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.

14

Household mortgage stress hovers at record highs

Via Martin North: The August 2020 data from our surveys continues to tell a sorry tale of more households feeling the pinch, whether they are mortgaged, renting or investing. Within the numbers there was a slid in Victoria in particular reflecting the latest lock down and the rising pressure on business there. Overall mortgage stress

42

Inner city property markets engulfed with panic sales

The collapse in immigration, ballooning rental vacancy rates, falling rents, and falling dwelling values is reportedly forcing inner-city property investors to cut their losses and sell: Inner Sydney has become a fertile hunting ground for bargain hunters as panicked investors try to offload apartments at lower prices in the hope of speeding through sales. Apartments

4

SQM: Property listings shrunk in August

SQM Research has released its stock on market data for August, which reported large monthly and annual declines in the number of properties listed for sale: According to Louis Christopher: There was quiet a large drop in new listings for the month, predominantly driven by the shortfall in Melbourne. The Melbourne numbers are quite revealing

38

Mortgage shock beckons for 2021

More than half of experts and economists surveyed by Finder believe that Australia’s banks will lift variable mortgage rates next year out of cycle with the Reserve Bank of Australia (RBA): When asked when Aussies could expect banks to make the move, half of the respondents said banks were likely to announce out-of-cycle rate hikes

6

Apartment rents sink deeper into abyss

CoreLogic’s August update reports heavy falls in apartment rents, driven by Sydney and Melbourne: Nationally, capital city rents have held up better than housing values. Since the end of March, capital city dwelling rents are down 1.4% compared with the 2.3% drop in dwelling values. Despite the apparent resilience, a more substantial performance gap is

3

Dwelling approvals rebound from 8-year low

The Australian Bureau of Statistics (ABS) has released dwelling approvals data for the month of July. At the national level, the number of dwelling approvals rebounded by a seasonally adjusted 12.0% to 13,840. The overall lift in approvals was broad-based, with units & apartments surging 22.7% and house approvals rising 8.5%. Over the year, dwelling

6

HIA summons first home buyer patsies

The Housing Industry Association (HIA) has urged the Morrison Government to extend the first home buyer (FHB) subsidy amid strong demand: Today’s report from the National Housing Finance and Investment Corporation (NFHIC) outlines the intital success of the first release of 10,000 guarantees under the First Home Loan Deposit Scheme. HIA is pleased to see

20

Aussie property values fall another 0.5% in August

CoreLogic’s dwelling value results for August are out at the 5-city level, with values falling another 0.54% over the month, driven by Melbourne and Sydney: It was the fourth consecutive monthly decline: Over the August quarter, dwelling values fell by 2.2% across the major capitals: Melbourne has suffered the biggest quarterly falls, followed by Sydney

26

Sub prime mortgages green-lit by ASIC

I noted last week how the Australian Prudential Regulatory Authority (APRA) had abandoned its responsible mortgage lending case against Westpac amid pressure from the heads of the RBA and Treasury, who warned that continuing would cripple Australia’s economic recovery post COVID-19. Today, ASIC chairman James Shipton has confirmed that the regulator does not want to

10

Sydney auctions boom, Melbourne busts

CoreLogic’s preliminary auction clearance rate climbed, with 67.7% of reported auctions cleared versus 64.7% last weekend: The lift was driven by Sydney, whose preliminary clearance rate rose to 74.0% from 71.9% last weekend. However, Melbourne’s preliminary clearance rate slumped to 49.6% from 50.3% last weekend off thin volumes. As noted by CoreLogic: The performance across

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Do Aussie property values double every 7 years?

According to Martin North’s Digital Finance Analytics surveys, the majority of Australians still believe that property values rise on average every seven years. In the above video, Martin North sets the record straight, busting this myth using a number of examples. For Aussie property to double in value every seven years, values would need to

2

Melbourne’s auction market bombs

CoreLogic released its final auction clearance results for last weekend, which reported a final auction clearance rate of 60.0%, up slightly on last week’s 58.4%: Sydney’s final clearance rate strengthened to 66.1% (from 61.9% last week), whereas Melbourne’s bombed to 45.0% (down from 53.7% last week). As noted by CoreLogic: Both volumes and clearance rates

33

A weird spring beckons for Aussie property

Eliza Owen, head of research at CoreLogic, has released an interesting report explaining how this year’s spring selling system is shaping up to be wildly different to prior events: A key takeaway from CoreLogic data amid the pandemic, is that transaction activity slows significantly in response to COVID-19 restrictions. The resulting loss of employment, lower

101

Australia begins its great China decoupling

It’s been a long and hard-fought battle and it’s not over by any stretch. But yesterday we saw a major breakthrough in Australia’s fight to push back Communist Party of China influence when the Morrison Government shifted significantly to new legislation governing sub-national agreements: 👏👏👏@MarisePayne 🇦🇺🇦🇺🇦🇺 https://t.co/zs1bihsBJQ — James Paterson (@SenPaterson) August 27, 2020 Today

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Aussie property is bulletproof

That’s the view of Crikey’s Jason Murphy, who believes that Australian housing “like a cockroach… appears capable of withstanding anything”. This is based on internal mortgage lending data from the CBA showing that mortgage demand has rebounded strongly: Apparently amid the mayhem of death and economic destruction wrought by 2020, housing lending is continuing apace.

27

ASIC abandons responsible mortgage lending

Last month, ASIC abandoned its “wagyu and shiraz” responsible lending suit against Westpac after the heads of the Australian Treasury and the Reserve Bank of Australia both privately warned that proceeding with the case would exacerbate economic uncertainty amid COVID-19. ASIC had argued that Westpac was too reliant on the Household Expenditure Measure to assess

15

Melbourne rents tumble as vacancy rate balloons

The Real Estate Institute of Victoria (REIV) has released its rental market snapshot for July 2020, which shows Melbourne’s vacancy rate ballooning to 3.2% and median house rents plunging by 3.2%: Data from other providers tells a similar story. Domain reported that Melbourne’s rental vacancy rate has nearly doubled since March, from 1.7% to 3.2%:

38

CBA: Collapsing immigration crushing property demand

CBA’s head of Australian economics, Gareth Aird, has released research showing that underlying demand for new housing has cratered due to a significant decline in immigration: Key Points A significant decline in the rate of population growth due to the drop in net overseas migration has reduced underlying demand for new housing. Falling dwelling prices

42

ANZ: Melbourne property to plunge, Sydney only tumble

Via ANZ which now sees a 15% fall in Melbourne property prices versus Sydney’s more excellent 13% fall: The decline in house prices over the past three months has been slightly more modest than we expected. The government support payments to households, superannuation withdrawals and deferred mortgage repayments are all supporting the housing market. We

9

Residential construction has collapsed

The ABS has released data on the value of construction work done for the June quarter of 2020, which registered another 0.7% seasonally-adjusted decline in total construction activity over the quarter – the eighth consecutive quarterly decline – and a 2.2% decrease over the year: However, the result smashed analysts’ expectations of a 7.0% decline

66

CBA targeting property investors to sell

According to the Australian Prudential Regulatory Authority (APRA), around 170,000 Australian property investors have deferred repayments on their mortgages due to financial pressures arising from COVID-19. This is among the 500,000 total borrowers that have deferred repayments on $195 billion worth of mortgages, according to APRA. Digital Finance Analytics’ mortgage stress data also shows that

8

No bust in NSW stamp duty receipts

According to the NSW Office of State Revenue, stamp duty receipts have shrugged off COVID-19, treading water. Annual stamp duty receipts in rose for three consecutive months to July, but remain marginally (1%) below their from April peak: It’s a similar story for property transfers, which have also risen for three consecutive months, but remain

95

RBA wrong on mortgage risks

As we know, Australian households are among the world’s most indebted people. According to the Bank for International settlements, Australians held the second highest household debt loads as a share of GDP at the end of 2019 (120%), behind only Switzerland (132%). Australia’s household debt loads also dwarf other advanced English-speaking nations, as clearly illustrated

39

CBA to begin “encouraged” property sales

Via the AFR: Commonwealth Bank says its most over-leveraged borrowers – those whose prospects for returning to work after the coronavirus look the bleakest – could be encouraged to downsize the family home or sell multiple investment properties. Angus Sullivan, head of CBA’s retail bank, reassured all struggling borrowers that it won’t move too quickly

11

COVID mortgages spear into the turf

And stays there. CoreLogic weekly leading indicators:   Freefall, splat and lying there unconscious when we should be ramping into Spring. Remember that this is only owner-occupiers. Specufestors are still falling. Listings are very weak and may provide some price support. But wait for the forbearance roll-off: Still not much to recommend the market. Full