Australian property is one the widest and deepest asset bubbles in the history of capitalism. Any objective assessment of this “market” can lead to no other conclusion.
With a long history of commitment to home ownership, Australians have always been prepared to structure their finances around property. This showed up in a total dwelling stock to GDP ratio that persisted around a very high 150% from 1960 to 1990. In the late 1990s that shot up to 200% and then embarked on near ceaseless climb to 360% today.
There are many other guides to the extreme overvaluation of Australian property. The ratio of household debt (overwhelmingly mortgages) to disposable income is the highest in the world at 186%. Median price to income multiples are anything from 12x in Sydney, to 10x in Melbourne, down to still immensely unaffordable 6x in smaller capitals, up from 3-4x times in all over the long run for all. The extent of overvaluation is plain.
What makes the Australian property bubble unique is the degree to which it has warped the nation’s political economy. Once a diverse and vibrant resources and manufacturing economy, over the twenty years that the Australian housing bubble grew that shape changed completely. An huge proportion of the debt underpinning Australian property is borrowed from offshore, almost $1 trillion, mostly by its big four major banks. This perpetually inflated the local currency, as well as input costs like land prices, which dramatically diminished Australian competitiveness and drove tradable sectors like manufacturing offshore. From 14% of output in the 1970s, manufacturing hit 5% of output in 2016, the lowest in the OECD.
Moreover, the centrality of Australia property to the wealth of the national polity increasingly distorted policy and even elections. In the 2008 global financial crisis, the then Labor government bailed out the the big four banks with guarantees to their offshore loans, rewriting the entire rule book for Australia’s financial architecture in one panicked afternoon. Public subsidies poured into demand-side stimulus, as well as RMBS markets. Any notion that Australian property was a “market” evaporated. Australian property was, and remains, a kind of asset quango, a public/private partnership in support of the retirement plans of its pre-dominant Baby Boomer generation.
MacroBusiness cover all elements of Australian property daily.
These guarantees exist to this day and reached their peak distortion to the political economy in 2016 when the ruling Liberal/National Party Coalition government fought and won an election in the singular defense of “negative gearing”, the principal tax policy most responsible for investor’s favouring property over other asset classes.
Contemporary Australia does not just have a property bubble, it has morphed into Propertocracy in which the primacy of house prices determines who leads the country, what policies are chosen and which generations prosper.
Over recent years we’ve read countless media propaganda about how so-called “tiny homes” are a genuine solution to Australia’s chronically poor housing affordability. These tiny homes – effectively caravans re-branded – are typically marketed as being sustainable, stylish and liveable, often with catchy phrases like “going smaller actually means living larger”. The global coronavirus outbreak
LaTrobe Financial has optimistically tipped a “strong and sharp rebound” for the Australian housing market once the coronavirus outbreak passes: Amid the doom and gloom over coronavirus, LaTrobe Financial says it expects the housing market to surge following a temporary slowdown. In a message to investors, LaTrobe Financial senior vice-president and chief investment officer Chris
The Reserve Bank of Australia (RBA) has released its private sector credit aggregates data for the month of February 2020: A chart showing the long-run breakdown in the components is provided below showing broad-based weakness: In particular, the flow of personal credit fell 5.3% year-on-year. A long-run breakdown of owner-occupied credit (0.39% MoM; 1.32% QoQ;
CoreLogic’s dwelling price results have for March were released over the weekend, which revealed another 0.7% increase in values over the month at the 5-city level, driven by strong growth in Sydney (1.1%): It was the ninth consecutive monthly acceleration in home values at the 5-city level: Over the March quarter, dwelling values rose by
Prime Minister Scott Morrison says the states and territories will impose a six-month moratorium on renters being evicted on account of financial distress resulting from the coronavirus pandemic. He says landlords need to work with their tenants and banks to come up with agreements that are of benefit to all parties. The moratorium proposal is
We’ve already seen it in Italy, now the UK, via The Tele: Intensive care for coronavirus patients is now being limited to those “reasonably certain” to survive, a major NHS London trust has conceded. A department head at Imperial College Healthcare revealed on Sunday that fewer and fewer marginal patients are being selected for ventilator treatment because so
The ban on traditional auctions, and the shift to online, has sent the clearance rate plunging to levels not seen since 2018 and early 2019. According to CoreLogic, the preliminary national auction clearance rate plummeted to only 51.4% from 61.3% last weekend and only a smidgen above the 50.9% final clearance rate recorded in the
From the heart of the swarm: The Real Estate Institute of Australia has already publicly stated that it understands how tenants are feeling at this time and that it has a responsibility and duty of care to look after, not only their interests, but that of the property owners and those managing and maintaining the
Via the AFR: Finance Minister Mathias Cormann has flagged that commercial and residential landlords will have to wear some of the “pain” by granting rent relief due to the coronavirus economic downturn, as governments prepare to lead by example and waive rent for business tenants. Ahead of a national cabinet meeting of federal and state
ABC’s The Business last night ran a segment on how the coronavirus pandemic is likely to hammer Australia’s housing market, causing sharp falls in prices, rents and transaction volumes. The segment features real estate agents, landlords, AMP’s Shane Oliver and CoreLogic’s Tim Lawless, and claims that dwelling vales could fall by as much as 20%.
From an MB reader who has pre-approval for an Athena home loan: We are really sorry, but a lot has changed over the last few days. Given the market turmoil, we’ve had to make a few changes to ensure that we are considering all the uncertainty that could come from the current down turn. Given
Bloomberg has speculated that widespread defaults on rental payments by tenants of property owners could ignite a mortgage crisis in the United States: As the days go by in an unprecedented shutdown of the U.S. economy to slow the coronavirus outbreak, any amount of rent looks increasingly difficult to cover for a wide swath of
In the week ended 26 March 2020, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, rose another 0.13%: The rise in values was broad-based, with every major capital increasing in value: So far in March, dwelling values have risen by 0.72%, with all major capitals rising: Quarterly dwelling
Via GMA: “Strong balance sheet”…and hilarity ensues. Last time I looked it was leveraged 307x capital to insurance in force. I predict that within six months this business will be the hands of the government and be channeling fantastic quantities of your taxpayer dollars into backdoor bailouts for the banks making good on insolvent premiums.
Some wisdom today from the Brickworks CEO: Lindsay Partridge said preventing a big blowout in the jobless rate well beyond 10 per cent was crucial to housing and construction for the later part of 2020 and beyond. But it was the jobless rate that could bring much harder times for the economy and a deeper
Earlier this week, CoreLogic released its preliminary auction clearance rates, which revealed the following results: Today, CoreLogic has released its final auction results, which reported a 4.4% decline in the final national auction clearance rate to 56.9% – still above the same weekend last year (50.9%): As you can see, Sydney’s final auction clearance rate
It’s been a ceaseless gusher of drivel since the crisis started. Early last month, The Kouk blasted the decision to implement a travel ban on China: The Kouk then called for the travel ban to be lifted: He also played down the economic impacts: Then, The Kouk slammed into reverse gear, warning of widespread
More amusing stuff from S&P: A contracting economy in the short term, rising unemployment, and depressed consumer and business sentiment in the wake of the COVID-19 outbreak have increased the downside risks for property prices and consequently the financial system in Australia, S&P Global Ratings said today. We consider that the closure of real estate auctions as
Only a fortnight ago, CoreLogic published the below chart showing that Australian property sales had bounced back from the “worst ever” collapse, with capital city sales running 9.1% above last years levels, driven by a massive increase in Sydney (+20.7%): Now, with Australia heading into lock down, Australians facing mass unemployment, and auctions and open
After experiencing an unprecedented boom in high-rise apartment construction over the past decade: And with flammable cladding and structural faults proliferating, the State Government in January finally took action by giving the NSW Building Commissioner the power to block dodgy developers from building high-rise: Designed to prevent repeats of the Opal and Mascot Towers crises,
You can’t afford to wait!!! Via RealEstate.com.au: Panicked buyers who recently sold their homes and “have nowhere to live” are scouring the market, while vendors are being advised to consider private offers. Barry Plant Doncaster East director Mark Di Giulio was about to end the auction when a final bid added $20,000 to see the
Shane Oliver of AMP Capital has forecast that the coronavirus pandemic and measures to contain it will see Australia’s unemployment rate surge from 5.1% currently to around 10%. He adds that this could result in capital city house prices falling by about 5% at best and 20% or more in a worst-case scenario: Auction clearance
According to Realestate.com.au, Australia’s first home buyers (FHBs) are unperturbed by the coronavirus outbreak and continue to pile into the property market, fueled by federal government subsidies and record low mortgage rates: Realestate.com.au data revealed activity from first homebuyers – which hit a 10-year peak in December – remained high in the recent month despite
For a crashing auction clearance rate to equal panic buying, just go to the AFR: “Panic buying is happening. A bit like toilet paper it feels,” said Cate Bakos, buyer’s agent with Cate Bakos Property. “I had four auctions scheduled this Saturday and five next Saturday. Now I only have one on Saturday and one
The preliminary auction clearance rate plunged over the weekend, presumably because of fears surrounding the coronavirus. At the national level, the preliminary rate was 61.3%, well down from 70.6% last weekend, but still significantly above the 50.9% recorded in the same weekend last year: Sydney’s preliminary clearance rate was 64.4%, well below the 74.6% last
When it comes to property media, the propagandists at “Bricks and Mortar Media” take the chutzpah cake: Federal Government moves to close Australia’s borders while calling for the return of overseas Aussies will help protect Sydney’s property hotspots from the COVID-19 downturn, according to Nick Viner, director of buyer’s agency Buyer’s Domain. Mr Viner said
The AFR says 20% falls in the offing: Dr Oliver said his base case was for an increase in unemployment to 7.5 per cent that would prompt a 5 per cent decline in property prices before a bounce back. But it could be worse, he warned. “A sharp rise in unemployment to say 10 per
In the week ended 19 March 2020, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, rose another 0.21%: The rise in values was broad-based, with every major capital increasing in value: Quarterly dwelling values continue to rise strongly, driven by Sydney and Melbourne, where prices are still rocketing:
Earlier this week, CoreLogic released its preliminary auction clearance rates, which revealed the following results: Today, CoreLogic has released its final auction results, which reported a 5.3% decline in the final national auction clearance rate to 65.3% – still well above the same weekend last year (51.4%): As you can see, Sydney’s final auction clearance
Via CoreLogic: There are 2,422 capital city homes set to be auctioned this week, up from the 2,274 auctions held last week. Over the same week one year ago, volumes were lower (1,667). Both Melbourne and Sydney are set to see an increase in the number of homes taken to auction week-on-week, with Melbourne set
