By Leith van Onselen RP Data has launched two new leading indices, which look like a great addition to the toolkit of any housing analyst. The first index, called the “RP Data Mortgage Index (RMI) provides a real time indicator for mortgage market conditions, leading the ABS Housing Finance data by at least six weeks.
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 This blog has argued feverishly that exorbitant land costs are the key driver of higher housing prices in Australia. For example, using data derived from the Australian Bureau of Statistics (ABS) and the Reserve Bank of Australia (RBA), one can show that the value of residential land relative to Australia’s GDP
Another major developer eats dirt today with Becton Group defaulting on loans to Goldman Sachs. The AFR reports: Becton Property Group’s corporate entities have been put into receivership by the beleaguered company’s lending consortium, led by Goldman Sachs. The residential and retirement village developer had been negotiating with its corporate lenders to gain the crucial
By Leith van Onselen It seems Adelaide developers have joined their east coast brethren by offering generous incentives to buyers of house and land packages. From Adelaide Now: State government grants and record low interest rates are starting to have an impact, with Housing Industry Association figures revealing new home approvals in South Australia increased
By Leith van Onselen The Real Estate Institute of Victoria (REIV) yesterday released its preliminary auction results for the weekend just gone, which registered the strongest result in over two years. The preliminary clearance rate of 73% recorded on 903 auctions reported to the REIV. This compares to last week’s final clearance rate of 70%
Please find below another interesting article from Philip Soos debunking some of the common misconceptions around negative gearing of Ausralian property. Philip is a Masters research student at the School of Humanities and Social Sciences, Deakin University. In Australia, few housing market policies are more contentious than negative gearing (NG). At the forefront of defending
By Leith van Onselen Over the weekend, SQM Research released its new Vendor Sentiment Index, which gages the sentiment of vendors selling their properties on a weekly basis. Below is the Media Release pertaining to the new index: Home Sellers Boosting Asking Prices Vendors have been lifting their asking prices throughout the months of January
By Leith van Onselen Publicly-listed Australian mortgage broking firm, Mortgage Choice, has taken self-interest to another level in the wake of the sharp fall in first home buyer (FHB) mortgage demand, whereby the proportion of mortgages to FHBs fell to the lowest level since June 2004 following the recent cancellation of grants to first-time buyers
By Leith van Onselen In the week ended 21 February 2013, the RP Data-Rismark 5-city daily dwelling price index, which covers the five major capital city markets, recorded a 0.01% increase, which followed las week’s 0.16% increase (see next chart). Value gains were driven by Melbourne and Brisbane, which more than offset falls in the
By Leith van Onselen Oliver Hume has released some worrying statistics for Melbourne’s house-and-land market. From Property Observer: According to the latest quarterly report from Oliver Hume, there has been a 29% increase in the number of residential projects being marketed on Melbourne fringes since 2006 with the real estate group forecasting 160 active projects
By Leith van Onselen Colliers International has released research today showing a big jump in distressed property listings in the second half of 2012, with further increases expected in 2013. From Property Observer: Distressed property listings surged 36% in the second half of 2012 on the back of 5,207 companies going into external administration in
By Leith van Onselen The confusing signals coming out of the housing market have continued, with the release of the January dwelling price data from Residex showing that house price nationally fell by -0.88% over the month and by -0.38% over the quarter, but were 0.82% higher over the year. By contrast, unit values rose
By Leith van Onselen SQM Research has just released rental vacancy rates for January, which registered a sharp fall from December as the traditional Christmas seasonal uplift disipated (see next table). At the national level, residential vacancies declined by 0.4%, coming to a total of 54,156 homes. However, the vacancy rate was 0.1% higher than
By Leith van Onselen Please find below a PowerPoint presentation entitled Housing Supply & Price Volatility that I presented last Thursday to a mortgage risk roundtable in Melbourne. The presentation discusses how markets with unresponsive (inelastic) land/housing supply tend to suffer from higher house price volatility and bigger boom and bust cycles than markets where land/housing
By Leith van Onselen The Real Estate Institute of Victoria (REIV) yesterday released its preliminary auction results for the weekend just gone, which registered another solid result, with a preliminary clearance rate of 70% recorded on 437 auctions reported to the REIV. This compares to last week’s preliminary clearance rate of 69% from 204 auctions,
By Leith van Onselen Wednesday’s solid rise in the Westpac-Melbourne Institute Consumer Sentiment Index was a welcome sign for the housing market, which has struggled to gain momentum despite -1.35% of cuts to mortgage rates since November 2011. The Consumer Sentiment index jumped 7.7 points to 108.3, which was the highest reading since December 2010
By Leith van Onselen In the week ended 14 February 2013, the RP Data-Rismark 5-city daily dwelling price index, which covers the five major capital city markets, recorded a 0.16% increase, which followed two consecutive week of falls (see next chart). Value gains were driven by Sydney, Melbourne and Adelaide, which more than offset falls
By Leith van Onselen In Monday’s auction results post, I noted that last weekend’s preliminary auction clearance rate, as reported by the Real Estate Institute of Victoria (REIV), was a solid 69% on 204 results, but that there were 48 results (19% of total auctions) missing, which would likely bring the final figure down once
Stockland announced a nasty profit warning today, following Mirvac the other day, with some very downbeat comments about new residential property: “We have also now conducted our regular residential portfolio review and have identified 13 residential projects that do not meet our hurdles and have impaired them for wholesale disposal rather than continuing to develop
Please find below an epic chart pack created by Philip Soos on 150 years of the Australian housing market. Philip is a Masters research student at the School of Humanities and Social Sciences, Deakin University. For those interested in the Australian residential property market, below are a collection of figures illustrating long-term trends. Housing prices
By Leith van Onselen Yesterday, the Department of Sustainability and Environment (DSE) released housing transfers and mortgage data for the month of January, which recorded a decent bounce in the number of mortgages lodged and homes transferred. The number of housing transfers increased by 12% in January, partly due to seasonality, but were also up
By Leith van Onselen After the sub-prime mortgage crisis hit global capital markets in late-2007, causing bank funding costs to rise, the spread between the Australian banks’ discount variable mortgage rate and the Reserve Bank of Australia’s (RBA) official cash rate (OCR) increased sharply, reaching a post-GFC high of 2.7% as at January 2013 (see
By Leith van Onselen Yesterday’s housing finance data for December, released by the Australian Bureau of Statistics (ABS), contained a morsel of good news in that the number of finance commitments for new dwellings and construction increased by a seasonally-adjusted 1.5% over the month and was 8.1% higher over the year, to be tracking in
By Leith van Onselen From the Property Council comes news that office vacancy rates are on the rise nationally, led by weakening office demand in Perth and Brisbane: Demand for Australian office space fell dramatically in the second half of 2012 led by big slowdowns in Brisbane and Perth, according to the Property Council’s Australian
By Leith van Onselen Please find above RP Data’s February housing market update, which discusses the state of the Australian housing market as at the end of January, following the 1.2% monthly increase in capital city dwelling values. As expected, RP Data’s Tim Lawless is fairly upbeat this month arguing that a housing market recovery
Westpac has a quite useful way of carving up monthly housing finance figures into buyer cohorts and states that offers a glimpse of who is actually buying property at any given moment. Here are the three operative charts: Investors by state: We don’t know how Westpac achieves this split. The ABS does not provide state
By Leith van Onselen Today’s housing finance data released by the ABS revealed a worsening slump in mortgage demand from first home buyers (FHBs). According to the ABS, the number of finance commitments to FHBs nationally slumped to just 6,557 in December 2012, which is the lowest recorded level since February 2011 (see next chart).
By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released housing finance data for the month of December, which registered a seasonally-adjusted -1.5% decrease in the number of owner-occupied finance commitments over the month. Analyst’s had expected zero growth over the month: The fall in finance commitments was caused almost entirely by
By Leith van Onselen The Real Estate Institute of Victoria (REIV) yesterday released its preliminary auction results for the weekend just gone, which registered a solid 69% preliminary clearance rate on 204 auctions reported to the REIV. This compares to last week’s preliminary clearance rate of 71% from 108 auctions, which was later revised down