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Aussie Housing Bubble Blues
Who Can It Be Now
The Australian government ran
conservative fiscal policies during the commodity boom, resulting in a
government debt level among the lowest in the industrialized world.
More recently, the commodity exporter largely escaped the jaws of the Great Contraction. But now, after one of the longest economic booms in the developed world – virtually “recessionless”
for nearly two decades – households appear to have caught a nasty case
of what BCA Research calls, “Anglo-Saxon Disease.” Household debt
levels in Australia has surged past both the US and the UK, reaching
more than 110% of GDP, as consumers have continued to spend right
through the crisis.
While local media often maintains that
Australia simply dodged the bullet, we are not quite sure. Any
significant reduction in commodity demand could easily provide
Australia’s property bubble with a Chinese Pin. We are already beginning
to see monthly declines in Chinese home prices, as Tightening Property Policies Continue.
Then again, bubbles of this magnitude often collapse under their own
weight as gravity pulls valuations back to earth over time.
The most recent edition of The Broyhill Letter, which details the risks of an overheating Australian property market, was recently published at Forbes in two separate installments here and here. The full letter can also be downloaded directly below.
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There are some reasons why the Aus bubble will continue a while longer:
1) Very high immigration rate (assuming that supply/demand still pertains these days)
2) Government subsidy (first home buyers' scheme)
3) Relaxed rules on foreign ownership (supply/demand?)
4) AUS/USD fairly stable despite massive money printing overseas - nice to exchange inflated fiat for something real.
5) Aus hasn't printed money yet (can anyone confirm?)
6) Aus has room to drop interest rates
7) World population still increasing exponentially - they need to buy resources.
You're certainly wrong on 5)
The bubble might just keep on bubbling, houses are priced in dollars after all.
If the issuer of dollars wants house prices to remain high, they almost certainly will.
LOL Yeah that worked in the US, didnt it..
Inflation on what we comsume every day doesnt mean over priced over leveraged assets wont collapse. Take a look around the globe, but let me guess its different here, this time, blah blah blah...
Oh did I mention the shortage - not without a BIG grin..
NO QE IN AUSTRALIA.
Just increased govt debt (but small by world standards).
The problem here is private Debt 160% of GDP higher than both the US and UK private debt load.
Just mortgages in Oz will soon be equal to our GDP 1.3T currently 1T. Oz banks are very much at the mercy of global money markets being a large importer of capital.
The average house junkie spends close to 40% of their disposable income on house payments even though current rates are very low (for Australia).
The whole housing is an easy way to riches, they never go down, you cant go wrong with RE all are completely swallowed hook line and sinker by the average punter. Its SAD really.
When it is time to short the Oz banks short Westpac and Commonwealth both have over 50% of their tier 1 capital as mortgages.
Average price of a home in the Toronto area 437k average income based on the mean of 4 times earnings would require over 100k in combined income to support it. It's not impossible with two incomes but your living paycheck to paycheck, one crises and your done. May to June Toronto sales down 8% YTD 24% decline although average price has held up. It will take some time but this markets run it's course. I give it 9 months before TSHTF.
The human drive to get something for nothing is relentlessly exploited by the banking community, first to manipulate their customers, and secondly, to satisfy themselves. These are institutional sociopaths, by definition.
The Aussie bubble hasnt burst yet, too many greater fools left.
The ignorance in this country towards our housing bubble is amazing.
The reality is houses on every measure are over priced revision to the mean is assured.
The ignorance of this world toward the US treasury bubble is amazing
MMM whats backing Aussie RE the GREAT 3% rental returns - phft.
Now whats backing US treasuries MMM....
Anyone with half a non brainwashed brain cell can see the Aussie house bubble.
If we are in a deflation, as it sure seems we are, Treasuries may be considered "cheap" right now. Given the amount of debt in the system, inflation/high rates is a greater destroyer than deflation right now.
The Fed and US will do ANYTHING to keep yields down, as they know for fact that if rates spike here, the ENTIRE game is up, globally. Over, kaput.
No signs of weakness in Perth, Western Australia. Slow downs yes, collapses, I dont think so
Go on thinking that way.
Plenty of bankrupt renters in the U.S. thought that way too. You'll have plenty of company.
Sorry, hit the send button too soon :-) To me, page 1, LT Real Estate House Price Indices chart tells you all you really need to know, if you are short on time. It is clear the upward trend is unsustainable, and will eventually correct, as happened in countless other markets, notably Japan 1990s and USA 2006-2010. Get out while you still can.
Australia did not hit a debt ceiling like the US and Japan. I live in Canada and I have been renting for over a year waiting for this bubble to burst and it doesn't even show any weakness.
The only thing that will bring housing prices down is when the US has some bond auction problems and real interest rates start going up.
You are wise to rent, if you exited from an urban market such as Toronto and Vancouver.
Using Toronto as an example, there was a housing bubble in the 1980s that peaked in 1988, burst and then did not recover to peak prices until around 2003. With the effects of inflation, it would not surprise me if real prices did not recover until about 2006. Real Estate is rarely a one way bet.
Housing bubble in Canada is showing plenty of weakness.
Plunge-O-Meter ~ Canadian Housing Price Charts and Real Estate ...
http://www.chpc.biz/ Canadian home sales on the wane http://www.yourhome.ca/homes/realestate/article/836130--canadian-home-sales-on-the-wane Canada's housing market settles down http://www.montrealgazette.com/business/Canada+housing+market+settles+down/3164815/story.htmlBuyers camp outside new condo development in Vancouver Febuary 2009
http://vancouver.24hrs.ca/News/2009/02/06/8297576.html
Buyers camp outside new condo development in Vancouver Febuary 2009
LOL That never happens when you have a bubble, more like its one of the signs you do.
Feb 2009 was still under the run-up to the Olympics.
Condo markets in cities like Vancouver or Toronto will remain solid because of their appeal to domestic and foreign investment influx. Rent yields on downtown condos beat the bond yields or dividend yields and are fairly safe investments.
However, the slow down is happening in the suburbs. Guaranteed. That's where the real market is happening, where the rubber meets the road.
Is BOC foolish enough to keep raising rates in a cooling global economy with filled commodity inventories?
8 billion dollar refinery project in Newfoundland was cancelled even after Irwing spent 80 million in a feasibility study. The refined products were supposed to be shipped to the Northeast US markets where demand is steadily declining.
Again, that is the real economy. 8 billion in lost investment dollars is a big number for a small province like Newfoundland. It's a big deal for Canada in general to have to write off.
2009 were great years for commodity based economies like Aus and Can when pretty much the whole world was betting on inflation of commodity prices.
Inventories are full, demand is slowing and deflation is here.
The Aussies are a weird bunch when it comes to investing. Things can only go up in their universe. Canadians will take it up the ass when their economy declines but the banks need to show profits. Has been this way before.
Rosie is dead on.
So what is the reason for so strong RE market in Canada? Mining, oil&gas is only roughly 5% of Canadian GDP, does Canada has some secret industries where people make money like there is no other day? Maybe we should take a closer look at that economy and learn something.
From what I see, Canada just has a more traditional banking system. Not like the securitised derivative fuck show in the US.
Just facts about banks:
1. Government has already bought 75 billion of mortgages from them - why?
2. CHMC, the hand of Gov. insures almost all mortgages (GSE),
3. Gov insured mortgages are used as part of their tier 1 capital, they don't like new proposed intl. regulations because of that reason.
The 5 big banks OWN Canada.
Make no mistake. Canada is run by corporate fascists.
Bubbles and irrational markets last for long periods of time. They do not vanish overnight. Look at the US stock market. It is still being propped up by the gov't. I would advise waiting out the bubble in Canada. The reality is it will be a while.
You think the stock market is in a bubble in the US ?
The bond market is the real bubble. Things happen for reasons, the Canadian housing bubble will last as long as the US bond bubble.
Geez, see now you've hit on the devil detail. When rates go up (and they will), the party's over.
The eventually collapse of the shadow banking system is baked into the cake. It's just a matter of making the call as to when. I can't and I don't think anyone can but from the stresses I see in the fixed income market (my area of expertise), the pressure is building again.
Something has gotta give, it's just knowing when.
I agree. The US stock market is a small bubble while the US bond market is a huge bubble. It would be a fair assessment to say the Canadian housing bubble could easily survive as long as the US bond bubble. Both stay blown through one simple fact, denial of reality. Piles of debt that will never be paid back.
Short Australian Real Estate, Bitchez!
Too many still dont see the bubble to short yet.
The Aussie media has done a great job filling the mindless with houses are a road to riches - no risk. Only ever go up, shortage, etc blah blah blah, you know the con.
The bubble wont burst until it becomes so obvious the average house speculator works it out. The ignorance here by Aussies towards our bubble is simply amazing.
Too early to short yet but it gets closer by the day.
That would be a stupid move.
The only way the Aussy and Canadian housing markets crash is when interest rates go up. How much more obvious can it get ? A more traditional banking system will also have a more traditional recession.
Mish is a dumb fool if he bullish on the US dollar because there is housing bubbles in Auss and Canada.
Isn't that the same kind of statement that we used to hear about U.S. real estate? Don't worry, it's a no-brainer, of course you'll be able to refi, your house will go up 15%-20% a year for sure...
Interest rates are a factor, but not the main one. Australia and Canada are minnow economies compared to USA/China/European Union. Their fortunes rise and fall with the tide of what commodities are doing.
If/when China slows its buying, it's all over bar the shouting for BOTH property markets. It will look like this:
1) Sales volume will slow to a crawl, if not stop altogether as buyers and sellers can not have a "meeting of the minds"
2) Job loss and wage decreasing pressure will slam those unfortunate enough to be laid off and put on the dole. Those same people have massive mortgages, only serviceable by commodities-inflated incomes. They will have to sell.
3) Prices will start to snowball downward, fear will set in....
4) Smart-ass spruikers and "bargain hunters" will enter the market, saying now is the time to buy. Many will be burned.
5) Full-on capitulation will take place as the job market worsens, and the Governments scramble from stimulus to stimulus, all of which will fail.
6) Prices will ultimately settle 50% lower than current levels.
oil went from 147 to 30 and housing didn't do shit
Housing dropped about 10%-15% in Australia for that brief period. Don't pay attention to oil down under, pay attention to iron ore, nickel, gas.
Exactly but only to rise again by 25% after the illusive government hand rebating first home buyers with $35k. I believe prices to wage ratios are now 9 or 10:1 in major cities. US are between 5 and 6:1 in major cities.
Spot on Oz. I sold my second-last piece of real estate down there in December of 2009. Doubled in 5 years. Obscene. I only have one commercial/industrial piece left that is fully leased up.
It is a bubble. It is a Government-assisted bubble. It is being held together by overpaid, overleveraged resource industry workers, and the inflation that the resource industry has fed into other industries in the economy.
Take away that leg, and you can stick a fork in real estate prices AND overleveraged homeowners. Not going to be pretty WHEN it pops.