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.
The performance of construction index for December is out this morning and, as expected, it’s not the best. Despite some encouraging signs, the national construction sector finished 2012 in negative territory according to the latest Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI®). The seasonally adjusted index was 1.8 points stronger
By Leith van Onselen The Real Estate Institute of Victoria (REIV) has released preliminary data on the overall number of home sales in Metropolitan Melbourne in calendar year 2012. According to the REIV, 69,000 homes were sold in 2012, which was nearly -3,000 less than 2011 and the lowest volume of sales since 1996 when
Our own Unconventional Economist was warning of the coming trouble with the Victorian real estate market throughout 2012 due to delayed supply response that is seeing large amounts of new product coming into the market as prices begin to fall. In addition, sales in new housing developments have fallen rapidly and the bearish trend in mortgage data
RPData just released their end-of-year housing data for 2012 and it confirms what many MB readers already knew. 125bps over the last 12 months still hasn’t been enough to get traction under the market and as we roll into the “fiscally responsible” new year 2013 isn’t looking all that great either. The latest uptick in
Please find below RPData’s Christmas wrap on the housing market of 2012 along with what could be in 2013. If the video below fails to load, then the link is here
By Leith van Onselen Residex CEO, John Edwards, on Monday gave an interesting video interview on Switzer where he discussed the outlook for the Australian housing market in 2013. In a nutshell, Edwards does not believe that the overall housing market will rebound next year (rather it will mirror 2012’s performance) because housing affordability
DEEWR’s job vacancy report is out for December and it makes some pretty doomy reading for those New Year job prospects. The Internet Vacancy Index (IVI) decreased by 3.5% in November 2012 in trend terms. Over the year, the IVI has fallen by 23.0% and is now at its lowest level since the series began
By Leith van Onselen SQM Research has just released rental vacancies data for the month of November, which showed a big pick-up in rental vacancies in Melbourne, but continued extreme tightness in Perth: The key points from the release are as follows: Nationally, vacancies rose slightly during the month of November 2012, increasing by 0/1%
By Leith van Onselen Reported auction clearance rates weakened over the weekend in Victoria, as the spring selling season came to a close. Once again, there were also a large number of unreported auctions, particularly in New South Wales, which places a cloud over the reliability of the results. The Real Estate Institute of Victoria
Find below the ANZ Housing Chartbook. It’s full of fascinating data. I suggest taking the affordability and underlying demand data material with a grain of salt, given both are full of questionable hidden assumptions, but this is still well worth a read. Australian Housing Chartbook December 2012
By Leith van Onselen The Queensland Department of Environment and Resource Management (DERM) has released data on housing transfers and mortgage lodgements for the month of November. According to DERM, the number of housing transfers and mortgage lodgements fell by -7.9% and -7.2% respectively in November 2012, but were up 9.9% and 4.9% respectively on
By Leith van Onselen I am not sure what’s going on in the Perth housing market at the moment, but today’s RP Data-Rismark home values index for Perth has recorded a whopping o.76% increase in one day! (see below table). Looks like the housing market is becoming as volatile as the share market.
By Leith van Onselen Yesterday’s unexpected fall in the Westpac-Melbourne Institute Consumer Sentiment Index, from 104.3 in November to 100.0 in December (see below chart), has dealt a potential blow to the RBA’s plans for housing construction to fill the void as the mining boom unwinds. As discussed by Houses & Holes yesterday, there is
As the Unconventional Economist has previously described, there is a strong historical correlation between the headline rate of Consumer Confidence and mortgage as well as house price gains: So today’s falls in consumer confidence are not so good for property. But, although this morning’s confidence number retraced its November gains, in the area of savings and
By Leith van Onselen Following BIS Shrapnel’s warning earlier in the month that the Melbourne housing market would remain in the doldrums for up to five years, consultants Charter Keck Cramer are now warning that it will be a long, slow road to recovery for Melbourne’s outer suburban new house and land market. From Property
By Leith van Onselen RP Data has released its December housing market update, which is always worth a watch for the significant amount of property-related data on offer. This month’s report includes the following collection of charts that track the health of the market at the national level. First, sales volumes have recovered somewhat, up
Please find below Nathan Webb’s latest analysis of the November AFG finance statistics. It’s funny how news can be presented. In the lead-up to the December interest rate decision, AFG were busy telling everyone how first home buyers had all but disappeared in NSW and QLD. Meanwhile, they recorded one of their best months since
By Leith van Onselen Last month, RP Data released its Buy versus Rent report for October, which showed that it is cheaper to rent than buy in over 93% of locations across Australia: As explained when the report was released, RP Data used some generous assumptions to skew the results in favour of buying, including
By Leith van Onselen Back in October, the Reserve Bank of Australia’s (RBA) Head of Financial Stability, Luci Ellis, gave a speech in which she played down the need for macroprudential policy tools in Australia, such as loan-to-valuation (LTV) ratio limits, loan serviceability limits, and the like. In the speech, Dr Ellis made the spurious
By Leith van Onselen SQM Research has today released Stock on Market data for the month of November, which registered a 4.9% monthly increase in overall for sale listings, but no movement in year-on-year terms: According to SQM: This month’s data is particularly interesting when compared to the corresponding period of the previous year (November
By Leith van Onselen Following on from yesterday’s housing finance release from the ABS for the month of October, the below chart compares the growth of first home buyer (FHB) housing finance approvals following the latest round of interest rate cuts (-1.75% since November 2011) to the average of the four prior interest rate-cutting cycles
What does $5000 buy you? A lot of housing investors. Yesterday’s housing finance figures were subdued across the board, with first home owners going nowhere except in WA: Upgraders looking a little better if still muted: Yet investors went bananas, but only in one place: This is pretty odd. When we dig into it further,
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%
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
