La Trobe Financial, which is an Australian lender specialising in non-conforming loans (i.e. if you are too risky for the big banks, you go to La Trobe) has decided that its time to cash in its chips (via the Financial Standard): Melbourne-based La Trobe Financial, one of the largest non-bank lenders in the country, struck
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.
From Standard and Poors: MELBOURNE (S&P Global Ratings) Dec. 18, 2017 — Delinquent housing loans underlying Australian prime residential mortgage-backed securities (RMBS) fell to 1.04% in October from 1.08% in September, according to a recent report by S&P Global Ratings. We attribute part of the decline to a rise in outstanding loan balances during the
CoreLogic released its auction report yesterday, which reported a small rise in the preliminary national auction clearance rate to 64.2% from 63.1% last weekend, but remained well below the 68.3% recorded in the same weekend last year: Auction volumes nationally were 2,865 – slightly above the 2,735 recorded in the same weekend last year: As
From Mr Joye today: After forecasting house price rises every year since 2013, I’m happy to double-down on our April 2017 call that the boom is over and project that prices will fall in 2018. …If our contrarian case for Australia’s jobless rate falling below 5 per cent in 2018 comes to pass (the RBA’s brighter boffins
Via the AFR: UK fixed-fee disruptor Purplebricks sold $1.1 billion of residential real estate – around 2200 homes – in its first 14 months of operations in Australia, the company has disclosed as part of its latest interim results. Revenue from its Australian business surged to £6.8 million ($11.9 million) for the six months ended October 31 – up from £400,000
By Leith van Onselen The slow deflation of Sydney’s housing market has continued for the 14th consecutive week, with CoreLogic’s dwelling values index registering another 0.18% decline, with values down a cumulative 1.9% over that 14-week period, and dwelling values also down 1.8% over the past 19-weeks: Sydney’s quarterly growth rate continues to turn negative,
By Leith van Onselen In the week ended 14 December 2017, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, fell another 0.07% – the ninth consecutive week of decline: Values fell in Sydney and Melbourne, rose in Brisbane and Perth, and were flat in Adelaide: So far in
From The HIA: “Low wage growth and fewer home sales resulted in a slowing in renovations activity in 2017,” stated HIA’s Senior Economist, Shane Garrett. The projections are detailed in the December 2017 edition of the HIA Renovations Roundup report which is released today. The HIA Renovations Roundup is the most comprehensive regular review of
By Leith van Onselen The Age has published an article today on how the National Rental Affordability Scheme (NRAS) – a $3.2 billion scheme launched by the former Labor Government in 2007 amid claims that it would increase the supply of affordable rental housing to low and moderate income households – turned into a rort
By Leith van Onselen NSW Treasurer, Dominic Perrottet, is out this morning spruiking the Government’s economic and Budget success. From The AFR: At the mid-year economic update in Sydney, Mr Perrottet unveiled a $600 million increase to the expected surplus for this financial year, rising from $2.7 billion to $3.3 billion. He said state budget
UBS is going the big bear today. First from the always excellent Jonathon Mott: Slowing mortgage credit growth The Australian housing market faces a number of substantial headwinds. We believe these are likely to lead to a steady slowdown in the market over coming years as the impact of record high levels of household debt
By Leith van Onselen The ABS on Tuesday released its property price data for the September quarter, which valued Australia’s dwelling stock owned by households at a record $6.44 trillion, whereas the total housing stock was valued at a record $6.78 trillion. As shown below, the total value of Australia’s dwelling stock owned by households
From The HIA: “The consistent feature of new home sales in 2017 is that the market is cooling,” stated HIA’s Principal Economist, Tim Reardon. “The HIA New Homes Sales Report – a survey of Australia’s largest home builders – highlights that there has been a fall in the number of new homes sold in 2017,
Via Domainfax: More than half of Australian homeowners with a mortgage would be in dire straits if their repayments increased by more than $100 a month, new data shows. A nationwide survey found 54 per cent of borrowers do not think they could handle a repayment rise of more than $23 a week. Worse still,
By Leith van Onselen Last month, The AFR reported that first-home buyers (FHBs) are desperately fighting for land in Melbourne as the city’s population soars: First-home buyers face fierce competition in Victoria’s fast-rising market, with only a quarter of the 84 lots in Stockland’s latest land release going to first-time buyers. Shaneel Veerabathula was one
Via Martin North: The UK Property Investment Market could be a leading indicator of what is ahead for our market. But in the UK just 15% of all mortgages are for investment purposes (Buy-to-let), compared with ~35% in Australia. Yet, in a down turn, the Bank of England says investment property owners are four times
By Leith van Onselen Yesterday’s September quarter property data from the ABS includes a series showing the total number of dwellings in each state. Although this series only dates back to September 2011, it is arguably the best data to use when assessing actual dwelling supply, since unlike the ABS’ various quarterly housing construction data
By Leith van Onselen SQM Research has released its rental vacancy series for November, which revealed a 0.1% rise in the national vacancy rate over the month but a 0.3% decline over the year: Over the year, decreases in vacancies were recorded in Melbourne (-0.2%), Brisbane (-0.2%), Perth (-0.7%), Adelaide (-0.4%), Hobart (-0.3%), Darwin (-0.7%),
By Leith van Onselen In the wake of June’s Grenfell tower disaster in London, which claimed the lives of around 80 people, a special Victorian Taskforce interim report last week identified 1,400 buildings with flammable cladding, including eight hospitals. But rather than the Grenfell tower disaster prompting caution and vigilance, some Melbourne building operators have
By Leith van Onselen Australia’s speculator frenzy has continued to moderate, according to today’s Lending Finance data for October, released by the ABS. As shown below, the annual value of investor loans in New South Wales (read Sydney) continues to fall, whereas Victoria (read Melbourne) – the second hottest market – continues to rise slowly. By
By Leith van Onselen The ABS has today released its property price index – incorporating both detached houses and units – which registered a 0.2% decline in home values nationally over the September quarter but an 8.3% gain over the year, a slowing from the 10.2% annual growth initially reported in the year to June:
By Leith van Onselen A new report commissioned by Urban Taskforce Australia projects that detached houses with backyards will vanish in Sydney over the next 40 years, meaning future children will be forced to grow up in apartments, many in insecure rented accommodation. From The SMH: While Sydney’s apartments are most likely to be occupied
By Leith van Onselen CoreLogic’s Cameron Kusher has published some interesting charts showing how the Australian Prudential Regulatory Authority’s (APRA) macro-prudential curbs on interest-only lending have been a major success, driving interest-only lending to record low levels: The total value of interest-only lending over the September 2017 quarter was $16.603 billion which was -44.8% lower
By Leith van Onselen Amid fears of a looming oversupply, developers are now abandoning proposed apartment projects in Parramatta in Sydney’s west. From The AFR: A total of 2707 apartments across seven projects under construction as well as 1100 units approved for development make two to three years’ supply of housing in the western hub,
CoreLogic’s weekly property vitals are out. The leading mortgage index is showing a faint pulse: Still down sharply year over year. Auctions by district are sinking in the same pattern we’ve seen for months. Sydney from the outside in and Melbourne from the inside out: Basically, Sydney is bust and Melbourne is in the process
By Leith van Onselen The ABC’s Michael Janda has penned an interesting article today explaining why Australia’s housing market is more at risk of a major correction than Canada’s, which incorporates views from the chief executive of Canada Mortgage and Housing Corporation (CMHC), Evan Siddall: Australia and Canada have a lot in common when it
By Leith van Onselen After last month announcing that it would raise its stamp duty surcharge on foreign property buyers from 4% to 7%, the property lobby continues to swarm against the measure. From The AFR: Foreign property investors are urging the South Australian government to grant them an exemption from a new surcharge on
By Leith van Onselen Last week, it was reported that the median price for a housing lot in Melbourne had passed the $300,000 mark, driven by the influx of new arrivals into Melbourne pushing up against sluggish land supply: Melbourne’s long-held status as the country’s most affordable new housing market is under severe threat with
By Leith van Onselen A few week’s back, CoreLogic released data showing that the bottom 10% of dwellings in Melbourne are valued at an unaffordable $439,519 – well out of reach of most first home buyers: This followed CoreLogic’s September 2017 Mapping the Market Report, which revealed a shocking decline in affordable family-friendly housing across