By Leith van Onselen RP Data-Rismark this morning released its daily home values index for 31 May, enabling us to calculate house price performance across Australia’s major capitals over the month. According to RP Data-Rismark, Australian capital city home values fell by -1.41% over the month, led by Melbourne, where prices crashed -2.66%, which is
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.
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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.
Following its RMBS re-risking this morning, Moody’s has also expanded its downgrade review of the LMI sector from QBE and Genworth to Westpac: Sydney, May 31, 2012 — Moody’s Investors Service has announced a review of the Australian lenders’ mortgage insurance (LMI) sector. Accordingly, Moody’s has placed on review for possible downgrade the insurance financial strength ratings
From Moody’s this morning: Sydney, May 31, 2012 — Moody’s Investors Service has today published its updated approach to rating Australian Residential Mortgage-Backed Securities (‘RMBS)’. Specifically, Moody’s has revised its collateral analysis model, Moody’s Individual Loan Analysis (‘MILAN’). MILAN forms a part of the asset portfolio component of Moody’s ratings analysis, and is used to assess loan portfolios backing Australian
By Leith van Onselen It’s been another poor week for the Australian housing market, with the RP Data-Rismark daily home price index recording a -0.24% decline in national capital city home values in the week ending 29 May 2012. Falls were experienced in Melbourne (-0.94%), Perth (-0.92%) and Adelaide (-0.28%), but Sydney (+0.41%) and Brisbane
By Leith van Onselen As an economist, few things peeve me off more than when a commentator blames the current malaise in the property market on people “talking down the economy”, rather than an objective analysis of the facts. A classic display of this was exhibited yesterday by Terry Ryder, the founder of hotspotting.com.au. In
By Leith van Onselen It looks like winter has arrived early for Melbourne’s housing market, with auction clearance rates and sales volumes remaining lacklustre despite lower mortgage rates and sharply falling prices: Home owners and agents will find little to cheer about following another weak performance for the auction market yesterday. The Real Estate Institute
By Leith van Onselen There’s something weird going on in South Australia. According to the Australian Bureau of Statistics (ABS) housing finance statistics, the number of owner-occupied housing finance commitments (excluding refinancings) in South Australia are tracking near decade lows, some -26% below the five-year moving average (see below chart). And first home buyer demand
The March quarterly HIACBA Affordability Index was released this morning, “improving” for prospective homeowners: From the media release: The Index improved by 6.4 per cent (3.7 points) in the March 2012 quarter to be 11.0 per cent (6.1 points) higher over the year. “In the March quarter we observed a modest increase in earnings,
By Leith van Onselen The Melbourne housing construction boom is set to continue, with an article today in Property Observer claiming that a record number of apartments will be completed in Melbourne in 2012 and 2013, followed by a slump in construction activity: Apartment construction in Melbourne is likely to peak in 2013 with as
By Leith van Onselen It’s been another poor week for the Australian housing market, with the RP Data-Rismark daily home price index recording a -0.34% decline in national capital city home values in the week ending 23 May 2012. Falls were experienced in all capital cities except Sydney, with particularly large falls recorded in Melbourne
By Leith van Onselen The Australian Finance Group (AFG) yesterday released its Competition Index for May 2012, which signalled further gains in market share by non-major lenders. According to the report, non-major lenders 12-months ago accounted for around 22% to 23% of AFG mortgages each month, but this share has risen by 25% to 29%
By Leith van Onselen The latest episode of Inside Business, screened Sunday on the ABC, contained an interesting interview with Rob Sindel, chief of publicly listed company, CSR (video extract above). In the interview, Mr Sindel questioned the commonly held view that Australia is suffering from a housing shortage. Below are the relevant extracts from
By Leith van Onselen The Western Australian Government has released its 2012-13 State Budget which, like the Victorian Budget before it, contained some nasty downward revisions to projected stamp duty relief due to the sluggish housing market. From Property Observer: Western Australian Treasurer and Attorney-General Christian Porter says a flat housing market has cost the
By Leith van Onselen Earlier this week, I reported how, according to RP Data, the number of homes for sale nationally in the week ending 6 May 2012 was some 13% (34,290) higher than in the corresponding week of 2011, with Victoria (up 18,879 or 36%) leading the way: I didn’t realise at the time,
Three weeks ago, MacroBusiness’ own Unconventional Economist, Leith van Onselen, gave an interview to the ABC’s Neil Woolridge for a segment on The Business, the ABC’s flagship business news television program that screens from Monday to Thursday on ABC 24 (8.30pm) and ABC 1 (11.oopm). The segment (above) screened last night and discussed the outlook
By Leith van Onselen It’s been another poor week for the Australian housing market, with the RP Data-Rismark daily home price index recording a -0.29% decline in national capital city home values in the week ending 16 May 2012. All major capitals, with the exception of Adelaide (+1.13%) suffered falls, with Perth (-0.64%) and Sydney
By Leith van Onselen Following on from yesterday’s post showing a modest recovery in Queensland first home buyer mortgage commitments, below are some charts showing similar trends for Queensland taken from Department of Environment and Resource Management (DERM) data on housing transfers and mortgage lodgements, which were released earlier this week. Like the Victorian Department
By Leith van Onselen Back in February, I made the following comments with regards to the upswing in housing finance commitments in December 2011 on the back of strong first home buyer (FHB) demand: No doubt the housing-addicted broader media will argue that the recent upswing in housing finance commitments, as well as the renewed interest from FHBs,
By Leith van Onselen RP Data late last week released its Industry Market Wrap, which provides hard data on the number of homes for sale and rent across the nation. The interesting aspect of this release is the sharp divergence between the number of homes for sale and the number of homes for rent. As
By Leith van Onselen The RP Data May Market Report is out and Australian home values were down -4.5% in the 12-months to end-April, and have fallen -6.1% since peak (see below charts). Most key metrics have worsened over the past year, including: Sales volumes: Average days on market: Average vendor discounts: Number of homes
By Leith van Onselen It’s been a poor week for the Australian housing market, with the RP Data-Rismark daily home price index recording a -0.59% decline in national capital city home values in the week ending 9 May 2012. Australia’s three major capitals – Sydney (-1.20%), Melbourne (-0.55%), and Brisbane (-0.15%) – led the declines,
In a move that must go down as rather bold for the nation and downright upsetting for Melbourne, last night’s Budget included the following, from PWC: Removal of CGT discount for non-residents The Government will remove the 50 per cent capital gains tax (CGT) discount for non-residents on capital gains accrued after 7:30pm (AEST) 8
By Leith van Onselen Well it didn’t take long, the Federal Budget has only just been released (it’s 9.00pm Tuesday as I write this post), and already the Housing Industry Association (HIA) is complaining that the Government didn’t offer incentives aimed at reinvigorating Australia’s ailing home building market: The Housing Industry Association, the voice of
By Leith van Onselen With the Australian Bureau of Statistics (ABS) scheduled to release the March Housing Finance statistics next week, I thought it would be worthwhile to update readers on recently released Victorian Department of Sustainability & Environment (DSE) transfer and mortgage data for the month of April, which shows continued weakness in the
Please find below another guest post from MacroBusiness reader, Nathan Webb. Enjoy! The whole reason that I started looking at seasonal adjustments of the AFG volumes was that I couldn’t stand the erratic and false headlines that AFG were producing. It’s a symptom of them not understanding what actually drives their monthly totals, which is
By Leith van Onselen SQM Research has released their stock on market data for April, which has registered a small fall in the number of homes for sale nationally, with stock levels largely unchanged from April 2011: However, there’s great divergence between the capital cities, with stock levels remaining highly elevated in Melbourne, Adelaide, Hobart
Now that all the hype over the RBA’s rate cut and Mega Bank’s reduction in mortgage rates has died down. Its time to recap on the only campaign in Australian media focused on Mega Bank’s balance sheet and urging bankers to follow regulatory rules and responsibilities. Whatever situation Mega Bank may be faced with politically
By Leith van Onselen Earlier today, Houses and Holes posted on Genworth LMI’s worsening exposure to the Australian housing market. In the Genworth presentation attached to the post is the below chart, showing that a key driver of the increased insurance pay-outs (and the 1st quarter loss) was a sharp rise in mortgage delinquencies in
By Leith van Onselen The release of the HIA-Jeldwen New Homes Sales report earlier this week was a disaster for Australia’s residential construction industry, with new home sales in March falling to the lowest level since 1994: Two states where the situation appears particularly worrying are Victoria and Queensland, where new house sales are running
From the excellent Banking Day: Genworth will lift its premiums on lenders’ mortgage insurance by seven per cent in Australia, its US management disclosed last night. The rise will help offset a rise in the severity of claims that triggered a loss of US$21 million in the March 2012 quarter on Genworth’s Australian business. The company’s