One chart to rule them all (updated)

After this blog’s recent Housing Velocity post, in which a comparison was made between total housing turnover and population growth, reader Torchwood1979 made the eminently sensible suggestion that we strip dwelling commencements from the figures and see what happens.

Well, here it is: Established dwelling sales from 1991 to 2009 in major Australian states. One chart to rule them all.

This blog cannot find a single good thing to say about it.

First, it is surely conclusive proof (if any were needed) that Australia has been in the throws of a raging housing bubble since the mid-nineties. Over the period of this chart, national population grew 24%, far from enough to justify a doubling in national housing velocity. Sure, high commodity income helped in the last six years, but without increased productive capacity in the economy that is nothing more than an one-off inheritance. Sure, we’ve got greater labour mobility, but not that much.

There is no reason to explain this sustained rise other than an accelerated trade in houses just because they were going up.

When we overlay the crucial economic moments is also becomes clear just how many fortunate updrafts have kept this dirigible in the air. Not least amongst the thermals is policy interference, which gives us some notion of why nobody in power can bring themselves to acknowledge the ominous shape hanging overhead.

There is also the incredibly good fortune of the commodities boom pumping more gas into the crashing balloon.

How many more lives does this flaming Hindenberg have?

N.B. All data is APM and ABS.

After another eminently sensible suggestion, this time from reader “The Lorax”, find below a graph presenting the percentage of housing turning over versus the overall occupied housing stock. Stock grew 27% in the states over the period and, despite that, turnover still leapt.

Will aim to get state by state charts done but, bugger ya, that’s enough Excel for now.

David Llewellyn-Smith

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.

He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

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  1. What about established dwelling transfers as a percentage of total dwellings? In a sane market this would be pretty stable I imagine.

    Oh and national chart as well as individual state charts please.

    P.S. I recall you saying in THE DISTILLERY some months ago that you believed the current commodities cycle has peaked. Do you still believe that in the light of QE2 and China alternating madly between accelerator and brake?

  2. David Llewellyn-Smith

    Damn your long memory, Lorax!

    My view of the commodities boom (which is iron and coal, really) is this:
    – supply is coming on stream fast
    – the huge business investment in Australia currently is a symptom of that and is being matched around the world
    – QE2 gives more life to the boom in that it adds a monetary premium to prices of hard assets
    – QE2 also provides support to equity prices, which may help US consumption a little, but it is temporary
    – therefore, I see commodity supply/demand fundamentals eroding, even as they are lent monetary support
    – this divergence may not show up fully in prices until we hit another shock
    – but as time goes on commodities can only fall, and even with higher volumes coming through from today's investment, Australia increasingly struggling to fund its CAD

  3. And what about China's role in Resources Boom 2.0? Do you see China revaluing the Yuan, becoming less export dependent and pumping even more money into investment as Pettis suggests?

    I mean, one wonders if you can run an economy on investment alone, but it seems like China is going to try, and the RBA board obviously thinks its a goer.

  4. David Llewellyn-Smith

    That's a really good question.

    People I respect think they can avoid the Pettis trap because labour shortages will drive wage growth, consumption and steady yuan appreciation to control inflation.

    The Pettis scenario is for an over-swift revaluation, in which they have to cut rates to offset job losses.

    If that happens, then I would have to consider a post Plaza Accord Japan style blowoff a possibility. And that would mean commodities have further to run.

    With a really terrible accident at the end of it, especially for us…

    But I don't know. The Chinese are very good at flipping the bird.

  5. The percentage turnover chart isn't near as compelling you'd have to admit. Don't let Chris Joye see that!

    My view is the Aussie housing market it pretty indestructible while China keeps throwing money at us.

  6. Isn't "a terrible accident" inevitable if we become a resources-only economy? Whatever the future holds its safe to assume that at some point commodity prices will tank slashing our export income.

    Isn't anyone at the RBA, Treasury or government alarmed at the vanishing diversification of the Australian economy, especially the export sector? Manufacturing, tourism and education are taking a terrible hit ATM, and last time I looked, these sectors employed a lot more people than mining.

  7. David Llewellyn-Smith

    To Lorax,

    Yes, no and yes. Sadly. I'm going to post on all of these subjects.

    To Carbon,

    Point taken. But I see the bubble as chronic rather than acute, if that's not a contradiction in terms. And yes, I agree with you, the housing accident comes with the commodity accident