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 Economist has released its annual assessment of global house prices (one week after my own) and the results are pretty close to my research, showing property is still expensive but improving: The two components that make up the deviation from fundamental value measure (income and rents) have shifted and the
By Leith van Onselen Today, the AFR has run an article by Christopher Joye, director of Rismark, a private company that sells property price indicies, that draws upon a recent speech by the Reserve Bank of Australia (RBA) governor, Glenn Stevens, which argues that Australian housing is not expensive by global standards: In an unusually
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
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
By Chris Becker I missed a very interesting article came across the Bloomberg recently, my head down and proverbial up as earnings season gets into full swing, but I caught it on the rebound on my lunch break when our friends at interest.co.nz posted their Top 10 at 10 (NZ time!) – one of my few
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
By Leith van Onselen Auction clearance rates fell over the weekend in Australia’s two largest cities as an increased number of homes went under the hammer. In New South Wales, a provisional auction clearance rate of 63% was recorded on 344 auctions reported to the REINSW. This compares to a provisional clearance rate of 65%
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
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”.
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,
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
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
From SQM Research this morning comes the news that housing stock on market fell significantly in July: Figures released this week by SQM Research reveal that the level of residential stock around the nation took a dip during the month of July 2012, falling by -4.9% on a national scale and coming to a total
Please find below a guest post from Nathan Webb on the latest AFG mortgage finance figures, released earlier this week. AFG have released their July Mortgage sales report, and they are highlighting the positive – “Strongest July in 5 years”. Yes, but that’s not saying much. More importantly, after adjusting for the number of weekdays
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
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
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
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
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
By Leith van Onselen RP Data-Rismark has released it home values indices for 31 July, which revealed that dwelling prices in Australia’s five major capital city markets rose by 0.55% in the month of July. The below chart shows price movements across Australia’s five major markets since the inception of the RP Data-Rismark daily home
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
By Leith van Onselen Yesterday’s house price results from Australian Property Monitors (APM) revealed that house prices in Melbourne rose by 1.6% in the June quarter (see below table). And earlier this month, APM released its rental results for the June quarter, which revealed that Melbourne gross rental yields rose by 2.1% over the quarter,
By Leith van Onselen Analysis of Australian home price movements got more confusing after the release today of the Australian Property Monitors (APM) home price results for the June quarter. Whereas both RP Data-Rismark and Residex reported falling house prices over the June quarter, APM have recorded a rise in capital city house prices of
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
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
By Leith van Onselen Over the weekend, the Sydney Morning Herald (SMH) published an article on an important legislative change that has the potential to squeeze both capital city rents as well as home prices, particularly at the higher-end of the market. On 1 October 2012, temporary foreign residents will be unable to receive Living
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
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)
By Leith van Onselen Who ever said house price analysis was easy? Just to add to the confusion over the direction of the Australian housing market, Residex yesterday reported that Australian house prices fell – 1.43% in the month of June, contradicting results published earlier by RP Data. By contrast, unit prices nationally rose by
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
