Collaroy.

Now the insurance industry is shining the light on rising premiums, and it is surprising the number of home owners who have quietly dropped insurance cover because the premiums have become unaffordable.   In the distant past insurance in many minds was protection from damage by fire and storm, and against loss from burglary.

In todays reasoning, the value is not the building that sits on the block of land, it is the value of that block of land itself.  If the house burns down, the land will probably bring much the same price as would be asked before the fire.  Many people buy existing homes with the intention of demolition and building the new home of their dreams on the vacated land.

Surprisingly, this house price inflation has lulled the usually sharply aware money market into complacency.   The scientific world has been giving warning of where rising sea levels will invade low lying land and they are still financing the sale of homes that will be under water before the mortgages are finally paid off.   Surprisingly, councils are still permitting building on blocks of land they know will be under water by the end of this century.

Rising sea levels will become very apparent by the middle of this century - and that is just thirty years from now.  There is an expectation that world government will come to its senses and take the action that will stop temperatures topping two degrees, but so far that is all talk and little action.  Governments are afraid that the actions necessary to stop global warming will make then unpopular - and lose office.  Retaining the awesome power of being in government is the stronger incentive.

Unfortunately, it will all become glaringly apparent when we get the next big storm to attacks the coastline and drives water inland to inundate homes and forecast the future.  When the money market withdraws finance from unviable homes reality will finally underpin the housing market.   That will deliver financial catastrophe on those who have made a losing bet on this global warming question  !