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 A strange situation has developed across Melbourne’s housing market. Despite the overall market crashing, down around 9.5% from peak and the pace of losses accelerating: The number of suburbs with a median house price below $400,000 has vanished to zero. From RealEstate.com.au: Suburbs with median house prices below $400,000 are now
CoreLogic’s leading indices are out and they continue point to further house price weakness. After barely retracing over the Christmas break, listings are beginning to rocket into the Autumn not-selling season: By contrast, trend finance commitments have plummeted: As we already know, housing finance is one of the best short-term indicators for prices, suggesting that
By Leith van Onselen McGrath Limited has released its FH19 results, which delivered an 18% crash in revenue and a EBITDA loss of $2.5 million: McGrath operates primarily out of Sydney, where both prices and volumes are crashing: Accordingly, its share price has collapsed around 88% since it floated: Surely it is now one of
By Leith van Onselen With a near record level of apartments still under construction across Australia: Concentrated in Sydney and Melbourne: The Australian’s Alan Kohler has sounded the alarm: Deposits are typically 10 per cent. Sydney dwelling prices, on average, have now fallen 11.1 per cent; some places more, some less. The average decline Melbourne,
By Leith van Onselen The mortgage broker locusts continue to swarm politicians over the Hayne Royal Commission’s recommendation to overhaul mortgage broking from a commission-based to a user-pays system. The head of the country’s biggest retail mortgage broker, Aussie Home Loans chief James Symond, is mobilising brokers across Australia to lobby politicians to retain the
By Leith van Onselen With the East Coast property bubble raging, the Turnbull Government in October 2017 passed legislation to allow first-home buyers (FHBs) to use up to $30,000 of voluntary super contributions for a housing deposit. The scheme was announced as part of a ‘housing affordability’ package announced in the 2017 Federal Budget: Now, Labor
We’ve seen this before. The method is to find isolated property bulls and represent them as some kind of booming movement. Via the AFR, apparently looming rate cuts and no more Hayne has: …lifted a range of housing market indicators – open inspection attendances, auction attendances and auction clearance rates – above their levels of
Via Banking Day comes Nathan Lynch of Thomson Reuters Regulatory Intelligence: Chinese law enforcement agencies have resorted to the use of private sector “bounty hunters” to track down assets in Australia that are linked to Mainland corruption, as diplomatic tensions flare over money laundering and capital flight. Australia is growing increasingly concerned about the use of
Because he sounds like he needs it, via Bloomie: Harry Triguboff is remarkably calm about Australia’s worst real estate slump in a generation considering he’s got more at stake than perhaps anyone on the planet. …“If prices fall, I’ll buy the land cheaper,” Australia’s second-richest person said with a wave of his hand. “As long
By Leith van Onselen The weekend ushered in another ominous milestone for Sydney’s housing market, with annual value falls busting through 10%: Here’s how Sydney’s annual value declines look on a chart: As you can see, the pace of losses has accelerated, which is shown more clearly on the quarterly chart where losses are running
CoreLogic released its preliminary auction report yesterday, which reported another seasonal rebound in clearances on low volumes. The preliminary national auction clearance rate was just 47.8%, way below the 62.0% recorded in the same weekend of last year: Auction volumes nationally were just 1,444 – well below the 1,992 recorded in the same weekend last
By Leith van Onselen Today, the Victorian Government will announce that it is rezoning 50,000 housing blocks and creating 12 new suburbs in Melbourne’s key growth zones in order to cater for Melbourne’s bulging population. The areas that will be opened up for development are: Beveridge North West Wallan South Wallan East Merrifield North/Kalkallo Basin
Here’s the DHG wrap: And the segment split: The biggest issue is in the print revenue: Less people spending less on glamour ads, I guess. Then there’s the write down which sounds lie the tip of the iceberg and an outlook that ain’t much to celebrate: Dour stuff with the risk of considerably worse ahead.
By Leith van Onselen Consumer groups have lashed the mortgage broking industry for pretending to care about reform while vigorously lobbying politicians to protect their commissions. From SBS News: The consumer groups that were part of a forum with the mortgage-broking industry have quit en masse, citing a lack of progress and willingness to change.
By Leith van Onselen In the week ended 14 February 2019, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, tanked another 0.24%: Values fell across all major markets except Brisbane: So far in February, home values have fallen by 0.48% at the 5-city level, with all major markets
A nice follow up today from Martin North to yesterday’s Should I buy property now?: The only question I have is why Martin sees it as a “slow slide”. Sydney and Melbourne are falling at more than 4% per quarter.
Via AFR: The Australian Securities and Investments Commission (ASIC) has released updated guidance on how banks should verify customers living expenses before lending, to meet its expectations regarding the responsible lending laws. Lenders using the Household Expenditure Measurement (HEM) as a benchmark will need to apply a “reasonable buffer” reflecting the benchmark is too low.
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 3.0% decline in the final national auction clearance rate to 51.1%: As you can see, Sydney’s auction clearance rate fell by 5.2% to 54.0% whereas Melbourne’s fell
By Leith van Onselen A strong theme of this housing bust has been the degree to which value falls have been driven by the top-end of the market. As shown in the next chart, the top 25% of capital city homes (“High Value”) fell 9.9% in the year to January 2019, versus falls of 4.8%
By Leith van Onselen Listed developer Villa World reported a 2018-19 interim net profit of $17.6 million, which is in line with the same period in 2017-18. However, the company reported a 30% slump in sales volumes to 517 lots during 1H19, versus 742 lots in 1H18: Demand for the Company’s core product – affordable land
If you thought the banks were about release the spiggot on credit think again, via the AFR: The federal government has told the banks and regulators there will be a fresh industry inquiry in three years to ensure they have improved their behaviour and are treating customers better. Treasurer Josh Frydenberg wrote this week to
By Leith van Onselen Tuesday’s Lending to households and businesses release from the ABS revealed that total mortgage lending (excluding refinancings) tanked by 10.1% in the 2018 calendar year in rolling annual terms, driven by an epic 23.6% crash in investor commitments, whereas owner-occupied commitments fell by a more moderate 3.2%: As shown above, annual investor
This is not good. Via the AFR: China has introduced jail terms for operators of “underground banks” illegally helping tens of thousands of its citizens transfer money out of the country to buy property overseas, in a move developers warn is a big blow to Australia’s real estate market. China’s Supreme Court quietly introduced stiff
Via Martin North: In short, no, although I never argue that owner occupiers try to time the market. It causes too much agonising in Australia’s busted political economy. That said, these are the worst headwinds for Australian property in my lifetime. I’m not so shy about saying that investors should push property away with a ten
Via AOG: What, not the weather’s fault?
By Leith van Onselen CoreLogic has released its December Quarter Economic Review, which contains some interesting titbits on the housing market. A highlight is the below chart showing that apartments under construction are hovering at record high levels, which has raised settlement risk: At the end of the September 2018 quarter there 227,186 dwellings under
Well…of course it does. It doesn’t have any branches to distribute its mortgages, via The Australian: Macquarie chief Shemara Wikramanayake has backed the role mortgage brokers play for borrowers, acknowledging that the Hayne royal commission would prompt smaller banks to rethink distribution and more closely assess what customers would pay for loans. Commissioner Kenneth Hayne’s
Via AFR: Colourful Melbourne property speculator and local councillor Intaj Khan has put a portfolio of four housing sites in the city’s west on the market with expectations they could sell for almost $60 million. Cr Khan, who was found guilty of eight breaches of his duties as a Wyndham City councillor last year and
Get ready for an avalanche of this fake news, via the AFR: Property investors are chasing falling prices, bargain-basement fixed rates, rising rental yields and bigger discounts as they rush to beat a Labor government’s negative gearing changes, agents and analysts said. Anecdotal accounts from real estate agents, representing sellers, and brokers’ agents, representing buyers,
It shouldn’t because he’s talking nonsense. Via Bluenotes: The fall in Australian house prices in 2018 was the largest since the financial crisis. But the implications for the broader economy are more important. It’s even possible that weaker house prices and a weaker economy combine into a negative feedback loop (although in my view this is unlikely). “All previous periods of declining
