Christopher Joye, portfolio manager at Coolabah Capital Investments, has warned that Australian housing values could plummet more than 30% if the Reserve Bank of Australia (RBA) lifts interest rates in line with the market’s expectations: Aussie house prices could fall by more than 30 per cent if the Reserve Bank of Australia’s fulfils uber-aggressive market
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 Australian Bureau of Statistics (ABS) on Tuesday released a new series on Australia’s dwelling stock, which showed that the total value of Australian residential dwellings hit a record high $10.2 trillion dollars in the March quarter of 2022: As expected, the value of dwellings nationally is dominated by our two largest jurisdictions of NSW
CoreLogic’s daily dwelling values index, which measures price growth across the five major capitals, fell by 0.22% in the week ended 16 June. This was the largest weekly decline since July 2020 during the depths of the pandemic: Sydney and Melbourne drove the fall with values plunging 0.36% and 0.32% respectively over the week. Value
CoreLogic has released its final auction results for last weekend, with the nation’s clearance rate plummeting to just 54.8% – the lowest result since late July 2020 during the depths of the pandemic: Auction clearances were weak everywhere other than Adelaide. According to CoreLogic: Continuing the downward trend seen since midFebruary, last week’s combined capitals
SQM Research has released its rental vacancy data for May, with the national rental vacancy rate falling 0.1% to 1.0% – a new 16-year low: As shown above, rental vacancies are tracking below 1% everywhere but Sydney and Melbourne. The next chart plots vacancy rates across the major capitals and nationally: Commenting on the result,
Just when you thought Australia’s futures market couldn’t get more crazy on interest rates, they have lifted the bar again. According to their latest implied yield curve, Australia’s official cash rate (OCR) will rise to around 3.6% by December and to 4.2% by May next year: Here’s how the market’s predicted OCR looks on an
The Australian Prudential Regulatory Authority (APRA) has released its quarterly housing loan exposures, which shows that the percentage of mortgages originated with a debt-to-income (DTI) ratio above six fell to 23.1% over the March quarter, down from the record high 24.3% in the December quarter of 2021: Nevertheless, the result was still way above the
It’s never a good sign when central bankers appear on prime-time TV. Here’s Captain Phil on 7.30 last night confessing that he is about to crash house prices. If he gets the cash rate to 2.5%, which is possible with Albo’s cowards driving energy inflation wild, then the crash will be much worse than -15%!
The Bank for International Settlements (BIS) has released its global household debt statistics for the December quarter of 2021. This data shows that Australia once again took the silver medal for household debt when measured against Gross Domestic Product (GDP). As shown in the table below, Australia’s household debt-to-GDP ratio was 119% in Q4 2021,
Late last month, it was reported that the NSW Government was preparing a rescue package for ‘too-big-to-fail’ Metricon and the industry: The NSW government at its most senior levels is scrambling to finalise a twin rescue package for the state’s building industry and customers of construction giant Metricon amid fears the company is at imminent
NSW Premier Dominic Perrottet has recommitted to abolishing stamp duty in favour of land taxes, but only if the federal government provides the state with transitional funding: The Premier confirmed next week’s state budget would include announcements and proposed changes relating to housing affordability, but clarified that no agreement had been reached with the Commonwealth.
Recent Australian first home buyers should feel aggrieved at the Reserve Bank of Australia (RBA). In 2020, the RBA dropped the official cash rate (OCR) to a record low 0.1% and then spent the following 18 months assuring Australians that rates would remain on hold until 2024. As explained in The AFR by CBA head
The Grattan Institute has published analysis showing that Australian households with a mortgage are facing a sharp rise in mortgage interest repayments in the event that projected increases in the official cash rate (OCR) come to fruition. The median economist is now tipping the OCR to peak at around 2.75%, whereas the futures market is
CoreLogic’s preliminary auction results suggest that buyer demand is collapsing following consecutive interest rate hikes by the Reserve Bank of Australia (RBA). The nation’s preliminary auction clearance rate plunged to only 58.5% over the weekend, with Sydney, Melbourne, Brisbane and Canberra each recording their lowest clearances of 2022: The result was significantly down from the
Following Tuesday’s ‘shock’ 0.5% hike in Australia’s official cash rate (OCR) to 0.85%, Australia’s futures market raised its interest rate expectations. As illustrated in the next chart, the futures market is now tipping a 3.1% OCR by December and 3.9% by May 2023: This is a sharp increase on last week when the futures market
After witnessing a conga line of home builders go bust amid soaring supply costs, the crisis is now spreading to high-rise apartment towers: A $140m apartment tower on the Gold Coast has been axed and others shelved as developers look for cash injections from private equity to cushion spikes in construction costs… Projects without approvals
In 2006, Australia signed a global agreement with the Financial Action Taskforce (FATF) to implement ‘tranche 2’ global anti-money laundering (AML) rules pertaining to non-financial assets (including property). The rules were to apply to real estate gatekeepers like realtors, accountants and lawyers. After stakeholder consultations in 2008, 2010, 2012, 2014, and 2017, the AML rules
CoreLogic’s daily dwelling values index, which measures price changes across the five major capital cities, fell another 0.10% in the week ended 9 June – the fifth consecutive weekly decline: Once again, the falls were driven by Sydney (-0.28%) and Melbourne (-0.13%), whereas prices rose across the other major capitals: Quarterly growth across the five
CoreLogic has released its final auction market results for last weekend, with the nation’s clearance rate falling to a fresh 2022 low of 58.2%. The fall nationally was led by Sydney whose clearance rate plunged to just 53.3% – also a 2022 low. Melbourne’s clearance rate was higher at 58.8%, but also a 2022 low:
Shane Oliver of AMP Capital has rung the bell on mortgage stress, warning that people who have recently taken out a home loan face escalating repayments as interest rates soar: “Those who took fixed rate last year may not feel the pinch yet, but still it’s going to be really painful for those who got
According to PropTrack Economist Paul Ryan, Australian house prices have experienced their sharpest deceleration in growth since 1989: “Home price growth has slowed down quickly in 2022. The PropTrack Home Price Index showed that home prices fell in May, the first decline since the start of the pandemic. In the last six months, home price
Domain’s latest rental report shows that the nation’s vacancy rate remains at a record 1.0%, down 1.7% year-on-year. Vacancy rates are highest in Sydney (1.4%) and Melbourne (1.6%), with all other capitals having vacancy rates well below 1.0%: Separate data from CoreLogic shows that rental growth strengthened in May, rising another 1.0% over the month and
Even before yesterday’s 0.5% rise in the official cash rate (OCR) by the Reserve Bank of Australia (RBA), major indicators were pointing to the beginning of a severe house price correction. First, mortgage finance commitments have turned sharply lower which, given historical correlations, points to falling house price growth: In a similar vein, the nation’s
Data released yesterday by the Australian Bureau of Statistics (ABS) shows that while the cost of Australian homes has ballooned, actual lot sizes has shrunk: Australians are building houses on smaller blocks… The average site area of new houses in Australian capital cities has decreased by 13% (64 square metres) over the last ten years, from