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).
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 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
By Leith van Onselen In mid-January 2003, just days before bush fires hit the outlying suburbs, my girlfriend (now wife) and I moved to Canberra from Melbourne so that I could commence work as an economist at the Australian Treasury. Fortunately for us, we had secured rental accommodation in December 2002, so were unaffected by
By Leith van Onselen The Queensland Department of Environment and Resource Management (DERM) has released data on housing transfers and mortgage lodgements for the month of January. According to DERM, the number of housing transfers and mortgage lodgements rose by 5.2% and 19.3% respectively in January 2013. However, on a year-on-year basis, housing transfers rose
From Banking Day comes news that on again off again Genworth IPO is on again, or is that off again? Martin Klein, acting president of Genworth told a conference call yesterday that “executing a partial sale of our Australia MI [mortgage insurance] platform remains a key goal…Execution of an IPO is subject to market valuation
By Leith van Onselen Starting today, I will be providing a weekly update on the latest movements in the RP Data-Rismark daily dwelling price indices, which covers the five major capital city markets. In the week ended 7 February 2013, the 5-city dwelling price index fell by -0.22%, which was the second consecutive week of
By Leith van Onselen In my regular Monday 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 71% on 108 results, but that there were 24 results missing, which would likely bring the final figure down once those missing
From the AFR: Australia’s second biggest home lender, Westpac Banking Corp, announced on Thursday that the rate to fix home loans for two years had been lowered to 4.99 per cent. It is the lowest fixed rate offered by Westpac since April 2009 and follows the Reserve Bank of Australia’s decision on Tuesday to keep the
From The Oz: MIRVAC Group has wiped $273.2 million off the value of its development projects on the back of weak conditions in Queensland’s apartment market. …Mirvac said that sales and prices in parts of Brisbane, regional Queensland and Perth had either fallen or stagnated. “The 2012 spring and summer sales season was expected to
In the long debate over housing supply, I have been on the lonely side of the argument. Many readers would not know that my past career involved assessing site acquisitions and development feasibilities for residential and industrial developments. I was quite intimately involved in planning applications and housing supply decisions. I took away an important
Please find below an interesting post from economist, Matt Cowgill, challenging the notion that affordable housing can be achieved amid solid population growth, restrictions on development in pre-existing areas, as well as an urban growth boundary that restricts sprawl. Be sure to also check out Matt’s blog, We Are All Dead, which examines a wide
Fitch has released its quarterly arrears figures for RMBS and the results are an unsurprising improvement generally, with holiday regions lagging significantly: Delinquencies Down: Delinquencies across Australia decreased to 1.20% at the end of September 2012, down 40bp from 1.60% at end-March 2012. The current rate of delinquencies is significantly below the five-year average of 1.56%. Monetary
The ABS eight city house price index is out and accords with APM’s house price movements announced last week of a 1.6% increase in the December quarter: And 2.1% on the year: Rises were led by Perth and Darwin and Sydney was also solid: These results are at the stronger end of the spectrum of
By Leith van Onselen The AFR has a piece today aiming to look at the bright side of what appears to be a structural shift away from detached houses for consumers: Australia’s commitment to detached housing is waning, with apartments and townhouses comprising a record 41 per cent of all private dwelling approvals in 2012.
By Leith van Onselen Yesterday, I showed how the recent uptick in Australian house prices had been weak compared to previous interest rate-cutting cycles, with national capital city house/dwelling prices experiencing little to no growth in values since the RBA first cut official interest rates in November 2011, according to both Residex and RP Data-Rismark.
AFG has released its January mortgage sales data and has posted another record month: AFG, Australia’s largest mortgage broker, processed more home loans last month than in any January before, according to new figures published today. AFG Mortgage Index shows that the company processed $2.2 billion of home loans, 24% more than in January 2012,
By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released the Building Approvals data for the month of December. At the national level, the number of dwelling approvals fell by a seasonally adjusted -4.4% to 12,767, with falls recorded in both the detached house (-3.3%) and apartment (-5.4%) segments. Consensus was for
By Leith van Onselen SQM Research today released stock on market figures for the month of January, which reveals an ongoing reduction in the number of homes for sale nationally. According to SQM, for sale listings fell by -1.9% over the month of January and were -2.9% lower than the same period last year (see
By Leith van Onselen The auction reporting season started again over the weekend, with the Real Estate Institute of Victoria (REIV) reporting a ‘healthy’ preliminary clearance rate of 71% from 108 auctions reported to the REIV (see below table). While the reported auction clearance rate was solid, there were 24 auctions (around 20%) classified as
By Leith van Onselen Yesterday, David Potts published an interesting article in the Money section of the Sunday Age questioning whether mortgage rates might soon fall outside of any future official interest rate cuts by the RBA: THERE’S more chance of the next rate cut coming from a bank than the Reserve Bank… The margin
By Leith van Onselen Following the release of the monthly RP Data-Rismark and Residex house price results yesterday, I thought it timely to update how the housing market – in particular house prices – is responding to the latest round of interest rate cuts, which began in early-November 2011 and has seen mortgage rates fall
By Leith van Onselen Yesterday’s jump in new home sales in December, whereby sales rose by 6.2% over the month, breathed new life into the Reserve Bank of Australia’s (RBA) and Treasury’s plan for housing construction to fill the void left as the mining investment boom starts to unwind later this year. While the rise
Adding to today’s property melange, NAB’s quarterly property professionals survey is out today and shows a small rise in expectations for price growth: NAB’s Residential Property Index rose to +8 in Q4’12 (+4 in Q3’12). WA (+41) the stand-out state, with Victoria (-15) and SA/NT (-20) negative. National index to climb to +49 points by Q4’13
By Leith van Onselen The Reserve Bank of Australia (RBA) has just released the private sector credit aggregates, which registered an increase in total credit growth in the month of December, but the fourth lowest monthly housing credit growth in the series’ 35-year history and the lowest annual mortgage growth ever recorded: Total credit provided
At last we are seeing some effect from the considerable stimulus thrown at housing in the past year. New home sales had a strong bounce in December from suppressed levels, up 6.2%: Moreover, the internals are good for employment and growth, with detached houses participating for the first time: In the month of December 2012
By Leith van Onselen House price data rolls on, with RP Data-Rismark just releasing their daily hedonic indices for 31 January, which has allowed me to derive January’s dwelling price results for the five major capital city markets. According to RP Data-Rismark, the 5-city dwelling price index rose by 1.11% in January, which represented the
By Leith van Onselen Residex has just released its house price indices for the month of December, which registered a 0.53% rise in national house prices over the month and a -0.67% fall in unit values. Over the year, house values nationally lifted by 0.49%, whereas unit values fell by -0.40% (see below table). As
By Leith van Onselen Australian Property Monitors (APM) today released their December 2012 home price results, which registered a solid 1.9%/1.6% (houses/units) rise in values over the quarter and 2.1%/2.4% growth over the year (see below tables). Hobart, Darwin and Perth recorded the highest house price growth over the quarter, with values jumping by 4.7%,
Please find below an interesting article by Philip Soos questioning the mainstream view that Australian housing values are built upon solid foundations. Philip is a Masters research student at the School of Humanities and Social Sciences, Deakin University. As mainstream opinion would have it, Australia’s housing prices are solidly based upon fundamental valuations or intrinsic