The real economy is due to structural shifts in non-price credit supply conditions. The global financial crisis (GFC) of 2007–09 demonstrated that shifts in credit conditions are the “elephant in the room” for economies with liberalized financial markets: large, and ignored at one’s peril. We chose Australia as an interesting case study because over the three decades to 2008 it experienced one of the most rapid increases in household balance sheets and house prices in the world. The literature on consumption, house prices, and credit suggests that credit conditions may operate on the real economy through several channels. First, financial liberalization and innovation (FLIB) enhance the ability of all households to smooth housing and non-housing consumption across periods. Second, FLIB relaxes the mortgage down payment constraint on young, first-time home-buying households. Third, FLIB introduces a collateral channel from housing capital gains to real activity. Households with existing housing wealth can extract capital gains for other purposes through mortgage refinancing or home equity withdrawal products.