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 NSW Office of State Revenue has released stamp duty data to February, which reveals a $1.5 billion (21%) decline over the past year and a $1.8 billion (24%) decline since stamp duty receipts peaked in October 2017: The latest retracement in stamp duty receipts follows a sharp 19% decline in
Via CoreLogic’s weekly property leading indicators. Nobody wants to get a mortgage: Nor does anyone want to list their property: It’s a Mexican standoff with sellers losing as unsold stock mounts. Full report.
By Leith van Onselen With Monday’s release of Australia’s population data for the September quarter, it’s once again time to examine how Australia’s dwelling supply is tracking against population growth. The below charts track the following, which are based on the latest available quarterly data: Dwelling approvals to December 2018; Dwelling commencements to September 2018;
By Leith van Onselen With Sydney’s housing market suffering the second worst price bust in modern history: First home buyers (FHBs) are shunning the market, despite housing becoming more affordable. From Domain: Sydney properties are becoming more affordable as prices fall, but the number of first-home buyer stamp duty exemptions and concessions have taken a
By Leith van Onselen Analysts at Deutsche bank believe they have found a major flaw in APRA’s mortgage data, which significantly understates average loan size. Basically, because APRA has failed to adjust for split-loans, the $276,000 average loan size figure has been understated by around 40%, according to Deutsche, thus giving regulators a false sense
Because the end of the world takes time. Missed this Friday: It only warned in February and here we are again. Or, if you enjoy the cup half full approach, try the following description from one McGrath agent recently: 2019 looks more promising than many would have thought. November and December were very tough but
Via Martin North: Latest data released today from the DFA household surveys shows that a smaller number of potential first time buyers are now getting help from their parents to buy property. This video explains what is going on. At its height 60% of first time buyers were getting help from their parents, but this
Lol, the LNP is so corrupt it is difficult to know where to look. Via Banking Day: Which would you prefer? Bill Shorten’s town hall tour of Australia to wrap up the Hayne royal commission into banking? Or policy making of the kind dished up by Josh Frydenberg on Friday? The government has decided not
By Leith van Onselen Ove the weekend, CoreLogic’s daily house price index revealed that Perth dwelling value declines have smashed through 18%: This is by far the biggest bust on record for Perth, with the current 16% decline far eclipsing prior price corrections, both in terms of size and duration: The quarterly pace of decline
By Leith van Onselen SQM Research last week released questionable analysis of Labor’s negative gearing policy (debunked here), which received widespread mainstream media attention and was greeted with headlines warning that dwelling values would plummet and rents would skyrocket under Labor’s policy. The most questionable aspect of SQM’s analysis was its rewriting of history about the
CoreLogic released its preliminary auction report yesterday, which reported another weak clearance rate on crashing volumes. The preliminary national auction clearance rate was just 56.0%, slightly below last week’s 56.1% and way below the 62.7% final clearance rate recorded in the same weekend of last year: Auction volumes nationally were just 1,669 – way below
Via Martin North: Meh. I’ll not be holding my breath. Although I side with John Adams on his general thesis, I find his arguments too extreme. As for Chris, although he’s had a good track record on housing, he’s been ordinary on the wider economy and inflation. I’ll be at the pub instead.
Via Westpac: Given the intense focus on Australia’s housing markets at the moment and in light of our recent commentary around the best way to interpret auction market results (seehere) we will start putting out short previews each Friday and summary updates the following Monday setting out how results should be viewed. Key points heading into
A couple of charts from Westpac gives us some idea: Notice how VIC and NSW have kept a long term relationship between the cost of debt and arrears rates. But in QLD and WA that has broken down with Perth absolutely collapsing. The key, I suggest, is unemployment. WA has seen the largest move up in
By Leith van Onselen Home builders are beginning to lay-off workers as the dwelling construction downturn begins to gather pace. From The ABC: With housing well and truly in a downturn, director Greg Zuccala said this was one of the worst he had seen. “Builders are just battening down the hatches and looking after their
Via Investor Daily: Anyone expecting an RBA rate cut to trigger a repeat of the six-year property boom we experienced from 2011 needs to think again, according to one of Australia’s leading forecasters. Speaking to Investor Daily, AMP Capital chief economist Shane Oliver said he believes Sydney is now about halfway through its correction, with top-to-bottom
By Leith van Onselen Yesterday, I gave an interview to The New Daily commenting on SQM Research’s latest report on Labor’s negative gearing policy (analysed yesterday). Below are the quotes: The housing correction we had to have? The report’s finding that prices will fall and rental yields will rise is correct, but it won’t be
By Leith van Onselen In the week ended 21 March 2019, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, fell another 0.20%: Values fell across all major markets: So far in March, dwelling values have fallen by 0.52%, driven by Sydney and Melbourne: The quarterly decline has moderated
Friendly Jordies has hit the head with this video, lambasting the tidal wave of development being thrust upon Western Sydney, while wealthy areas are left largely untouched. As you can see, MB is even represented. My only gripe is that the NSW Liberals have at least called for immigration to be halved, which is the
Via Gottiboff today: Triguboff declared: “The market has definitely stabilised in Sydney. All those people talking about how much it will drop are wrong. In fact, it is improving very slowly.” …Triguboff says the Chinese have found a way around the problem and “are organising their finance with or without our banks. In many cases
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 4.7% decline in the final national auction clearance rate to 51.4% – above last week’s 47.8%: As you can see, Sydney’s final auction clearance rate was 8.9%
Ever visited an emerging market where the landscape is dotted with failed developments like broken transformers? Welcome to Little China, via the ABC: The property market upheaval brings billionaire investor Warren Buffett’s oft-quoted piece of wisdom to mind: “Only when the tide goes out do you discover who’s been swimming naked.” As the year progresses,
By Leith van Onselen For years, SQM Research’s managing director, Louis Christopher, was a big supporter of negative gearing reform (see here). Then in 2016, Christopher flip-flopped, releasing an incredibly superficial report that was comprehensively debunked by Dr Gavin R Putland. Today, Louis Christopher has updated its 2016 report, which reaches many of the same flawed conclusions.
Via the excellent Jonathon Mott at UBS: We have cut FY19E EPS by 3% given exit costs and larger losses from the Advice business, but we upgraded FY20E by 0.6% (exit from loss-making business). However, our forecasts are yet to incorporate further customer remediation charges (fee-for-no-service) for aligned advisers which are very difficult to estimate.
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
