August 2021 Australian property market affordability update Australian property market prices continued to climb over the last month, with the past six months seeing some of the strongest growth on record. Mortgage fixed interest rates were steady, standard variable rates fell slightly but remain significantly above fixed rates. There are some extraordinary divergences in affordability.
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.
The nation’s final auction clearance rate rebounded last weekend following a big fall in auction listings in Melbourne. CoreLogic recorded a final national clearance rate of 73.7%, up significantly from the prior weekend’s 67.7%. Sydney’s final clearance rate remained strong at 82.8% versus 81.2% the prior weekend, whereas Melbourne’s rebounded to 55.0% from 43.8% the
CoreLogic estimates there were around 598,000 house and unit sales across Australia over the year ending August 2021, which was the highest number of annual sales since 2004 and a 42% lift on the annual number of sales over the previous 12-month period: Across the states, annual home sales are substantially higher than a year
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The nation’s auction clearance rate rebounded further over the weekend, recording a preliminary national clearance rate of 72.3%, up from the prior weekend’s 63.7%. Sydney’s preliminary clearance rate remained rock solid at 83.8% versus 84.0% the prior weekend, whereas Melbourne’s rebounded to 54.4% from 44.5% the prior weekend, but remained weak: According to CoreLogic regarding
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Dwelling assets are being repriced globally, as expected by central banks who have sought to achieve this with their interest rate policies. There is no mystery to rising house prices. Central banks are trying to make them rise, as they repeatedly explain. That’s how we manage the macroeconomy these days. BoE:https://t.co/ia7YkkAzwj RBA:https://t.co/Xr21vQjKzB pic.twitter.com/dwTTNM4IAn — Cameron
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