Via UBS: Housing ‘up-crash’ puts pressure for renewed Macroprudential policies The Australian economy is rebounding very strongly, with data exceeding expectations. With the RBA still maximum dovish, all-time low interest rates and banks willing-andable to lend, Australia is experiencing a housing ‘up-crash’. Interestingly, the Council of Financial Regulators (CFR) is watching housing and “will continue
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.
CoreLogic’s leading property indicators continue to run red hot. There is a little hint that inventory on market is normalising as prices skyrocket: However, so far, any rebound in the supply of properties for sale has been easily absorbed by the frenzy of buyers. On the demand side, owner-occupier mortgage issuance is booming: It’s unusual
On Friday I reported that Australia’s final auction clearance rate ended February at a near record high 79.3%, close to the strongest result on record. The weekend’s preliminary auction results from CoreLogic suggest that records will soon be smashed, with every capital city market recording a preliminary clearance rate of more than 80% – something
Just last week, Reserve Bank of Australia (RBA) governor Philip Lowe stated that lending standards remain sound but warned that they must continue to remain so given historically low interest rates and the recent surge in house prices. The Council of Financial Regulators (CFR), which is the coordinating body for Australia’s main financial regulatory agencies
Last week we received two very strong pieces of data pertaining to the Australian property market. First, CoreLogic released its dwelling value results for February 2021, which recorded the strongest monthly rise in values (2.1%) since August 2003. Moreover, every jurisdiction across Australia reported strong quarterly price growth (4.0% nationally): Second, the Australian Bureau of
CoreLogic has released its final auction clearance rates for last week, with the final clearance rate remaining at a near six-year high of 79.3%, just a whisker below the prior week’s 79.6%. Clearances were also well up from the 73.9% final clearance rate recorded in the same time last year when the property market was
Digital Finance Analytics (DFA) has released mortgage stress data for February, which ratcheted back up to 41.8% of households, up from 39% in January. DFA’s survey is based on a survey of 52,000 people and measures free cash flow. It attributes the lift in mortgage stress to three main factors: people are spending more and
CoreLogic’s head of research, Eliza Owen, has published a new report examining the movements in property values at low (bottom 25%), middle (middle 50%) and high (top 25%) price points. The report shows that value growth across the most expensive quarter of the market has overtaken the other broad valuation bands. This comes after the
The CoreLogic daily dwelling values index continues to rocket soaring another 0.5% in the week ended 4 March 2021. This continues a strong run whereby dwelling values across the five major capitals have risen by 1.8% over the past three weeks alone: This week’s 5-city increase was broad-based with all major markets posting strong growth.
History doesn’t repeat but it sure does rhyme. With Australian property values commencing another strong upswing, the ‘bank of mum and dad’ is once again back in vogue. In January 2020, just prior to the COVID-19 pandemic, a survey showed that more than half of Australian parents were directly subsidising the lifestyles of their children,
At various times over the past 20 years we witnessed desperate home buyers camp-out at developers’ offices to secure new land releases. Former home builder and MP, Bob Day, explained this phenomenon in his maiden Parliamentary speech in 2014: “To buy a block of land on which to build their first home, young couples are
The 2021 Demographia International Housing Affordability Survey has been released and, once again, it ranks Australia as having one of the most expensive housing markets out of the countries surveyed. This year’s report assesses 92 major markets (metropolitan areas) in eight nations for the third quarter of 2020. The nations assessed are: Australia, Canada, Hong
All indicators are pointing to a mega boom for Perth’s property market. According to CoreLogic’s February dwelling value results, Perth recorded the strongest quarterly value increase of all capital cities, with prices surging 4.3%. This was the strongest price growth since 2006. The latest market indicators from the Real Estate Institute of Western Australia (REIWA)
For years, utopian urban planners have predicted the end of suburbia. We were told that people would increasingly shun suburban life in favour of higher density living close to CBDs whereby families would choose proximity and convenience over space. This claim was always a myth, with urbanisation being mostly a suburban affair. The COVID-19 pandemic
SQM Research has released its Stock on Market data for February, which showed that the number of for sale listings nationally fell a further 2.7% to be down a whopping 13.1% year-on-year. Listings are down heavily everywhere except Melbourne and Sydney, which have both recorded rising listings year-on-year: The overall decline has been driven by
Record low interest rates and households awash with stimulus money is having interesting effects on Australian borrowing habits. On the one hand, Aussies are taking advantage of the lowest borrowing rates on record to pile into the housing market, with new mortgage issuance running at all-time high levels in January, according to the Australian Bureau
The Housing Industry Association (HIA) has hailed the success of the federal government’s HomeBuilder stimulus after loans for construction rose for their seventh consecutive month to the highest levels on record: “Confidence in the housing market has been improving since the announcement of HomeBuilder in June 2020… “The number of construction loans to owner occupiers
The Australian Bureau of Statistics (ABS) has released dwelling approvals data for the month of January, which reported a sharp decline after the HomeBuilder subsidy was cut from $25,000 to $15,000. Total approvals tanked by 19.4% in January, but were still 19.0% higher over the year. The decline was broad-based with house approvals down 12.2%
For the first time in more than a decade, Australia’s first home buyers (FHB) are enjoying their moment in the sun. Thanks to generous subsidies and a 60 basis point discount in mortgage rates, the value of mortgages issued to FHBs has overtaken investors. As illustrated in the next chart, there were $7.2 billion FHB
CoreLogic has released its full dwelling values results for February, which confirmed that a synchronised boom has developed with every capital city market and Australia’s regions reporting strong price inflation. The results are summarised in the table below: The 2.1% price growth nationally was the strongest month-on-month increase since August 2003: According to CoreLogic’s research
As property prices turn nuclear, hoocoodanode that Labor would backflip on negative gearing reform? It’s not like we don’t need it. Nor that the timing isn’t terrific. Indeed, given Labor took the reform to the last election as property prices crashed out of the Hayne Royal Commission, it looks decidedly and stupidly pro-cyclical abandoning the
CoreLogic has released its preliminary auction results for the weekend, with the preliminary clearance rate again coming in above 80%, with almost every market showing strength. The national preliminary clearance rate was 81.9%, up from a final clearance rate of 73.9% in the same weekend last year. Australia’s second biggest auction market, Sydney, again led
The Australian mortgage market has continued its record run, according to new data released today by the Australian Bureau of Statistics (ABS). Total mortgage commitments (excluding refinancings) rose another 10.5% in January to be up a whopping 44.3% year-on-year. This growth was driven by owner-occupiers, where mortgage commitments rose by 10.9% over the month to
One interesting aspect of the current boom in Australian property prices is the absence of overseas buyers, especially Chinese. During the 2013 to 2015 house price cycle, Chinese buyers made up a significant proportion of demand, especially across Sydney and Melbourne. However, over the past several years, this demand has waned, as illustrated by the
CoreLogic yesterday released its 5-city dwelling values index for 28 February 2021, which has allowed me to calculated price growth over the month of February. Turns out February 2021 was the strongest month for dwelling values since September 2003, with values across the five major markets soaring by 2.1% (see next chart). Sydney led the
Today’s credit aggregates data from the Reserve Bank of Australia reported an acceleration of mortgage growth; although it remained soft on a historical basis. CBA’s head of Australian economics, Gareth Aird, expects housing credit to remain low, eliminating the need for the Australian Prudential Regulatory Authority (APRA) to tighten macro-prudential curbs on mortgages: We expect
The Reserve Bank of Australia (RBA) has released mortgage growth figures for January, which continued to strengthen on the back of owner-occupiers. Quarterly mortgage growth rose to 1.14% in January – the 6th consecutive monthly increase – and is now experiencing its strongest growth since September 2018 (see next chart). Owner-occupiers continue to lead the
We noted this week that mortgage applications are now so hot that banks are unable to keep up and approval times are blowing out spectacularly. House prices are on the march too. FOMO is loosed and there is no prospect of higher interest rates for years. So freshly listed Liberty Financial is enjoying an unexpected