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.
Sydney’s house price crash is accelerating with dwelling values now down 5.9% from their peak and quarterly losses running at their fastest pace since 1983: As clearly illustrated in the chart above, Sydney dwelling values began falling sharply following the Reserve Bank of Australia’s (RBA) first interest rate hike on 3 May. Since that first hike,
Bill Evans of Westpac cheering on the destruction of his own bank! Consumption is not going to hold up for very long and business investment will be next. Pass the popcorn. —————————————————————————————– The Westpac Melbourne Institute of Consumer Sentiment Index fell by 3% from 83.8 in July to 81.2 in August. This reading is on
Labor’s housing and homelessness minister, Julie Collins, yesterday gave a speech at Day 1 of the National Homelessness Conference at the Australian Housing and Urban Research Institute (AHURI), whereby she accused the former Coalition government of a “decade of inaction” on the issue. Collins noted that there were 116,000 homeless people recorded on census night
PropTrack’s automated valuation model (AVM) data, reported in News.com.au, shows more than 300 suburbs across Australia experienced six-figure price declines over the July quarter. A dozen suburbs have also experienced prices falls of more than $500,000 since March. These include wealthy suburbs across parts of Sydney’s northern beaches and eastern suburbs, Melbourne’s Mornington Peninsula, as
The Reserve Bank of Australia’s August Statement on Monetary Policy (SoMP) showed that the pipeline of houses under construction has swelled to all-time highs on the back of rising costs and supply constraints: The Australian economy… [is] likely to be supported for at least the next year by the large pipeline of detached house construction
CoreLogic’s preliminary auction results for the weekend report a slight rebound in clearances; albeit off relatively thin volumes. Across the combined capital cities, the clearance rate was 59.5% – up from 58.8% the previous weekend (later revised to 54.0% at final figures). Importantly, both Sydney and Melbourne reported preliminary clearance rates above 60% – both
CoreLogic’s auction results for July are out, with Australia recording an average final clearance rate of just 53% over the month – the worst result since the height of the pandemic in April 2020 (34%). Sydney’s average final auction clearance rate bombed to 52% in July, whereas Melbourne’s tanked to 54%: As regular readers know,
CoreLogic’s daily dwelling values index, which measures price changes across Australia’s five major capital cities, fell another 0.22% in the week ended 5 August – the 13th consecutive weekly decline: Once again, the fall in dwelling values was driven by Sydney (-0.29%), Melbourne (-0.34%) and Brisbane (-0.14%), whereas Adelaide (+0.12%) and Perth (+0.07%) recorded rises:
Recall that the NSW Government – which last year demanded an “explosive” surge of 2 million migrants over five years to boost the economy – has joined the business lobby in ramping up pressure on the Albanese Government to open the immigration floodgates: NSW Skills Minister Alister Henskens has called on the Albanese government to implement
Veteran bank analyst Jon Mott warns a $250 billion wave of mortgage delinquencies could sweep Australia if ANZ’s, Westpac’s and the financial market’s 3% official cash rate (OCR) forecasts come true. Mott notes that the build-up in mortgage debt over the prior two years “is the second-biggest jump seen since lending data was first captured
The Economist has published an interesting report explaining how rampant house price inflation across the developed world has diverted capital and resources away from the real economy and stifles productivity: In recent years another strand of research has emerged, which, rather like the political economists of yore, attributes many long-standing economic ills to land. It
Data released on Tuesday by the Australian Bureau of Statistics (ABS) shows that mortgage commitments fell by 4.4% June, which was the biggest monthly decline since May 2020. This decline in mortgage commitments captured the first two RBA rate hikes – i.e. 0.25% in May and 0.50% in June – but obviously has not captured
After lobbying the NSW and Victorian governments for assistance in June, one of Australia’s largest home builders – Metricon – continues to teeter on the brink of collapse. Yesterday, it unceremoniously sacked 225 employees over Microsoft Teams in a desperate bid to reduce costs: The move will impact 9 per cent of its workforce… Most
SQM Research has released its Stock on Market report for July, which shows that national residential property listings rose in July by 7.1%, amid softer buyer demand: New listings (Less than 30 days) rose 1.8% over July, whereas listings over 180 days rose by 0.6%. Most notably, however, listings between 31 days and 180 days
The ABC published an article neatly explaining why rising interest rates necessarily means that house prices will fall. To cut a long story short, a higher interest rate lifts monthly mortgage repayments, which in turn limits the amount that a prospective home buyer can borrow. The ABC cites the real world experience of the Chamberlain
Academy Securities asks the question. I don’t think the Dems are stupid enough to abandon the One China policy so the wolf warriors are getting awfully overexcited. What has Happened: •China has issued harsh warnings regarding the prospect of House Speaker Pelosi visiting Taiwan as part of her Congressional Asia tour.•While not confirmed by the
New data released today by the Australian Bureau of Statistics (ABS) shows that dwelling approvals fell by 0.7% in June to be down 17.2% year-on-year. The fall was driven by unit approvals, which fell 5.7%, whereas house approvals rose 1.2%. Over the year, houses approvals fell 22.0% whereas unit approvals fell 10.1%. The next chart,
The Australian mortgage market slumped in June after two consecutive rate hikes by the Reserve Bank of Australia (RBA). According to the Australian Bureau of Statistics (ABS), the total value of new mortgage commitments fell a seasonally adjusted 4.4% in June 2022 and was down 2.0% year-on-year: Owner-occupier commitments fell 3.3% in June, whereas investor
After CoreLogic’s 5-city daily index recorded its biggest monthly decline in nearly 40 years, AMP Capital’s chief economist, Shane Oliver, entered full doomsday mode, tipping possible 4% monthly falls for Sydney: “The pace of decline is gathering speed, so it’s conceivable we could be seeing monthly declines of 4 per cent in a few months
In his weekend update, “Australasia’s #1 real estate coach and trainer”, Tom Panos, suggested house prices have already crashed 10% to 20% and is urging vendors to sell before the spring listings flood. Panos also accused the average economist of living in “La-La Land”, given they are relying on market pricing information that is already
CoreLogic has released its full dwelling value results for July, which shows that values nationally fell by 1.3%, with price falls recorded across five capital cities and the combined regions: As already documented, Sydney and Melbourne led the price falls on both a monthly and quarterly basis. In fact, Sydney’s price decline is the sharpest
CoreLogic has released its daily dwelling value results for July, which track price changes across Australia’s five major capital cities. At the 5-city aggregate level, dwelling values fell by 1.44% in July, which was is biggest monthly price decline since January 1983: The collapse in prices was driven by Sydney (-2.2%) and Melbourne (-1.5%), with
A week ago, the futures market tipped the Reserve Bank of Australia (RBA) to hike the Official Cash Rate (OCR) to 3.45% by December and to 3.75% by March 2023: At the market close on 28 July, the futures market had cut its OCR forecast to 3.1% by December and 3.35% by March, a downgrade
Last year’s NSW Budget noted that the state’s housing shortage had disappeared due to the collapse in immigration: Building approvals are now running well ahead of the change in population, which is depressed due to the lack of inward migration. This suggests a potential oversupply in the near-term relative to the underlying demand for housing
Coolabah Capital’s Chris Joye phoned me yesterday to tell me that Sydney dwelling values are crashing at their fastest monthly pace in at least 30 years, according to CoreLogic’s dwelling values index (which he helped create). So I went and checked, and it turns out that he’s right! As shown in the next chart, the
