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.
Australia’s building lobby has hailed the Morrison Government’s $688 million HomeBuilder subsidy for new dwelling construction the “most effective stimulus in a decade”: The Master Builders Association has reported that in the past four weeks, activity in the sector had returned to pre-COVID-19 levels, saying the package had delivered the “most effective stimulus in decades”.
Corelogic has released its June quarter auction market report, which reported a sharp fall in clearance rates and volumes owing to the COVID-19 lockdowns: Auction volumes were down over the June quarter which is not surprising given the uncertainties around COVID-19 and tightened restrictions banning on-site auctions which came into effect at midnight on March
Via CoreLogic: Roughly flat year on year but 2019 was weak at this stage. It’s very important to remember that is only tracking owner-occupiers so it is missing the investor credit rout. Listings look more encouraging if you believe CL data: More price falls ahead on this data. Full report.
Back in the good old days when there was such a thing as Australia we saw this: The above headline can’t have escaped the attention of many Australians yesterday. It sat at the top of the SMH, The Age, Brisbane Times and WA Today websites all afternoon. I can’t remember the last time I saw
As reported yesterday, the value of new mortgages issued collapsed by nearly 12% May, driven by a sharp 16% fall in investor mortgages: This was the sharpest monthly decline in new mortgage commitments in the 18 year history of the series. Given historical experience, the decline in new mortgage commitments points to Australian dwelling values
From the Housing Industry Association: “New Home Sales have risen by 77.6 per cent in June, from a record low result in May, off the back of the Government’s HomeBuilder program announced at the beginning of the month,” commented HIA Chief Economist, Tim Reardon. “The rebound in New Home Sales in June does not fully
Melbourne’s CBD is in crisis as COVID-19 and the shift to working from home (WFH) has collapsed visitor numbers by an estimated 95%. This has left office buildings empty and gutted surrounding businesses reliant on the people flow. With business leaders and the Melbourne City Council concerned that WFH could become permanent, they have devised
The Australian Prudential Regulatory Authority (APRA) released some alarming data late last week on mortgage deferrals. According to APRA, $192 billion of mortgages have been deferred by authorised deposit-taking institutions (ADIs), comprising 11% of all housing loans: Worse, more than one-third of investor mortgages have been deferred, a large proportion of which are interest-only: As
Last week’s mortgage commitments data for May from the Australian Bureau of Statistics (ABS) revealed a brutal 11.6% decline, led by a precipitous 15.6% fall in investor mortgages: The following charts plot this data against CoreLogic’s dwelling values index for June. These charts provide a useful guide to short-term price movements for the market, given
With immigration into Australia forecast by the federal government to collapse by 85% in the two years from 2019 because of COVID-19, there was some hoping that immigration could be rebooted by granting massive numbers of visas to Hong Kongers wishing to flee Chinese Communist Party (CCP) tyranny. Others, like William Bourke from the Sustainable
CoreLogic’s preliminary auction report reported only a moderate fall in the preliminary clearance rate (from 65.1% to 62.2%) off softer volumes: According to CoreLogic: In Sydney, 538 homes were scheduled for auction this week, down from 580 over the previous week, although higher than one year ago when 316 homes were taken to auction across
Data from the Australian Prudential Regulation Authority (APRA) shows that banks have deferred 18% of small business loans worth $56 billion in response to the COVID-19 pandemic. Morgan Stanley has warned that that many businesses in Melbourne that have been forced to shut down for a second time may never re-open, particularly smaller ones. The
CoreLogic’s research director, Tim Lawless, expects Melbourne’s housing market to be “significantly disrupted” from the six week lockdown: Over the previous lockdown period, which was in place between late March and mid-May, housing market activity was significantly disrupted. The previous lockdown period saw real estate agent activity across Victoria slump by almost 70% before gradually
The latest NAB survey of property professionals reveals a rather pessimistic industry, with sentiment collapsing both in the short and medium-term: With Victoria most negatively impacted: House price expectations have also tanked, with falls predicted over the next two years, with Victoria leading the declines: The below charts give the longer-term context: Rents are also
In yesterday’s press conference at Parliament House, Prime Minister Scott Morrison dismissed concerns around the crash in mortgage commitments, driven by investors: Below is the transcript, with my emphasis added in italics: Journalist: Home lending figures came out today. Huge plunge, double-digit plunge. This is a time with record low interest rates as well. We’ve
In the week ended 9 July 2020, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, fell another 0.13%: It was the ninth consecutive weekly decline. The falls were concentrated across the three major capitals: Quarterly dwelling value growth is negative, led by Melbourne: Annual price growth remains strong,
According to NAB, foreign buyers continue to shun Australian property, with demand still well below decade lows in the June quarter: While the prominent role played by foreigners in Australian housing markets has dissipated in recent years, market share in this buyer group in Q2 increased in both new and established housing markets. In new
Nearly two-thirds of experts surveyed by Finder say that now is not a good time to buy Australian property: …only 35 per cent of property experts think now is the time to buy a property. AMP Capital chief economist Shane Oliver said home prices were predicted to fall across the rest of the year and
Today’s new mortgage data from the Australian Bureau of Statistics (ABS) recorded a big fall as the COVID-19 shutdown took effect: The next chart plots the time series: Total new mortgage commitments (excluding refinancings) dived by 11.6% in May, with owner-occupied mortgages falling 10.2% and investor mortgages falling 15.6%. Year-on-year, total new mortgage commitments (excluding
Some residential property developers have reported a sharp rise in sales since the federal government announced its six-month HomeBuilder scheme in June. Cedar Woods’ chief financial officer Leon Hanrahan has warned that some developers could overbuild in response to the scheme, resulting in an oversupply of new housing. Jeremy Sheppard of Select Residential Property says
With the Reserve Bank of Australia’s (RBA) official cash rate (OCR) stuck at a record low 0.25% since April, and unlikely to go any lower: Mortgage rates have also collapsed to record lows, with bank discount variable mortgage rates hitting a record low 3.65% in June and bank 3-year fixed mortgage rates hitting a rock
Australia’s unit rental market has suffered its biggest price drop in more than 15-years due to the COVID-19 pandemic. A Domain Report revealed the price for renting a unit plunged 3.2%, to just under $450 a week in the June quarter: Rental houses fared better, falling 1.2% to an average of $446 a week: Inner-city
by Chris Becker APRA have given another reprieve in the fight to stop Australian households defaulting on their mortgages with another payment holiday/restructure period extension, pushing out the fantasy of mortgage repayments for another four months: The confirmation of the waiver follows the announcement that lenders will extend the repayment holidays of customers who have deferred
Martin North from Digital Finance Analytics has released new mortgage stress data, which reveals that more than one quarter of Australian property investors are losing money on a cash flow basis: Digital Finance Analytics has released the results of our rolling 52,000 household surveys to the end of June, which reveals that mortgage stress rose
The Morrison Government’s HomeBuilder subsidy, which gives up to $25,000 to eligible households to build or substantially renovate their homes, has ignited massive surge of buyers of house and land packages, according to agents and developers: Inquiries have tripled and land sales have gone up by more than 300 per cent since the HomeBuilder scheme
According to the latest mortgage deferral data from the Australian Bankers Association (ABA), repayments on nearly 500,000 mortgages have been deferred for six month, totaling $175.6 billion: That equates to an average mortgage size of $350,000 that has had repayments deferred by Australia’s banks. On Tuesday, comparison site Mozo warned that many mortgage holders could
The number of people who visit Melbourne’s CBD to work or to go shopping has fallen sharply in the wake of the coronavirus pandemic. New figures show that the number of people who visit the CBD each day has fallen as low as 50,000 in recent months, compared with one million prior to the pandemic.
Over the past decade, Australia’s mainstream media spun propaganda claiming that Australians are “choosing” high density apartment living over detached housing due to its convenience. We were also frequently told that changing lifestyles has meant that most Australians do not want a large backyard. I have always claimed that this notion of Australians “choosing” to
A month after trimming his forecast for Australian dwelling value declines to between 5% and 10%, AMP chief economist Shane Oliver has turned bearish owing to the spike in COVID-19 infections across Melbourne: Dr Oliver said the uptick in virus cases in Melbourne would further weaken the market and add downward pressure to housing prices.
CoreLogic’s preliminary auction report reported a slight rise in the preliminary clearance rate (from 64.5% to 65.1%) off solid volumes: Once final results are received later this week, we are likely to see the weighted average clearance rate fall to around 60%. If so, this would mean that auction clearances are hovering just below the
