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 University of Sydney has joined MB in warning that NSW is facing a potential Budget crisis as the property crash wipes billions in dollars of stamp duty revenue: With a state election imminent in NSW, it is timely to consider the fiscal opportunities and constraints facing whoever wins government. Election
Via News: Australia could be the “first domino to fall” in a global economic crisis for the first time in its 200-year history. That’s according to economist John Adams, Digital Finance Analytics founder Martin North and Irish financial adviser Eddie Hobbs, who argue Australia’s economy is looking increasingly similar to Ireland’s prior to the 2007
By Leith van Onselen The ABS yesterday released its property price data for the December quarter, which valued Australia’s dwelling stock owned by households at $6.38 trillion, whereas the total housing stock was valued at a record $6.68 trillion. As shown below, the total value of Australia’s dwelling stock owned by households was 7.16 times
Via the AFR: Macquarie Bank is axing popular “Bank of Mum and Dad” financing and borrowing for self-managed super fund investment property as it continues to overhaul its residential property operations. The bank, which recently announced it was no longer underwriting new “home-branded” loans for several household-name lenders, stopped offering family loan guarantees on Monday
By Leith van Onselen The ABS has released its property price index – incorporating both detached houses and units – which registered another 2.4% decline in home values nationally over the December quarter and a 5.1% decline over the year: Sydney (-3.7%), Melbourne (-2.4%), Brisbane (-1.1%), Perth (-1.0%), Darwin (-0.6%), and Canberra (-0.2%) recorded quarterly
But it couldn’t happen here, via the AFR: The fall in Sydney real house prices is close to hitting its average downturn decline at only halfway through the average downturn cycle, setting it up for the sharpest drop for the city since 1965, a BIS Oxford Economics study shows. The average downturn for Sydney house
Not according to the CoreLogic leading index this week: Down just as heavily year on year this year as it was last year. New listings are very slow but total listings is still climbing anyway: No panic selling here yet. But a full blown buyer’s strike. Full report.
By Leith van Onselen CoreLogic expects both Sydney and Melbourne to feel the impact of apartment oversupply for the next two years. A glut in both cities is seeing a significant number of new apartments being sold on valuations that are less than what was paid for off-the-plan. From The Australian: “For units that were
Following a brace of building supplier warnings:
By Leith van Onselen Flammable cladding-related insurance policy exclusions may force fire engineers and building surveyors out of business. Such exclusions are increasingly being inserted by insurers in the wake of recent fires at the Lacrosse and Neo 200 buildings. However, building regulators will not register surveyors and fire engineers if their professional liability insurance
At the end of 2017, it became apparent that Melbourne’s house and land market had become an giant bubble after the median price for a housing lot hit $318,500 – up 31.5% in only 12 months. In mid-2018, we learned that that Chinese developers had taken control of Melbourne’s land supply pipeline, driving-up prices even further: Chinese developers have
It’s taken a while but it’s finally here. Domain entered a full blow house price panic on the weekend with wall-to-wall coverage. We begin at the AFR: An exclusive analysis by CoreLogic for AFR Weekend shows the potential scale of the downturn, which could, nominally, leave the buyers involved in 830,000 property sales in the
By Leith van Onselen According to CoreLogic’s daily house price index, Melbourne dwelling value losses smashed through 10% over the weekend: The below chart shows how Melbourne’s price decline compares against prior price corrections: As you can see, Melbourne’s current property decline are the deepest and second steepest in nearly 40 years of data. If
CoreLogic released its preliminary auction report yesterday, which reported a bounce in clearances on softening volumes. The preliminary national auction clearance rate was just 56.1%, above last week’s 52.2% but way below the 66.0% final clearance rate recorded in the same weekend of last year: Auction volumes nationally were just 1,894 – way below the
Let’s do a little roundup of today’s economic pet shop starting with some terrible analysis from Deloitte at the New Daily: “Some downturns are big, and some are small,” said Geoff White, head of real estate at CoreLogic. “Usually, it’s driven by economic conditions, but in this case it’s more about credit. …During the GFC,
By Leith van Onselen With Perth house prices falling for around 4.5 years, down nearly 18%: The number of West Australians seeking legal help because they can no longer pay their mortgage is on track to double last year’s record. From The West Australian: In January and February alone, 112 people sought help from Legal
From a UBS property round table yesterday: What we are seeing now is that apartments are increasingly out of the money. That’s where you get settlement issues. What’s happened to buyers now as they come to settlement, is bank valuations might come in 10 per cent or even 20 per cent below the contract price
By Leith van Onselen University of Sydney professor, Peter Phibbs, claims the RBA’s Model of the Australian Housing Market proves that Airbnb is having a detrimental impact on the housing market. From The New Daily: “Airbnb spends a lot of time saying they have no impact on markets. What this paper shows is that they do,”
By Leith van Onselen The ABS released interesting household formation projections yesterday, which forecast a 50% increase in the number of households across Australia’s capital cities in the 25 years to 2042: As shown above, Melbourne is projected to lead household formation with a 63% increase; although it will be strong across the board with
By Leith van Onselen In the week ended 14 March 2019, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, fell another 0.13%: Values fell across all major markets, except Perth: The quarterly decline has moderated slightly to 3.03%, with Sydney, Melbourne and Perth suffering heavy losses: Over the
CoreLogic has released research examining the current decline in Australian dwelling values versus prior episodes: At a national level, since 1980 there have been eight separate housing market downturns (as highlighted in the first chart). The current downturn which commenced after October 2017, has seen values fall by -6.8%. Although that may not seem like
Today I am in shock, which isn’t easy these days. Via the AFR comes the ASIC chief referencing post Hayne Royal Commission bank reform efforts: “I am still not convinced that there’s enough wherewithal and ownership by leaders of these financial institutions to actually finish the job,” Mr Shipton told the Australian Competition and Consumer
By Leith van Onselen Australia’s mass immigration program might be a dream come true for developers, since it provides an endless flood of new residents and pressure for development: However, it is a nightmare for the working class, as evident by the surge in rental stress and homelessness across migrant-stuffed Western Sydney: Western Sydney has
By Leith van Onselen The Australian Tax Office (ATO) commissioner, Chris Jordan, has sounded its annual warning shot at rorting landlords, claiming that 9 out of ten tax claims are wrong. From The AFR: Mr Jordan also revealed new plans to crack down on deductions from the growing rental property market, with almost nine in
By Leith van Onselen Last weekend, 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 47.8% – well below last week’s 50.4%: As you can see, Sydney’s auction clearance rate fell by
Get a load of this data dump from Martin North on household attitudes to property: We have released the latest edition of our household surveys, looking specifically their attitude to property transactions and expectations. And overall demand, and intention to transact have tanked. More evidence of a weaker market ahead. Intention to transact continues to
Via S&P: Arrears on the mortgages underlying Australian residential mortgage-backed securities (RMBS) have increased year on year, while prepayment rates have slowed, according to S&P Global Ratings’ latest edition of “RMBS Performance Watch: Australia.” In particular, arrears that are in an advanced stage (more than 90 plus days) reached a record high of 0.75% in
We always love the work of Freelance CEO Matt Barrie not least because he often uses MB charts: Australia’s property market enjoyed a golden run for years on end — but according to one Aussie CEO, those days are now gone for good. He said the combination of our weakened housing market coupled with global market
Via the AFR: …For months, brokers have phoned the offices of federal politicians, fired off angry emails and held town-hall style meetings to berate MPs for an attack on their livelihoods after both sides promised to implement most of the commission’s recommendations on broker pay. At the same time, TV personality Bouris, a business ally
By Leith van Onselen CoreLogic’s latest dwelling sales data reveals more bad news for those groups heavily reliant on property transactions, including real estate agents and state governments (via stamp duty). It also points straight down for house prices. The next chart plots annual sales volumes across Australia’s capital cities to November 2018, which are
