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.
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
Eliza Owen, Head of Research Australia at CoreLogic, has released new research examining the likely impact of the end-March withdrawal of the JobSeeker coronavirus supplement on Australia’s property markets. Owen provides a fairly sanguine assessment, noting that JobSeeker has already been tapered significantly since late September without any detrimental impact on the property market. To
Via Goldman: Home prices are rising at their fastest pace since 2013 but shelter inflation is low and falling (see Exhibit 1). Should we expect higher home prices, significant fiscal support, and a quick economic recovery to also produce above-trend rent growth? Or has the coronacrisis led to a more persistent divergence as households abandon
One of the most notable aspects of the current property boom is the absence of investors. Despite the lowest mortgage rates on record, investor mortgage demand remains well below its 2015 peak while owner-occupier demand has surged to record high levels. This is illustrated clearly in the next chart, which tracks ABS data on new
Australia’s property boom has gone from strength to strength, with CoreLogic’s 5-city daily index surging another 0.70% in the week ended 25 February, which follows the prior week’s 0.55% rise. As shown in the next chart, the past two week’s increase in values were the strongest in years, easily surpassing the late 2019 boom: Sydney
CoreLogic has released its final auction clearance rates for last week, which hit a fresh six year high of 79.6% – up from the 72.7% final clearance rate recorded in the same time last year. As usual, clearance rates were driven by Melbourne (77.4%) and Sydney (83.4%), which dominate the nation’s auction market; although results
The Australian property market is clearly on a tear, growing at a double-digit annualised pace on the back of rock-bottom mortgage rates and unprecedented government stimulus. On the one hand, a property price boom in Australia is nothing unusual, given Australia has experienced several similar episodes over the past decade, as illustrated clearly in the
Wholesale degeneration is now unleashed in Aussie politics. Prime Minster Scott Morrison’s rape protection racket is leading it. The Guardian: A former candidate for the Greens party has alleged Frank Zumbo, an office manager for the former Liberal MP Craig Kelly, behaved inappropriately towards her when she was a teenager, saying she felt compelled to speak
Fixed rates are all the talk in Australia’s mortgage market. Over the past year, fixed mortgage rates have experienced far larger declines than variable mortgage rates, thus offering borrowers huge opportunities for savings. As shown in the next chart, the average rate applying to existing 3-year fixed owner-occupied mortgages was only 2.20% as at January
CoreLogic has released Cordell Housing Index Price (CHIP) data, which measures housing construction costs across Australia. The CHIP index is measured daily via detailed cost surveys and are reported on a quarterly basis. The index is based on a combination of labour, material, plant hire and subcontract services required to construct buildings. In particular: Preliminaries
Bill Evans at Westpac: The housing market upturn that emerged in the third quarter last year has strengthened and broadened materially through year-end with all aspects now showing strong gains. Turnover is up 25% over the year, prices nationally are pushing above their pre-COVID levels, dwelling approvals surged 22% in the final quarter of 2020,
Nerida Conisbee, REA Group’s chief economist, has believes that Melbourne’s high-rise hangover could last years. Conisbee told Sky News that Melbourne’s CBD will likely “continue to dominate in terms of very high-levels of vacant apartments” due in part to regular shutdowns and an unwillingness and/or inability of workers to return the the CBD. Consibee also
All recent data shows that Australian mortgage demand is white hot. The official lending commitments data from the Australian Bureau of Statistics (ABS) showed that the value of new mortgages (excluding refinancings) issued in December surged to record highs following explosive 31% year-on-year growth. This growth was driven by owner-occupiers, where the value mortgages issued
The latest distraction thrown up by the struggling Morrison Government is a push for nuclear power. The Nats began it last week. Today we see more Coalition flunkies joining the push. The AFR has trolled the internet to find somebody else that supports the notion in Poland. At The Australian it’s Menzies Insitute doyen Nick
The weekend’s auction markets continued their recent strong run of form, with a preliminary clearance rate of 84.4% recorded across the nation, down slightly from last weekend’s 86.1%. As usual, this strong result was driven by the two major markets – Melbourne and Sydney – where auctions are most prevalent. Sydney recorded a preliminary clearance
The National Housing Finance and Investment Corporation (NHFIC) this week held a webinar discussing the “State of the Nation’s Housing: 2021 and beyond”. This webinar included an interesting presentation by NHFIC’s Head of Research Hugh Hartigan explaining how the collapse of immigration and international students into Melbourne and Sydney has caused double-digit declines in rents
CoreLogic has released its final auction report for last weekend, which recorded a final clearance rate of 77.1%, down from the previous week’s 6-year high of 79.3%: Sydney’s clearance rate remained turbo-charged at 83.9%, whereas Melbourne’s softened to 70.6%; albeit it was adversely impacted by the 5-day hard lockdown with 25% of auctions withdrawn: Auctions
CoreLogic’s daily dwelling values index for the week ended 18 February registered the strongest result in years with values across the five major capitals surging by 0.55%: All five major markets recorded rises, with Sydney, Melbourne and Perth values soaring: So far in February, dwelling values across the five major markets have risen by 1.10%,
December’s housing finance data from the Australian Bureau of Statistics (ABS) revealed that mortgage demand has rocketed to unprecedented levels after experiencing 31% growth year-on-year: CBA’s economics team has released new internal mortgage data showing that the strong momentum continued in January, with new lending for housing soaring to new highs: New lending for housing
It is fair to say that the Morrison Government’s HomeBuilder subsidy has been incredibly successful in juicing new home construction and supporting the economy. Detached house approvals surged to their highest level in the series’ 38-year history in December: Construction finance has also soared to unprecedented highs: Today, the Housing Industry Association (HIA) has issued
Dr Cameron Murray is a good friend of the site and one of the few commentators in the country to tip a property boom mid last year during the height of the COVID-19 pandemic. This week Dr Murray was interviewed by The Guardian where he tipped that smaller markets will lead this property cycle: Our
The Pilbara mining region of Western Australia is arguably the most volatile property market in Australia, experiencing massive booms and busts as the iron ore market rises and falls. After commodity prices collapsed in 2012: Asking rents for houses in Karratha fell by around 70% peak-to-trough, from around $1500 a week in late 2012 to
Victorian Coalition MP, Tim Wilson, has launched a “Home First Super Second” campaign, which is calling for first home buyers (FHBs) to be permitted to access their funds for a housing deposit before being required to save it as superannuation: Young Australians are struggling to save enough for a first home deposit. They have savings
CBA’s head of Australian economics, Gareth Aird, has given a terrific interview (below) on Radio 2GB discussing the Australian property market. The discussion is centered around a report released earlier this week where Gareth Aird tipped strong house price growth over the next two years on the back of rock bottom interest rates. For mine,
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SQM Research has released rental vacancy data for the month of January, which reveals a tightening market outside of Sydney and Melbourne. As shown in the table below, the vacancy rate nationally fell to 2.0% in January, down 0.1% from the same time last year: However, rental vacancies were higher than a year ago across
CoreLogic provides a series of leading indexes for property. They include mortgage demand and supply dynamics. On the supply side, the market has loosened marginally in Dictator Dan’s Ghost City but everywhere else is still tightening fast: Owner-occupier mortgages are also rebounding post-Xmas: This index does not include investors who are also beginning to warm
Back in 2016, David Murray – the chairman of the Financial System Inquiry (FSI) – recommended self-managed superannuation funds (SMSFs) be banned from borrowing to invest because of risks to the financial system: “Superannuation funds should not be leveraged, including SMSFs, because leverage magnifies risk. If the system is unleveraged, then if asset prices rise,
