Grave fears are mounting for the future stability of the Australian economy as new data released today shows the Reserve Bank of Australia’s housing bubble is surging at records not seen since 2003.
The RP Data statistics confirms reports of investor led irrational exuberance in the Sydney and Melbourne markets. On an annualised quarterly basis, Melbourne surged an unsustainable 21.2 per cent, followed by Sydney at 13.8 per cent. The investor surge is both eroding rental yields and increasing vacancies causing many experts to warn of a bleak future for investors when capital gains slow to more sustainable levels, or worse – starts falling.
The boom stems from emergency record low interest rates set by the Reserve Bank of Australia – the lowest in over 5 decades. This latest data should force the central bank to either increase interest rates or bring in macro-prudential controls, although the bank has been happy to sit on its bum to date, opting to watch the bubble grow more top heavy.
Martin Conlon, Schroders head of Australian equities told Fairfax, “There is ample evidence that lower interest rates are fuelling nothing other than increasing asset prices, suppression of yields and misallocation of capital,”
David Murray, chairman of the Financial System Inquiry warns real estate is now the biggest risk to the Australian economy.
The surge comes at a dangerous time for the Australian economy, a time when jobs losses are mounting and wages are falling. Housing bubbles act as a leach to the economy, sucking the lifeblood from our already weak economy. It causes a misallocation of capital from productive sectors of the economy to unproductive sectors, and sucks household disposable income dry with huge mortgage serviceability requirements stemming from crushing household debt levels.
Official Australian Bureau of Statistics (ABS) unemployment data showed unemployment surged to 6.4 per cent last month, a 12 year high. Private gauge unemployment surveys from Roy Morgan more accurately place unemployment at 12.2 per cent.
The loss of jobs is putting pressure on wages. In the last two quarters, according to the ABS, wage growth has failed to keep up with inflation – i.e. real wage growth is negative. Wage growth is now the worst in 17 years.
But the biggest concern is in the youth unemployment sector. A report from the Brotherhood of St Laurence released today show youth underemployment is now at levels not seen in 36 years and unemployment is at 13 year highs. It has many social ‘scientists’ warning we are creating an entire generation that will be jobless. Housing affordability will be the least of their concerns.
It’s no wonder Tony Abbott wants to cut this cohort loose to save his budget.
» RBA flags housing risks but does nothing – The SMH, 1st September 2014.
» David Murray warns Australia’s financial risks concentrated in real estate – The ABC, 29th August 2014.
» Banks demand bail-out protection – The SMH, 29th August 2014.
» Record housing investment boom accelerates – 1st September 2014.
» Barely Working – Young and underemployed in Australia – Brotherhood of St Laurence, 1st September 2014.
Rubbish!
Real property prices can rise faster than real incomes forever!
Young unemployed people just need to buy property.
The RBA creates a spectacular bubble in the only sector that was suppose to save us!
Looks like the fallout for Australia will be rapid – China Property Crash, Iron Ore, Dutch Disease, Rising Unemployment, Unsustainable Household Debt, now Massive Housing Bubble.
Perfect Storm anyone?
….Here she comes!
Australia is living the dream. Robbing from the future to enjoy today.
Unfortunately it does eventually point to lower living standards and mass debt enslavement.
The super funds that borrow to buy rentals may also be stuck in losing investments if they don’t get out in time.
No thanks, I rather save while I can, rent a dwelling and enjoy the subsidy from the landlord with no risk.
Thanks Mrs Landlord, for your sake I hope the capital gain eventually pays you back for the years of losses you have incurred putting a nice roof over my head.
Happy renter.
The sheep like RBA are only try to prevent a collapse in the economy. They know no different and are forced to follow the other central banks direction.
Yep…It’s all a bit dejavu for me ATM.
I don’t get out and about a great deal these days, but I did on the weekend. Main arterial road in Adelaide. Right along side each other, massive dentist closed and building for sale, double story real estate agent, closed and building for sale, massive (one of the biggest SA home mortgage and wealth management mobs) wealth mob, building for sale…..Three of them, desirable buildings on a main road, all three obviously struggling in their sectors.
Head further down the road, another two real estate agents closed/flipped/rebranded……Interesting.
Perhaps, we ARE at that moment. We have massive amounts of borrowed, hot, corrupt money that is UNEDUCATED/UNKNOWLEDGEABLE from foreign shores, and crazy part time ‘specufestors”…Yet, there is turmoil in the real estate agents themselves….
It’s all very 2006/7 USA “bank-like”: The massive banks laying off staff….still pushing markets higher…..right before the top….
And yet, here in SA at least, the local economy has started another sharper attack angle down. One of my suppliers is in oils and lubricants, and he’s had a ‘shocking’ couple of months (not that the last 4 years have ever been any good!) and says it’s across the entire economy, from small auto shops, to large transport companies, to farmers, to mining, fishing. You name it, the whole thing is slowing-Rapidly.
Yet, housing continues to rise.
In SA
our emergency services levy: Up upto 400%
GAS up 15%
Water up 30%
Water up 40%
Rego up
Workcover up
All traffic fines up ($2,500 for driving un-registered!)
Hospital’s literally overflowing, patients getting treated on stretchers in the Ambulance bay
The sickest pedophiliar racket ever in our schools and families SA
We have over 40 council CEO’s earning more than the Prime Minister
We have over 40 people at SA water on >$300,000
We are to loose Holden, ASC and air warefare destroyer projects >50,000 jobs in that one sector alone
We have a $2b hospital that is way over budget, way over time, several near deaths, lots of IR problems, with NO extra beds…and we get to lease it off MQG, with the option of buying it back in 25 years! (We were promised the old RAH hospital was to be returned to botanic gardens: now it’s to be sold off and privatized, I bet a private health fund buys it and makes a fortune off the sick)
We have an unpaid for $2B desal plant that was doubled by Rudd, again with no cost benefit analysis.
We have highways that are new, but falling apart and costing lives (but we better lower the speed limit and police it: $400 for 8km over the limit!)
It’s a total basket case here. At least Qld has something to offer, tourism, prosperity to get itself out of trouble, we got nothing here.
Wages are falling every where, ask anyone in retail and there hours have been cut, if they are one of the lucky ones that haven’t been cut, you can be sure there company hasn’t hired any knew staff (for example, one of my friends once had 30 people under her, it’s now 13, but the financial targets are the same).
Yet, housing keeps rising….We regularly see old 1900’s houses going for <$2M now….What a joke! (On a medium income that's 52 years income, not including any interest!)
It's all very unstable….Yet all the overseas turmoil hasn't seemed to make an ounce of difference this time, rising stock markets, rising property markets, we are in more debt than ever I see the other night. This is going to be spectacular.
(and, I say again, the people getting burnt will blame everyone except themselves)
…First by inflation, then deflation
I can understand the RBA’s tough position. Raise interest rates to take some air out of housing but industry will be a casualty when the Aussie$ rises in step, or lower interest rates to boost economic competitiveness but risk lighting a fire under this property balloon. If you look deeper into the situation I can only see one tough choice; raise interests high enough to kill the bubble. This should cause an outflow of hot investor capital out of Australia which should help normalise the AUD to a point where other industries can actually take over for declines in housing and mining. If only our politicians and bankers weren’t in bed with the property barons…
It’ll be interesting if we see politicians dumping their investment properties en masse. Of course they could just be completely clueless about it like the majority of Australians are.
The RBA is clearly concerned about it, but they aren’t prepared to do anything about it, even if they’re the only ones that could… or could have before it got to this more to the point.
So what can they do now to kick the can further down the road?
@JK
Please help me to understand how will higher intrest rates affect foreign investment when places get bought in cash? Surely that will kill the locals off and only offer greater prospects for foreign purchases. It will take a China crash or tighter rules to keep foreign investment from running away.
Because when that $850,000 3br home sells for $2500 ono in the 2016 fire sale, we are truly fucked. Foreigners will be buying suburbs…
@Pete & Matty
Thanks. I smell the very similar. Agree.
@Matty
Well said.
A good friend of mine works for a well known telecommunications multi-national, she’s in sales. Over dinner she was telling me how slow work is now, so I asked, how were things five years ago.? She replied it was gang busters. Sales orders of $500,000 to over $1m at times..each week. When asked about now…just over $120,000 for the month of July. Last week of August…nothing! Zip.
These workers I’m told are now shitting bricks, they are aware they are being well paid to sit around and do FA.
Lots more for lease signs in Sydney right now. I wonder, just wonder if there’s a connection?
You know it can’t be good if the Chairman of one of the Big Four can’t toe the spin line.
http://www.theaustralian.com.au/business/property/house-price-correction-inevitable-warns-david-gonski/story-fn9656lz-1227045173078
Just rented a unit for my daughter for $17,500 per annum. The investor who owns the unit pays $20,000 in interest after borrowing about $400K.
When the shit hits the fan and the investor is desperate to sell I’ll make an offer of $200k for the unit. If they reluctantly accept I’ll lower my offer to $180k and have a bit of fun. Then I’ll lower my offer again. With a bit of luck I’ll piss the Real Estate Agent off in the process to double the fun factor.
Can’ t wait for the crash. Might start a TV program called ‘Property to Poverty’ or ‘Necks in the Noose’. If you can think of any other suitable names for a program that turns the demise of the property investor into entertainment let me know.
have people not worked it out yet—they are not investing-they are gambling when they buy a house in australia
ANZ Chairman David Gonski now says a housing crash in Australia is now inevitable. You know it is bad when the bank says the property market will crash:
http://www.theaustralian.com.au/business/property/house-price-correction-inevitable-warns-david-gonski/story-fn9656lz-1227045173078
(One of the world’s most leveraged, the Commonwealth Bank still refuses to accept there is a bubble)
While on bank chiefs, any one remember this guy 🙂
http://www.abc.net.au/news/2014-08-29/david-murray-warns-australia-financial-risks-concentrated-in-re/5705026
Gee, how their Point Of View can change.
.. when they are no longer at the helm.
I suspect the bubble is starting to get to big to pretend it doesn’t exist.
@ 12 – “Property to Poverty”, “Necks in the Noose” – brilliant!
I’d also like to see a TV show about real estate agents trying to find work and being told that not only are they woefully under-qualified to do anything, but they have also become the most heated people in Australia – bring it on!
Changing the blood(race transfusion).They don’t care about us or our children.We are broke in debt unemployed consumers bludging it all from the masters that gave it all to us,common people, on a plate.I DON’T THINK SO.We have been overworked exploited used up and thrown in the scrap heap by lazy blood sucking parasites that call themselves the elite.The white collar blue tie black suit criminals that have destroyed this once proud and fair(now become FARE as in $)nation.Enter the nwo CHINA style.What our idiot leaders do not realise is that these new cashed up foreign landowners are the most corrupt 1% from the most populated crony communist nation on earth.You think you’re safe in your glass towers directing above it all.I Don’t think so.When the ‘huns’ come and tip the balance.We will be lambs to slaughter.All of us poor and rich.RIP OZ.
With the RBA and their illustrious leader asleep at the wheel for the past decade this outcome was inevitable.
I often wonder if anyone on their board has ever traveled beyond these lucky shores and seen how the rest of the world operates. Well I imagine they will soon find out….
@ ReneD
Sadly, I believe they are well aware of the problem. In fact it’s intentional. The RBA is owned by the commonwealth of Australia…..That wouldn’t be code for the elite would it? Who owns the Federal Reserve in the USA? No-one admits to owning it, but it is privately owned: It is the only bank in the USA (and you can read this on it’s website) that can write a cheque against nothing, and it’s still good!
Again, I quote, Thomas jefferson:
“The central bank is an institution of the most deadly hostility existing against the Principles and form of our Constitution. I am an Enemy to all banks discounting bills or notes for anything but Coin. If the American People allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the People of all their Property until their Children will wake up homeless on the continent their Fathers conquered.”
By the use of fiat currency and central banks, the elite trick the public as a whole into believing labour and work can make them well off, but this idea hides the fact the banks skim a % on every transaction in the economy: Even when no money changes hands, by the central bank created inflation you are poorer even in a static environment. They push debt down the throat of the public, creating bubbles, indebting the people, only to watch the bubble implode and scoop up assets at firesale prices.
You think I’m talking crap? Check the figures for the “American Recovery”. Most of USA is poorer than they were in the year 2000, while the elite 5%’s wealth has increased by over 100% since 2009.
It’s right there in front of everyone, but they DON’T want to believe it. And sadly, the higher your income, the more you don’t want to believe it: Guy’s in business suits and ties cannot be told that the economy is set to fail: In fact, I’m sure it scares them to think that pushing paper around isn’t worth $150k a year, when the guys who are doing real work are only earning $35k a year.
RE agents, insurance agents, bank workers, accountants etc. should all be very scared, their jobs are a sham. They only prosper because of FIAT currency and fractional reserve banking. In fact, some of these guys are the dumbest people I’ve ever met.
I still love how these guys push investment and debt down your throat, but when you ask them why this model will work “because shares/property/etc always rise”. Sure, ok, but can I ask “Why were you completely blind sided by the GFC?”
The truth that none of them have ever admitted to me and they argue back, is that they “DON’T UNDERSTAND THE SYSTEM”. It it built so that the average person goes crazy in debt, the bubble collapses and the elite scoop it up. This would probably occur in a gold back currency, no doubt, but the FIAT/fractional reserve system amplifies it 100 fold if not more.
I don’t like the game, but I play by the rules.
http://www.inmycommunity.com.au/news-and-views/local-news/1900-job-losses-to-leave-Freo-reeling/7664421/
http://www.theaustralian.com.au/national-affairs/immigration/asylum-seeker-changes-force-red-cross-job-cuts/story-fn9hm1gu-1227045250430
http://www.wsws.org/en/articles/2014/09/02/tasm-s02.html
https://au.finance.yahoo.com/news/coles-cut-600-jobs-report-041410510.html
http://www.theaustralian.com.au/news/nation/target-cuts-23-jobs-at-geelong-head-office/story-e6frg6nf-1227031782873
http://www.smh.com.au/business/mining-and-resources/caltex-jobs-cuts-part-of-revamp-aimed-at-raising-millions-20140825-107zme.html
http://www.mining-technology.com/news/newsrio-tinto-announces-job-cuts-kestrel-coal-mine-queensland-australia-4359454
http://www.abc.net.au/news/2014-08-18/nrn-mla-restructure/5677718
http://www.smh.com.au/national/public-service/job-losses-as-treasury-bosses-tell-staff-of-fate-in-spill-and-fill-20140813-103q8z.html
http://www.theage.com.au/victoria/mental-health-job-cuts-in-state-government-restructure-20140811-102vgo.html
We all know if things go bad the government will bring in policies to pad the fall for the rich and it will be middle and lower socioeconomic groups taking the burden.
The wealthy have nothing to fear because they have bought this country. The wealthy will snap up all the housing and the gap between rich and poor will widen. The less well off won’t do a single thing to stop it except a couple of protests that achieve nothing because they never do. The unions will go on with their usual rhetoric, looking out for themselves which ultimately has a negative net gain for the country. The media owned by the wealthy will continue to publish their rubbish pro-capitalist elitest rubbish ensuring anyone expressing different views are deemed nutjobs.
People on this website seem to look forward to the crash as we tend to think it will be a great equalising event, it wont be.
A good watch… probably too intelligent for our mob!
https://www.youtube.com/watch?v=e6Jmejjiido&feature=youtu.be&list=UUuVn61L4m3nyq7oql40mmig
I too can’t wait for this bubble to burst, though it will catch a lot of people unawares. But there is the one thing that is adding huge amounts to property = foreign, especially Chinese investment.
It boggles the mind that there is so much corrupt money coming from a communist country. There are people in China who are officially on wages of $10,000 who are buying millions of dollars worth of Australian real estate. How they get this money is one thing, but they’re not even allowed to buy established residential property here (unless they pull it down and build a development) and our government doesn’t bat an eyelid.
Many of them send students over here so they can buy up properties. Of course they are supposed to sell when they return to their country of origin, but again, our stupid government doesn’t even check. Yet they pay inordinate amounts to the 8 people who make up the FIRB to do absolutely nothing.
And the reason our government is not going to do anything is because it props up the bubble. In fact, nothing is going to be done if it means pricking the bubble. That means interest rates will continue to stay low, negative gearing laws are not going to change and immigration will remain at ridiculously high levels, while unemployment soars.
If the bubble ever pops it will be despite the government’s efforts, not because of it. And while there’s a bubble, nothing else matters.
The RBA is playing dumb, they can easily reign things in by implementing Loan to Value ratio’s ala New Zealand has done. The all magical central bankers that have set things up so well over the last 100 years have forgotten the tools that they have available.
Why do we need them again?
@md
“And the reason our government is not going to do anything is because it props up the bubble. In fact, nothing is going to be done if it means pricking the bubble. That means interest rates will continue to stay low, negative gearing laws are not going to change and immigration will remain at ridiculously high levels, while unemployment soars.
If the bubble ever pops it will be despite the government’s efforts, not because of it. And while there’s a bubble, nothing else matters.”
Excellent, summation of our property market.
@Matty,
I think you will find the RBA is owned by the Australian Government, a corporation register in washington not the Commonwealth of Australia
Please watch this
https://www.youtube.com/watch?v=umVj5XQYAi8
A gold backed currency will not have any inflation as it cannot be rehypothecated/fractional reserved.
The FIAT/fractional reserve system amplifies it 100 fold in the us
To start with.
Within the square mile of London (Crown Corporation) the banking centres of the world. the fractional reserve can be rehypothecate to infinity.
Please watch this
http://hiddensecretsofmoney.com/videos/episode-4
@LVR_Lever,
We do not not need a central bank. in our Constitution there is no mention of one and the currency supply in meant to come from the treasury.
Commonwealth of Australia Constitution Act Chapter V section 115. A state shall not coin money, nor make anything but gold and silver coin a legal tender in payment of debts.
prepper
@Patrick.
Higher interest rates will affect the bubble. It may not directly affect foreign investment, but Aussies are already significantly invested in the housing market. I’ve seen monthly magazines dedicated to setting up property portfolios (read: pyramids). Plenty of locals will find their plans no longer cashflow positive and will be forced to sell down their portfolios while prices still seem good. It only takes a little bit of distressed selling to tip the balance and send a hot money flying out of Australia. Once that happens, the Aussie dollar will start correcting to a more normal level, compounding losses by foreign investors, giving them even more reason to pull out faster to cut their losses.