Australian Property

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.

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AFG sees a bounce

As my long term readers would know I have followed AFG mortgage data for quite some time. I am aware that it is not actual mortgage issuance, is susceptible to variations in AFG’s market share, seems to have a disproportionate spread across the states which doesn’t match their size, and also has a bizarre trend

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Beware the housing elites

If there is one thing in this world that drives me crazy, it is social engineering based on ideology rather than an objective examination of facts. A classic example was on display in two related articles recently published in the mainstream media. Both articles relate to recent work undertaken by Dr Robert Crawford, an academic

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Will Fitch pull the trigger ?

Back in May I noted that Fitch had this to say on their future strategy for dealing with Australian bank’s housing credit issuance. … Australian banks could have their credit ratings cut if they lower standards to boost mortgage sales as demand for home loans slumps. “If we do start to see signs of erosion

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The secret to house price rises

Yesterday I posted my observations that rates of credit issuance are the main driver for housing price adjustments in Australia. I noted that when the rate of credit issuance rose for a month then prices moved upwards soon after, and the reverse was true for the downside. It was therefore important as a housing investor and/or home buyer to

8

Ringing a bell at the top

Jonathan Chancellor was the property editor at the Sydney Morning Herald for many years until April this year. The Sydney Morning Herald’s legendary real estate editor Jonathan Chancellor has resigned and is set to launch his own rival property website. It is unclear who his financial backer is but the real estate guru today shocked his bosses

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The market needs churn

There have been a vast number of discussions here and on many other sites about the future direction of the housing market. My own opinion, as I have stated a number of times, is that without some further government stimulus the market will continue its slide. This is mainly based on observations of the market

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Estate agent deflation

Myself and the Unconventional Economist talk a lot about the housing in Australia. But it isn’t really housing itself that I see as the issue, it is the every growing private sector debt that supports it that concerns me. It could as easily be Mars bars, tulips or Nespresso coffee machines because from an economic

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RPData on regions

Earlier in the week I posted on RPData’s press release and queried why the data representation had changed from the previous media releases. You will note that the second chart is suddenly absent in the May press release even though it has appeared in every other release this year. Now I am aware that I could

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Councils flee the carcass

Yesterday Deep T wrote a thought provoking piece about the responsibility of governments at all levels and their part in the ever increasing prices of houses in Australia.  As part of that post he said. It should come as no surprise that the main instigator in this part of the equation is state and local

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Banker makes housing sense!

Today, the ANZ Bank’s CEO of Australian operations, Phil Chronican, gave a superb speech on the state of the Australian housing market to the American Chamber of Commerce in Australia (AmCham). In his speech, Mr Chronican touched on a number of important issues, including: inadequate housing supply; negative gearing; housing’s poor investment fundamentals; and the

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ANZ on arrears

This morning I posted about what I consider to be somewhat perverse logic used by the RBA in their attempt to talk down the systemic banking risk presented by the 2009 first home buyer cohort and what seemed to be a very different view of that risk presented by a recent UBS report. This afternoon

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Blame your leaders

How about we become solution focused? Maybe even think a little outside the paradigm. MacroBusiness has been full of very well researched articles over the last month with data to burn. Accompanied by more often than not, very well thought through commentary and interpretations. It’s been hard to keep on top of the many topics

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RPData’s latest

RPData’s latest monthly round up is out. The near-double interest rate hike in November last year has bitten, with seasonally-adjusted Australian capital city dwelling values down 1.2% in the three months to end April, although in raw terms home values are mostly unchanged (-0.2%). Expensive suburbs have been the poorest performers in line with the

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Pass the popcorn

There’s one element of the current weakness in the housing market that I’m really enjoying. Indeed, it’s turning into riveting theatre. A week ago today, a brawl broke out between the various housing data providers: SQM Research, Residex and R.P.Data/Rismark. As I reported then, R.P.Data/Rismark (represented in the person of Chris Joye) had set themselves

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Who’s responsible?

In a speech this week, Deputy Governor of the the RBA, Ric Battellino, warned that many first home buyers that bought during the 2009 FHOG scheme were in jeopardy as interest rates rise: Another potential source of vulnerability in the housing market that is often mentioned is the many first-home owners who were attracted into the

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Mauling on

After yesterday’s mauling of the housing market on Channel 7’s Sunrise program the theme of Louis Christopher’s words in the latest newsletter from SQM research is no surprise. The media spotlight has been shining on our company this week and on that note- we would like to say thank you to those who have been writing

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SQM’s bear maul

Following on from Koshee’s recent delivery of bad news for the Australian housing market, Louis Christopher from SQM research appeared on sunrise this morning to give the market a full strength bear mauling. His prediction of this years damage is as follows: CAPITAL CITIES (worst to best) Perth (total 2011 9.8%)  – Currently down 3.8% from peak. Expected

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Looking sick

It shouldn’t really surprise anyone that housing doom and gloom is continuing into Q2 2011. The leading indicators were certainly bearish, AFG had this to say in early May. AFG, Australia’s largest mortgage broker, has called on the Government to address weak consumer confidence, after figures for April showed mortgage sales fell by nearly 10%

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Bull fighting

Back when the housing market was booming everyone got their slice of the pie there were no losers so no one needed to argue any particular point or methodology. As long as the cash was flowing in from the banks and shadow banks offshore borrowing the system grew and it was all smiles. Investors and home owners

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As expected from RPData

As you may have noticed from H&H’s bullhawk post, RPData has released some new charts on how the housing market is travelling and specifically the latest data on capital growth. As I expected nothing much has changed since I last saw their data, when I said. I can only repeat myself. There is no driver for

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A bullhawk takes flight

The mightiest of Australia’s bullhawks (half housing bull, half rate hawk), Christopher Joye, today published his latest assessment of house prices at Business Spectator. Let’s take a look: A lot of fuss is being made about house prices doing, well, nothing. For the record, this is the outcome we have correctly predicted since early 2010. Year-on-year,

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Just say it, Shane

AMP Capital Investors chief economist, Shane Oliver, is a curious beast. Recently he has been arguing that Australian housing is not a bubble. Here’s an example of Dr Oliver’s “no bubble” thesis from an article published yesterday in SmartCompany: I don’t regard Australian house prices as a bubble. While there was probably a bubble seven or eight

8

HIA .. Zombies in the new economy

The number of people and organisations waking up to the fact that their “old growth” business models have suddenly imploded continues to grow. Yesterday it was the Housing Industry Association’s (HIA’s) turn to use its last gasp of air to scream at the government for even more stimulus for housing. Fresh cracks have appeared in

22

News Ltd turns bearish

As Houses and Holes points out this morning, jawboning the RBA is an increasing past time. But not even my august blogging companion fathomed how suddenly widespread it has become. And it seems the shift is being driven by the Murdoch Press. A few months ago News limited’s Courier Mail would happily produce articles like this:

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Structure or cycle in housing?

Michael Yardney is a prominent property investor/advisor who writes a regular blog on Smart Company. Last week, Mr Yardney posted an article entitled What history can teach us about what’s ahead for property, which is aimed at calming nerves about the Australian housing market and convincing readers that residential housing is still a superior long-term

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Bouris pushes the panic button

Australia’s home of business interests, Business Spectator, has struck another blow for schadenfreude this morning with a spectacular appeal for help for the mortgage sector from Mark Bouris. Bouris, the suave mortgage maestro of Wizard mortgages fame, has this morning leapt into the yawning gulf between Australia’s new growth model (resources) and the old growth model

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WA’s housing delusion

As I explained last week, the biggest driver in housing for the next decade has only really just begun to effect the market. However there is already growing evidence that the housing market is heading for trouble, and it isn’t just the South East of Queensland. In some other areas the news had become very bad. WA’s property market has fallen

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Stagnation nation

The claim that Australian home prices will stagnate whilst incomes catch-up is a prediction commonly made by housing commentators. And this view is not without precedent. Between 2004 and 2009, Sydney home prices remained relatively flat, meaning that prices fell in both inflation-adjusted and income-adjusted terms (see below chart). It behooves us then to assess the

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Crash testing

As mentioned by Delusional Economics yesterday, the bastion of the Aussie punter, David Koch, has issued a warning that Australian home values are on the slide. The question now is how far will prices fall and over what time period? SQM Research’s Louis Christopher recently issued a newsletter predicting falls of 5-10%, whereas many bank

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Koshee’s news

David Koch is an interesting chap. Not because I think he is able to provide valuable economic insight, but because I feel he is the average Aussie’s TV economist. So once Koshee says something it means two things to me. Whatever it is happened six months ago. Everyone in the country now knows about it.