June 2015: The month Australia learned it had a housing bubble

Written by admin on July 1, 2015 – 12:25 pm

According to Google Trends, searches for “housing bubble australia”, “australian housing”, “australian housing bubble”, “sydney housing bubble” and “housing market bubble” surged last month to levels never seen before.

Highlights of June 2015 included:

  • Treasurer Joe Hockey denying there was a housing bubble and telling first home buyers they should get a “good job” that pays “good money.”
  • Treasury secretary John Fraser telling Senate, “When you look at the housing price bubble evidence, it’s unequivocally the case in Sydney.”
  • Reserve Bank Governor Glenn Stevens saying, “Yes I am very concerned about Sydney and some of what is happening is crazy.”
  • Organisation for Economic Cooperation and Development (OECD) warning Australia’s residential property markets are at risk of a “sharp correction”.
  • World’s biggest bond investor, PIMCO, warned Australians are being “irrationally exuberant” by borrowing too much to invest in residential housing.

Figures released yesterday by the Reserve Bank show Australia’s households now have debt levels of 155.9 percent of household disposable income, a new all time high.


Posted in Australian Housing, Sydney Housing Bubble | 43 Comments »

43 Comments to “June 2015: The month Australia learned it had a housing bubble”

  1. Mortgage Mutilator Says:

    Care to predict the bubbles “popping point” based on that graph and the comparison to America? 😛

    Also to me it’s pretty clear that the gov will do ANYTHING to stop it from crashing and that because of this the only way it will crash (and bubbles always do!) is for the financial market to basically give everyone no choice just as the GFC didn’t give America any choice.

    That kind of event takes a significant external financial shock to trigger it… I’d love to see you write up a quick “Top 3 List” of what you think are the most likely top 3 external shock events to pop it and where each of them are at currently etc.

    Keep up the great writing! 🙂

  2. Stomper Says:

    Here you go Mortgage Miltiplier

    http://www.macrobusiness.com.au/2015/07/what-will-pop-the-property-bubble/

  3. Estupidos Says:

    The government can do what it likes to keep kicking the can down the road whether fiddling with policy, importing more investors or plain lying, but there’s a point where the fear of the debt to take on a mortgage will outweigh the greed to take on an investment property (I’m including buying a home to live in as I’ve had a few people buying homes to live in that couldn’t help but take in the “investment opportunity” of the price going up blah blah).

    Fundamentals: Eventually in the words of Donald Sutherland in the film Flatliners “At some point you have to pay the Piper.”.

    Eventually we have to pay back the debt, that means banks and government have to pay debt. Anything that triggers that debt to double or limits the amount we can borrow will cause a significant hiccup in our free-flowing credit and start to pinch the purse of investors and bank lending. The laugh then begins as fear completely outweighs greed and everyone starts panic selling causing a self-fulfilling prophecy of a massive crash.

    And that seems to be coming this year I’m still tipping mid-December as an economy slam-dunk for Australia.

  4. Matty Says:

    Great info. Thanks admin.

    It is interesting, as USA is in the midst of another bubble and so is UK…..

    One thing most are missing, is asset bubbles collapse CAUSING recessions, not recessions causing asset prices to fall.

    Sure, we are losing jobs left right and centre, but mortgage growth continues. When that tapers, and house prices fall, you watch the decline in the economy accelerate. If you think times are tough now, just wait.

    It’ll be spectacular. We will have awesome documentaries made about the Australian housing bubble. It’s at least 15 years old, the largest in the developed world.

    I hear of people buying homes for their 1 year olds, for FOMO. Does this sound ridiculous to anyone else? Australian’s must be the most over educated, dumbest breed in the history of the world.

  5. Nexus789 Says:

    The UK and US are new bubbles. The bubble in Australia a continuation after Rudd kept the bubble going squandering, if I recall. $8Billion of taxpayers money. They are running out of greater fools.

  6. 56andoverit Says:

    Australian Government is listed as a corporation in New York.Australian border force,the new black suits(uniforms),the corporate world order.All done in complete secrecy,just like the free trade deal inked two weeks ago.The new OZ few rich and many poor.Maybe the bubble is all part of the plan.Agenda 21.

  7. Matty Says:

    @5 Nexus.

    No. Your wrong.

    It was >$15BILLION

    From the horses mouth: http://aofm.gov.au/files/2013/07/rmbs_data_20150625.xls

  8. Skichaser Says:

    @admin, excellent article once more. Without boring other readers around AUS to much, some brief feedback on the ground here in ADL. Once more we have seen amazing and more frequent property porn articles on the AdelaideNow website today, with the title ‘House Prices Rebound’, then local C9 news spruiking house price increases over the FY (admittedly, to save my sanity I did not watch the article, but I reckon it would have been the ‘same old’). But as a non-empirical observation, and as I have posted previously, I have been following the 2 bedroom unit prices in middle suburban south western ADL on realesate.com.au for almost 4 years (and promoted ideal investor properties). Every Monday evening I check through them to see which ones have decided to discount their price (on the iPad app you can make notes and track it). Sure enough this week (and the week before), I just got the feeling I had to update more than usual. Need to find a statistician mate to confirm this, but I just get the feeling there is some fear in the air.

  9. Skichaser Says:

    Post Script: Neglected to say that in the 4 years monitoring my specific unit price area, capital growth has been negligible, and recently have observed some spectacular discounting steps by some vendors.

  10. average_bloke Says:

    Another housing LoL vid

    https://youtu.be/jxoEPBVY8cc

  11. md Says:

    Those predicting the bubble will pop seem to forget the insatiable appetite by the Chinese for Australian real estate, and absolutely nothing is being done to stop them buying literally as many properties as they want. There has been talk of clamping down but still nothing is done. And they’re not just buying new apartments. They are buying anything and everything. It is very, very easy to get around the (lax) laws with proxies buying on their behalf, so it’s not even reported as foreign investing. The numbers are far, far higher than what we have been led to believe.

    Don’t get me wrong – I said years ago that the bubble had to pop because the fundamentals don’t stack up, but as long as the government allows open slather on our properties, prices will continue to become even more ridiculous. Remember, Canada closed down its visa program, Singapore and Hong Kong have made it harder for Chinese to buy, so many more billions of dollars looking for a home (laundry) are headed here.

    In addition, the government is hell-bent on growing the population of our cities as fast as possible. We keep getting told it’s a good thing (as if!).

  12. CanBuyWontBuy Says:

    @Nexus, the UK housing bubble is 20 years old and counting. The 2009 house price “crash” wasn’t really a crash. It was triaged by a base rate cut from 4.5% to 0.5% where it’s been since. House prices fell by 10 to 15% in 2009 and then recovered to levels now higher than their 2007 bubble peak. London is off the charts, as is much of SE England. Meanwhile wages have stagnated in the UK since 2008 so prices are actually the most unaffordable they’ve ever been in the UK.

    The UK – like many European countries – is also in an awful state financially speaking (yet has high house prices). The UK crash will be Greece on steroids when it blows up.

  13. Paul Says:

    @10 md.

    Foreign buyers, particularly the chinese, are just bandwagon jumpers. They will buy like crazy on the upswing and sell into the ground in a crash. Herd mentality.

  14. In Vino Veritas Says:

    @md

    Don’t like to worry you but China is about to release $US21 Trillion onto world investment markets by opening its financial borders. That’s a lot of chopsticks, probably enough to buy Sydney.

    http://www.bloomberg.com/news/articles/2015-06-25/with-21-trillion-china-s-savers-are-set-to-change-the-world

  15. Bill Says:

    I don’t know about you, but I think it’s perfectly reasonable to take out a half a million dollar loan on a shitty, “renovator’s delight” house in a horrible suburb on a $60,000 income right before the economy collapses.

  16. Bubby Says:

    I don’t think that Chinese money will be able to hold up the bubble. If they were the sole cause of Sydney house prices skyrocketing then the graph posted previously would not show skyrocketing mortgage finance commitments to investors.

  17. Me Says:

    Personally I believe the Government are aware that other external factors will tigger our own domestic problems especially the Real Estate Market. Who can guess what will trigger it as you have so many choices. The U.S. Debt, the bond bubble in every market globally, Japan’s debt, the Chinese debt, the Chinese Stock Market, Chinese Real Estate, the Euro more specifically Greece, Peurto Rico and the troubles, the lack of growth inches world in general, the derivatives market.
    The GFC never left, they just put a bandaid on the world.

    I will stock just here…..I could go on and all of you could name many more examples. Something will give one day but in the meantime why pay stupid prices for any asset especially debt funded ones like Real Estate. Yes Australians are dumb , probably the dumbest and I say this because they have witnessed it before.

  18. Patrick Says:

    If prices are at record highs and relates at record lows, on a line graph it’s simple.

    These numbers can either grow further apart and cause economic distortions or it will converge to higher rates and lower values. Those who borrowed heavily are now sweating over their jobs.
    Last weeks Grand Designs had a modern build by the sea for under $1m. Upstairs from me paid $930,000 + legals for a 1960’s 3br unit on Sydney’s northern beaches 3 months ago. $930,000 is a lot of hours at work. Hope it lasts.

    For me this is very interesting times. I have zero debts. Zero. Also zero assets and zero spare cash. I have a job and live in a family owned property. I spend a lot of time with my kids at the beach, not at some open house stunt soaked in saliva, I get to listen to lots of music and cook with red wine or beer in hand. LG.

    Bottom line for me is, when it’s cold and wet, I’m warm and dry. And I’m grateful. Full stop.

  19. Tim Horan Says:

    @Patrick

    Interesting times indeed. Sounds like you have your head together while most are busy losing theirs’.

  20. 56andoverit Says:

    “In a time of universal deceit, telling the truth is a revolutionary act.” Thankyou and keep up the good work on factual graphs and articles.

  21. THEO Says:

    The corrupt Hockey must be investigated. He obviously has a conflict of interest being from parents who were both Real Estate agents and having a millionaire wife who is also a banker. I call upon law institutions in Australia to launch an investigation into Hockey and his political party’s campaign funding. Is there anyone who knows how to begin this?

  22. WA-renter Says:

    Interesting…

    The rental property next to ours in Perth has recently become vacant. The previous tenants moved out 3 weeks ago – bought their own property (happy for them – hope it works out for ’em) – with the lease finishing this week.

    When they gave notice, adverts immediately went up for new tenants – as expected – at the current weekly rate. So adverts started about 4 weeks ago. In that time, there has been a reduction of $40 down from the original asking price ($10pw), and it appears there’s no evidence of applications for the property.

    Coinciding with another two rental properties in the street about to have their build finished within the next month, and two other blocks of land each with 3 and 4 dwellings started to have foundations laid… and two other blocks up for sale – all in the same street, in a suburb 10 – 15 mins south of the Perth CBD.

    I remain interested – to see how this plays out. Whether an influx of funds prolongs the inevitable even longer – or… we see a nasty, very nasty next 6 months – with people who have taken no responsibility for their own actions demanding society / govts bail them out.

  23. Me Says:

    Yes Patrick, good on you. Good to hear people do live what I call normal lives. Cheers mate.

  24. md Says:

    @23, Me, the reason Patrick can live a normal life is that he is lucky enough to live in a family-owned property. He certainly doesn’t have to pay either high mortgage payments or high rents.

    @21, Theo, this housing bubble was in place long before Hockey became Treasurer. There has been a long history of pollies putting self-interest before those of the country. Hockey has made some insensitive, almost gloating comments, and has lit a fuse amongst those missing out on property ownership, but any investigation would be a complete waste of time.

  25. Dan Says:

    Hi guys.

    There are few things people are not counting. First that AU property became cheaper for people outside of Australia for some 30%. Bubbles in major cities around a world are making our prices low to be honest. Now I do see (as I was always saying) that there is a bubble in Australia accounting for the current wages don’t think I am one of the trolls that don’t state obvious. Problem is that none of the governments with foot on the printing press (Australia VS Greece situation) is willing to have debt implosion Greek style, with huge recession and unemployment. So I expect interest rates to go to 0% or negative like in the rest of the world and Australian dollar around 0.38-0.5 to US. This will eventually show the teethes of inflation and prices for people who purchased homes would adjust to normal 2-3 times income. Government will print for sure regardless who is in the power. They have no choice. If you consider opposite and Government allows for houses to collapse, you again would have dollar at 0.38-0.5 and a lot of people under water. That is a lot of angry voters. Recession will cause destruction of capital as money=debt and loss of jobs. We would become new Greece of the day. Why would they do that. I have some friends in Sydney, and regardless how much people are calling Chinese, actually biggest buyers over there are US citizens. 700k Sydney house is 400k US and they get to pay low interest rates (2.5% on 25 years). That is in case they did not sold their LA apartment for 800k as prices in California are sky high again. Perth where I live is swarmed by Singapore investors. I was present one day when guy came in and said, you can not buy such place in SG for less than 1.3 mill dollars (0.5mill home). Crisis is looming all that all the countries in the world can do is to Hyper inflate epically and keep shortsighted homeowners happy. Else there will be massive riots against government and banks.
    For the end I would say my hearth says don’t buy, but my head says you might be even too late, as when prices go down banks might not be willing to issue credit.

    For the end:
    With current interest rates on US treasuries they will ran out of money to prop dollar Ponzi in 2 years (Interest payments overtake tax income in value). That would happen few months after next US elections. I hope you bought enough food for that time and you have fixed interest rates if you own a home….

    Cheers

  26. Rupert Says:

    I will NOT buy a home for 12 times my income. I will NOT borrow 10 times my income. I will NOT waste a tough decade of hard-earned savings on a deposit and stamp duty.

    Bubble or no bubble, at the end of the day, housing should NOT be treated and traded as asset. A home should be a home. As soon as ‘we the people’ start realising this instead of lining the pockets of the banks with our own short-termist greed, the better it will be for everyone. This isn’t some communist ideal, it’s proof that neo-classical capitalism DOES NOT WORK!

    In a few years, jobs will be more scarce than they are now and the cost of essentials like food and water will sky-rocket. If no-one can afford to pay rent to their landlords, you will have empty houses that cost a fortune coupled with destitution and anarchy on the streets. Either that or start the ball rolling to make housing affordable. But that ain’t going to happen in a month of Sundays.

    You think Greece is bad? It’s the tip of the iceberg baby!

  27. Me Says:

    Md,
    It’s irrelevant, my point was simple, you don’t need a mortgage to feel normal. There are people that actually don’t care if it’s a bubble or not….I think there is a bubble personally But at the same time I don’t care if I am wrong as I wouldn’t pay these prices. I have other investments other than property. Nothing wrong with enjoying the simple stuff. Tony and Joe…..you can keep your bricks.

  28. CanBuyWontBuy Says:

    Agree – I literally can buy, but won’t buy. The idea of paying 3 or 4 times over the odds and sinking my life savings AND borrowing a ton of money just to keep a roof over my head? Nah. Freedom first. Good luck to those who do. I pity you.

  29. THEO Says:

    The positive side of the economic slump in Greece is many people who could not afford to buy a house before, today can. Though it came with huge unemployment. However, economic mismanagement, debt fuelled economic boom, corrupt political system and worse, a voter who placed the welfare of their wallet over that of their country are the real culprits for Greece’s economic demise. Unfortunately, all advanced countries are in the same predicament and Australia will sooner rather than later suffer the same fate. Hide your money under your beds everyone.

  30. Pete Says:

    I had been reading about Greece’s Property Bubble. globalpropertyguide.com said after the 2004 Athens Olympics prices surged 30 to 40% (sounds like Sydney).

    “In Athens, house prices rose 8.7% in 2005 and 11.2% in 2006, before slowing to 6.2 in 2007.”

    Sydney & Melbourne are doing double digits at the moment.

    Then the crash hit:
    In 2008, house prices in Athens fell by 0.77% (-3.59% in real terms)
    In 2009, house prices fell by 4.21% (-5.99% in real terms)
    In 2010, house prices fell by 5.83% (-10.45% in real terms)
    In 2011, house prices fell by 7.97% (-10.43% in real terms)
    In 2012, house prices plunged by 12.94% (-13.92% in real terms)
    In 2013, house prices plunged by 11.45% (-9.48% in real terms)
    In 2014, house prices fell by 6.65% (-4.90% in real terms).

    Greece also had a dysfunctional government…..

    If we don’t wake up, this will be your father

  31. Tyrfing Says:

    It seems the Chinese foreign home buyers are buying from their democracy-like neighbours, either way the locals don’t like it.

    http://m.smh.com.au/business/first-sydney-now-tokyo-chinese-descend-on-japans-property-market-pushing-up-prices-20150703-gi49qu.html

    Although the article states the Chinese buyer cares about rental return, with all the empty new apartments where I live, I have an opinion otherwise that they just want to hide some dough.

    Still Sydney, by far is the worst, so much space for more housing yet nearly double the average price of an apartment in Tokyo. This is Tokyo we are talking about, the place that makes Gundam Mecha Transformers!

    I thought treason is when you sell out the national to a foreigner?

    An essential human rights law is being messed with here in a leading developed country like ours and others, and yet no one gives a crap apart from a few.

    Water and food. Shelter? Nah mate you’ll be right.

  32. In Vino Veritas Says:

    Even if you do not have a mortgage do not think you will not be affected by the implosion of the housing bubble.

    Scenario 1:Market drops 50-60%, big 4 banks insolvent, government bailout,loss of control of sovereign debt, money printing, devaluation, bail-ins, super funds move to state coffers, big rises in taxes and services.

    Scenario 2: Economy collapses, Australia needs to be bailed out by IMF (refer to Greece scenario)

  33. Rupert Says:

    40% of my income on a mortgage PLUS 100% annihilation of my savings (stamp duty and deposit), OR 40% of my income on rent and watch savings devalue. Either way, no more holidays, no more restaurants, no more clothes. And if house prices keep going up, soon it will be no more health insurance, no more car, no more heating, and pretty soon after that no more food and eventually no more shelter.

    @31 – you’re absolutely right. Treason is exactly what it is! How on earth did we all get into this mess?

  34. Morpheus Says:

    @Rupert

    Don’t worry neo-serfdom will provide you with food and shelter …. if you are useful.

  35. Curious Says:

    I think we all are the only generation who will have the chance of witnessing the big fall of Crapitalism. This massive imbalances in Australia’s and the world’s economy is very obvious to everyone now that it is unsustainable . The current economic situation cannot continue as it is. Something got to give at the end. We’re now facing Greece economic collapse which will have an enormous impact on everybody, the big crash of Chinese stock market, the massive asset bubbles and the collapse of mining and manufacturing. buckle-up everybody, it is going to be an enormous interesting ride.

  36. Morpheus Says:

    @ Curious

    This is NOT Capitalism. All western markets worldwide are rigged by the central banks for the vested interests of the large banks/corporates. “Too big to fail” is not compatible in a market driven economy where competition is essential. Call it an oligarchy, cronyism, corporatism, kleptocracy , fascism, command & control anything you like but not capitalism. You are right in that when the system does implode we cannot accept a reset with more of the same. We need to take definitive action against a political class which favours multinationals over its own citizens. Abolishing political donations is a good place to start.

  37. Chockolate Says:

    This ain’t capitalism, it’s corruption. You can’t have governments and big money legitimately working together in capitalism! We need to separate the 2 once and for all, just like we did with church and state.

  38. Curious Says:

    @Morpheus and @Chockolate. I strongly agree, and that is why I called it C”r”apitalism in my above post 😉

  39. Max D. Leverage Says:

    Sometimes you see a story that slightly restores your faith in the system. As in Media Watch tonight where Paul Barry covers the defamation case of Mr Hockey against Fairfax Media. He was awarded $200,000 for the headline “Treasurer For Sale” However it looks like he will be up for at least $1 million in legal costs. (Perhaps that’s why the farm is on the market?) Definitely karma at work here. Maybe HE could “get a better job” to pay for his expensive legal team.

  40. Pete Says:

    I see said farm is still on the market for $1,550,000. I guess not that many people in Australia have “good job” that “pays good money.”

  41. Chris Raymond Says:

    Correction to your headline.

    “Australia found out that Sydney and Melbourne have a housing bubble.”

    This was perfectly illustrated by a recent chart from Alan Kohler.
    Prices in most other major regional centers show retraction and State capitals show only modest growth.

    I guess all media is Sydney centric.

  42. Paul Says:

    @ Morpheus,

    not to mention the plunge protection team…

    this is what is required…

    http://www.getoutofdebtfree.org/forum/viewtopic.php?t=58418#p204033

    @ Curious + Chockolate,

    i call it Crony Capitalism

    prepper

  43. Anonymous Says:

    I know this comment may cause some controversy because you were brought up to bias against socialists. However please consider widening your worldview and be constructive before replying.

    However, Crony Capitalism is the result of Capitalism. Because Big Business will do political donations, bribe or lobby to manipulate politics in their interest. Thus leading to “Crony Capitalism” that betrays original free market ideals and leads to an oppressive dystopian society as people lose their freedom which Marx predicted.

    Originally Socialism meant ownership of how things are produced by the workers where there is no “boss” class at work to control you but instead elected representatives. In order to achieve a society of an actual democracy without corporate manipulation of politics. Yugoslavia for example, where local workers managed field factories and etc. So long as Capitalism exists, you cannot stop corporations from bribing the government, lobbying or doing political donations to meddle in politics and prevent true democracy from existing.