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 Please find below the daily house price indices from RP Data-Rismark as at 30 March 2012: And below are the index values as at the end of February: A comparison of these two tables provides the change in dwelling prices in the month of March: According to RP Data-Rismark, dwelling
By Leith van Onselen The Reserve Bank of Australia (RBA) has just released the private sector credit aggregates data for the month of February: Total credit provided to the private sector by financial intermediaries rose by 0.4 per cent over February 2012, after rising by 0.2 per cent over January. Over the year to February, total credit rose by
By Leith van Onselen Following on from yesterday’s article, Credit-dependent industries demand rate cuts, Australia’s mortgage broking industry has today called on the Reserve Bank of Australia (RBA) to cut official interest rates and for the Federal Government to increase subsidies to first home buyers, in an attempt to reinvigorate the flagging housing market: Mortgage
Actually 4 charts today, all from the RBA’s Financial Stability Review, the household side covered by Delusional Economics this morning. I’m focusing on Section 1 “The Global Financial Environment”, and given our particular proclivity for property prices, I thought this chart had merit: A few things stand out. First, France’s residential property market appears to
By Leith van Onselen Starting today, I am changing things up. From now on I will post the daily house price indices from RP Data-Rismark, as well as three charts showing: the daily percentage movement by capital city; the weekly percentage movement by capital city; and the month-to-date percentage movement by capital city. First up,
Property has had better days. Business Spectator has a an interview with its head of global wealth management, Peter Dorrian in which he lays out the foreign view of Australian house prices: Pimco’s head of global wealth management – Australia, Peter Dorrian, tells Business Spectator’s Alan Kohler, Robert Gottliebsen and Stephen Bartholomeusz: Overseas investors think
You’re no doubt more used hearing from Fujitsu about air conditioners. But it’s a little known fact that they run a small financial services consulting unit which today, in conjunction with J.P. Morgan, released a pretty bearish assessment of the prospects for Australian housing. The semi regular Australian Mortgage Industry report concludes: …that the biggest
By Leith van Onselen Please find below the RP Data-Rismark daily house price indices for 28 March 2012: And below are the index values as at the end of February, which you can compare to the above daily movements to get the month-to-date home price movements in each capital and nationally: Finally, for a longer-term
By Leith van Onselen Starting today, I will provide a weekly and month-to-date summary of capital city home price movements as measured by the RP Data-Rismark daily house price index. Two charts are presented: The weekly percentage movements in capital city dwelling prices; and The month-to-date percentage movements in capital city dwelling prices. First, consider
Australia’s largest residential property developer, Stockland (SGP) “surprised” the market today with an update, announcing that: “..a recent deteriotation in the residential market has impacted its Residential sales, and in addition, prolonged wet weather has results in the deferral of a number of settlements into next financial year. “ SGP has reduced its earnings guidance for
By Leith van Onselen Sorry folks, almost missed SQM Research’s release last week of the capital city rental vacancies data for the month of February: As you can see from the above table, rental vacancies fell by -2,279 (-4.6%) in February, but remained 3,662 (+8.4%) higher than in February 2011. Melbourne, Sydney, Brisbane, Adelaide, Hobart
By Leith van Onselen Please find below the RP Data-Rismark daily house price indices for 27 March 2012: And below are the index values as at the end of February, which you can compare to the above daily movements to get the month-to-date home price movements in each capital and nationally: Finally, for a longer-term
So, following on from the press release, find more details from the Fitch Dinkum Index below. First the headline index: Modest Increase in Arrears: Delinquencies in the Australian prime RMBS sector increased to 1.57% in Q411 (from 1.52% in Q311) driven by a rise in the 30-59 day bucket (up 4bp). Arrears have also increased in both
Fresh from Fitch: Fitch Ratings-Sydney-26 March 2012: Fitch Ratings said that delinquencies in the Australian prime RMBS sector have unexpectedly increased to 1.57% in Q411 from 1.52% in Q311 despite a stable environment in terms of interest rates, economy and unemployment. The increase in Fitch’s Dinkum Index was mainly driven by a rise in the
By Leith van Onselen Love it or hate it, please find below the RP Data-Rismark daily house price indices for 26 March 2012: And below are the index values as at the end of February, which you can compare to the above daily movements to get the month-to-date home price movements in each capital and
By Leith van Onselen Please find below the RP Data-Rismark daily house price indices for 22 March 2012: And for added context, below are the index values as at the end of February, which you can compare to the above daily movements to get the month-to-date home price movements in each capital and nationally: Finally,
From Banking Day: Mortgage insurers earned a total of A$999 million of premium income in the year to June last year and incurred claims of just $177 million. The segment is of increasing interest, not just to the banks and other lenders that buy this insurance (in a highly concentrated market) but also to investors,
By Leith van Onselen I came across an interesting article yesterday by The Cupboard’s Economics Editor, David Uren, entitled: Australian housing market just a jobs crisis away from collapse. It is one of the more bearish pieces we’ve seen in the increasingly circumspect MSM recently. Let’s take a look: STOCKS of unsold apartments and houses
By Leith van Onselen Please find below the RP Data-Rismark daily house price indices for 21 March 2012: And for a longer-term prespective on Australian home prices, below is RP Data’s time-series chart showing the rolling annual change in dwelling values: [email protected] www.twitter.com/Leithvo
Time to start up the Chart of the Day series again – today I want to look at Spanish mortgage arrears rates, and compare them to our local housing market. The following chart from Scotty Barber below is very telling: The top half shows the change in real (inflation adjusted) GDP versus bad loans. Note
By Leith van Onselen RPData, provided and interesting tidbit of information in its 2012 Capital Markets Report (available for download here), where it noted [my emphasis]: The Australian housing sector is the country’s largest and, arguably, most important asset class. The total value of homes across the country as at December 2011 was $4.54 trillion.
By Leith van Onselen For me, one of the most interesting aspects arising from following the Australian housing market over the past couple of years has been the widespread change in media and public sentiment towards the state of the market. Since writing my first ever post warning of a housing bubble in May 2010