That’s what is still coming according to financial markets. Even as other long-end interest rates around the world have started to decline as markets price in an economic downturn from the paltry tightening we’ve seen to date, Aussie interest rate forwards have held onto all of their gains: In short, markets are forecasting Australia is
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.
Equifax has released its Consumer Credit Demand Index for the March quarter of 2022, which revealed that mortgage demand fell for the first time in two-and-a-half years in Q1, down 4.6% nationally: As shown above, the fall nationally was driven by our two largest states – New South Wales (-7.6%) and Victoria (-8.5%) – whose
While all the usual suspects continue to claim that rigid planning and lack of land release is responsible for Australia’s housing shortage, Mirvac CEO Susan Lloyd-Hurwitz basically admitted that this shortage has been caused by excessive levels of immigration, which will worsen as the Big Australia policy is rebooted: “We’re in a genuine national crisis
CoreLogic’s daily dwelling values index, which measures price changes across the five major capital cities, fell another 0.12% in the week ended 19 May, which follows the 0.11% decline over the prior week: This fall was driven by Sydney (-0.27%) and Melbourne (-0.18%), which more than offset price rises across the other major capitals: So
Simon Kuestenmacher is Director of Research at The Demographics Group and is described as “a rising star in the world of demography”. The Demographics Group is the private enterprise headed by self-proclaimed “unabashed supporter of a bigger Australia” Bernard Salt, who has spent years lobbying for mass immigration. Kuestenmacher has been frequently cited in the mainstream
CoreLogic has released its final auction results for last weekend with the nation’s clearance rate falling to 60.1% – the lowest level since August 2021. The decline in the nation’s clearance rate was driven by Sydney, which fell to only 53.8% – the lowest reading in more than two years. According to CoreLogic: The busiest
One of the big conundrums arising from the pandemic is the sharp fall in rental vacancy rates across Australia despite negative net overseas migration. Logically, the loss of hundreds-of-thousands of migrants should have seen Australia’s rental vacancy rate rise. However, vacancy rates instead plummeted. One plausible explanation is that Australian’s desire for additional space has
The situation has gone from bad to worse for Australia’s residential building industry. Following the recent collapses of major Australian construction firms Condev, ABG Group, Probuild and Privium, giant Metricon is now facing a similar fate: On Wednesday, it was reported that Metricon was in emergency talks with clients after falling into financial strife just
The latest Australian interest rate forecast from the futures market tips the Reserve Bank of Australia to lift the official cash rate (OCR) to 2.7% by the end of this year, peaking at 3.4% by mid-2023: If the market’s projection proved correct, this would be the equivalent of another nine 0.25% interest rate hikes over
ANZ Bank had forecast in February that dwelling prices would rise by 8% cent in 2022, followed by a 6% decline in 2023. However, ANZ says the prospect of aggressive monetary policy tightening means that it now expects dwelling prices to fall by 3% in 2022 and 8% in 2023. ANZ economists have forecast the
Prime Minister Scott Morrison yesterday attacked Labor for claiming that the Coalition’s policy to allow first home buyers to borrow up to 40% of superannuation to purchase their first home would “blow up the housing market”: [Morrison] took a swipe at Labor’s criticism of the policy, saying the party had “lost touch completely” after it
Last year’s NSW Budget revealed that the state’s housing shortage had all but disappeared thanks to the collapse in immigration: Building approvals are now running well ahead of the change in population, which is depressed due to the lack of inward migration. This suggests a potential oversupply in the near-term relative to the underlying demand
May 2022 Australian property market affordability update Australian property market prices have started to drift lower. In recent months, mortgage fixed interest rates have risen substantially, now standard variable rates are on the rise. The official rate rose, and already affordability is as poor as it has ever been in some markets. Housing valuation and
On Sunday, the Morrison Government announced that if reelected, it would allow first home buyers to borrow up to 40% of superannuation to purchase their first home, capped at up to $50,000 (see yesterday’s article). Under the policy, first home buyers would need to have $125,000 in their superannuation account in order to withdraw the
Australia’s rental crisis continues to worsen, with SQM Research recording a surge in asking rents amid tight vacancies. While the national vacancy rate rose 0.1% in April to 1.1% on the back of the smaller capital cities (see below table), asking rents nationally soared another 1.4% over the month to be 13.8% higher year-on-year: According
Fixed mortgage rates have already ratcheted up, as illustrated in the next chart from CoreLogic: While not captured above, variable mortgage rates have also begun drifting higher following the RBA’s 0.25% hike in the cash rate earlier this month. Steve Mickenbecker from financial comparison site Canstar has warned that around half a million Australians could
Corelogic’s 2022 housing affordability report, released last week, showed that aspiring first home buyers are being squeezed hard by surging mortgage payments and rents. While the proportion of income required to service a mortgage remains below record highs, it has risen substantially over the past year across both the capital cities and regions: Moreover, the
Over recent months we witnessed the Coalition and Labor launch a raft of new “housing affordability” policies – from home loan guarantees to shared equity schemes – aimed at driving more first-time buyers into the housing market and propping up housing values. Yesterday, a desperate Scott Morrison announced that if re-elected, the Coalition would allow
Freelance journalist Tarric Brooker has authored an interesting article estimating how forecast interest rate rate rises would compare with Australia’s historical experience. Rather than examining raw interest rate increases, Brooker has instead calculated the percentage change in mortgage interest repayments from the trough to the peak of the interest rate cycle. The analysis shows that
The latest forecast from futures markets is now tipping that Australia’s official cash rate (OCR) will hit 2.8% by December before peaking at 3.5% by July 2023: That would represent the equivalent of around ten 0.25% hikes in the cash rate over the next seven months, followed by another three hikes over 2023. It would
The Housing Industry Association (HIA) has released new home sales data for April, with sales down 1.2% over the month after trending down since December: Residential land sales on Australia’s city outskirts are also falling: New research released today by property data house RPM shows a 28.5 per cent year-on-year decrease in vacant lot sales
I noted earlier this week how Privium, Condev, ABG Group and Probuild are among the major Australian construction firms that have gone into liquidation over recent months, alongside many smaller builders. An industry insider also warned that the collapses are only the “tip of the iceberg”, given factors such as rising labour and material costs
Societe General’s Albert Edwards painting the town a deep shade of bloody red once more. — If GMO’s ‘premier league’ investor Jeremy Grantham is right and we’ve just ‘enjoyed’ the fifth great bubble of the modern era, the coming bust will surely be devastating. Following the market turmoil of the past few weeks, this
CoreLogic’s daily dwelling values index, which measures price changes across the five main capital city markets, declined by 0.11% in the week ended 12 May: The decline was driven by Sydney (-0.26%) and Melbourne (-0.22%), which both recorded heavy price falls. By contrast, the other major capitals each recorded price rises, with Adelaide leading: Over
CoreLogic has released its final auction results for last weekend, with the lowest capital city clearance rate of 2022 recorded and Sydney and Melbourne clearance rates bombing into the 50s: Nationally, a final clearance rate of 61.8% was recorded. Melbourne’s clearance rate (59.8%) fell to its lowest level since mid-September 2021, whereas Sydney (55.3%) recorded