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.
By Leith van Onselen The ABS has today released its property price index – incorporating both detached houses and units – which registered a 1.9% rise in home values nationally over the June quarter and a 10.2% gain over the year, exactly the same as the 10.2% annual growth initially reported in the year to
Via Moody’s: The proportion of Australian residential mortgages that were more than 30 days in arrears (30+ delinquency rate) increased to 1.62% in May 2017, the highest rate in five years. Higher delinquencies raise the risk of mortgage defaults and are therefore credit negative for Australian residential mortgage-backed securities (RMBS). Mortgage delinquencies increased to record
SQM Research has released its rental vacancy series for July, which revealed a 0.1% fall in the national vacancy rate over the month as well as a 0.1% decline over the year: As shown above, rental vacancies fell or were flat rose across all capitals in August. Over the year, decreases in vacancies were recorded
Via Reuters: China will strengthen its supervision of overseas investment risks and capital flows from insurance funds, the insurance regulator said on Monday, adding that it will urge companies to improve their risk monitoring systems. China has cracked down this year on “irrational” overseas investment which it suspected was one way of disguising capital flight
Courtesy of Craig James: Sales of new luxury passenger cars and sports utility vehicles (SUVs) stood at 103,231 in the year to August, down 1.8 per cent from the annual total of a year ago.
Or so Domainfax tells you: Fairfax Media is ramping up plans for its spin-off of property classifieds and services group Domain, preparing to unleash management led by Antony ‘The Cat’ Catalano on prospective investors. Street Talk understands fund managers have been booked for meetings in New Zealand, Singapore, Hong Kong, London, New York, Boston and Australia, with the globetrotting roadshow
Via NZ: It was a rough night for most teams on The Block NZ – but contestants Ling and Zing possibly received the worst deal of all. The live auction finale of the reality show’s sixth season turned in awkward television at its finest as Stace and Yanita were thought to be the winners until
From CoreLogic today comes the mortgage leading index: Pretty weak given FHB grants running in the two big cities. Supply still down a touch year on year. Full report.
By Leith van Onselen Treasurer Scott Morrison has hosed a proposal to give tax breaks to managed investment trusts (MITs) that build homes for rent, claiming that it would be unfair to other investors. From The AFR: Mr Morrison staunchly defended the government’s surprise decision last week to block managed investment trusts from buying residential
By Leith van Onselen The news is grim for Brisbane apartment vendors, with a deluge of new apartments scheduled to hit the market over the next two years, putting further pressure on an already over-supplied Brisbane market. From The Australian: Unit supply in greater Brisbane is scheduled to grow by 20.4 per cent over the
By Leith van Onselen Potentially tens-of-thousands apartment owners of apartments over three storeys high are facing costly remediation bills to replace flammable cladding because of a legal loophole that prevents neither dodgy builders nor insurers from being liable. From The AFR: The loophole in a 2003 agreement between state governments and the industry could be
Flufferfax asked on the weekend what’s next for house prices: After a five-year bull run, in which house prices have surged 75 per cent in Sydney and 56 per cent in Melbourne, the party may be over for those who have bet big on the property boom. A combination of tougher APRA lending rules, rising unaffordability, new
CoreLogic released its auction report yesterday, which reported a slight firming in the preliminary national auction clearance rate to 70.3% from 70.2% last weekend, but was well below the 76.2% recorded in the same weekend last year: Auction volumes nationally were 2,490 – above the 2,149 recorded in the same weekend last year. As shown
By Leith van Onselen Via Martin North comes news that the Australian Treasury has released housing affordability measures following the 2017-18 Federal Budget: As part of the 2017-18 Budget, the Government announced it would be providing tax incentives to increase private and institutional investment in affordable housing. They have now released an exposure draft for
By Leith van Onselen In the week ended 14 September 2017, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, rose by 0.05%: The rise in value was driven by Melbourne: So far in August, home values have risen by 0.18%, again driven by Melbourne: So far in 2017,
Wish me luck as I wave you goodbye, Morgan Stanley: Our housing model, MSHAUS, declined to -0.9 in 2Q17 – marking a record-low in its 28-year history. This reflects the start of MacroPru-2 measures, strong supply growth and higher debt service on mortgage repricing. We look for further softening in approvals / price growth over
Weeoo, weeoo, weeoo. Lol: I have a “liar loan” – a mortgage based on less than absolutely factual information. I’ve pretty much always had liar loans. And I recently obtained a “liar credit card”. So what? Given readers’ (and therefore the media’s) love of stories that combine housing and doomsday scenarios, investment bank UBS received saturation
By Leith van Onselen BIS Oxford Economics has reversed its earlier call that Melbourne is facing an apartment glut following stronger than expected population growth. From The AFR: BIS Oxford Economics has reversed its earlier prediction that Melbourne will suffer a surplus of apartments, saying faster-than-expected population growth now meant the city would be in balance or
By Leith van Onselen I wrote yesterday how there appeared to be a “hidden Chinese pump” driving-up Melbourne property prices. This view was driven by the fact that Melbourne dwelling values have diverged massively from housing finance commitments, which runs counter to historical experience (most Chinese pay with cash): As well as the latest NAB
From the Mortgage Professionals Australia: Bank’s claims about borrowers’ ‘liar loans’ criticised by industry over methodology and intentions The MFAA and FBAA have harshly criticised a UBS report which claimed 1/3 of mortgage applications were not entirely accurate (which they term ‘liar loans’). The report, which also claimed broker channel loans were more likely to contain inaccurate information, was branded ‘reckless’ by the FBAA because
Mirabile dictu, an honest realtor: Are the days of ridiculous house price rises finally over or just on hold for a while? What’s the value of your house in the current market? And is foreign investment keeping young Australians out of the housing market? Peter O’Malley, author of Inside Real Estate joins Phil Clark to
By Leith van Onselen It’s amusing watching the spruikers over at CommSec continually put lipstick on Australia’s housing affordability pig. The latest example came following yesterday’s ABS Household Expenditure Survey for 2015-16, which stated the following: More than half the money Australian households spend on goods and services per week goes on basics – on average,
When there is no bubble, invent one! HOUSE prices in Brisbane have hit a new record high with some suburbs in the the sought-after inner-city ring increasing by more than 20 per cent in the last year. St Lucia, Ascot, Auchenflower and Wilston were the best performing suburbs in Brisbane where the prices increased by
Via Moody’s: » Macroeconomic update: We forecast that Australia’s real GDP will grow by around 2.5% for full-year 2017 and 2.7% for 2018. Australia’s GDP is growing at below the 10-year average, but we believe the level of growth is supportive of RMBS performance. However, Australia’s high household debt in combination with record low wage
By Leith van Onselen From today’s ABS Household Income and Wealth survey for 2015-16: Average household debt has almost doubled since 2003-04 according to the latest figures from the Survey of Income and Housing, released by the Australian Bureau of Statistics (ABS). ABS Chief Economist Bruce Hockman said average household debt had risen to $169,000
