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 2008-09 Australian Taxation Office (ATO) Taxation Statistics were released yesterday (available here), and the data on property investment was very interesting. First, the number of property investors reporting to the ATO fell by 34,000 or 2% from the previous year (see below chart). Second, after rising steadily since 1999-00, the overall value of net
February’s data for housing was obviously terrible. However if we can take AFG’s latest report on mortgage issuance for March the market may still have a bit of a run left in it. Well at least in NSW. Mortgage sales during March saw a recovery from the record lows of January and February, but figures were
As my fellow MacroBusiness bloggers have already pointed out, Australia’s housing finance data released today by the ABS was bad, real bad. One of Australia’s few truely independent property analysts, the Managing Director of SQM Research, Louis Christopher, offered perhaps the most damning assessment via a series of Tweets: Home loans drop on weak demand
As H&H reported today the housing finance data for February is simply plain bad. This is not a surprise to me as I have been warning about this for some time now. As I have been saying recently I simply could not see any drivers for new credit and it looks like I was correct
The drumbeat of crappy housing data is getting louder and more frequent. From the ABS February Housing Finance we get the following: Here are a string of graphs to give you a feel for how bad the trends are: I call them bad, yuk, crap and foul. And here’s one last one to drive home the
The latest NAB “survey” of vested interests on what they hope is going to happen to the housing market is out as reported in yahoo finance. Even though it would seem that the chief of the bank has given up on housing others still seem to want to find the glass half full. Survey Highlights:
No it is not a Hillsong fundamentalist production , although I could easily find some parallels. The Building Revival Forum 2011 is in fact a Queensland government initiative. On 12 April, a Building Revival Forum will be held with key industry stakeholders to brainstorm ways to kick start Queensland’s vital construction industry, which is still suffering
Yesterday’s Australian Financial Review published an article entitled Capital house prices slide, which provided a sobering assessment of the housing market, particularly in Brisbane, Perth and Melbourne. House prices fell in most capitals in February and analysts expect poor affordability to prevent any real recovery for at least a year… Rp Data senior research analyst
The saturday morning ritual of moving the yard apes between their various activities is over so it time to sit back for an afternoon of musings. Firstly, after yesterday’s little bomb drop from NAB on housing I note that Bill Evans from Westpac has joined in (h/t janet) with a bearish post on Business Spectator. A sustained relaxation and
I am amazed how quickly the housing story is changing in Australia. Just 8 months ago anyone mentioning the fact that housing was heading for a correction was met with howls of laughter. I know, I was one of them. Today however sentiment is very different, and it seems to have gotten so bad that
A couple of new statements/reports out today about the housing market. First RPData have their monthly statement. Housing flat in February with only 0.8 per cent growth over last year: February’s index result (0.0 per cent s.a.) suggests that Aussie home values continue to tread water despite robust household income growth. There was little revision to RP
The above headline can’t have escaped the attention of many Australians yesterday. It sat at the top of the SMH, The Age, Brisbane Times and WA Today websites all afternoon. I can’t remember the last time I saw 500 comments on a Fairfax story (I literally can’t remember so it may not be that long).
Saul Eslake is on fire. Earlier this month, Mr Eslake wrote a wonderful article in Fairfax lambasting the first home owners’ grant and other demand-side measures employed in vain by Australia’s governments to make homes more affordable: Governments have thus been providing cash handouts to first-time home buyers for almost half a century. Yet, strikingly,
It is beginning to feel eerily like 2008 in Queensland. In case you were asleep back then this is what was occurring in the land of real estate. Average house price values have fallen for the first time in 17 months as interest rate hikes begin to bite. Prices across the nation’s capital cities fell 0.7
Today on Smart Company, Craig James of Commonwealth Bank offered this brief article: The Reserve Bank Governor was asked a question on Australian home prices when he delivered a speech in London on March 10. The comments weren’t well reported, but he highlighted the fact that home prices aren’t rising strongly at present, that arrears
For those of you who don’t happen to live in Brisbane you probably will not know who Michael Matusik is. He is an old property bull turned bear who then picked up a job as the property blogger at the Courier mail. It seems however that his time at the newspaper has spurred him back
This morning I posted a message from a reader about statements by the member for Gaven. I said at the time I couldn’t find the transcript of his statements so I couldn’t verify the claims. Well our reader has got back to us with some more information, and what Alex Douglas actually said is even
We received an e-mail from a reader last night about something they had heard on ABC local radio in Brisbane as they were driving home. On the way home from work today, on 612 ABC Brisbane’s news, there was a story about the member for Gaven, Alex Douglas (shown above) suggesting that the state and
Last week, I quoted an Australian Financial Review article explaining how Australia’s banks are lifting maximum loan-to-value ratios (LVRs) and are, in some cases, waving mortgage insurance payments on high LVR loans in an effort to increase mortgage lending: Major banks are pitching special mortgage deals to their customers in an effort to generate business
As my readers would know I am a keen watcher of all things real estate and that makes me a very interested in the Queensland market. As tourist destinations, places like the Gold Coast and Cairns have always had large percentages of holiday homes and holiday “investment” properties. They are therefore fringe markets and in
An article in Friday’s Australian Financial Review (AFR) entitled “Getting a foot in the door” neatly highlighted the ponzi-like nature of the Australian housing market and the unsustainability of current housing values. Below are some extracts from the article along with some commentary of my own. It took Lee Palmer two years of trying before
Some days I get some very nice messages from readers, other days I don’t. Friday was one of those “other” days. An excerpt from my inbox after a run through the abuse filter. When will you renter losers just accept that you are wrong and that housing isn’t going to crash. I am sick of
After publishing my latest post I received the following e-mail from a reader. I suspect you may be interpreting this REIV move incorrectly. If history is any guide the Real Estate Agents are in the process of “switching sides” figuratively speaking (as they are really on their own “side” at all times and everywhere). If the REA’s
Earlier in the week, a reader sent me a link to a recent Real Estate Institute of Victoria’s (REIV) news release. The release contained the following quote [my emphasis]: Members report positive expectations for market activity in the March quarter at the same time as a drop of 3–5 per cent in the median house price is expected.
I am starting to think I have woken up in the twilight zone. Something very odd seems to be suddenly happening in the Australian mainstream media. Last week the Unconventional Economist posted about the MSM’s foray into anti-REIX journalism with a well researched opinion piece about the failings of negative gearing. Today I note that
You’d seriously think that the Real Estate Industry sponsored media in Queensland would have given up by now. With north Queensland, the Gold and Sunshine coast going through well publicised correction you wonder why they would bother spending the money. But I guess old habits die hard. So once again we are subjected to the
One of the best stockbrokers I have ever known once said to me, in characteristically gruff fashion” “Mate, the market is always right. Even when it is wrong, it is always bloody right.” He was a great broker because he understood crowd psychology and the limited utility of numerical analysis. A great lesson in humility.
Houses and Holes noted today that the RBA looks as if it is trying to talk tough on interest rates. I assume that was before 11:30am when the ABS figures for housing finance appeared. JANUARY KEY POINTS VALUE OF DWELLING COMMITMENTS January 2011 compared with December 2010: The trend estimate for the total value of dwelling finance
The AFG monthly mortgage report is something I follow. AFG claim to represent between 10% to 20% of the mortgage market and release their raw data every month in a fairly consistent manner. They are a brokerage service so they are able to get their data out earlier than most. As they are not an actual
The Economist has published an excellent article entitled Bricks and Slaughter (h/t Financial Insights for the link). It is part of a series by the Economist exploring the lessons to be learned from the global housing bubble. Below are some key extracts; although I recommend that you read the article in full for yourself. A
