Below is an article written by me published yesterday at News.com.au: There are two strong indicators used to predict house price growth – and both of them are showing a downward trajectory right now. This week, CoreLogic recorded another strong 1.6 per cent rise in Australian property prices in July, with values up a remarkable
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.
I have a good track record of making “mad” predictions about Australia’s housing market that turn out to be correct. In May 2013 I wrote that “if you have been holding off purchasing a home because of the risk of capital losses, then these risks are probably lower now than at any time in the past decade.”
On Tuesday, the Australian Bureau of Statistics (ABS) released data on new finance commitments, which registered the first decline in mortgages for nine months: As regular readers know, the growth in new mortgage commitments has historically been correlated very strongly with dwelling value growth. The reason is straightforward: the overwhelming majority of buyers borrow to
With Australians precluded from travelling, working from home, and sitting on a mountain of savings, many households are choosing to spend their money on renovating their homes. The evidence came yesterday in the form of the ABS’ housing finance data, which showed renovation loans rose by 7.4% to a record (19-year) high of $486.8 million:
Fairfax’s senior economics writer, Jessica Irvine, wants another housing affordability inquiry chaired by former Treasury secretary Ken Henry: [We need] a high-level Treasury review, of the ilk of the Ken Henry tax review… So, I texted Henry to see if he’s up for it. He replied: “Jess. Sure. I’d chair such a review. The question
The ABS has released retail sales data for June, which fell 1.8% over the month to be 2.9% higher year-on-year: The decline in retail sales in June was fairly broad-based with only South Australia and the ACT recording growth: All sub categories other than food retailing also registered falls: However, quarterly retail volumes rose 0.8%
SQM Research has released its stock on market report for July, which recorded a 1.1% rise in for sale listings nationally, with all markets except Sydney and Melbourne recording increases: However, over the year listings were down a whopping 23.6%, exposing a very tight market. Interestingly, both the number of new listings (<30 days old)
New data from the Australian Bureau of Statistics (ABS) shows that dwelling approvals fell by 6.7% in June to be 48.9% higher over the year. The fall was driven by detached houses, which tanked 11.8% in June whereas unit approvals rose 0.8%. Units led approvals over the year, lifting a whopping 63.7% versus a 44.3%
The Australian mortgage market softened in June, recording its first monthly fall for nine months, according to new data released today by the Australian Bureau of Statistics (ABS). The total value of new mortgage commitments fell by a seasonally adjusted 1.6% in June 2021 to be up 82.7% year-on-year: As shown above, owner-occupiers have driven
The Australian property market continues to rebound hard out of the COVID-19 pandemic. Following a 2.6% decline in dwelling values across the five major capital city markets between 15 March (the unofficial start of the pandemic) and 13 October 2020 (the bottom), values have since risen by 15.9% across the combined five major capital city
After last week junking their negative gearing and capital gains tax reforms taken to the past two elections, Labor’s financial services spokesman Stephen Jones hinted that it will offer first home buyer subsidies as part of its election platform: “We took those policies [negative gearing and capital gains tax reforms] to the last two elections.
First caravans ‘tiny homes’ were marketed as Australia’s housing affordability solution. Now it is boarding houses ‘co-living’. From Fairfax: “Co-living, a trendy new wave of communal housing championed by millennials, will be automatically approved in all areas where apartments are allowed in order to flood NSW with affordable developments”. “NSW Planning and Public Spaces Minister
CoreLogic has released rental data for July, which shows that rental growth nationally is running at its fastest pace since 2008, up 7.7% year-on-year. However, rental growth is two-speed, with the smaller capitals generally experiencing faster growth than the bigger capitals, and detached houses experiencing much faster growth than apartments: With dwelling prices growing even
“Team Australia” has been breaking apart for some time now as premiers and federalies tear at each other’s throats. The media is enjoying the COVID state of origin. Now the banks have joined in: CBA is tightening leading criteria focussed specifically on any loss of income incurred owing to COVID. JobKeeper-syle payments will not longer
CoreLogic’s July housing market report, released today, showed that the number of for sale listings across the nation continues to plummet, which is helping to fuel the rapid price growth experienced across the nation. The next chart summarises the supply situation, with listings running more than 25% below the five year average. There has also
Despite Sydney still being in lockdown, the nation’s auction market ran hot over the weekend. CoreLogic record a preliminary national clearance rate of 79.2%, up significantly from the prior weekend’s 74.8%. Sydney’s preliminary clearance rate lifted to a strong 80.8% from the prior weekend’s 74.8%, whereas Melbourne’s firmed to 77.1% from 71.9%. However, auction volumes
CoreLogic over the weekend released its daily dwelling values index for July, which showed that property values across the five major Australian capital city markets surged another 1.6% over the month: The rise in values was strong across all major capital city markets except Perth, with Sydney and Brisbane again leading the way: Over the
The auction market has begun to feel the ill effects of lockdowns, with the final national clearance rate falling to 73.0% from 73.7% last weekend, but volumes declining sharply to 1,728 from 2,097. As shown in the next table, lockdowns have hit Sydney especially hard, with the city’s final clearance rate falling to 72.8% from
Westpac has released its Red Book, which notes that COVID disruptions “are set to take some heat out of [housing] markets in coming months”. However, the acute shortage of stock should still deliver strong price growth over the second half, which will fade into 2022: Housing markets have continued to boom through the first half
The Reserve Bank of Australia (RBA) has released its private sector credit aggregates data for the month of June. Quarterly mortgage credit growth continued to firm, rising for the 11th consecutive month to 1.8% – the highest rate of growth since 2015: Owner-occupiers continue to drive mortgage growth, rising by 2.2% over the quarter versus
If macropriudential moves were not already fading on the interminable Sydney Delta outbreak, today’s APRA data pushes it further from sight. The big eight banks lifted specufestor lending to 0.3% monthly for June (with CBA having its own little party): And still only 1.1% year on year: Then there’s Mad Macquarie as usual: Big eight
Recently, Domain claimed that the price differential between house and apartments had hit 66%, which is the widest gap on record. This has been confirmed by CoreLogic, which has released a report showing “a 30.5% gap between median house and unit prices, which is the highest on record”. The next chart shows the picture at
In the week ended 29 July, the CoreLogic daily dwelling values index increased another 0.31% – the equal smallest weekly increase since early February: All major markets except Perth recorded rising values: So far in July, dwelling values have risen by 1.48%, led by Sydney and Brisbane: Quarterly price growth remains turbo-charged at 6.19% across
According to Bernard Salt, Millennials are behind the surging demand for suburban properties: “The housing market – and the shape of our cities – is shifting from medium- and high-density apartments in the inner city to low-density living on the edges of our capital cities”. “Net overseas migration to Australia stopped in March 2020… This
Domain has released its June quarter house price report, which recorded 5.8% growth in detached house prices at the national capital city level, with values up a whopping 18.8% year-on-year: As shown above, all capitals recorded double-digit price growth in the 2020-21 Financial Years. As expected, unit price growth was much weaker at only 6.7%
The federal government’s Homebuilder policy has successfully brought forward a stack of demand for new houses, more than offsetting the collapse in immigration: But one of the unfortunate byproducts is that it has also helped juice lot prices across the nation, which have soared to new record heights, led by extreme growth across Sydney: As
The Australian Bureau of Statistics (ABS) yesterday released consumer price index (CPI) data for the June quarter of 2021, which revealed that property rents across the combined capital cities fell sharply over the prior 12 months. While property rents rose 0.1% of the quarter: However, over the year to June 2021, rents were dead flat
I have been bullish on Brisbane property for some time. The main reason is that Brisbane dwelling values are exceptional value in a relative sense when compared to its larger East-Coast counterparts, Sydney and Melbourne, as illustrated clearly below: The other reason is that net internal migration into Brisbane has remained robust throughout the pandemic: After
You know we’ve reached Bizarro World when real estate agents complain because property prices and rents are soaring too quickly. Well that’s exactly what the Real Estate Institute of Tasmania (REIT) has done via the ABC: The Real Estate Institute of Tasmania’s (REIT) latest report shows that in the past year the median cost to
Westpac with the note: We have revised our outlook for Australian dwelling prices. Back in February we boldly predicted a 20% increase over 2021 and 2022. A stronger than expected surge over the first half of 2021 is now expected to see prices up 18% in the first year alone. Lockdowns will see some loss