Jensen Huang, CEO of Nvidia, which designs chips used in AI tech and is the world’s first $5 trillion company. Picture: Getty Images
ANALYSIS
Call it deja vu. Call it the financial equivalent of Groundhog Day. Call it what you like, but it’s happening again.
Eighteen years on from the biggest financial disaster since the Great Depression, the global economy seems to be teetering on the edge of a new mess threatening to pull everything down with it.
Only now the threat isn’t reckless mortgage lending in the US. It’s AI. And bubbles.
There is a very real prospect the world’s largest economy, the United States, is being driven by a stock price bubble that could pop in everyone else’s faces.
The risk is palpable. AI has been the engine room of the US economy for some time and problems that start in the halls of New York stock exchanges and banks can and have delivered pain Down Under.
We saw this movie back in 2008. Back then, when the global financial crisis racked America, Australia did take a hit. Some of the effects echoed through our housing market for years.
One has to ask then: if this AI mania does indeed turn out to be a bubble, what happens to the price of Aussie homes?
These things are rarely simple of course, but it may not have the effect you’d think. Financial chaos is never good for economies at large but there could be a potential upside for the housing market.
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Canstar head of research Sally Tindall said the Aussie housing market has been resilient to global shocks. Picture: Tim Hunter
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Ray White chief economist Nerida Conisbee said an AI bubble could actually “support prices” and save homeowners money.
“This is mainly because a big market shock would likely push interest rates lower,” she said. “Cheaper borrowing tends to lift demand, especially in a market already constrained by low supply.”
Ms Conisbee added that there was a key difference between 2008 and now.
“The GFC affected property because it was a credit system disruption … An AI bubble, by contrast, would be more of an equity correction, with the biggest impact felt in tech-related jobs.
“If the economy slowed and the RBA responded by cutting rates, housing could actually see stronger price growth rather than a downturn.”
Canstar head of research Sally Tindall said a similar trend occurred during the economic jitters seen during the Covid pandemic.
“The Australian property market has proven to be incredibly resilient over the decades – even Teflon-like at times – recording price hikes in some pretty unlikely circumstances, including mid-way through a global pandemic,” Ms Tindall said.
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“Magnificent 7” tech firms Tesla, Meta, Apple, Alphabet, Amazon, Nvidia and Microsoft have been driving economic growth in the US. Picture: Getty Images
Meta CEO Mark Zuckerberg has also invested heavily in AI tech. Picture: Getty Images
“(Prices) are underpinned by the fact that people need somewhere to live. While demand outweighs supply, prices are likely to remain elevated.”
Both analysts agreed that employment would be the most important predictor of how the Australian housing market responded.
“Any disruptions that result in mass job losses could well rattle the property market,” Ms Tindall said.
“Australians have proven they can still pay the mortgage at higher rates, but paying the mortgage without a job is an entirely different equation.”
Ms Conisbee said: “If unemployment rises enough, it could lead to an impact on house prices. But not sure how high it would need to get to offset the cut in rates taking place as unemployment rises.”
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House prices aside, if the AI bubble were to burst, the consequences could flow through more to psychology.
Housing markets, more than most economic ecosystems, thrive on belief. The belief that next year will be better, that interest rates will eventually retreat, that scarcity will outpace supply. A sharp correction in US equities, particularly one wrapped in the narrative of technological overreach, would jar that belief.
The story, “The AI boom wasn’t real after all”, would become shorthand for broader fragility. And a nervous consumer is a conservative one: discretionary spending slows, and homebuyers retreat to the sidelines.
But would it look like 2008? Probably not.
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