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 average national house rent is up 4% on late 2019, according to data from MRI Software, which tracks real-time rental performance across 4000 real estate offices. However, national apartment rents have fallen by 7% over the same period, due to factors such as border closures and a lack of business travel. The average time
Friday’s lending indicators data posted a sharp decline in loans for new dwelling construction, which fell for the second consecutive month by a combined 21% from February’s peak: Nevertheless, they remained 72% higher year-over-year. According to the Housing Industry Association: “This is the first ABS data to show that we are past the peak in
CoreLogic’s preliminary report on the weekend’s auctions reported a lower clearance rate courtesy of Melbourne’s second weekend of hard lockdown. The national preliminary clearance rate fell to 73.5% from 75.7% the prior weekend. This was off 2,691 auctions, down from the prior weekend’s 2,930. Sydney continued its strong run recording a preliminary clearance rate of
On Friday, the Australian Bureau of Statistics (ABS) released data on new finance commitments, which showed booming growth in both owner-occupied and investor mortgages. As shown in the next chart, owner-occupied mortgage commitments soared 70% in the year to April 2021, whereas investor mortgage commitments surged 63%: As regular readers know, the growth in new
Buying a high-rise apartment has become a game of financial Russian Roulette. Over recent years we witnessed a proliferation of building faults and flammable cladding infernos at sites including Lacrosse, Neo200, Opal, Mascot, Zetland, Campsie, among others. In 2019, Four Corners aired a segment entitled Cracking Up, where building law expert Bronwyn Weir encapsulated the
The Australian mortgage market remained red hot in April, hitting new all-time highs according to new data released today by the Australian Bureau of Statistics (ABS). The total value of new mortgage commitments rose by a seasonally adjusted 3.7% in April 2021 to be up 68.2% year-on-year: As shown above, the record increase in new
In the week ended 3 June, the CoreLogic daily dwelling values index surged another 0.48%: Sydney’s led the way again, with dwelling values rising another 0.60%. All other major capitals also rose strongly in value: Quarterly price growth remains turbo-charged at 7.05% across the five major capitals. Sydney (9.19%) continues to lead the way, followed
CoreLogic released its final auction report for last weekend, with the final clearance rate falling to 73.5% from 77.0% the prior weekend. It was the lowest final auction clearance rate recorded in 2021. As usual, Sydney led the market recording a final clearance rate of 76.0% (down from 76.9%), whereas Melbourne’s final clearance rate fell
Interest.co.nz’s David Hargreaves has posted the below stunning chart showing that Kiwis have leveraged big time into non-productive housing lending, whereas consumer lending has also rebounded hard. By contrast, lending to productive areas of the economy – businesses and agriculture – continues to fall: While the mortgage borrowing has been mounting and mounting, business lending
The latest mortgage data from the Australian Bureau of Statistics (ABS) shows that investors are beginning to take-over from first home buyers (FHB) in driving property demand. Investor mortgage commitments surged 29% over the first three months of 2021 and are now clearly crowding-out FHBs: Investor mortgage growth is now turbo charged, as illustrated by the
Domain has released rental vacancy data for May, which shows that the national rental vacancy rate has fallen to its lowest level since Domain records began in 2017: Vacancy rates have fallen particularly hard across the smaller capitals, with Brisbane (1.3%), Adelaide (0.6%) and Darwin (0.5%) all posting record low vacancies. Vacancy rates across Sydney
RBA Governor Phil Lowe last year endorsed Treasurer Josh Frydenberg’s proposal to axe responsible lending rules, telling the Standing Committee on Economics that Australian mortgage restrictions had become too strict and were constraining the economy: “We can’t have a world in which, if a borrower can’t repay the loan, it’s always the bank’s fault. On a
SQM Research has released its Stock on Market data for May which revealed a hefty 6.3% decline in for sale listings over the month to be down 19.2% year-on-year: Listings fell across all capital city markets other than Darwin. The decline has been driven by old listings, which fell 9.2% in May to be down
Never has there been such a strong divergence between the construction of detached houses and apartments. Yesterday’s dwelling approvals data from the Australian Bureau of Statistics (ABS) revealed that 14,072 detached houses were approved over the month – a 58% increase year-over-year and the highest monthly count since the series began in 1983: It is
UBS with the note: May-21 home prices boom 2.3% m/m & 10.6% y/y; now up 11.7% since Sep-20 CoreLogic dwelling prices in May-21 boomed a further 2.3% m/m (sa, UBS: +2.0%, 2.2% nsa) and 10.6% y/y, the strongest since 2010. This follows a 1.7% m/m lift in April, with prices now up 11.7% since the
The AFR is running an article claiming that “Millennials are a time bomb for the NSW property market”. Citing a NSW Productivity Commission (PC) White Paper, The AFR claims that Peter Costello’s Baby Bonus generation will soon need their own housing, which will drive a chronic shortage of homes across Sydney in the second half
An interesting development is happening across Australia’s real estate agencies. Despite Australia experiencing its strongest synchronised property boom in decades, real estate agencies are duking it out to secure the limited number of listings on offer. The situation has become so extreme in Tasmania that the Real Estate Institute of Tasmania is literally “begging” agents
The support for mortgage holders over the past 18 months has been extraordinary. From suspended interest payments to cratered fixed interest rates, the worst of times was suddenly transformed into the best of times for the most leveraged. But those concessions are now ending as the RBA’s TFF rolls off and fixed rates rise. Plus
New data from the Australian Bureau of Statistics (ABS) shows that dwelling approvals fell by 8.6% in April to be 39.2% higher over the year. The fall was driven by units & apartments, which tanked 28.6% in April whereas house approvals rose 4.6%. Houses led approvals over the year, lifting a whopping 67.4% versus a
CoreLogic’s leading property indexes remain red hot. On the supply side, for sale inventory is still very low despite resurgent listings: On the demand side, we are yet to see any seasonal slowdown for winter mortgage issuance: Remember that this index only covers owner-occupiers and investors are also on the move now. In terms of
CoreLogic has released its full dwelling value results for May, which recorded booming price growth across every key market: Dwelling values nationally rose 2.2% in May with every single sub-market except regional WA recording rises on a monthly, quarterly and annual basis: The only change this month is that capital city growth finally overtook the
The latest virus shite from VIC: Reported yesterday: 9 new local cases and 2 new cases acquired overseas (currently in HQ). – 20,484 vaccine doses were administered – 42,699 test results were received More later: https://t.co/lIUrl0ZEco #COVID19Vic #COVID19VicData pic.twitter.com/NwsnE1Hgth — VicGovDH (@VicGovDH) May 31, 2021 Reports now are for a likely extension to two weeks.
CoreLogic’s preliminary report on the weekend’s auctions reported a lower clearance rate on another big weekend of volumes. The national preliminary clearance rate fell to 75.7% from 78.2% the prior weekend. This was off 2,930 auctions, up slightly from the prior weekend’s 2,845. Sydney continued its strong run recording a preliminary clearance rate of 81.0%
The Reserve Bank of Australia (RBA) has released its private sector credit aggregates data for the month of April. Quarterly mortgage credit growth continued to firm, rising for the 9th consecutive month to 1.5% – the highest rate of growth since September 2017: Owner-occupiers continue to drive mortgage growth, rising by 1.8% over the quarter
APRA is out with its April mortgage lending figures and the big banks are lifting investor participation in the property boom at a good clip now. Monthly growth in April was 0.3% and pushing towards levels that APRA last tightened macroprudential rules in 2017. The unemployment rate was around the same then as it is
Since the COVID-19 pandemic began, there has been lots of discussion claiming that Australians are fleeing from capital cities to the regions, which is helping to fuel the region’s rapid price growth. For example, the Australian Bureau of Statistics’ (ABS) latest internal migration data shows that Australia’s capital cities lost around 22,000 residents over the
CoreLogic has released its daily dwelling values index for 31 May, which shows that property values across the five major Australian capital city markets surged another 2.3% over the month: The rise in values was broad-based with all major capital city markets recording strong increases. However, Sydney again led the way followed by Brisbane: Over
CoreLogic released its final auction report for last weekend, with the final clearance rate to 77.0% from 77.0% the prior weekend. It was the lowest final auction clearance rate recorded in 2021. The result came off the year’s fifth strongest auction volumes (2,834). As usual, Sydney led the market recording a final clearance rate of
More than 33,000 Australians and 125 community groups recently signed an open letter against the Morrison Government’s legislation to abolish responsible lending laws, which are currently sitting in limbo in the Senate. As we know, the Hayne Banking Royal Commission’s very first recommendation was to maintain these responsible lending laws, which came after observing multiple
Earlier this month I wrote an article entitled “Investors storm back into property market” which cited NAB survey data and ABS mortgage statistics showing that investors are rapidly increasing demand for Australian property. My one disclaimer was that the value of investor mortgage commitments was still running 22% below its 2015 peak, suggesting that the pick-up
