Property rorts targeted as budget rapidly deteriorates – but no budget emergency just yet!

Written by admin on April 13, 2014 – 8:55 pm

The International Monetary Fund (IMF) this week warned Australia’s budget position over the past 6 months is deteriorating at the fastest pace of any of the world’s 29 most advanced economies.

“Australia will need massive budget savings of about $90 billion if it is to stabilise its government debt by 2030, International Monetary Fund estimates show,” writes David Uren of The Australian.

Treasurer Joe Hockey this week told a Washington audience, “But I think there is a good understanding in Australia that the current settings we have in place are unsustainable. Australians know that,” (Let’s hope Australian’s do in fact have a good understanding….)

“Achieving long-run fiscal sustainability will require winding back some spending that our population have come to take for granted,” the Treasurer said. “This will require every sector of the community, including households, corporates and the public sector to make a contribution.”

Everything is now in the firing line including increasing the pension age to 70, breaking election promises by slashing ABC funding and yes, closing down many of the lucrative property rorts costing taxpayers billions and billions of dollars.

Latest NRAS (National Rental Affordability Scheme) Frozen pending Budget

First in the firing line is believed to be NRAS, the National Rental Affordability Scheme. The $4.5 billion dollar program was established with the aim to provide affordable rental accommodation to many of Australia’s neediest after negative gearing not only failed, but rather exacerbated the very issue it was suppose to address.

NRAS has been widely rorted by prestige universities and student accommodation providers, using taxpayer subsides to build student accommodation for wealthy foreign students. In the latest round, Sydney University had applied for $10,000 subsidies on each of 1,200 units to be built on campus. The university had claimed it was justified, suggesting the units would free up rentals elsewhere that could instead be occupied by struggling Australians.

Sydney University was not the only University in on the act. Monash, Australian National University (ANU) and the University of Canberra all claimed taxpayer subsidies under NRAS. According to the Australian, it is thought two of Monash’s NRAS blocks are over 70% occupied by foreign students.

The Australian also reports on numerous student accommodation providers with their fingers in the pie – Top end of town rorted NRAS scheme (15th March).

Over the weekend, The Australian reports that according to senior government sources, the current round of NRAS applications have been frozen ahead of significant revamps in next months budget designed to save taxpayers “substantial” savings.

This can only come as good news. Let’s hope any revamp is well designed and thought out. (Can’t say I have high hopes – the track record is not good!)

Negative Gearing

Negative gearing has always been considered a sacred cow, but with the budget deteriorating rapidly by the day, it is though nothing is sacred any-more.

There are now credible sources indicating Treasury and the Parliamentary Budget Office in recent months has been working on plans to grandfather negative gearing in next month’s budget. The plan is to abolish negative gearing for new investors of existing dwellings, while current investors will be allowed to continue to negatively gear. This is designed to prevent a mass exodus of investors at a time when the property bubble is precariously balanced, while taking some of the recent heat out of the market.

While it is unclear if Australia actually has a housing shortage, the plan will also allow investors in new housing stock the ability to negative gear in a bid to create more housing and drive down prices.

Budget Emergency? Nop, not yet

While the budget is rapidly deteriorating, one of the positives for Australia is our relative low level of Government debt as a percentage of GDP. The IMF has it at just a bit over 30 per cent.

Sadly, the same can not be said for households in Australia. Household debt is hovering just shy of 100 per cent of GDP, or over three times that of Government debt. As a percentage of household disposable income, household debt is now 148 per cent, still rising and still continuing to ring alarm bells.

One of the reasons why few saw the GFC coming, was simply because they were fixated with government debt.

Housing bubbles, like the size of the one Australia is experiencing, almost always lead to banking failures when prices come tumbling down. Banking failures require government bailouts. Following the last minute buyout of Bankwest in October 2008, preventing its collapse and potentially triggering the collapse of Suncorp, the government moved to passed legislation to set up the committed liquidity fund to the tune of $380 billion. This means, when the time comes, the government is better prepared and the Australian taxpayer will be ready to bailout the banks – thanks guys.

Overstretched household debt can very quickly turn into government debt. For example in 2008, Ireland had a government debt to GDP of just 25 percent, less than Australia today. In 2013, it was 117.4 percent, following the devastating collapse of its housing bubble.

If the government can’t get our housing bubble under control, then today’s budget emergency will pail in comparison.

» Fiscal Monitor – International Monetary Fund, April 2014.
» IMF says budget fall fastest of all – The Australian Financial Review, 1-th April 2014.
» IMF warns of $90bn debt rescue – The Australian, 10th April 2014.
» Joe Hockey tells G20 finance ministers that upcoming budget will cut spending Australians ‘take for granted’ – The ABC, 10th April 2014.
» Australian house prices: Taking a fresh look at negative gearing – The SBS via AAP, 4th April 2014.
» Budget boost as ‘flawed’ rent scheme put on ice – The Australian, 12th April 2014.
» Sydney Uni taps NRAS for on-campus units – The Australian, 1st April 2014.
» Deakin puts NRAS row to beds – The Australian, 26th March 2014.


Posted in Australian economy, Australian Housing | 15 Comments »

RP Data shows Australian housing bubble out of control – RBA warns house prices ‘can fall and have fallen’

Written by admin on April 1, 2014 – 8:06 pm

As widely feared, Chinese appetite for Sydney and Melbourne real estate has caused house prices to surge in Australia at the fastest pace since records started 18 years ago.

According to data released today from RP Data, Sydney house prices have increased at an unsustainable 15.6 per cent year on year, followed by Melbourne at 11.6 per cent. Both Sydney and Melbourne left the rest of the country for dead and together, helped push up the combined capitals by 10.6 per cent.

On the weekend, under the headline House prices enter danger zone, the Australia Financial Review warned “House price growth picked up again this month and expected further increases risk pushing prices into the danger zone that previously has led to a market correction.”

The AFR warned, “Australia has now overtaken Canada as the most stretched housing market among English-speaking countries.”

With such a large bubble at hand, both the Australian Government and the Reserve Bank are now sitting on their hands – like a stunned mullet. Neither want to be blamed for doing something that will tip an increasingly unstable system, plunging Australia into a significant recession. Both would rather let surging unemployment or a China hard landing do the unpopular dirty work for them.

Canada is one of three countries in the world with negative gearing and until recently held the record for the largest housing bubble in English speaking countries, dethroned now by Australia. It has recently axed an immigration visa allowing Chinese to snap up its real estate citing it posed significant economic stability risks. Prior to making the decision, the Canadian Government opted to prudently freeze the visas while it carried out the 2 year inquiry.

The Abbott Government last month has asked the House Standing Committee on Economics to carry out a similar inquiry, widely seen as window dressing – demonstrating to the increasingly concerned Australian public that it is actually doing something, while allowing foreign investors to continue to flood the market. Many believe it is simply delaying tactics, with a final report due on the 10th October 2014. Any recommendations could take months to implement, if a decision is made at all.

Documents from the Reserve Bank of Australia, released under FOI, indicate the central bank was looking at macroprudent controls, similar to what New Zealand has implemented – the other country with negative gearing and a sizeable overheating housing market. But has now decided to do nothing. RBA Deputy Governor, Dr Philip Lowe transparently told a Housing Standing Committee on economics:

More generally, there is a lot of activity going on in different countries around the world in the macroprudential space and that is going to give us an opportunity to observe how those things work out. My tentative conclusion must be that it can work but it creates distortions, and in the end the distortions are quite costly and people work out how to get round the distortions. Macroprudential tools are very much like the tools we used in the 1970s and we ended up deciding we did not like those very much because you restrict one class of lenders, and the financial system is very flexible and another class of lenders comes up to fill.

But the Reserve Bank Governor does have a similar warning to that of the Australian Financial Review. In the same grilling from the House Standing Committee, RBA Governor Mr Glenn Stevens expressed the following concerns:

Credit to households for investment in housing is eight or nine per cent a year. I would say that is probably fast enough. I repeat what I have said before that in Sydney in particular—but not just Sydney now—there has been a very big run up in investor activity. That is okay, but people need to keep in mind that prices do not just rise; they can fall and have fallen. We need to be careful that we do not take on too much leverage on the expectation that ever-rising prices for the asset make that work out, because I think that would be a dangerous assumption

Blame Games

Both parties are sure to blame each other when the inevitable occurs.

In an interview with Neil Mitchell’s 3AW in September last year, Prime Minister Abbott shunned any responsibility for the Housing Bubble, saying it is up to the Reserve Bank to manage. “I am sure the Reserve Bank is very conscious of the fact that there are a whole range of things that need to be managed here and I would be confident that the Reserve has got its eye on housing prices and will appropriately manage the level of interest rates.”

When the House Standing Committee asked Mr Stevens about Foreign Investment underpinning Australian house prices, Mr Stevens quite rightly reminded the committee, “With all due respect, that is a matter for our parliament to manage.”

Monetary Policy Decision

The Reserve Bank of Australia decided to leave the cash rate unchanged at a record low of 2.5 per cent today.

In September last year, under the title, “Housing bubble has RBA backed into the corner” I expressed my concerns the RBA had just lost control of momentary policy:

If you can believe the real estate spruiker, emergency low interest rates have put a fire under Australia’s housing market. And as Australia already suffers the side effects of a large housing bubble developed over the past decade, investors will need to use extreme caution as signs emerge Australia’s central bank has just lost control of monetary policy.

We live in interesting times.

» Capital city home prices surge most on record according to RP Data – Rismark index – The ABC, 1st April 2014.
» House prices enter danger zone – Australian Financial Review, 29th March 2014.
» Report into foreign investment in residential real estate could come too late – Who Crashed the Economy, 19th March 2014.
» Housing bubble has RBA backed into the corner – Who Crashed the Economy, 22nd September 2013.


Posted in Australian economy, Australian Housing | 21 Comments »

Union demands pay rises to offset housing bubble

Written by admin on March 25, 2014 – 6:28 am

In what is likely result in more job losses and business failures, the ACTU plans to lodge a submission to the Fair Work Commission on Friday calling for a rise in the minimum wage because of Australia’s unprecedented housing bubble.

The Sydney Morning Herald reports:

While the minimum wage was equivalent to 14 per cent of the mean house price in 1993, it is now at less than 7.5 per cent.

ACTU secretary Dave Oliver said a 250 per cent increase in average house prices in the past 20 years had made it impossible for those earning minimum wages to buy a home.

“For those on a low wage, home ownership is a now pipedream,” he said. “Someone on a minimum wage of $622 per week has enough to cover their basic costs and that’s about it. These workers tell us it’s impossible to save up a deposit, let alone afford the weekly repayments.”

Mr Oliver said the minimum wage had increased by 91.2 per cent from 1993 to last year, and would have needed to rise by 254.7 per cent – $1154.42 a week or $60,029.84 a year – to keep up with house prices.

Maybe the ACTU should be lobbing for the government on behalf of their members to do something about the cost of shelter in Australia, rather than trying to make Australia even more uncompetitive?

In February, we reported real wages have started to fall in Australia.

In January, Paul Howes, National secretary of the Australian Workers Union vented his frustrations about the housing bubble in an article in the Australian Financial Review saying:

“The housing rent-seekers’ constant squawking, and exploitation of the peculiarly Australian obsession with property, means reforms of the sector has become the third rail of Australian politics.”

“Yet if we continue kicking the can further down this particular road, it is tough to see how economic disaster can be avoided.”

“There are those using their SMSFs to invest in property debt today who will enjoy the swelling of the bubble during their retirement and die before it bursts.”

“Good Luck to them. But the job of government is to prioritise the long-term future of the majority ahead of the self-interested, short term gains of a minority.”

Howes announced his resignation yesterday.

» ACTU to seek rise in minimum wages as home ownership becomes a pipedream – The Sydney Morning Herald, 25th March 2014.


Posted in Australian economy, Australian Housing | 24 Comments »

Report into foreign investment in residential real estate could come too late

Written by admin on March 19, 2014 – 8:28 pm

Earlier this week, it was announced Treasurer Joe Hockey had asked the House Standing Committee on Economics to investigate foreign investment in residential real estate. Today, the Terms of Reference was announced.

Chaired by Ms Kelly O’Dwyer MP, the house committee will examine:

  • the economic benefits of foreign investment in residential property;

  • whether such foreign investment is directly increasing the supply of new housing and bringing benefits to the local building industry and its suppliers;

  • how Australia’s foreign investment framework compares with international experience; and

  • whether the administration of Australia’s foreign investment policy relating to residential property can be enhanced.
  • Submissions can be submitted by Friday 9th May 2014 and the committee will report by 10th October 2014.

    Australia’s foreign investment policy has been designed to allow foreigners to invest in new residential housing with the objective of creating new supply, but there is strong evidence foreigners are flouting the laws and using back doors to buy existing housing, putting upwards pressure on domestic house prices and creating heighten risk of economic instability.

    The Sydney Morning Herald Domain’s Lucy Macken reported today:

    Buyer’s agent Shane Clinton of Buying Houses Australia says overseas buyers often side-step requirements that they only buy new property by purchasing established dwellings in the name of already established family members.

    “The significant investor visa has taken a while to get traction, it’s building now, but it means that to date 99 per cent of my clients have been buying outside the recommended visa guidelines,” he said.

    In Mosman, where more than 30 per cent of prestige sales last year were to buyers from China, McGrath agent Michael Coombs said of the eight sales he made to Chinese buyers in the past six months, three were to visa holders and five were purchased in the names of a family member.

    The influx of foreign buyers purchasing existing homes has been pushing prices up significantly in the two capital cities Chinese immigrants favour the most. RP Data-Rismark indices show prices surged 13.4 per cent in Sydney and 11.9 per cent in Melbourne in the twelve months to January 2014. The inquiry will hold public hearings in both Sydney and Melbourne.

    Kelly O’Dwyer said late last week, “We need more homes, so foreign investment that increases the number of homes available is a good thing, particularly where it is housing for first-home buyers”

    “That is the objective of current policy, but we need to examine what is happening on the ground.”

    But O’Dwyer warns Chinese buyers could be pricing Australians out of their own market at a time when Housing affordability is at extremes (Bubble Territory). “The great Australian dream to own your own home is hard enough to achieve on two incomes, with years of savings and a large mortgage,” she said.

    “We need to make sure that we aren’t making it more difficult — which is why we are going to examine the facts in our inquiry.”

    The inquiry comes after Canada announced the axing of a 28 year old visa scheme (Immigrant Investor Program) designed to attract foreign residential real estate investment in Canada. Under the scheme if, as a foreigner, you had $1.6 million CAD in net assets and you could lend the Canadian government $800,000 CAD for five years interest free, you could expect permanent residency for you and your family and expedited citizenship.

    Citizenship and Immigration Canada (CIC) spokeswomen, Sonia Lesage, said the abused scheme contributed little to the Canadian economy, “Except the $800,000 interest-free loans, immigrants from the investor program contributed little to the economy.” In a statement, CIC said “Research shows that immigrant investors pay less in taxes than other economic immigrants, are less likely to stay in Canada over the medium-to-long term and often lack the skills, including official language proficiency, to integrate as well as other immigrants from the same countries”

    Canada’s decision followed debate that Canada’s already bubbly housing market, particularly Vancouver, was being overheated by Chinese investors and posed significant economic stability risks. Such investors are now likely to flood the Australian market instead.

    The other driver is believed to be China’s faltering economy. Chinese citizens are scrambling to shift their wealth out of wealth management products in their homeland as the country hits road bumps developing in the country’s shadow banking sector.

    Friday week, the House of Representative’s Standing Committee on Economics had a public hearing reviewing the Reserve Bank of Australia’s Annual Report for 2013. It spent quite some time questioning Governor Glenn Stevens, Deputy Governor Philip Lowe and Assistant Governor (Economic) Chris Kent on foreign investment in the residential housing sector. Below is an uncorrected proof of evidence taken before the committee:

    The role of foreign investors in driving up capital city house and the Canadian government’s decision to axe the Immigrant Investor Program:

    CHAIR [Kelly O’Dwyer]: I will move onto the issue of housing, because this is very much a barbecue stopper in Australia. With house prices continuing to soar in major cities, there is a lot of talk about foreign investment underpinning those house prices. Are you worried about the role of foreign investors in driving up capital city house prices? Also, we recently saw the Canadian government make it more difficult for foreign investors to buy homes in Canada. Will this have implications, in your view, for Australia?

    Mr Stevens: The question of how prominent foreign investors are is a difficult one to answer. I travel through Singapore a number of times a year on the way to interminable meetings in Basel. It is quite noticeable when you pick up a Singaporean newspaper on the plane to see advertising for Australian property, as well as property in other countries. So there is no doubt that wealthy foreign investors have an interest here. In particular parts of our cities, including where we are sitting right now, the role of foreign investors is quite prominent indeed. I suspect it is rather less prominent around most of the metropolitan areas than some of the headlines might suggest; nonetheless, there is a role. As a country we tend to feel that we should be open to foreign investment—we generally like that. This is a form of that, just as foreign investors buying shares in listed companies or doing direct investment in resource projects or whatever it might be is a form of it. It has its effect on asset values and the exchange rate, just like all the other forms of foreign investment.

    I suppose the question is really: how big a problem do you really think it is? Foreign investors are generally confined to buying new structures. That is where it is easiest for them to come in. It cannot be beyond our capacity over time to meet that demand and to meet the legitimate demands of our own citizens for structures as well, can it? If we cannot do that, if there is a supply side constraint, I would say that is an issue worth addressing in its own right. Beyond that, it probably goes to broader questions of how welcoming we wish to be to foreign investment generally. That can be a vexed issue at times. With all due respect, that is a matter for our parliament to manage.

    CHAIR: Certainly. I am sure there are lots of people with a range of views on that at this table alone.

    Mr HUSIC: I think that was the ‘over to you’ comment.

    CHAIR: I would like to pick up on the final part of my question, regarding Canada and their decision. Do you think that is going to have broader implications for us in Australia?

    Mr Stevens: I cannot say I am across the fine details of their decision, but perhaps your question is whether that will divert—

    CHAIR: Correct.

    Mr Stevens: I am not sure that I can give an informed answer or quantify that. I suppose decisions like that just show that this is an issue in a number of countries. I am aware that Canada has had a fair bit of investment from Asia into the west coast, and we have had some of that ourselves over quite a run of years. But I cannot quantify the extent to which that might lead to a spillover in our direction.

    Chinese Investment in Australian Residential Property and the Shadow Banking Sector:

    Mr HUSIC: On the issue of overseas interest in Australian property, particularly from the perspective of Chinese investment, how much do you see this as reflecting what is happening in China in terms of the growth of shadow banking there? Is the RBA keeping tabs on how the Chinese government is managing that issue and do you see that it is going to continue to grow in the medium term?

    Mr Stevens: We do put quite an effort into trying to understand what is happening in the Chinese economy and I think all the issues with shadow banking are really the key issues right now. I think public commentary really frets a little bit too much about monthly ups and downs in Chinese PMIs. I do not think that is really the issue. The issue is whether the build-up in credit that they have had through these sort of off-balance-sheet devices can be effectively managed. That term ‘shadow banking’ is in some ways a bit apt because it is not terribly transparent, from this distance anyway, and so it is very hard to know and to form a good judgement here. All I can say is that we are acutely sensitive to that set of questions. On whether shadow banking in China is the source of Chinese investment in Australia, I do not know, but I suspect that the bigger force is probably that the Chinese population, or segments of that population, have become quite affluent pretty quickly and, as people do when that happens, one of the things they do is acquire assets in other places. Just as Middle Eastern and Russian money likes to have places in London, I think there is a certain sense in which many affluent people in Asia—and it would not just be China, it would be other countries in Asia too—like to have property in Australia. That is a feature of the modern world.

    Mr HUSIC: Picking up on your point about shadow banking not been transparent. I have been alarmed at a dramatic description this is a Sino equivalent of subprime. Is there reason to be concerned if there is not an ability to get a handle on where this growth is headed and what impact it might have?

    Mr Stevens: People do like to dramatise things. I think it is likely that asset quality in some of these entities is poor. It is very likely that—and I do not think that the authorities in China would deny this—the big surging credit they had during the financial crisis when everybody was stimulating their economies by pumping a lot of credit into the system is problematical. In fact it is virtually certain that some of those loans, if they have not gone bad yet, will go bad. I think the question really is: how good a handle do the authorities there have on that problem? I would not have much doubt that they have the resources to fix it in time. The question will be how quickly they can get on top of it and get ahead of it. I cannot give you a very accurate answer to that, but my observation is that they are very competent people. They are acutely sensitive to this problem and so there is as much confidence as you can have that they will get on top of it.

    Foreign Investors are not Borrowing Money from our Banks, Thank-God:

    Mr BUCHHOLZ: Just picking up on the previous questions on that investment coming from offshore into the housing market, do you have not a concern but an opinion on the number of cash purchases that are coming in? Some of the reports are that we are seeing an increase in price, but some of the feedback from the banks is that mortgage data is not on the same trajectory, which would lead you to the perception—

    Mr Stevens: I do not think the foreign buyers are borrowing money from our banks.

    Mr BUCHHOLZ: No.

    Mr Stevens: Most of them are probably not borrowing money from any banks. As I said earlier, these are quite possibly quite affluent people. This is very anecdotal but, if you are sending your children to study in Australia, you are probably an affluent person and quite possibly, in some cases, you have purchased an apartment in which they would live or which you might come and stay in when you come to visit them. There are people who are wealthy enough to do that. So we do not really know. We do not have data. If they are borrowing from a bank in another country, obviously we do not know. I would hazard a guess that many of these people are not borrowing money.

    If we do see a surge of foreign Chinese buyers due to Canada’s decision to axe its Immigrant Investor Program and increasing instability in China’s shadow banking system propped up by new stimulus, then a report due in October 2014 and any action by the government (if any) at a later date might just be too late.

    » Australian Parliament releases terms of reference for foreign property investment inquiry – The ABC, 19th March 2014.
    » Rorting of Australia’s tough foreign property rules ‘prevalent’, insider warns – The ABC, 19th March 2014.
    » Putting a roof over your head is becoming a major challenge – Kelly O’Dwyer (Chair) for News Limited, 15th March 2014.
    » Inquiry into foreign investment in residential real estate – House of Representatives, Parliament of Australia – 19th March 2014.
    » Inquiry into foreign investment in residential real estate – Media Release – House of Representatives, Parliament of Australia – 19th March 2014.
    » Fears Chinese investors are pricing first-home buyers out of the market will be investigated by parliament – The Telegraph, 15th March 2014.
    » Do Chinese buyers like your neighbourhood? – The Sydney Morning Herald, 19th March 2014.
    » Shunned Chinese buyers to turn from Canada to Australia – The Sydney Morning Herald, 24th February 2014.


    Posted in Australian economy, Australian Housing | 10 Comments »

    China: Did the first Domino just fall in GFC2?

    Written by admin on March 8, 2014 – 9:16 am

    As widely anticipated, troubled Shanghai Chaori Solar Energy Science and Technology Co. failed to make the scheduled interest payment on a bond this Friday, 7th March 2014. Chaori could barely scratch together five percent of the 89 million yuan due. Unlike Credit equals Gold No 1 no one stepped up to bail out Chaori.

    While small, some describe this as a “Watershed” or “Bear Stearns” moment.

    The default in the PV Solar Cell Manufacturer is expected to mark the first of many onshore bond defaults for China that will occur in industries suffering from overcapacity such as steel, nonferrous metals, coal, renewable energy & of course real-estate. The near default of Credit equals Gold No 1 on the 31st January resulted from a trust holding bad loans to and equity in coal miner Shanxi Zhenfu Energy Group who collapsed in 2012 and had since ceased production.

    Some analysts, including ones from Bank of America, call Friday’s default a “Bear Stearns moment” signalling the start of the Chinese shadow banking crisis, much like Bear Stearns was to the US subprime crisis.

    Overnight Copper prices posted the biggest decline since 2011 in heavy volume caused by concerns of slowing growth in China from rising debt and defaults.

    The default is expected to accelerate the number of individual bond holders who have been assessing risk and seeking out “less risky” investments such as Australian & Canadian Real Estate. On February 11th, Canadian Finance Minister Jim Flaherty announced the axing, effectively immediately, of a 28 year old visa scheme attracting wealthy foreigners to Canada. On the other hand, the Abbott Government is set to expand our residency visa scheme to the Chinese in what some suggest may cause an even greater housing bubble and further destabilise the already distorted Australian economy at a time when the Reserve Bank is sounding alarm bells.

    » Watershed moment for China markets with Chaori Solar bond default – The Sydney Morning Herald, 7th March 2014.
    » China Gets 1st Onshore Bond Default as Chaori Doesn’t Pay – Bloomberg, 8th March 2014.
    » China Bear Stearns Moment Seen by BofA in Solar Default – Bloomberg, 7th March 2014.
    » Copper tumbles after China bond default – The Financial Times, 7th March 2014.
    » Shunned Chinese buyers to turn from Canada to Australia – The Sydney Morning Herald, 24th February 2014.
    » Visas for wealthy to be expanded – The Australian Financial Review, 8th March 2014.
    » Credit equals Gold No 1. – Who Crashed the Economy, 29th January 2014.
    » GFC2 – Will it be made in China? – Who Crashed the Economy, 30th June 2013.


    Posted in Australian Housing, China | 19 Comments »

    Roy Morgan unemployment hits 12.3% – highest in 20 years

    Written by admin on March 5, 2014 – 8:14 pm

    Roy Morgan unemployment figures released yesterday show an estimated 1.561 million Australians are now unemployed. This represents 12.3 per cent of the workforce and is now the highest figure since February 1994, some 20 years ago. An additional 1.08 million Australians are classified as underemployed, working part time while looking for more work.

    Australia’s deteriorating jobs market was cited by the Reserve Bank of Australia (RBA) as one reason the bank left the official cash rate at an emergency 2.5 per cent yesterday.

    “The demand for labour has remained weak and, as a result, the rate of unemployment has continued to edge higher. Growth in wages has declined noticeably,” the RBA media release noted after the Banks’ monthly meeting. “Looking ahead, the Bank expects unemployment to rise further before it peaks.”

    Rising unemployment is expected to put pressure on Australia’s housing bubble, but the market exhibited little stress in the December 2013 quarter according to analysis by ratings agency Fitch. A study of Australian Residential Mortgage Backed Securities (RMBS) show the rate of arrears for the December 2013 quarter was 1.21 per cent, the lowest figure since 2009 according to Fitch.

    But Fitch warns lenders not to be complacent and drop lending standards warning “Higher levels of unemployment, a slowdown in the housing market, and rising interest rates, could lead to servicing pressure, and in turn, higher delinquencies.”

    » Roy Morgan Unemployment jumps in February (up 1% to 12.3%) – highest for 20 years since February 1994 (also 12.3%). Unemployment amongst 18-24yr olds rises to 28.0% (up 6.8%) – Roy Morgan, 5th March 2014.
    » Statement by Glenn Stevens, Governor: Monetary Policy Decision – Reserve Bank of Australia, 4th March 2014.
    » Mortgage arrears at lowest December level in four years – The ABC, 5th March 2014.
    » Roy Morgan unemployment hits 11.3% – highest in 19 years – Who Crashed the Economy, 4th February 2014.


    Posted in Australian Housing, Unemployment | 6 Comments »

    Australians hit the internet in record numbers searching for “Property Bubble”

    Written by admin on February 18, 2014 – 6:57 pm

    Back in October last year we reported on data from Google Trends showing an increased number of Australians hitting Google to research the term “Housing Bubble”.

    This month (February 2014) has seen a significant increase of internet searches and we are barely half way though the month (The last data point includes incomplete data from February).

    Searches for the term “Property Bubble” in Australia:

    Searches for the term “Housing Bubble” in Australia:

    This is good news if the mass population is starting to do their own research, rather than listening to the push media.

    » Google Trends – “Property Bubble”


    Posted in Australian Housing | 10 Comments »

    Roy Morgan unemployment hits 11.3% – highest in 19 years

    Written by admin on February 4, 2014 – 9:04 pm

    As widely expected, the Reserve Bank of Australia has left the official cash rate at an “accommodative” 2.5 per cent citing “on present indications, the most prudent course is likely to be a period of stability in interest rates.”

    This now has many calling a bottom to the interest rate cycle.

    The statement on today’s monetary policy decision reports, “The demand for labour has remained weak and, as a result, the rate of unemployment has continued to edge higher. Growth in wages has declined noticeably.”

    “Looking ahead, the Bank expects growth to remain below trend for a time yet and unemployment to rise further before it peaks.”

    Roy Morgan today released unemployment figures for January 2014 showing unemployment is now 11.3 per cent, the highest result since January 1995. 1.44 million Australians are now out of work and another 1.105 million are under-employed. Together, this makes up 20 per cent of the workforce.

    Since departing from ABS index in 2010, there is a distinct upward trend in the Roy Morgan unemployment figures with no signs of abating.

    Yesterday, MacroBusiness published insights from Saul Eslake (‘Eslake: Unemployment much higher than it looks‘) on expectations of continued deteriorating unemployment. Eslake noted, “The RBA has never raised rates while the unemployment rate is rising; indeed, it tends to keep lowering them.

    “Further, we argue that given the majority of the decline in participation is of prime working age people, rather than retirees, and therefore it is akin to uncounted unemployment. From this we conclude that the actual unemployment rate is significantly worse than official [ABS] figures suggest. As we continually stress, if the participation rate had remained at the 2009-11 average then the unemployment rate would be 7.1%. The increase in this adjusted unemployment rate has accelerated markedly over the second half of 2013. And it is this that leads us to believe that the RBA may be getting behind the curve on labour market weakness.”

    His analysis includes a graph, published in the Macrobusiness article overlaying the official unemployment rate, cash rate and a “participation adjusted” unemployment rate, clearly highlighting his claims the RBA is falling behind the curve on unemployment.

    » Statement by Glenn Stevens, Governor: Monetary Policy Decision – Reserve Bank of Australia, 4th February 2014.
    » Eslake: Unemployment much higher than it looks – Macrobusiness, 3th February 2014.


    Posted in Australian economy, Australian Housing, Unemployment | 42 Comments »

    Attitudes towards the Australian Housing Bubble are changing

    Written by admin on January 11, 2014 – 9:57 am

    Most Australians disagree rising house prices are “a good thing.” That’s the finding of a new polling by Ipsos and reported by Jessica Irvine in the News Limited papers today. Jessica writes:

    A majority of Australians now think rising house prices are bad for the country, with exclusive new polling showing more than half the population disagrees with the statement that “rising house prices are a good thing for Australia”.

    According to the survey of 1043 people conducted last November the following disagree with the belief rising house prices are a good thing:

    Australia Total 53.7%
    Aged 18-29: 50.8%
    Aged 30-49: 55.8%
    Aged 50+: 53.4%
    Hobart 70.0%
    ACT 53.6%
    Sydney 59.6%
    Adelaide 57.9%
    Brisbane 55.9%
    Perth 53.7%
    Melbourne 52.6%

    Attitudes are also changing towards Negative Gearing. In a poll conducted by Fairfax at Christmas, there was overwhelming support from 74% of 3831 readers to abolish negative gearing. The article attracted some 235 comments, with the vast majority in favour of axing the tax dodge.

    As attitudes of Australian voters change, it will make it easier for government to implement the required reforms to the domineering property sector without fear of extensive voter backlash.

    » Most Australians disagree rising house prices are “a good thing” – The Couriermail, 10th January 2014.
    » Cabinet Papers 1986-87: Negative gearing almost axed – The Sydney Morning Herald, 28th December 2013.


    Posted in Australian economy, Australian Housing | 40 Comments »

    What lobby group has the loudest voice?

    Written by admin on January 8, 2014 – 7:00 pm

    What lobby group has the loudest voice? In the last decade, without doubt it has been the property lobby. But there are signs the others are starting to wake up.

    In responding to yet another poor Australian Industry Group’s Performance of Services Index (PSI) the Retail Trader’s Association executive director Russell Zimmerman told the Australian Financial Review, “We need to see consumers free up spending, people are putting more money away or onto mortgage repayments.”

    According to the Australian Financial Review, “The Ai Group index indicated that retailers did not get the bumper Christmas sales season they had hoped for.” The index, measuring activity in the Australian services industry has contracted for the 23rd consecutive month, slipping 2.8 points to 46.1. A figure under 50 indicates contraction.

    The Retailers Traders Association is fighting with a housing bubble zapping more and more money out of the economy and having a negative impact on discretionary spending. As house prices continue to outpace wages and household incomes, retailers are forced to take a back seat, with a bigger portion of household income funnelled into larger and larger mortgages.

    Some are unable to keep their heads above water, resulting in job losses. The Herald Sun reported, “Ai Group chief Innes Willox said any uptick in festive-fuelled retail activity was more than cancelled out by a deteriorating jobs environment.”

    But they continue to fight on. Apparently we were suppose to have one of the best Christmas’s on record. Now the January sales is forecast to go gang busters. The concept is Australian’s are sheep. If they are lead to believe other people are spending up big, then hopefully you too will spend up big. Let’s see if it happens in January.

    But it’s not only the Retailer’s Traders Association that is waking up. In the same paper than Zimmerman’s quote, on page 38 Paul Howes, National secretary of the Australian Workers Union is warning about SMSFs adding to our debt-fuelled housing bubble.

    He makes reference to Grattan Institute calculations showing $36 billion a year is lost in revenue due to favourable treatment towards property. Let’s hope the May budget starts to address this.

    He suggests the reason why the sector is not being “checked” is “because it is the noisiest and most powerful group of rent seekers in the country.”

    Howes writes, “The housing rent-seekers’ constant squawking, and exploitation of the peculiarly Australian obsession with property, means reforms of the sector has become the third rail of Australian politics.”

    “Yet if we continue kicking the can further down this particular road, it is tough to see how economic disaster can be avoided.”

    “There are those using their SMSFs to invest in property debt today who will enjoy the swelling of the bubble during their retirement and die before it bursts.”

    “Good Luck to them. But the job of government is to prioritise the long-term future of the majority ahead of the self-interested, short term gains of a minority.”

    On Monday, Australia Industry Group also revealed PMI (Performance of Manufacturing Index) fell to 47.6 points for the month of December 2014.

    As jobs continue to be lost, will we see other lobby groups rise to the challenge and start to drown out the relentless self interest of the property lobby? One can only hope so, for the long term prosperity of this country.

    » Australian Industry Group Performance Indices – Australian Industry Group.
    » Super and Property a Heady Mix – The Australian Workers’ Union, 7th January 2014.


    Posted in Australian economy, Australian Housing | 9 Comments »

    2014: The year the world is taken off life support

    Written by admin on January 5, 2014 – 8:55 pm

    On the 18th of December 2013, the U.S. Federal Reserve finally announced it would begin to taper or wind down QE3 – an $85 billion a month shot in the arm to keep the economy afloat after the worst recession since the 1930s.

    Starting in January 2014, the Fed will wind total purchases down a notch to $75 billion a month. Depending on how the economy reacts, the Fed will continue to cut in each meeting throughout the year. Fed chairman Ben Bernanke said “If we’re making progress in terms of inflation and continued job gains, then I imagine we’ll continue to do, probably at each meeting, a measured reduction” in purchases. However, if the economy slows, Bernanke says they will consider skipping a reduction in a meeting or two, or if the economy accelerates could taper a bit faster.

    Reactions are mixed. Some believe the Fed will have difficulty removing the stimulus fast enough to prevent inflation, while many others believe the only reason there are signs of growth in the U.S. economy is due to the sheer size of QE3. Take it away, and the unsustainable, fragile economy will quickly falter.

    Opinions also vary as to why the Fed has announced the taper. While some believe the U.S. economy is showing good progress. Others some warn QE3 has only served to create more asset bubbles – namely a stock and new housing bubble, but has done little to improve the broader economy and support job growth. And now the Fed needed to act decisively to prevent these bubbles getting much bigger.

    The only thing for certain is after such a large and prolonged stimulus, the result to global stability of the tapering will be a wildcard this year – Anything could happen.

    China Economic Growth Model “Unsustainable” – Deputy Finance Minister Wang Bao’an

    The other global wildcard for 2014 is China and has far greater implications for Australia. Last year we raised the question if the second stage of the GFC would be made in China and if WMPs would replace CDOs as the buzz word in this crisis. (GFC2 – Will it be made in China? – June 30th 2013)

    At the time, a credit freeze in China had caused the Shanghai Interbank Offered Rate (Shibor) – a measure of the cost of commercial banks to lend to each other, to surge. After a couple of days of abstaining, the People’s Bank of China (PBoC) was forced to intervene and inject liquidity into the market. Only two weeks prior, ratings agency Fitch warned China’s credit bubble was now unprecedented in modern world history.

    In the days before Christmas, and not long after the Fed taper was announced, it was happening again with lending benchmark rates hitting the highest levels since the June crisis. Once again, the PBoC came to the rescue injecting 29 billion Yuan to provide short term relief. Minsheng Securities Macroeconomics analyst, Zhang Lei told the Global Times “The cash injection can only ease the problem in the short run, Banks will face tight liquidity until mid-2014, as an increasing number of financial instruments will be maturing in the first half of next year.”

    The concern is a plethora of loans taken out by State owned Enterprises (SoEs) to fund public infrastructure and real estate investments, many empty or under utilised and with low returns – if at all. The projects are an attempt to keep economic growth chugging along, but at some stage the debt must be refinanced.

    In an rare and unusual stand, China’s Deputy Finance Minister Wang Bao’an wrote an article in the latest issue of Qiushi, a bi-monthly political theory periodical of the Central Committee of the Communist Party of China saying China’s current economic growth model is “unsustainable.” He described the Chinese economy as “high input, high resource consumption, high pollution, high growth” with “low output, low efficiency, low profit, low tech”.

    In a recent column for the Project Syndicate website, billionaire investor George Soros believes the biggest risk in the World Economy now is China – you can forget the USA. No doubt we will see more in this space as the year progresses.

    Australia

    Back home, trends are somewhat clearer barring any external shocks. The Australia Dollar is expected to continue falling this year resulting in broad price increases on imports. The RBA said it will be comfortable with 85 cents. One of the world’s largest investment firms, BlackRock, believes the dollar could fall to 80 cents this year (Aussie dollar headed for US80¢ with RBA to cut rates again, says BlackRock – SMH.) A crisis in China could push it below 80.

    After an approximate 15 per cent fall since April, already we are starting to hear the odd whinge about petrol prices at $1.65 litre. Most Australian’s have taken the overpriced Australian dollar for granted without a second though – cheap petrol, cheap electronics, cheap apparel even cheap overseas holidays. The depreciating dollar is coming as a shock. It’s not so much of a case of prices are getting expensive, but a case that prices were abnormally cheap and are just returning to where they should have been had we not had a resource boom. In December, we quoted from Professor Ross Garnaut’s latest book – “No developed country has experienced as large a sustained appreciation in its real exchange rate as Australia has through the China resources boom,” “In turn, this means that no developed country has ever successfully worked through such a fall in the real exchange rate and associated contraction of incomes.”

    The other shock will be income growth or rather the lack thereof. Treasury’s chief economist David Gruen told a conference in November last year, “Our estimates say that if we achieve productivity growth similar to its long run average, the next decade will see the slowest income growth in Australia for half a century by a lot.” This comes from an expected decline in Australia’s terms of trade and is consistent with views from the International Monetary Fund (IMF) and the Australian Productivity Commission. (Slowest living standards growth in ‘our lifetimes’ – SMH)

    The Australian Bureau of Statistics (ABS) Wage Price Index for the September 2013 quarter reported an seasonally adjusted 0.5 per cent increase, the second lowest increase since the introduction of the Index in 1997. Over the year to September, wage growth was 2.7 per cent, the lowest annual rate since 2000 (Tech Wreck).

    Late last year an Organisation for Economic Co-operation and Development (OECD) report (House prices, labour costs leave economy vulnerable: OECD – AFR) showed Australia had the largest appreciation in relative unit labour costs in the OECD effectively putting Australia at a competitive disadvantage to the world. This coupled with the high cost of living and constrained discretionary spending from Australia’s housing bubble (High housing costs make Australia’s economy uncompetitive – ABC) and household debt overhang is expected to see unemployment continue to accelerate this year.

    All eyes will also be on the May budget after the Mid-Year Economic and Fiscal Outlook (MYEFO) showed a substantial deterioration in the domestic economy. During the boom years, Australia’s wealth was squandered on various tax relief’s. Cuts will now need to be made placing Australian households under even more pressure.

    Finally, there seems little scope for double digit house price growth the experts are once again predicting (annual tradition around the holiday period). As per the Australian headline, House prices [are] at the mercy of the budget (outside of an external shock). In the article, Dr Andrew Wilson talks some sense, “Nothing will stop a housing market quicker than a declining business cycle and that’s certainly what we have the prospects for in NSW and Victoria,” “Rising unemployment will cause lower wage growth, which reduces the capacity of buyers to borrow.”

    What are your predictions for 2014?

    » Slowest living standards growth in ‘our lifetimes’ – The Sydney Morning Herald, 21st November 2013.
    » Low wage growth, job fears hold inflation down – The Australian, 18th November 2013.
    » Aussie dollar forecast to fall to 80 cents in 2014 – The ABC, 31st December 2013.
    » U.S. and China: When the giants unwind Commentary: Withdrawal of stimulus could well cause a fresh crisis – Market Watch, 30th December 2013.
    » Vice-minister calls for new economic growth model – China Daily, 3rd January 2014.
    » China tries to deal with its mountain of debt – The Sydney Morning Herald, 30th December 2013.
    » House price growth at mercy of budget – The Australian, 1st January 2014.
    » China move calms credit concerns – The BBC, 24th December 2013.


    Posted in Australian economy, Australian Housing, China, US economy | 15 Comments »

    Holden closure confirmed; Has Australia’s housing bubble played a role?

    Written by admin on December 11, 2013 – 7:33 pm

    Holden managing director Mike Devereux has today officially confirmed the closure of Holden’s manufacturing facilities in Australia. The company has decided to cease manufacturing operations at the end of 2017.

    Today’s announcement puts at grave risk Australia’s entire automotive manufacturing industry as land man standing, Toyota and the dependant component industry is forced to evaluate if it can survive with lower economies of scale. Toyota is expected to announce a decision on its Altona plant early next year.

    Yesterday, I explained the persistently high Australian dollar, caused by a bad bout of Dutch Disease was one driver of many for the decision to pull out of Australia. Australia’s automotive assembly plants need to produce more cars than consumed locally to remain at a competitive scale, but the dollar makes our exported goods expensive on an international market while reducing the cost of imported cars.

    But, it wasn’t the only. As Alan Kohler hits on the head today, The price of land is [also] hurting Australia.

    Australian’s demand high wages as the cost of living is un-sustainably high in Australia, namely the cost of put a roof over one’s head. Kohler writes :

    The high price of land in Australia is one of the reasons businesses like Holden and Qantas are uncompetitive and the combination of several recent developments is making the situation much worse.

    Australian house prices are already among the highest in the world, both in absolute terms and relative to income, and are now starting to rise rapidly again, especially in Sydney.

    On many metrics Australia has some of the most overpriced housing in the developed world. Abnormally high housing costs is slowly killing Australia.

    » Holden to stop Australian manufacturing in 2017 – The Australian Financial Review, 11th December 2013.

    » The price of land is hurting Australia – Business Spectator, 11th December 2013.


    Posted in Australian economy, Australian Housing | 35 Comments »

    Housing affordability at decade high

    Written by admin on November 27, 2013 – 10:19 pm

    Fund Manager Roger Montgomery featured on the ABC’s The Business last night to talk about the misleading Auction clearance rates being banded around the market at present.

    He says the Sydney 83.7% clearance rate reported on November 9th, according to Financial Analyst Mark Bayley is nothing like it – more like 49%.

    He took viewers’ through the numbers:

    Andrew Wilson from Australian Property Monitors (APM) reported there would be 789 auctions or houses available for sale on that particular weekend in Sydney; listed for sale. What is interesting is he subsequently reported 471 auctions that 448 took place and 23 were withdrawn and then they reported – the first problem is 318 just went missing and what is interesting is the way the numbers are reported – the 83.7% clearance rate is based on the smaller number of 471 that were reported for have had been auctioned or put up for sale and not the ones that were reported prior to the weekend.

    So the missing ones simply don’t get reported by the agents as having been put up for auction at all, or having been pass in or not sold or put up for rent because they weren’t sold at auction. So the 83.7 per cent clearance rates you are hearing the agents report is nothing of the sort.

    It is widely believed Real Estate Professionals are massaging statistics to help portray the market as being significantly stronger than it actually is – in a bid to encourage buyers into what otherwise would be a weak market.

    The recent exuberant reporting even had the banking regulator’s chairman, Dr John Laker, joking to an economic’s lecture, “Consumer confidence is picking up and certainly if you open the newspapers on a Saturday, if you’re not at an auction you must have no life because that’s where everybody is,” as he warned banks to maintain lending standards reminding them of previous housing corrections – “We don’t want the memories of the earlier correction in housing prices in Australia a decade ago, or the memories of what’s happened in housing markets in Spain, Ireland, the US, we don’t want those memories to be short, we don’t want those memories to be selective.”

    Earlier this month the Australian Bureau of Statistics (ABS) reported the number of first home buyers in the Australian property market has fallen again – this time to levels not seen in almost ten years. In September, first home buyers made up only 12.5 per cent of the market. The cause – affordability.

    The Reserve Bank of Australia shows growth in Housing Finance is at close to record lows and significantly lower than the levels recorded in 2003 due to rising household leverage potentially hitting a ceiling.

    So it came as quite a surprise when the HIA-Commonwealth Bank housing affordability index today suggested Australian Housing is now at the most affordable level in a decade. Many smelt a rat.

    HIA senior economist Shane Garrett said “Despite widely publicised dwelling price increases in some markets in recent months, affordability has continued to improve as a result of reduced interest rates

    It appears the index provides a potentially misleading indication on affordability, skewed by record low interest rates. Can interest rates stay at record lows forever?

    For some time now I have maintained House Price to Income and House Price to Rent ratios indexed to 1995 – a flat period of fair value prior to the current housing boom. The Economist Magazine, OECD and IMF have used similar ratios to compare housing bubbles around the world and to provide an approximate gauge of under/over valuation.

    Interest rates aside, it would appear there is some substance to the claim housing affordability is close to being the most affordable in a decade, after house prices stagnated allowing accelerating rents and wage growth to catch up. However, on a house price to rent metric, rising house prices is starting to impact affordability again and the index has turned.

    If anything, the statement that house prices are the most affordable in a decade just goes to demonstrate how long this bubble has remained inflated with continuous support from the government and the help of the resources boom. Assuming house prices were fairly priced in 1995, on a house price to rent basis, Australian housing is still 42.8% overvalued in Australia. This places Australia in the top tier of worldwide housing bubbles.

    After Australia’s longest period of continued economic growth, ever – there is no room for complacency.

    » Affordability at decade high – The Domain, 27th November 2013.
    » Bogus affordability index shows improvement – Macrobusiness, 27th November 2013.
    » APRA chairman John Laker says regulator ‘working assertively’ with banks on lending standards – The ABC, 27th November 2013.


    Posted in Australian economy, Australian Housing | 17 Comments »

    Record Stamp Duty Windfall for NSW Government

    Written by admin on November 23, 2013 – 12:17 pm

    Getting reforms in the public interest of all Australians can be difficult when vested interests have too much to lose.

    The Sydney Morning Herald has today reported on figures published by the NSW Office of State Revenue showing a record $356.8 million was made from Stamp Duty receipts last month as the Sydney property market goes gang-busters. This is the highest monthly figure since records began in 2005-06.

    The booming property market has done wonders for the NSW State Government’s September quarterly budget. The June budget had forecast a $374 million deficit, but a surplus of $239 million was actually achieved.

    But booms can quickly turn into busts as then NSW Treasurer, Eric Roozendaal found out in 2008.

    In November 2008, we reported the NSW government was forced to join the Federal government and give first home buyers free money to help plug a collapse in revenue:

    With plunging house sales and dwindling prices in NSW, the NSW Government today announced it will throw in another $3,000 to first home owners building new dwellings under $750,000, effective next Tuesday. While this is better than the Federal Government’s increased grants across the board, it’s hard to see what $3,000 will do in a market with falling prices. Quite possibly that $3,000 will evaporate in less than a month.

    But is the governments really concerned so much about construction workers? Why not prop up the ailing automotive or retails sectors as well? Why is there such a vested interest in housing?

    The answer may be in the NSW’s mini budget. NSW had a projected surplus in the June [2008] budget of $268 million. However in the mini budget to be revealed on Tuesday, it will show a deficit of between $900 million and $1 billion. This will be the first deficit since 1997 and the biggest since 1992.

    So how can this position change so fast? NSW Treasurer Eric Roozendaal said “The impact (of the global economic slowdown) on us is huge, in terms of a reduction in revenue from duties generated by land transfers”. It’s been reported stamp duty receipts were down by $270 million alone in the first three months of this financial year.

    Looks like NSW Government income was as “safe as houses”.

    Maybe removing stamp duty and introducing a broad based land tax could help the NSW state government with a more predictable and dependable revenue source? But why would you do that in a booming market?

    » Sydney property boom delivers record stamp duty receipts to NSW’s coffers – The Sydney Morning Herald, 23rd November 2013.
    » NSW Government to join Federal in encouraging young first home owners to take on large debts. – Who crashed the economy? 8th November 2008.


    Posted in Australian economy, Australian Housing | 22 Comments »

    Real Estate Statistics ‘Cooked’

    Written by admin on November 18, 2013 – 8:39 pm

    As the saying goes, the Real Estate fraternity is using statistics as a drunken man uses lamp-posts — for support rather than illumination.

    Australia’s unprecedented housing bubble has few fundamentals left, and this has seen the Real Estate industry turn to dodgy statistics to help sell and support the cause that one must leverage into the bubble now – before it is too late.

    This has lead to warnings by the Australian Financial Review last week that misleading numbers are putting potential buyers at risk.

    Mark Bayley explains record number of Auction results are going missing, leading to a big divergence between the real clearance rate which has been trending down and the reported auction clearance rate used to sell the concept that the property market is extremely strong.

    More of Mark’s analysis can be found here.

    The practice is by no means new. It was considered rife in Sydney & Melbourne in the years after the Global Financial Crisis (2011) corresponding with periods where markets deteriorated and property prices were falling, hence the requirement to fudge the numbers.

    One has to wonder, is the same circumstances occurring now?

    » Misleading property auction figures ‘put buyers at risk’ – The Australian Financial Review, 15th November 2013.

    » Lies, damned lies and auction clearance rates – The Australian Financial Review, 18th November 2013.

    » Sydney Agents cooking Auction Clearance Rates – Who Crashed the Economy?, 6th March 2011.

    » Auction rates fudged by failed campaigns – News Limited, March 6th 2011.


    Posted in Australian Housing | 10 Comments »

    Only possible solution to Australia’s housing affordability – A Crash.

    Written by admin on November 16, 2013 – 8:10 am

    On Monday, ABS Housing Finance data revealed another deterioration of the number of first home owners’ participating in the owner-occupier segment of the market.

    The decline has renewed calls for a national housing affordability debate.

    Last week the Abbott government abolished the National Housing Supply Council (NHSC) citing their “activities are no longer needed.”

    Economist Saul Eslake, a member of the NHSC told Fairfax, “I suspect the only way that Australia’s housing affordability problem will be solved, if it ever is, is the way the Americans solved theirs. And that is not something that I would wish for.”

    Eslake is on the money. Any Government lead affordability action normally props up the market (i.e. First Home Owners’ Boost). Broken aspects of our tax system such as Negative Gearing would never be abolished or quarantined to new properties only, and the country is slow to act on Macro-prudent controls. The problem has been continuously ignored to the point it is now simply too big for any other potential solution.

    » First-home crisis triggers call for action – The Sydney Morning Herald, 16th November 2013.


    Posted in Australian Housing | 16 Comments »

    Record low interest rates fuels Sydney Property Bubble

    Written by admin on November 4, 2013 – 8:15 pm

    Record low interest rates have put a rocket under the Sydney property market, propelling yearly growth to an unsustainable double-digit 11.4 per cent according to official figures released from the Australian Bureau of Statistics (ABS). The size of the Sydney market has helped prop up the rest of Australia, with the weighted average of the eight capital cities returning a frothy 7.6 per cent gain for the 12 months to September.

    Canberra and Adelaide is still in the doldrums going backwards 1.2 and 0.6 per cent for the quarter. Perth (0.2%), Darwin (0.4%), Brisbane (1.2%), Hobart (1.4%) and Melbourne (1.9%) reported modest gains, while the red hot exuberant Sydney market fired up a 3.6 percent result and fears of a new bigger property bubble.

    Record low interest rates have seen interest payments on dwellings plunge in recent times, creating a false economy as the uneducated leverage back into the property bubble. Few consider the prospect, interest rates could ever rise again.

    This has seen an up-tick in the growth of housing finance, after scraping lows not seen since records existed 37 years ago.

    All eyes will now be on the Reserve Bank of Australia to see how it intends to react. Will it be forced to follow in the footsteps of the RBNZ and implement macroprudent controls?

    » 6416.0 – House Price Indexes: Eight Capital Cities, Sep 2013 – The Australian Bureau of Statistics, 4th November 2013.


    Posted in ABS House Price Indices, Australian Housing | 45 Comments »

    Housing bubble talk close to record levels in Australia

    Written by admin on October 30, 2013 – 8:12 pm

    If you have landed on this page searching for information on the Australia Housing Bubble, then you are not alone.

    According to a new CommSec Housing Bubble Index, there were 194 mentions of “housing bubble” in Australian Newspapers in September this year. This is just shy of 201 mentions last recorded in January 2003 when Australia’s housing market first entered bubble territory.

    Renewed talk of the housing bubble in mainstream media has seen a remarked increase of individuals doing some homework on the topic. Google Trends reveals a significant increase in September of savvy participants searching the term “Housing Bubble” on Google: (The last data point consists of incomplete data for the month.)

    To date, confidence has kept the market a float. Could this be a leading indicator that the tide is changing?

    » Approaching peak bubble: new index to track housing bubble hype – BRW, 30th October 2013.
    » CommSec Economic Insight: Bubble trouble: Measuring housing market hype – CommSecTV/YouTube, 24th October 2013.


    Posted in Australian Housing | 30 Comments »

    Irrational fear forces father to buy five year old son $710,000 apartment to secure his future

    Written by admin on October 29, 2013 – 7:55 pm

    The overwhelming fear of his five year old son being priced out of the property market – forever, has forced a Sydney property lawyer to act. He has moved to secure his son’s future by purchasing a one bedroom $710,000 Potts Point apartment.

    Reserve Bank Governor, Glenn Stevens said today “lenders and borrowers alike would be well advised to take due care,” and “that decisions be based on sensible assumptions about future returns”

    While it is his opinion there is no bubble and overall credit growth is still subdue, he warns “borrowing is increasing quite quickly in some pockets” citing finance approvals for Sydney housing have surged 40 per cent in the past year. “So this is an area to which we will, naturally, pay close attention.”

    » Lawyer buys $710,000 city unit to set up son, 5, on ground floor of property market – The Sydney Morning Herald, 29th October 2013.

    » Remarks to Citi’s 5th Annual Australian & New Zealand Investment Conference – The Reserve Bank of Australia, 29th October 2013.


    Posted in Australian Housing | 16 Comments »

    Fund Manager can’t understand why people [Joe Hockey] feel the need to say a market is not in a bubble.

    Written by admin on October 27, 2013 – 7:00 pm

    In our last post, we quoted Australia’s Treasurer, Joe Hockey when interviewed on CNBC in New York denying a bubble exists in Australia’s overheated property market.

    Last fortnight, The Australian Financial Review’s Christopher Joye interviewed First Eagle portfolio manager Matthew McLennan.

    Q: You are clearly very knowledgeable on the Australian economy – what are your views on the resurgent Aussie housing market?

    It is interesting to me when you hear a politician saying this is not a housing bubble – that is just a supply-constrained market.

    At the end of the day, I think the Australian housing market is instinctively on the full side of fair value in a situation where the natural constituency, the marginal buyer, is already quite levered.

    I don’t understand why people feel the need to say a market is not in a bubble. I don’t think that’s a prudent approach when you see large levels of leverage and fairly low rental yields. While I get it that you want to support confidence, I don’t know what the upside is in talking down legitimate risks.

    We’ve always made money by not losing money. Ultimately you feel far more confident when a management team tells you what it is worried about than when it displays complacency.

    Mr McLennan said he wouldn’t invest in our banks “because the raw equity-to-asset ratios . . . are lower than our comfort zone.”

    “I have a few question marks over the Australian economy and think the ­outlook could be potentially quite challenging,”

    » Why this $80bn fund manager won’t touch Australian banks – The Australian Financial Review, 19th October 2013.
    » Interview transcript: First Eagle portfolio manager Matthew McLennan – The Australian Financial Review, 19th October 2013.


    Posted in Australian economy, Australian Housing | 7 Comments »