It shouldn’t really be much of a surprise to MacroBusiness readers that I have been expecting to see more flow-on effects of disleveraging. The slow down in the rate of credit issuance for housing has had quite an obvious effect on the government budget and we have also seen a slow down in retail trade.
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.
As I mentioned early last week, AFG’s lending figures pointed to a surge in new finance activity. The problem was, as I said in the post, that there weren’t any other leading indicators that matched this trend. The housing stock on market continues to rise, albeit at a slower pace, and auction clearance rates certainly didn’t show
Find below RP Data’s October housing market overview. Some key points from this update: October saw the 10th consecutive month of home price falls. That’s the same number of months that prices fell during the GFC, when prices fell just 2.7% peak-to-trough on a seasonally adjusted basis. So the current decline from peak – 4.0%
The SMH howled this morning that “Housing affordability improves as prices slip”: Weaker house prices and falling fixed interest rates have increased affordability in the housing market for the third straight quarter, according to a survey. The Housing Industry Association-Commonwealth Bank housing affordability index rose by 1.2 per cent in September quarter to a reading
As I stated yesterday, when it comes to Australian housing market analysis nothing is ever easy. AFG’s latest data is showing the boom is back, yet there isn’t any other leading indicator supporting this. Previous auction results still point to a subdued market and continue to follow a long term downwards trend that has been running since
Last week I mentioned that Louis Christopher from SQM research was on Channel 7’s sunrise show giving the real estate market a jolly good mauling with discussions of flakey real estate auction rates, bearish talk about increasing LVR’s and the fact that there was precedent for property prices to fall by 20%. However, SQM research
Nothing is ever easy. On Monday I posted about AFG’s latest data that suggested we are about to see a new boom in mortgage issuance. Although the figures did look impressive I also noted: .. that there does not appear to be anything in any other leading indicator to suggest that AFG figures are flowing
There is widespread acknowledgement that Australian tax rules, particularly negative gearing and capital gains tax (CGT) discounts for assets owned for more than a year, lead to higher home prices (and reduced tax revenue for government – in the order of $2.5billion pa). Together, these tax rules tilt returns in favour of owning residential property
I’ve stated a couple of times in the past that I felt many people were underestimating the government’s ability to re-stimulate the housing market. In a post in October, while analysing the flow-on effects from the Queensland government’s stamp duty changes, I stated: With that in mind, I think we have seen is an uptick in
There a few versions of a story floating around today about the Labor government considering price caps on private rents: The Real Estate Institute of Australia has slammed the Labor government’s proposal to cap rents in Australia REIA president Pamela Bennett said capping rents would be “disastrous” for rental affordability and the property market. Earlier
As H&H mentioned earlier today RP data release their latest home value index report (available below). RPData took a fairly bullish stance on the previous month’s data, but I did note at the time that I felt it was premature: RPData’s bullishness is premature given this is a single month’s data and we all know
Back by popular demand, here is my chart on the respective rates of decline for Australian housing now versus the 2008 experience (which obviously reversed) and the US experience in the GFC. Obviously this is a limited sample and is not intended to suggest that local housing is on the same path as the US.
R.P.Data results for October are out and it’s an ongoing Spring thaw, 0.5% down for the month seasonally adjusted, with an adjusted figure for September doubling the fall to 0.4%. Here’s the chart: And raw: And the R.P. Data House Price Index over time: As well as, real house prices: And finally, state by state
You know the Melbourne housing market is in trouble when (h/t LBS): Developers say property prices in Melbourne’s urban growth corridors may skyrocket because of an endangered frog. A draft report released under new Federal environment laws has recommended some growth areas be off-limits to developers to protect the growling grass frog. Developers say the plan,
Yesterday, Delusional Economics linked a video from Sunday Sunrise showing SQM Research’s Louis Christopher and Sunrises David Koch (‘Koshie’) discussing the Australian housing market. While much of what both commentators said was reasonable, I found one point made by Koshie misleading: From 4.40 of the video, Koshie notes that a major difference between Australia and the
They are only a year late, but if we are to take the Herald Sun as a guide, the mainstream media (MSM) has turned bearish on Melbourne housing. An article entitled Sad end to a ‘Super’ day as home sales plummet encapsulates the change in sentiment: VICTORIA’S only Super Saturday of the year, with about 1000
Back in May Louis Christopher from SQM Research appeared on Channel 7’s Sunrise to give the Australian real estate market a jolly good mauling. On the weekend he returned to the program to give the market yet another serve, including an amusing attack on vested interest reporting of real estate auction results. I’ll leave you to pass
Find below R.P.Data’s quarterly newsletter which came with their latest update along with this tantalizing tid bit: The RP Data-Rismark Home Value Index results for October 2011 will be released on Wednesday of next week. The results, which will reflect market conditions pre-rate drop, are likely to see a continuation in the weak trend that
The Economist has released its annual house price survey and on most measures Australia remains in the top category for most overvalued. I’ve extracted some charts from the interactive graphics to give you an idea of The Economist’s guide to relative merits. First, a straight comparison of house prices: Australia comes in second behind one
There were two new mortgage industry reports released yesterday that painted a picture of an increasingly realistic industry. Genworth released its Home Grown Report, which surveys mortgage industry attitudes and expectations for the year ahead, and Deloitte released its Australian Mortgage Report, which seeks to define conditions for the year ahead. The Deloitte report is
Property Observer has a piece today on an effort by the REIA to stimulate housing: The Real Estate Institute of Australia is urging the government to adopt a successful Canadian scheme that allows first-home buyers to tap into their superannuation to assist with making their first purchase. The Canadian Home Buyer’s Plan has been in
Yesterday Residex released its October median house price indexes and, generally speaking, the downward shift in prices accelerated from September as the Spring selling season got going. Here is a chart for Sydney: The housing component fell 1.65% in October. I don’t want to be too alarmist, this is a median index and thus subject
From the Herald Sun yesterday: Stamp duty cuts are failing to lure first-home buyers into the market as their numbers tumble to a seven-year low. First-home buyers took out 6488 loans in the three months since the July 1 cut – 5 per cent fewer than the 6824 granted in the same period a year
As I discussed earlier in the week, Domain has recently been trying to get first home buyers excited about the return of a weak pulse to that segment of the housing market. Today they take this conceit to the the next wave queuing up to buy: the “move up” group: Now could be a good
Australian cities are uniquely monocentric, with a highly dense core of both residential dwellings and commercial activities, and far-flung low-density suburbs. For the investor, the pattern of growth of the city is important for two reasons. It explains the strong relationship between yields and distance from the CBD for all property types, and it demonstrates
In last week’s article, Housing slide to hit Victorian Budget, I posted a series of charts showing how Victorian housing transaction volumes have slumped: And how the number of mortgages lodged has, for the first time in a decade, fallen behind the number of mortgages discharged: The implications of this analysis was that the falling
Following last weeks article, WA Budget’s housing black hole, reader amdweb82 requested that I undertake a similar analysis of Queensland’s (QLD) budgetary situation to gauge whether it is experiencing similar pressures to WA from falling home prices and lower housing transactions. Thanks to an anonymous reader, who emailed me the data set, I now possess
Last week I put together a few charts comparing ABS owner occupier finance data to AFG‘s data on mortgage applications. As H&H mentioned yesterday the ABS has updated their 5617 dataset which allows me to update the charts with investor finance data for September. The left hand side(LHS) data of the charts below is created by taking
With a rate cut, the great Australian bubble machine is coughing into life and its target is first home buyers. DE last week exposed the return of undisclosed real estate agents being touted as happy customers. Over the weekend, Stephen Nicholls, property editor at the SMH, offered a shiny, happy first home buyer assessment supported