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.
This week’s mortgage commitment data from the Australian Bureau of Statistics (ABS) revealed a record bounce in mortgage demand, with new commitments (excluding refinancings) surging by 8.9% in July and by 11.8% year-on-year: The next chart plots the rolling annual change in the value of mortgage commitments (excluding refinancings) against CoreLogic’s 5-city dwelling value growth
In the week ended 10 September 2020, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, fell another 0.06%: It was the 18th consecutive weekly decline. The fall was again driven by Melbourne, whereas Brisbane and Adelaide recorded strong rises: Quarterly dwelling values continue to fall at a decent
Makes for good viewing but it is the tip of the iceberg.
The Dinkum Index from Fitch: Fake, of course. Arrears are all piled into forbearance loans. Via Banking Day: APRA has made further regulatory adjustments to the capital treatment of loans to customers affected by COVID-19. These include provisions covering loans subject to more than one restructure and the extension of concessional capital treatment to loans
According to APRA, repayments on $195 billion of mortgages had been deferred as at August, representing 11% of Australia’s total mortgage loan book. With a significant chunk of these borrowers still experiencing financial stress, and likely to seek further relief from mortgage repayments, there are concerns that Australia’s banks may take the opportunity to jack-up
Via the AFR: Melbourne’s CBD faces a $110 billion wipe-out over the next five years from its strict lockdown with 79,000 jobs set to be lost across the city in the worst economic, social and mental health disaster for the city since World War 1, PwC modelling from the mayor’s office reveal An estimated 22,900
Didn’t miss a beat: Australia’s house prices hold up against the rest of the world Australia’s property market is still ranked in the top 20 in the world, despite any damage inflicted on it by the coronavirus pandemic. Out of 56 countries and territories in the global index’s second quarter analysis produced by independent property
Oh, how times have changed. Before the COVID-19 pandemic hit, the property lobby and government continuously claimed that Australia’s housing affordability woes were due to a chronic lack of supply and not impacted by Australia’s turbocharged immigration intake. Now, the story coming from the property lobby is the polar opposite, with the industry warning of
Today’s new mortgage data from the Australian Bureau of Statistics (ABS) recorded a strong rebound in July as COVID-19 restrictions were eased: The next chart plots the time series: Total new mortgage commitments (excluding refinancings) rose by 8.9% in July, with owner-occupied mortgages surging 10.7% and investor mortgages rising 3.5%. Year-on-year, total new mortgage commitments
CBA’s head of Australian economics has revised down its forecast for peak-to-trough property price falls and now believes that values will rebound strongly in 2021: Key Points The COVID-19 pandemic has had a negative impact on Australian residential property prices, but outcomes vary significantly by capital city. We expect dwelling prices to continue to decline
Via Domain: With the bank forecasting house price falls of up to 15 per cent, Mr Hand was asked if this meant ANZ would limit loan-to-valuation ratios (LVRs) in Melbourne. Mr Hand responded that the 15 per cent fall forecast was a “worst case scenario” but it would impose LVR limits on some postcodes, and
The national cabinet announced in March that it would impose a six month ban on evicting tenants who had encountered financial hardship because of COVID-19. Tenants were advised to negotiate with landlords about possible rent reductions, but many had to settle for deferrals rather than reductions. Protections against evictions will end in most states and
From CoreLogic weekly property indicators, the leading mortgage index has entered some kind of zombie state: Materially down on last year and far down on previous. Remember that this is owner-occupiers only and investor mortgage are far worse. Listings are still providing some market support: But it is artificial given the huge fall in
MB has been unearthing the practice of misrepresenting realtors and friends as objective sources for many years. Now this: Dear readers, At Domain, we strive to be the trusted voice on property. We have always been proud of our editorial heritage and the standards we set out to meet in each article we publish. Unfortunately,
ANZ CEO Shayne Elliott believes Australia’s banks won’t feel the full impact of the COVID-19 recession until loan repayment holidays and emergency income support expires next year: ANZ has provided deferrals to property loans to the value of $31 billion, or about 10 per cent of its home loan book… [But] Elliott says the bank’s
CoreLogic’s preliminary auction clearance rate retraced slightly, with 67.5% of reported auctions cleared versus 67.7% last weekend: Sydney’s preliminary clearance rate was solid with 69.5% of reported auctions sold, albeit down from 74.0% last weekend. However, Melbourne’s preliminary clearance rate bombed to just 33.3% from 49.6% last weekend off only 28 auctions. According to CoreLogic:
A housing supply absorption rate equation You are a housing developer with a large plot of land on the fringes of a major city with no planning constraints. How quickly should you sell these lots to supply them to the housing market? This is the question I answer in a new working paper entitled A Housing
From Mr Joye today: There are signs the modest coronavirus-induced housing correction may be coming to an end in all cities but Melbourne, according to the latest daily CoreLogic index data. The risk to this nascent recovery is a second wave emerging in New South Wales. Remarkably, across Australia’s eight capital cities home values have
Via Dan Ziffer at the ABC: In March, the coronavirus crisis threatened to bring the roof down on the rental market that houses one-in-three Australians, as incomes crashed and evictions loomed. A combination of income support, “pausing” repayments on mortgages and a ban on evictions propped up the system and bought all the players six
From CoreLogic’s head of research Eliza Owen: Recent forecasts from Treasury indicate annual population growth across Australia is set to slow from around 1.4% pre-COVID, to 0.6% through the 2020/21 financial year. In raw numbers, that implies Australia’s annual population growth will reduce from around 350,000 in 2019 to 154,000 over the year ending June
Yesterday, The AFR reported the extraordinary rental slaughter taking place across Sydney and Melbourne: CoreLogic’s Tim Lawless reported similar yesterday, with apartment rents across Sydney and Melbourne crashing by 4.2% and 4.4% respectively in the five months to 31 August: This comes on the back of collapsing immigration and ballooning rental vacancies across both capitals:
The Australian Bureau of Statistics (ABS) this week released its dwelling approvals data for July, which revealed that apartment approvals have fallen 63% below their November 2017 peak: Today, I want to focus on the high-rise apartment segment, which has driven the apartment bust. The next chart shows the picture at the national level and
Nice work from Martin North: Very sensible.
In the week ended 3 September 2020, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, fell another 0.03%: It was the 17th consecutive weekly decline. The fall was again driven by Melbourne, whereas Perth recorded a strong rise: Quarterly dwelling values continue to fall fast, also led by
CoreLogic has released its final auction clearance results for last weekend, which reported a final auction clearance rate of 59.8%, down slightly on last week’s 60.0%: Sydney’s final clearance rate softened to 64.2% (from 66.1% last week), whereas Melbourne’s bombed to 40.6% (down from 45.0% last week). As noted by CoreLogic: In Melbourne, 162 homes
Via Cameron Kusher keeping it real at realestate.com.au: …mortgage holders who have lost their jobs should seriously consider the likelihood of them finding another job, or a job with an equivalent salary. If the likelihood of this occurring is low, they should strongly consider selling their properties sooner rather than later. 1. Competition Of course,
Via AFR: Median house rents in Sydney’s Oakville could drop by 35 per cent by the end of the September, while units in Barangaroo are on track to slump by 27 per cent, a new report shows. Suburbtrends.com is also forecasting median house rents in Hyde Park in Adelaide to drop by 22 per cent
Melbourne’s rental vacancy rate ballooned by 20% in August, according to new data from Domain: New data from Domain has laid bare the impact of the stage four lockdown on the rental market, revealing the portion of available, empty rental properties is up by a whopping 140.7 per cent compared to the same time last
With Australia’s property market now declining for four consecutive months, it’s an opportune time to compare this current nascent correction with prior episodes. The below chart shows the various dwelling corrections over the past 30-plus years at the 5-city level, as measured by CoreLogic: As you can see, this bust is only in its infancy,
Via Martin North: The August 2020 data from our surveys continues to tell a sorry tale of more households feeling the pinch, whether they are mortgaged, renting or investing. Within the numbers there was a slid in Victoria in particular reflecting the latest lock down and the rising pressure on business there. Overall mortgage stress
