Unconventional Economist

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What’s that hissing sound?

In today’s SQM Research weekly newsletter, SQM’s Managing Director, Louis Christopher, provides a sobering assessment of the state of Australia’s housing market. Below are the key extracts, together with some charts and data added for additional context. “The housing market’s downturn is now happening at pace and there is no imminent recovery in sight. These

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Unemployment and house prices

Following on from Popping Bubble’s recent post, Australia’s low level of unemployment is often held-up as a reason why home values won’t fall. According to this argument, home values will remain supported as long as people have jobs and can continue meeting their mortgage repayment obligations. For example, in last year’s infamous CBA investor presentation,

8

Housing credit to remain subdued

A joint report from JPMorgan and Fujitsu Australia predicts that housing credit growth will remain subdued for an extended period: The three-month annualised growth rate [of housing credit] dropped from nine per cent in September 2010 to 6.7 per cent in February 2011 and is unlikely to return to double-digit growth rates seen before the

34

Negative gearing on the nose

Over the past two months, the calls to wind-back negative gearing have grown louder, spearheaded by Fairfax media. In early March, Fairfax’s Michael McNamara wrote a fantastic article arguing to abolish negative gearing. This article was followed up in Fairfax by Saul Eslake, who lambasted Australia’s dysfunctional tax system, especially negative gearing, for the way in which it

19

“Negative equity” hits thousands of WA homeowners

Earlier this month, the Western Australian (WA) Chamber of Commerce noted that the WA economy had fallen into technical recession, experiencing two successive quarters of negative economic growth in the last six months of 2010:  Western Australia is generally regarded as Australia’s economic engine room with its booming resources sector, but its manufacturing and retail sectors are struggling. The WA Chamber

27

Here comes the budget pain

Last week’s article, Hooked on property, provided some detailed facts and figures from RP Data highlighting how Australia’s state and local governments are addicted to property-related taxes, and discussed how these revenues are expected to fall precipitously as housing sales decline and prices stagnate. The article concluded with the following statement: Over the past decade,

46

Looking beyond interest rates

Sam Birmingham runs a top quality networking site for young professionals called WeBe, which provides up-to-date information on financial matters, work-related issues, lifestyle news and reviews, and current affairs and opinion pieces. WeBe also provides a platform where members can have their voices heard, express opinions and share ideas with other like-minded Young Professionals. Yesterday,

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Irish bust video

Max Keiser yesterday posted a video exposé (below) on the damage caused by the bursting of the Irish housing bubble and how the bad debts of the Irish banks have been transferred to Irish taxpayers (h/t Mish and Rota Fortuna). For readers unfamiliar with what happened in Ireland, consider reading my December article, Unluck of the

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NZ considers new tools to combat housing bubbles

Earlier this month, I wrote about two policy actions being undertaken by the Reserve Bank of New Zealand (RBNZ) and the New Zealand Government aimed indirectly at reducing the economy’s exposure to the housing market. These measures included: the Open Bank Resolution (OBR) Policy, which seeks to protect taxpayers from funding future bank bailouts; and

26

Roubini calls time on China (part 2)

Earlier this month, Houses and Holes posted a report from Professor Nouriel Roubini warning that the Chinese economy is overheating and risks a sharp slowdown sometime after 2013. Now Professor Roubini has followed up with an article on Project Syndicate fleshing-out his views in greater detail. Professor Roubini  more or less supports earlier warnings from Michael Pettis and prominent China

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Hooked on property

In January this year, I published the below HIA chart and accused Australia’s governments of being ponzi merchants for attempting to keep the Great Australian Housing Bubble alive by pumping demand and restricting supply in order to preserve government finances. Now RP Data has confirmed my suspicions with a fantastic piece of research entitled Property

18

Moody’s downgrades China’s property sector

Just in, credit rating agency, Moody’s Investor Services, has downgraded China’s property sector to negative from stable, citing both falling property sales and prices [my emphasis]: Hong Kong, April 14, 2011 — In a new report, Moody’s Investors Service changes its outlook for the China property sector to negative from stable. The change reflects the

13

Andy Xie on China

Andy Xie, an independent economist based in Shanghai and the former Morgan Stanley chief Asia-Pacific economist, yesterday published an excellent article in Caixin warning that an inefficient public sector and negative real interest rates are pushing China towards stagflation, instability and a possible financial crisis (h/t interest.co.nz). Xie’s article more or less supports earlier warnings

34

Lessons from the UK housing crash

It’s time for another trip down memory lane. It’s September 2007 and home prices in London have just started to fall, but are still holding up nationally (see below chart). UK households are growing increasingly nervous. After embarking on an almighty borrowing binge over the 2000s, as evident by household debt to disposable incomes rising

12

Tax stats unmask investors

The 2008-09 Australian Taxation Office (ATO) Taxation Statistics were released yesterday (available here), and the data on property investment was very interesting. First, the number of property investors reporting to the ATO fell by 34,000 or 2% from the previous year (see below chart). Second, after rising steadily since 1999-00, the overall value of net

15

SQM Research on the housing finance data

As my fellow MacroBusiness bloggers have already pointed out, Australia’s housing finance data released today by the ABS was bad, real bad. One of Australia’s few truely independent property analysts, the Managing Director of SQM Research, Louis Christopher, offered perhaps the most damning assessment via a series of Tweets: Home loans drop on weak demand

4

Hong Kong’s housing headed for a crash?

This years Demographia International Housing Affordability Survey ranked Hong Kong as the most unaffordable housing market out of the seven countries surveyed, with median home prices a whopping 11.4 times incomes. After falling some 23% over 6 months in the wake of the global financial crisis, Hong Kong’s housing market has been on a tear,

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So much for the Californian housing shortage

Let’s take a trip down memory lane. It’s early 2006 and the median house price in Los Angeles-Orange County, California has hit $582,000. Demographia has just released its latest International Housing Affordability Survey showing that Southern California has the most expensive housing market out of the six nations surveyed. Property speculation is at fever pitched.

21

NZ moves to limit exposure to housing

New Zealand has undertaken two policy actions lately aimed indirectly at reducing the economy’s exposure to the housing market. The first measure, called the Open Bank Resolution (OBR) Policy, has been initiated by the Reserve Bank of New Zealand (RBNZ) and seeks to protect taxpayers from funding future bank bailouts. The OBR is intended to

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Fresh calls for housing stimulus

Yesterday’s Australian Financial Review published an article entitled Capital house prices slide, which provided a sobering assessment of the housing market, particularly in Brisbane, Perth and Melbourne. House prices fell in most capitals in February and analysts expect poor affordability to prevent any real recovery for at least a year… Rp Data senior research analyst

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China’s largest ghost city filled

At last, a good news story on China. Readers might remember that I posted an article in December showing alarming satellite photos of entire cities laying vacant (see China’s empty cities). In that article appeared the below photo of Zhengzhou New District, which was supposedly “China’s biggest ghost city, complete with entire blocks of totally

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Why Australians aren’t spending

Robert Gottliebsen today posted an interesting article on Business Spectator providing an insight into why Australians are cutting back on retail spending: Retailers have been looking closely at what is causing stress among Australians and among Australian consumers… Those in lower income suburbs or in areas where there are many high mortgage/low deposit new houses,

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Saul-ute to a real economist

Saul Eslake is on fire. Earlier this month, Mr Eslake wrote a wonderful article in Fairfax lambasting the first home owners’ grant and other demand-side measures employed in vain by Australia’s governments to make homes more affordable: Governments have thus been providing cash handouts to first-time home buyers for almost half a century. Yet, strikingly,

11

Chinese burn

Like it or not, Australia’s economic fortunes are inextricably linked to the Chinese economy. If China can somehow miraculously sustain growth above 8% and continue its current high level of commodity-intensive fixed asset investment, then the Australian economy will likely meander along whilst the housing market stagnates or slowly deflates over an extended time period.

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Addendum: Covered bonds to the rescue?

Following on from last night’s post on covered bonds, yesterday’s Daily Reckoning contained an interesting discussion on the whole bank funding issue and the potential pitfalls of covered bonds: [Jeremy] Cooper warned about Aussie banks that still rely on wholesale funding in an article in last week’s Financial Review. “Its been fashionable for awhile in this country

14

Covered bonds exposure draft released

The Exposure Draft on Covered Bonds legislation has been released. Key points to note are as follows (courtesy of CBA via email): Proposed maximum issuance cap of 8% of total Authorised Deposit Taking Institution (ADI) assets. Segregation of cover pool assets will be achieved via establishing a special purpose vehicle (SPV). The cover pool will

18

That’s not a first home owner grant!

This is a first home buyer grant. From the UK Telegraph: [A] controversial new mortgage deal is being launched by five local authorities and backed by Lloyds Banking Group, one of the lenders bailed out by the taxpayer during the credit crisis. The scheme is aimed at struggling first-time buyers who are unable to afford the

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Is the first home buyer pool running dry?

Last week, I quoted an Australian Financial Review article explaining how Australia’s banks are lifting maximum loan-to-value ratios (LVRs) and are, in some cases, waving mortgage insurance payments on high LVR loans in an effort to increase mortgage lending: Major banks are pitching special mortgage deals to their customers in an effort to generate business