Time To Panic In Australia

Tyler Durden's picture

Submitted by Mike Shedlock via MishTalk.com,

Australians’ private debt has soared to 187 per cent of their income. Debt is up from about 70 per cent in the early 1990s.

The jobless rate rose for the second straight month in December to 5.8 per cent, and underemployment, the number of workers wanting more hours, is near an all-time high. Wage growth is the lowest on record.

Australia has one of the world’s biggest property bubbles. In some sections of the country, prices are already under severe price pressure. The entire country will soon face that problem, at least in my opinion.

australia-borrowing-capacity

The Financial Review reports There’s $1 trillion of Australian Mortgages and Some Now Worry of What’s Next

The Reserve Bank of Australia frequently seeks feedback on the health of the economy. It might want to call the debt counsellors soon.

 

Homeowners, consumers and property investors around Australia are making more calls to financial helplines as three warning signs back up the spike in demand: mortgage arrears are creeping up, lenders’ bad debt provisions have increased and personal insolvencies are near an all-time high.

 

“It’s steadily out of control — I don’t know of too many financial counselling services where demand doesn’t exceed supply,” said Fiona Guthrie, chief executive officer of Financial Counselling Australia, who says the biggest increase in calls is from people suffering mortgage stress. “There are more people who have got mortgages that they can’t afford to pay.”

 

Australia’s households are among the world’s most-indebted after bingeing on more than $1 trillion of mortgages amid a housing boom that’s fizzled out in parts of the country, but still roaring in Sydney and Melbourne.

RBA governor Philip Lowe places financial stability at the forefront of monetary policy.

 

The concerns are understandable. Australians’ private debt has soared to 187 per cent of their income, from about 70 per cent in the early 1990s, encouraged by low interest rates. In a November speech, Lowe said that while most households are managing these levels of debt, many feel they are closer to their borrowing capacity than they once were.

 

Knocking out the wind

“There’s so much household debt that a couple of rate hikes here would completely knock the wind out of the housing market, and a lot of people would be impacted by it,” said Gareth Aird, economist at Commonwealth Bank of Australia, the nation’s largest lender. That’s partly why he doesn’t think the RBA will lift rates until 2018 at the earliest.

 

Lenders are watching these indicators as closely as the RBA. After a seven year bull-run, annual cash earnings at Australia’s big four banks fell last year for the first time since the financial crisis, said PricewaterhouseCoopers. At the same time, their bad debt expenses – which encompass both business and consumer lending – jumped 39 per cent to $5.1 billion, the highest since 2012.

 

But the hardest indicator to track may be borrowers worried about making their next repayment. Counsellors at the National Debt Helpline deal with such problems and are now even getting calls from property investors, said Guthrie. In the last quarter of 2016, phone calls to the service jumped 12 per cent on the previous year to an average 11,079 per month, she said. That’s double the rate of increase of the same period a year earlier.

 

Time to panic?

It’s not time to panic. Banks’ losses still remain small by historical standards and are largely confined to mining areas, according to PwC. Some 77 per cent of customers at Commonwealth Bank were ahead on their mortgage payments as at June; the lender is likely to update those figures next week. The RBA also noted in November that borrowers have set aside funds tied to their mortgages equivalent to 17 per cent of outstanding balances.

Key Phrase: “Not Time To Panic”

The #1 rule of panic is simple: Panic before everyone else does.

Those thinking of buying a house in Australia now are out of their freaking minds. Yes, I have been saying this for quite some time. And many can point to profits. But those profits are all on paper. Try selling. It’s impossible for everyone to cash out.

Those who place their homes on the market now, with aggressive below-market pricing, will likely be able to find suckers. Those who think it’s too early to panic will likely to be trapped down the road.

Home are illiquid. It’s seldom too early to panic.

When selling real estate, it’s a catastrophe to panic after the panic has already started.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
sixsigma cygnusatratus's picture

Private debt in Australia is 187% of income?  Canada's private debt is only 167% of income so I feel much better.

It seems the receding Chinese economy is leaving asset bubbles exposed.  But it's a global economy so it's different this time...

Dame Ednas Possum's picture

Don't come the raw prawn with me... sport. 

Ya' flamin' galah. 

Get a black dog up ya' 

Ya' friggin' drongo. 

Oh yeah... and all hail King Julian (Assange)... chief of stirring shit with those in charge. 

Dame Ednas Possum's picture

MAAAATE... how's it hangin'?   

risk.averse's picture

Nice of you to enquire, my dear! One of thems hanging lower than a lizard drinking. Gawd knows where the one is...probably the ex still has it in her "collection".

Dame Ednas Possum's picture

Gotta go... busier than a one-legged man in an arse-kicking contest. 

new game's picture

robots can pay the mortgage  with digital money. what's the fucking problem?

OpenThePodBayDoorHAL's picture

In case nobody noticed, it's a global debt super-cycle, now that CBs are just hedge funds with "unlimited" capital who never get a margin call and never need to sell this can go on for 3, 5, 10, 20 years or more.

I live in Australia and property is a religion. What happens is Chinese millionaires get off the plane, they find air they can breathe, water they can drink, food they can eat, and a place for their kid to learn Engrish at university. Their next stop is the realtor's office, and they see prices that are downright reasonable compared to Beijing etc. The banks here are the most profitable in the world and have an absolute stranglehold on the regulator, they've decided at the board level (I should know) not to fool around with that "innovation" stuff since they can keep the competition at bay forever.

It's "The Lucky Country", when the AUD is low, toursim (#2 export earner) booms, when the AUD is high, mining (#1 export earner) booms. It's a country where even Americans are still welcome.

So don't hold your breath

BabaLooey's picture

Fair Dinkum!

Fois Gras!

Muchas Grass-e-ass

peddling-fiction's picture

Now don't go out for a swim in the ocean.

PTR's picture

Austrailia has a band made up of three one-man-bands, and they have a mexican themed schtick:

Puta Madre Brothers

https://www.youtube.com/watch?v=i1Q7Zin4yuE

Raffie's picture

I have to call my Didgeridoo Broker.

Motasaurus's picture

House prices will never be allowed to fall in Australia. Our bubble has less to do with speculation and more to do with the intentional refusal of councils and state governments to release land and approve construction. 

We avoided the 2008 collapse for precisely this reason. State governments and local councils have tied their revenue streams to the sale value of property. For this reason this bubble has been inflated by a lack of supply, not artificially inflated demand. In NSW there are ~1500 people looking for a home for each available residence. This is the worst in the country but the other states aren't too far behind. This bubble will not burst until the baby boomers, who own 2.5 properties each on average, die. Then and only then will we hit a point where supply of homes may outstrip demand by people capable of paying. But only if Gen X are idiots and sell the properties they inherit rather thanthan keeping them for the investment they are.

Nexus789's picture

Simplistic comment and your are so 'clever'. The only competition for properties is now between speculators/investors and when that happens your bubble is on the verge of imploding. Australia is on the cusp of an epic debt implosion. 

Motasaurus's picture

That's simply not true. First home buyers still make up a large percentage of people buying residential property in Australia. Further to that is the necessary requirement of realising who the investors are. Outside of Sydney and Melbourne they're almost entirely made up of Baby Boomer and Gen Xers (those who paid off their first home in the early 90s). The capital cities are undoubtedly due for a correction, but it's not going to be a bust like you saw in Europe and North America. We simply don't have an over supply of properties. There are more people who want one than who can afford one. Until that changes, nothing changes. 
And as I said, unless the Gen Xs and Ys who inherit all this property from their boomer parents make the insane decision to sell their golden egg laying goose, this isn't going to change any time soon. 

Squid-puppets a-go-go's picture

dude. Ever heard of 'reversion to the mean' ? In 1930, average house prices were 2.5 x average income. Today they are 7 x average income. Not sustainable, not value for money. And reversion to mean interest rate wise will see a total and utter wipe-out as so many homes go one the market only to be passed in under reserve

eh_geee_gmail's picture

Reversion to the mean: prices don't do it.

MalteseFalcon's picture

How about the ratio of price to wage?

It's a rhetorical question.

EddieLomax's picture

Birth rates don't dictate a need to increase properties, and the insane strategy of keeping the population "growing" by importing muslims who have no skills or ability to buy property isn't a solution.

Those people all searching for a property are living somewhere already, probably in rented accomodation.  Therefore there is enough rental accomodation for the current population while emmigration is down due to the economy is down.  The moment when this property bubble bursts will be when the rental market exceeds renters by too large a margin, at that point prices drop as they try to chase buyers.

And pop, the whole lot comes crashing down.

 

MosesApostaticus's picture

Don't bother @Nexus789. There's no point talking reason to someone who owns an Australian house. They've been right now for so long anyway, maybe they'll always be right and we'll have average homes at 10 million. 

The missus and I will keep renting until we die then, at least able to go out for dinner occasionally. 

fulliautomatix's picture

Yep, gov sets the prices. Look at oil: same shit, different day. Gen X? They have not got the earning capacity that Y has (or had an option on) and are going to be killing off their parents so's to have a house to live in. Forward the voluntary euthanasia laws.

 

I think the western govs are starting to get the problem Soviet Russia had before its collapse: men are just simply putting down their tools and refusing to work. If there is nothing to work for (because we're chattel, slaves), we'll have to be whipped to work. You can say you own my future work, but that just incentivises me to do nothin; same result for me and I get the satisfaction of your failure too. fuck you, mate.

JohnGaltUk's picture

You suffer from mono thinking plus an infection of group think.

What happens if bond yields sky rocket because of an EU accident of which there could be many? Interest rates will rise into the sky!! How many loans are in USD? If dollar keeps rising there is 5 to 7 trillion of USD loans ready to blow up in EM's.

I have been watching Oz and NZ for the past 3-4 years. It's a bubble foresure.

 

https://www.youtube.com/watch?v=NEvAqZO-pgQ

 

I sent this to a friend in Oz back on the 3/1/17

Go to 33.33 watch for about 5mins. See the blonde lady that has just signed up for her 3rd house and claims she is not good with numbers and she is into the banks for just over a million. When the herd \ retail investor is in; the market has topped. Bond yields are moving up so interest rates will not be far behind. Act accordingly.

Phil

MosesApostaticus's picture

I think Armstrong is right too. 

risk.averse's picture

You're partly right, Motosaurus. Supply has always been a problem -- particularly in Sydney where the natural contraints of ocean and national parks to its south, north and west have acted as choke points funnelling buyers to narrow corridors at Sydneys extremities.

You must also place some of the blame on foreign buyers wanting to get money out of unpredictable nations like PRC. Same happened in Vancouver. Some of Helicopter Ben's QE money has been sloshing around the globe blowing bubbles in asset prices. Another factor are people looking for alternative safe investments now that bank deposit rates are so low. Superannuation investors particularly keen now to get into real estate.

BigWillyStyle87's picture
BigWillyStyle87 (not verified) Motasaurus Feb 9, 2017 8:19 AM

I had a wonderful LOL when i read this. The first sign of a clueless muppet is one that says prices will NEVER be ALLOWED to fall. Never is a long time ya know, and being "allowed" to fall is even more rich, as if somehow governments have figured out a way to outsmart the laws of economics. Muppets get fleeced, and youll be one of em.

hongdo's picture

What people forget is that when there are imbalances or large amounts of money sloshing around, there are arbitrage opportunities.  If local authorities are limiting development, then the undeveloped resource is underpriced and needs only approval from a pliant authority to make someone a lot of money.  Bribe the current one or elect a better one. Start another fire, blame it on global warming,  and then propose a "development firebreak".  Oz was founded by criminals and I can't believe that it is not as corrupt as everywhere else. 

all-priced-in's picture

So - it is different this time.

 

 

risk.averse's picture

If my peepers don't deceive me, Edna you look like a bonzer sheila, luv!!
Then again, I ain't caught a sniff of a bit of skirt in ages so it could be desperation doin the talking. Geez ...now where did that goat get to???

Dame Ednas Possum's picture

Steady on there fella... I've got a pair of smooth criminals down under!!! 

You're toeier than a Roman sandal! 

Dame Edna Everidge is a cutting edge comedian that has been around for eons. She is in fact a bloke in drag. Barry Humprhies in fact. The humour comes from celebrating mediocrity while ignoring the rich, beautiful and famous as nobodies. Check out YouTube. (Have a look for Sir Les Patterson too... anotrher one of his characters). 

She often calls her guests 'Possum' or the audience 'possums'... which is a cat-sized nocturnal marsupial in Oz.  

Many comedians have followed in Dame Edna Everidge's path. I hope you enjoy the humour. 

 

By calling myself 'Dame Edna's Possum' I am referring to myself as a drag queen's small furry animal!  I'm also suggesting that I'm dressed up as someone else... just like Barry... and just like all of us here on ZH with our various aliases.  

I should note at this point that I, just like Barry, am as straight as a die. In fact I'm a 6'2", heavy set, rugby playing, beer swilling Aussie bloke who has never forgotten any of my roots... if you know what I mean. Also like Barry, I enjoying taking the piss out of self-important people... a national sport for us Australians. 

risk.averse's picture

Heh heh...the allusion to Dame Edna's posssum is cute. Hey, we're just grateful you didn't choose Bazza McKenzie's chunder instead.

Nice, I'm sure the Yanks will appreciate your detailed explanation of the Barry Humphries oeuvre. Humphries is a comic genius but you need to be local Aussie to *fully* understand his humor. Even the Poms struggle sometimes when he tours there. I get the feeling the Poms enjoy the shows because they confirm how superior they are to those silly Aussie characters Humphries portrays so beautifully.

Give that possum a tickle for me, mate

logicalman's picture

I'm in Canada.

My private debt is 0% of my income.

The only debt I'm associated with is the odious* kind that government saddles me with.

*In international law, odious debt, also known as illegitimate debt, is a legal theory that holds that the national debt incurred by a regime for purposes that do not serve the best interests of the nation, should not be enforceable. Such debts are, thus, considered by this doctrine to be personal debts of the regime that incurred them and not debts of the state. In some respects, the concept is analogous to the invalidity of contracts signed under coercion.

Not that this law is ever upheld.

Al Gophilia's picture

Oi! Get that pommy shit out of here, mate!

Dugald's picture

 

Stone the flaming crows....

junction's picture

Why pick on Australia? The globalist destruction of the middle class is a world-wide program.  Look at Bill Gates, whose big goal was pushing for the end of tenure for school teachers.  Yet the super-rich are silent when it comes to ending their tax dodges that have allowed people like Soros and Trump to avoid paying any income tax for decades.  

bustdrs's picture

Ahm, why pick on Australia, perhaps the fact that it has he highest debt to gpd ratio in the world, lots of daylight second then maybe Canada.
At the same time very few people in OZ believes it will ever actually be problem. Ever.
"They'll never let it happen". Sound familiar. "They" couldn't have done more.
Tax deductible residential investment property interest, first homebuyers grant, doubling he first homebuyers grant, low interest rates es and China. What could go wrong?

Dame Ednas Possum's picture

My brother has worked in the Commonwealth Bank of Australia for 25 years, the biggest bank in Oz.  

He was explaining to me at Christmas why the housing market will keep on keepin' on:  "Just because"

When pressed, he then could not explain the fractional reserve banking system to me.  

He's climbed through the management over the years by being a dutiful recipient of the brain-washing of their own numpties to shill their predatory lending practices.  The cheap suits are incentivised to do so... and without question.  

I advised him that it's unsustainable and when China hits a wall the Aus. market will collapse as people lose jobs and the liquidity from China disappears.  He stared at me blankly and shrugged his shoulders. 

Australia's GDP already shrank by 0.5% in Q3 '16. 

China accounts for 34% of Aust's export market, noting that our main export is dirt with stuff in it... stuff that growing economies love, but shrinking economies don't need when there is an oversupply.   

The dingo turd is about to hit the fan... 

Archibald Buttle's picture

this is the best news i've heard in forever. your brother is evidence that it could just be a bunch of idiots in over their heads, making mistake after mistake for decades, rather than some evil plot to enslave us all through debt.

did you point out that there just might be a finite amount of dirt with stuff in it? dig enough out, and eventually OZ will just be a hole in the ocean. somehow, i don't think that will work out so well, especially for real estate...

Motasaurus's picture

I don't think you realise just how vast Australia is, nor how much stuff our dirt has. 
For example, we've already dug out enough thorium that were the world to switch to liquid salt thorium reactors our current stockpiles could power the entire world at South Korean levels of energy consumption for the next 500 years.  

MisterMousePotato's picture

Yes ... but what I want to know is ... when the fuck is someone going to actually build one of the things? I mean, what? I have to do it myself?

Motasaurus's picture

The Chinese will bring their first one online this year. Russia's came online last year. Norway's came online in 2012.

jaxville's picture

  Sold my uranium stocks some years back.  Current prices look compelling but if we start seeing the proliferation of liquid salt thorium reactors uranium will go nowhere.  Thanks for the heads up.

Archibald Buttle's picture

it may take generations, but if you keep digging a hole on an island in the middle of an ocean it will come back and bite you in the ass eventually.

Dame Ednas Possum's picture

Yep - he's a dope, but he's just a cog in the machine... not someone pulling the levers.  The tribe run the show there just like they do in the UK, Europe and Nth. America.  Australians are the epitome of debt slaves; said evil plot for bankster enslavement is well advanced there.  Try changing jobs, starting-up a business or taking a sabattical when 50% of household dual income is paying the mortgage.  

The dirt with stuff in it is, of course, finite.  But it's a very very substantial finite that will last for many generations to come.  

Anyway... all not that relevant to yours' truly as I departed many moons ago for somewhere that does not rape one's earnings via income tax.  Something 'the Lucky Country' is extremely adept at.