By Leith van Onselen The Reserve Bank of Australia (RBA) has released its debt ratios for the March quarter, which revealed that Australian households’ debt loads have hit another all-time high, with the ratio of household debt to disposable income hitting a whopping 190.4%: As expected, this increase has been driven by surging mortgage debt,
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.
Get ready for some serious congestion in property sales: Sellers of property worth $750,000 or more could face a 12.5 per cent tax on the proceeds under new ATO rules introduced to stop foreign property owners avoiding capital gains tax. Mario Borg, principal of property consultant Mario Borg Strategic Finance, says Australian residents selling property
CoreLogic released its auction report yesterday, which reported a rebound in the national auction clearance rate to 70.3% from 69.1% last weekend, still above the 67.0% recorded in the same weekend last year: Auction volumes nationally were 1,984 – way above the 841 recorded in the same weekend last year. As shown above, Sydney’s auction
From Australian Broker: ME today announced several changes across its home loan portfolio. The Bank will decrease by 10 basis points its principal-and-interest variable home loan offer to new owner-occupier borrowers who are applying for a loan in a member package valued at $150,000 or more and with an LVR at 80% or less. It
US non-bank lender SoFi is onto it for Millennials: Who says you can’t have avocado toast if you want to buy a home? Oh, right—an Australian real estate developer who made the comment heard ’round the world about how it’s preventing millennials from becoming homeowners. Obviously, buying a home doesn’t mean you have to chuck
Weeoo, weeoo, weeoo. House prices are clearly the verge of an outright crash if The Pascometer is to be trusted. By my count the contrarian mechanism has produced six straight house price spriuk pieces, each with declining credibility. Recalling his last effort: The anti-immigration chorus would prefer to reduce immigration rather than build the infrastructure
By Leith van Onselen The Reserve Bank of Australia (RBA) has released its private sector credit aggregates data for the month of May 2017: A chart showing the long-run breakdown in the components is provided below: Personal credit growth (-0.1% MoM; -0.4% QoQ; -1.4% YoY) is still in the gutter and falling, whereas business credit
By Leith van Onselen CoreLogic’s dwelling price results are in for June, with a 1.60% jump in values recorded over the month at the 5-city level, driven by Melbourne (+2.54%), Sydney (+2.09%) and Perth (+1.44%): Values rebounded strongly after May’s seasonal 1% decline: Over the quarter, price growth rebounded to 0.87% at the 5-city level,
APRA monthly banking data is out and specufestor lending was still firm in May up 4.8% year on year for the big eight: ANZ CBA MQG NAB WBC BOQ BEN SUN Total May-17 82,465 139283 8590 102650 145164 11205 11923 11673 May-17 512953 Apr-17 82198 139189 8663 102033 144010 11168 11902 11617 Apr-17 510780 Mar-17
By Leith van Onselen The 2016 Census revealed that the percentage of households that own their homes outright has plummeted by 10 basis points over the past 20 years: With more Australians carrying mortgages later into their lives, new research from the Australian Housing and Urban Research Institute (AHURI) has found that Australians are being
By Leith van Onselen With the ABS yesterday releasing its population data for the December quarter (taking into account the results of the 2016 Census), it’s an opportune time to once again examine how dwelling construction is tracking against population growth at the national and state and territory levels. The below charts track the following,
By Leith van Onselen In the week ended 29 June 2017, the CoreLogic 5-city daily dwelling price index, which covers the five major capital city markets, surged another 0.67%: The surge in prices was driven by Melbourne and Sydney: So far in June, home values have risen by 1.60%, driven by Sydney, Melbourne and Perth:
From Citi: We highlight 9 data points that support our view that the residential cycle is turning less favorable and dwelling price growth is likely to moderate. We continue to prefer SGP over MGR and view MGR at greater risk of a de-rating. 1. Dwelling price growth has stalled and all major apartment markets have
By Leith van Onselen Eliza Owen, commercial research analyst at CoreLogic, has penned an interesting article in The Australian on the significant rise in group housing reported in the latest Census: The 2016 census data reveals how people are dealing with unaffordable housing in the capital cities: a rapid increase in group households. A group
Recall recently from property magnate Tim Gurner: “It’s an incredibly challenging time in the market, no question. We’ve got foreign buyer restrictions, lending restrictions and we’ve got a planning minister here [in Victoria] who is being difficult. And we’ve had 18 months of the press being negative about property.” “But I am pretty confident about the market.
By Leith van Onselen LF Economics has released another interesting report entitled “The Australian Phantom Housing Shortage: The Myth in Every Bubble”, which challenges the oft-used claim that Australia has a chronic housing shortage. Below are some key extracts: Australia has experienced a nationwide boom in real and quality-adjusted housing prices. It began in 1996
From Deutsche: Repricing of interest-only mortgages In recent weeks the majors have announced repricing initiatives targeted at interest-only (IO) mortgages. While they raised IO rates by 30-35bps, owneroccupier principal & interest (P&I) rates were reduced by 3-8bps. These moves were responses to regulatory restrictions aimed at dampening housing risks rather than responses to the bank
By Leith van Onselen Last week, The ABC reported that available rental supply is being gobbled-up by Airbnb: Airbnb has rapidly taken off in Australia, with 115,000 listings for rooms or entire homes to be rented. But new figures raise concerns that the site is swallowing up properties once available to locals to rent long-term,
Recall the recent spray from Rob Burgess at LVO: One of the issues certain to feature in the next federal election is Australia’s rampant population growth, more than half of which is due to immigration. It’s a vexed debate because it is usually conducted just a hair’s breadth away from xenophobia or blatant racism –
By Leith van Onselen As a teaser to next week’s Member’s Special Report examining the Census data as it pertains to the housing market, below are some interesting summary charts showing the change in the composition of home ownership and renting over the past 20-years at the national level. First, the overall home ownership rate
And now for CBA: Commonwealth Bank recognises the importance of ensuring borrowers can sustain a strong path to property ownership and will be reducing our owner-occupier standard variable rate for those repaying principal and interest. From 7 July, customers paying off the home they live in will benefit from a lower standard variable rate of
Via the AFR: Westpac Group is set to whack self-managed superannuation fund property investors with tougher rates, policies and processes in the lead up to this weekend’s changes to caps on lucrative tax concessions being imposed by the federal government. The changes will also coincide with the Westpac and subsidiaries, Bank of Melbourne, BankSA, St
By Leith van Onselen A ripper new report by LF Economics is out, entitled Parental Guidance Not Recommended: An Illustrated Guide to the Latest Trends in Affordability in the Australian Housing Market. It assesses the challenges new First Home Buyers (FHBs) and others face versus previous generations in not only achieving home ownership, but the financial risks many Australian
By Leith van Onselen From CoreLogic’s latest Pain & Gain report comes news that 13.3% of apartments transacted across Australia in the March quarter sold at a loss: As shown above, New South Wales was the outlier, with every other apartment market in the mainland recording double-digit resale losses. Losses for houses were much lower
By Leith van Onselen The Grattan Institute’s John Daley last week gave a presentation to the Council of The Ageing conference on Housing for Senior Australians, whereby he noted that senior Australians generally face less housing pressures than younger Australians, but that the situation is likely to deteriorate from the 2030s due to falling home