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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Mortgage churn accelerates

By Leith van Onselen Yesterday, Property Observer published an article on the boom in mortgage refinancings since the Federal Government introduced a ban on mortgage exit fees: A record 35% of all housing loans written in the last financial year – the 12 months since Treasurer Wayne Swan introduced the ban on mortgage exit fees – were

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Moody’s: Q2 ABS delinquencies rise

By Chris Becker From Moody’s yesterday: Moody’s: Australian ABS delinquencies up in Q2; losses stable Sydney, August 14, 2012 — Moody’s Investors Service says that the delinquencies and losses for Australian ABS transactions rose slightly in Q2 2012, and losses will remain stable for the rest of 2012. “Delinquencies increased by several basis points in Q2 from Q1

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Australia’s sub prime mortgage scandal grows

By Leith van Onselen Claims that Australia’s banking sector is conservative, safe and secure have taken a bath in recent days as evidence has emerged of Australia’s own sub-prime lending scandal. In April, we learned via the Australian newspaper how Australia’s largest banks are being forced to forgive mortgage debts of borrowers granted loans based

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RP Data August Housing Update

By Leith van Onselen Above is the RP Data August housing update, presented by Tim Lawless. As always, it’s worth checking out for the smorgasboard of data on display. Tim’s fairly upbeat this month, noting that the housing market is starting to see various “green shoots”. However, the main negative that could stifle the recovery

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Stockland: Property market worst in 20 years

From the SMH: Stockland’s outgoing managing director Matthew Quinn described the current conditions in the residential sector as the worst he has seen in 20 years. Speaking at a media briefing this morning, Mr Quinn, who announced his retirement last month, said looking at the fundamentals, conditions should be a lot better, “but they aren’t”.

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Housing finance bounces in June

By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released housing finance data for the month of June, which registered a seasonally-adjusted 1.3% increase in the number of owner-occupied finance commitments over the month. Arguably, the most important figure in the release is the number of owner-occupied housing finance commitments excluding refinancings,

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RP Data: Housing recovery “precariously balanced”

By Leith van Onselen Following July’s increase in the RP Data-Rismark home values index, RP Data’s Cameron Kusher has provided sensible commentary arguing that the housing market is “precariously balanced” and that it is probably too early to call a bottom: The results for June and July 2012 have been quite strong with capital city

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Auction clearance rates: NSW up; VIC down

By Leith van Onselen Auction clearance rates in Australia’s two major markets were mixed over the weekend, with New South Wales’ clearance rate  improving and Victoria’s retracing somewhat on relatively low volumes. In New South Wales, a provisional auction clearance rate of 65% was recorded over the weekend by the REINSW, which is an improvement

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Rising on empty

Who said stimulus doesn’t work? Well…most of the Western world for a start. John Maynard Keynes described the ailment weighing them down. He called it a liquidity trap; when interest rate cuts cease to promote borrowing because a population is busy hoarding resources for what is widely seen as an adverse event to come.But not

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Genworth claims stabilise in June QTR

From Banking Day comes some more news we’ll ascribe to the magic of rate cuts: Genworth Financial…said it paid out 770 claims in Australia during the June quarter, down from 852 in the March quarter. The average size of each claim paid out increased to A$91,000 in June, up from $77,000 in March. Borrowers getting

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ABS: House prices bounce

  By Leith van Onselen The last of the major house price data providers, the Australian Bureau of Statistics (ABS), today released their capital city house price indices for the June quarter of 2012, which reported a 0.5% increase in capital city house prices over the quarter. The result was strengthened by the fact that

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The forgotten boom

By Leith van Onselen This blog has written a lot about the housing construction boom that has gripped Melbourne over the past few years. Few would realise that there’s another “mini-me” boom going on in the Australian Capital Territory (ACT), which has experienced a similar surge in construction. The ACT’s construction boom is illustrated by

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S&P downgrades Canadian banks on housing risk

From Bloomie: Canadian banks are underperforming global counterparts by the most in a year as record consumer debt and a housing market that’s vulnerable to a correction weakens their earnings prospects and risks a credit downgrade. Standard & Poor’s cut its outlook to negative from stable on seven Canadian banks July 27, including Toronto-based Royal Bank of

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Auction clearance rates improve

By Leith van Onselen Auction clearance rates in Australia’s two major markets improved over the weekend, although volumes remained down on average levels. In New South Wales, a provisional auction clearance rate of 64% was recorded over the weekend by the REINSW, which is an improvement on the 62% clearance rate recorded last week, and

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Morgan Stanley goes short Melbourne property

It appears I am going mainstream with the release of a Morgan Stanley report yesterday that draws heavily upon my Melbourne analysis. It won’t be new to regular readers but the Melbourne Madness is worth repeating. 1. VIC Residential Market Poised Precariously for Pricing Pressure  Our Chart of the Week shows the number of dwellings  under

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Property Council adds to the gloom

The Property Council runs a quarterly property sentiment survey and the news for the September quarter out today is not so good. Following several quarters of gains, presumably on the back of rate cuts, it appears property insiders are sensing that this is no ordinary cycle: As you can see, the falls in confidence were

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Auction clearances hold firm

By Leith van Onselen Auction clearances held firm over the weekend in Australia’s two largest markets, with both New South Wales and Victoria recording clearance rates in line with their year-to-date averages, but auction volumes remaining relatively subdued. In New South Wales, a provisional clearance rate of 62% was recorded by the REINSW, just below

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Mad Melbourne

By Leith van Onselen What’s wrong with the below story? 1. Melbourne home sales have tanked, tracking -42% below the five-year average and -36% lower than last year’s sales activity: 2. Mortgage demand in Victoria has collapsed, with the number of mortgage discharges (mortgages repaid in-full) actually exceeding the number of mortgage lodgements (new mortgages)

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Auction clearance rates rebound

By Leith van Onselen Auction clearance rates over the weekend rebounded in Australia’s two largest markets. In New South Wales, the clearance rate of 63% was an improvement on last week’s 59%. However, auction volumes remain well down on ‘normal’ levels, with only 272 auctions reported over the weekend. This compares to 350 reported auctions