A Housing Industry of Australia (HIA) / RP Data residential land report has today shown land sales have fallen to their lowest level since accurate figures were first recorded. In just the past year, Land sales around the country has fallen 43 percent to the end of the March quarter.
Jonathan Reeves, an economist at the Australian School of Business at the University of NSW has said “It is likely that this is the beginning of a substantial housing correction, because the stimulus effects are continuing to fade”. Australia’s housing bubble, like that many other countries, was built upon a quadrupling of household debt over the past 30 years and started to collapse in 2008 before the Rudd government helped prop it back up with the First Home Buyers Boost. It is increasingly unlikely the Gillard government will do the same time this time around, although with new Global Financial Crises (GFC2s) forming in the Eurozone, further U.S. deterioration from the conclusion of its second big bailout (QE2) and/or its inability to raise the debt ceiling, could cause our government to act again with a knee jerk reaction, further delaying the housing collapse for another year or two depending on the size of the stimulus.
But it is not only the Australia housing market in Dire Straits. Following an article we wrote in March 2009, titled Housing or Jobs?, we indicated if too much money was directed into housing, discretionary spending would have to fall. This is starting to play out now in shops around the country. Today, department store retailer David Jones, announced trading conditions have deteriorated significantly in April to June, and downgraded profit forecasts. This saw David Jones shares fall 18.16 percent and caused shock waves through the listed retail sector. CEO Paul Zahra, said “The dramatic and rapid deterioration in trading conditions in 4Q11 has been unprecedented,” (We did warn in early April, that there is a lot more pain ahead in terms of retail spending after Net Savings ratios sprung back to levels not seen in 25 years.)
Sadly, mainstream media has yet to pick up on the real cause of the downfall of consumer spending, even going as far to highlight Paul Zahra’s claims that the carbon tax was in part to play. We suspect in subsequent years, the Carbon Tax will be made the scape goat for the 30 so years of irrational debt accumulation. Mainstream media is also lashing out at the RBA for successive interest rate rises, yet the Bank Standard Mortgage Rate is at some of the lowest levels in decades. I can’t recall one instance where the RBA asked Australian households to leverage up in debt. Excessive debt is the real problem, not interest rates.
Last month we reported on an article from the Unconventional Economist showing that falls in house prices actually cause (or leads) unemployment. It’s often an argument, that house prices can’t fall, because we have record low unemployment hovering around 4.9%. Based on this, and the continue decline in retailing, a sector which is Australia’s largest employer, we expect to see unemployment starting to trend up later in the year.
» DJs blames Gillard government taxes for profit plunge – Thursday July 14 2011.
» Land sales at lowest level in 10 years – Thursday 14th July 2011.
» RESIDENTIAL land sales have slid to their lowest level in 10 years, according to a report. – The Australian, 14th July 2011.