There’s still little momentum in the housing “recovery”. ABS October Housing Finance numbers missed expectations of a 3% jump in home loans up just 0.1%, prior was 0.9% but revised up to 1.1%. Some of the internals were better. Investment lending by value was strong for a second month, up 5.5% from September, prior was 8.6%
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 Over the past few years, I have written a series of articles arguing that the ageing of populations across the globe would have major adverse implications for consumption spending, asset values, and government revenues and taxation. I have also argued that the impacts from ageing would likely be most acute in
By Leith van Onselen Reported auction clearance rates held firm over the weekend in Australia’s two largest cities, however, the large number of unreported results places a cloud over the reliability of the results. The Real Estate Institute of Victoria (REIV) reported a provisional auction clearance rate of 6o% on 875 results reported to the
By Leith van Onselen In what will come as bitter news for Victoria’s stamp duty addicted government, the usually bullish BIS Shrapnel has predicted that a Victorian housing recovery could be five years away. From Property Observer: Victoria will miss out on the recovery in the property markets of the other major states, according to
Please find below an interesting article from David Collyer entitled Englobo, published yesterday on the Prosper website. The article discusses the practice of land banking and land speculation on Melbourne’s fringe. Enjoy! ______________________________________________________________________________________ Let me introduce you to a beautiful word that loops off the tongue, sweet soft and round. Englobo. It is “an undeveloped
By Leith van Onselen Westpac has just matched NAB’s and CBA’s decisions earlier today to cut mortgage rates by 0.20%, taking Westpac’s standard variable mortgage rate to 6.51%, well above the 6.38%/6.40% offered by NAB and CBA. From Property Observer: Westpac will pass on 20 basis points of the RBA’s 25 basis point cash rate
By Leith van Onselen The CBA has just matched NAB’s decision earlier today to cut mortgage rates by 0.20%, taking CBA’s standard variable mortgage rate to 6.40%, just above the 6.38% rate offered by NAB. From Property Observer: The Commonwealth Bank has become the second of the big four banks to announce its interest rate
By Leith van Onselen The National Australia Bank (NAB) are the first major to cut mortgage rates in response to yesterday’s 0.25% cut to official interest rates by the RBA, lowering their standard variable mortgage rate by 0.20% to 6.38%. From Property Observer: NAB has announced that it will pass on 20 basis points out
By Leith van Onselen The Victorian Department of Sustainability & Environment (DSE) released transfer and mortgage data for the month of November, which shows continued weakness in the number of housing transfers and finance commitments. First, below is a chart showing the rolling annual number of housing transfers from November 2002 to November 2012: According
The Department of Infrastructure and Transport released a fascinating report late yesterday looking at the last 150 years or so of population and housing stock development. The report is mostly quite balanced and is well worth your time. It begins with a long term view of current population versus housing stock ratios: Australia’s recent levels
By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released the Building Approvals data for the month of October. At the national level, the number of dwelling approvals fell by a seasonally adjusted -7.6% to 12,540, driven predominantly by a -18.0% decrease in approvals for private sector units and apartments. Consensus was
The RBA campaign to lift housing investment takes another blow this morning with Stockland warning again, especially about Victoria: Stockland today updated investors on the current state of the market at its first quarter investor briefing in Townsville, highlighting in particular that there has been no improvement in the challenging Victorian residential market since the
AFG has released its November lending figures and although the headline numbers aren’t bad, with the number of loans up 1.5% on October and 4.5% on last year (unadjusted, Nathan Webb will provide seasonal adjustments in due course), AFG is howling about a collapse in first home buyers in QLD and NSW: Demand for home
By Leith van Onselen The Real Estate Institute of Victoria (REIV) reported a provisional auction clearance rate of 6o% on 853 results reported to the REIV. This compares to a provisional clearance rate of 61% recorded last weekend on 886 auctions, which remained steady once late results were chased-up. With 950 auctions initially planned over
Gotti has an interesting take from High-rise Harry Triguboff this morning: In the last two months it has become apparent that the current generation of first home buyers is different from the generations that have dominated post-war Australia. The lower interest rates are not causing them to rush into new dwellings. Australia’s largest apartment builder,
By Leith van Onselen The release Friday of the October private sector credit aggregates by the Reserve Bank of Australia (RBA) revealed ongoing weak credit growth across the three broad categories: housing, personal, and business credit (see next chart). Total private sector credit grew by only 0.11% over the month of October and has risen
By Leith van Onselen Following on from yesterday’s post on the RP Data-Rismark November home price results for the five major capital city markets, which revealed a slight (-0.05%) decline in home values over the month at the 5-capital index level, RP Data has today published on its website a detailed breakdown of results for
By Leith van Onselen The RP Data-Rismark daily home values indices for 30 November has just been released, which has allowed me to calculate the change in dwelling values across the five major capital city markets over the month of November. At the national capital city level, dwelling values declined marginally, falling by -0.05% over
By Leith van Onselen Here is an updated chart to my post this morning on tanking Melbourne new house sales. From the Housing Industry Association’s (HIA) October report: The chart speaks for itself. On an annual basis, new house sales in Victoria have hit 15-year lows. And on a monthly basis, sales are at the lowest level in
From the HIA: New home sales climbed off the mat in October following a very weak period in mid-2012, said the Housing Industry Association, the voice of Australia’s residential building industry. “A 3.4 per cent increase in new home sales in October is a modest result, but at least it is a move in the right direction,”
By Leith van Onselen The Age’s Chris Vedelego continued his fine form in a report yesterday on the looming disaster facing new housing estates on Melbourne’s fringe. Below are the main extracts, although I highly recommend that you read the full article for yourself: Melbourne’s outer-suburban property market is facing a serious slump as distressed
By Leith van Onselen The release yesterday of quarterly construction data by the Australian Bureau of Statistics (ABS) seems to have piqued the interest of Australia’s banks, who were quick to call the bottom of Australia’s housing construction downturn and proclaim the beginning of an upswing. From Property Observer: Westpac says the September quarter figures
By Leith van Onselen This week’s SQM Research Newsletter contained some welcome news for those that believe Australia’s property auction system is rigged and in dire need of reform. Here’s SQM’s managing director, Louis Christopher, explaining the changes taking place: “There have been some big developments in recent days over auctions, which I think is
The HIA has released its quarterly housing affordability index and it has jumped above the brief moment enjoyed by the handful of buyers that bought in the months during the GFC: The good news on housing affordability continued in the September 2012 quarter with improvements evident across all geographical areas, said the Housing Industry Association, the
By Leith van Onselen Residex has released its house and unit price results for the month of October. According to Residex, house prices nationally fell by -0.18% over the month, although most major capitals rose in value: Results were better for the unit market, with prices rising by 0.45%, with all major capitals recording value
Deloitte has released its annual Australian Mortgage Report 2013 today and the news is that it expects an intensification of competition in the year ahead: Australia’s mortgage industry shifts up a competitive gear 26 November 2012: The heads of mortgages and home lending CEOs and CFOs in this year’s Deloitte Australian Mortgage Report 2013, expect
By Leith van Onselen The auction clearance rate in Victoria remained just above 60% over the weekend on large volumes, although there were once again a significant number of unreported results that are likely to push the clearance rate lower as late resultsare chased-up. The Real Estate Institute of Victoria (REIV) reported a provisional auction
By Leith van Onselen In March 2010, just before Australian house prices peaked, the Sunday Telegraph published an article citing Commsec research showing the sharp deterioration of housing affordability over the past 50 years: AUSTRALIANS have to work almost three times harder to pay off the average family home than they did 50 years ago.
By Leith van Onselen Last month, the Australian Bureau of Statistics (ABS) released the annual national accounts, which contained land values data for each of Australia’s states and territories, as well as nationally. This data showed that Australian residential land values relative to GDP had deflated further to 1.90 times GDP in June 2012 from
By Leith van Onselen It seems the RP Data-Rismark’s capital city home values indices is no longer a daily index! The index did not update for three straight days (18, 19 and 20 November) and was finally updated today (see above). However, the back data is curiously missing data for 18 and 19 November (see