Australian Banks Deny "Speculative Bubble" Driving Home Prices To Record Highs

Tyler Durden's picture

The basic laws of physics have seemingly ceased to exist in Australia...water is no longer wet, the sky is no longer blue and home prices are not in a "speculative bubble," at least according to some conflicted commercial banking executives who are massively long Australian housing. 

Testifying before a parliamentary committee, the chief executives of National Australia Bank, Westpac Banking and Commonwealth Bank of Australia all said that while they are worried about elements of the housing market, prices aren’t over-inflated.  Per Bloomberg:

“I would draw the distinction between a speculative bubble in prices and prices beyond what fundamentals would justify,” Westpac’s Brian Hartzer told the committee in Canberra Wednesday. A bubble isn’t occurring in Sydney or Melbourne, where house prices have risen the most, he said.


“There are increasing risks, but I still believe the answer is no,” National Australia Bank’s Andrew Thorburn said when asked if houses in Sydney and Melbourne are overpriced.


Commonwealth Bank, the nation’s largest mortgage lender, is “lending at levels we are comfortable with” across Australia, Chief Executive Officer Ian Narev told the committee when he testified Tuesday.

Of course, as our readers are well aware, prices in Melbourne and Sydney have skyrocketed in recent years, fueled by record-low interest rates, increased demand from overseas buyers and tax breaks for property investors. The Organization for Economic Co-operation and Development last week said the biggest threat to Australia’s economy is a hard landing in the property market.

But sure, 100%+ rallies in home prices are completely reasonable. 



Of course, one persistent concern has been the risk around apartment development in Melbourne and Brisbane, with Chinese buyers getting caught by the clampdown on lending and the enforcement of capital controls.

Hartzer told the committee he is receiving a weekly email on key development projects and settlements are proceeding, albeit slowly. There are some problems in lower quality developments, he said.


“What we are seeing is a number of those foreign buyers who put the money down to buy the apartments are now having trouble settling and that is creating a bit of a glut in supply, which may or may not be what the local buyers want,” Hartzer said.

As we previously pointed out, while the banks are out talking their books, credit extension has been tightening for apartment developers because they know that Australia will face a major oversupply of multi-unit dwellings over the next 1 - 3 years from the major ramp in permits over the past several years that will flood the market with new capacity over the next 18 months.



Meanwhile, the rapid increase in approvals has been accompanied by a massive spike of cranes currently being deployed in Australia, to handle the apartment boom that is currently taking place. In fact, per the chart below, cranes deployed in Sydney and Melbourne dwarf most other major cities in the US including New York and LA.



Of course, maybe Australia's bankers are right and bubbly home prices are just the result of strong fundamentals.  Although, the last time a prominent banker made a similar prediction in the U.S. he turned out to be just a bit off the mark.  Ben Bernanke (July 2005):

"Well, unquestionably, housing prices are up quite a bit; I think it's important to note that fundamentals are also very strong. We've got a growing economy, jobs, incomes. We've got very low mortgage rates. We've got demographics supporting housing growth. We've got restricted supply in some places. So it's certainly understandable that prices would go up some. I don't know whether prices are exactly where they should be, but I think it's fair to say that much of what's happened is supported by the strength of the economy."


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xythras's picture
xythras (not verified) g'kar Mar 10, 2017 3:12 AM
Zero Point's picture

Sydney and Melbourne are "multicultural" shitholes, where arabic crime is rampant. Constant shooting in Sydney, ALL by middle eastern scum. Gold Coast is the last good place left apart from tiny country towns, where actual Australians live.

prime american's picture
prime american (not verified) Zero Point Mar 10, 2017 4:52 AM

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do...

Nexus789's picture

The latest group of useless people are Indians who are apparently into fraud activities in a big way. 

Batman11's picture

I think they call it the new paradigm.

It's different this time.

Sometime later.

On no, it's not.


Caught_Fish's picture

In the '50s mum and dad paid around $6,000 to build their home, mums last rate notice listed the block at $1,000,000 without the house. The homes I saw getting built as a kid are now being sold for over a mil and then bolldozed. This is Mt Waverly in Victoria, the surrounding suburbs are just as overheated. 

The best way I know if houses are overvalued is to compare the number of years it takes to buy it now with a similar wage from the past. My calculations are that houses now take twice as many years to buy doing similar work.

Many of the newly built houses are empty, awaiting what exactly.

Nexus789's picture

Tens of thousands of properties are empty in Sydney and Melbourne as they have been acquired by investors and/or people that don't live in Australia. We have a 5 bedroom house near us that is empty. A little Chinese bloke turns up once every few weeks to check the property. The country is going down the crapper. The crash when it comes will be epic.

PT's picture

2004:  Average Weekly Earnings = $40k (I can't remember if that figure was before or after tax.  I often use after-tax figures since that is the money that you can actually spend).  Median house price went up from $400k to $440k.  (25 yr loan, ~7% interest would translate to $640 per week to $700 per week i.e. 80-90% of AWE in repayments).  Cheapest house in cheapest suburb in Perth =$250k --> repayments $400 pwk (assuming 7%, 25yr) = half average wage or 100% of minimum wage.

How on earth those number could ever been ignored I do not know.  For comparison, mid 90s when minimum wage was $300 pwk you could get a decent house for $90k-$100k --> repayments approx half the minimum wage.

Things seemed to crash / flatten out 2008 onw (as reflected in chart - Perth 5% growth).  Prices crashed in certain areas in 2008 but then hovered, minimum wage last time I checked went up to approx $600pwk but I have not checked recently.  (I'm still haunted by the 2004 figures - I need to keep reminding myself that that was 13 years ago).  Point being affordability improved a little bit mainly because the minimum wage has gone up, not house prices coming down.  Average house prices should be around the $200k level to get affordability back to the nineties era.

I used to rent a decent little town house for one third of the minimum wage, now the cheapest dump you can find is half the minimum wage.

The world stopped making sense back in 2004 (earlier actually, in hindsight 2004 was just the extreme).  Yet is has still bumbled along for the following 13 years.  If things can stop making sense for this long, I see no way of knowing when they will start to make sense again.

PT's picture

In my blabberings, I usually highlight 2004 as the year of extreme not-making-sense.  But it was from 2000 onwards that I started expecting things to revert to the mean and 2004 when I realized they may never revert to the mean.  In hindsight, the first clue appeared ~1990 where a sales manager told his team that pretty soon the customer would not be able to say, "I can not afford it."
"Soon we will be able to get finance for anyone", he said.  It raised a big red flag in my head but I was still too naive and just thought accountants must know something that I didn't.

The second clue appeared in the late '90s.  This is where I noticed car advertisements that did not add up.  I can not remember the exact numbers but it was something along the lines of, "You can buy this car for $100 per week" for a car that cost $35 000*.  Well, that sure as hell does not add up.  I'd look at the fine print and it would say, "4 year loan, $5000 deposit".  Still doesn't add up.  Finish reading the fine print and it says "and final balloon payment of $10 000".  Okay, now is sort of adds up, but if you can afford the extra $10k at the end, why wouldn't you pay it at the beginning?  $10k over 4 years = $50 per week, if you can afford extra $50 pwk, why not repayments of $150 pwk in the first place?  Honestly, who actually puts that extra $50 pwk in their bank account, ready to make a "balloon payment" after 4 years?  It doesn't take too many brain cells to figure out how that ends in the real world.  Of course, if you are a rich guy with a spare $10k then this balloon payment crap might make sense as you can plonk it in a term deposit for 4 years and get a little interest on it.

*re that $35k:  The true number would be less as I have not factored interest into the story.  I was well aware of placing interest in the calcs back when this was happening.

The third clue started in 2000, though others say it started sooner, and that was when house prices disconnected from incomes and still have not reverted to the mean.

And then there are the accountants.  Everyone understands that the price is determined by the highest bidder.  Everyone understands that scarcity ends up with higher prices.  But none of them acknowledge that one plus one equals two.  No-one seems to acknowledge that if you only have two dollars in your pocket then you can't afford to spend three dollars, no matter how scarce something is and no matter how many other bidders there are that only have two dollars in their pockets.  errr, a couple of years ago we started seeing ads saying, "Now three people can share a mortgage".  Well, that explains that one.  As does foreign investment.

explosivo's picture

Stay away from Seattle this weekend.



Mediocritas's picture

The level of financial concentration and risk in Australia is mind-boggling:

- just four banks completely dominate the financial landscape (Commonwealth, Westpac, ANZ, National), with a combined market cap 26.61% of the ASX 200. The biggest is Commonwealth at 8.72%. That's bigger than BHP, Rio Tinto and Woodside combined. 21.82% of the entire stock market is 4 banks.

- these four banks control >80% of all loans in Australia and (with AMP & Macquarie) ~40% of all investment funds under management.

- total "assets" of the four banks are ~230% of GDP (3.58T / 1.56T). By contrast, net government debt is only ~17% of GDP. Expect this to change drastically when the government is forced to bail out the banks...

- lending is overwhelmingly concentrated in residential real estate with the big four all having >60% of their loan books committed to residential real estate. By contrast, USA ~34%, UK ~17%, Canada ~41% (stale data, needs an update)

SHRAGS's picture

Always appreciate your insightful comments   Mediocritas.  Continued house price growth is now a National Security issue, it is our only business model, that's what we do. Australia will be sold to the highest bidder before they let this one go down.


 The current treasurer Scott Morrison was the  research manager for the Property Council of Australia before entering Federal Parliament - from his personal website:   "Prior to entering politics, Mr Morrison worked as a CEO and senior executive in various industry bodies and government agencies, including Managing Director of Tourism Australia, State Director of the Liberal Party in NSW and National Policy and Research Manager for the Property Council of Australia."


Another minister just got busted for failing to disclose a $1.4 million dollar investment property (her 4th I think) as required. Coalition MPs defend Michaelia Cash after failure to declare investment property on time


Everyone will be thrown under the bus to save the banks.

BigDuke6's picture


the .gov have made it clear there is a PUT under house prices and they will be propped up at all costs...

so get your head in the trough.

Nexus789's picture

Australian politicians have a combined property portfolio of well over $300m so they are highly conflicted and obviously keen to keep the bubble going.

Ed Jobb's picture

We r so fucked....

Dodged the last bullet, now it's commin back with momentum.

Nexus789's picture

Check who the major investors are in all of these banks - they are all owned by four entities - HSBC, Citibank. JP Morgan and National Nominess.

Houses Depreciate's picture

It's far far more toxic in the US. Fannie/Freddie

TheVoicesInYourHead's picture

There are over 1billion Chinamen and Indians and Pakies planning to immigrate legally/illegally to Australia in the next few years.

As such, housing prices can easily quadruple+ from todays levels.

Bay of Pigs's picture

Uh, no. That isn't what's going to happen.

Maybe read the posts above yours?

J. Peasemold Gruntfuttock's picture

The colonies are in a bit of a spot of bother.

Mrs. Gruntfuttock (Buttercup) and I have been making enquiries as to potential retirement destinations should it all go to pot in Blighty, or Canadia for that matter.

What we have found so far:

You have dramatic price increases in Sydney (NSW) and Melbourne (VIC) for detached and semi-detatched houses that are within 20km of the CBD.Throw in semi-decent transport, shopping districts with character, and schools in selective catchments and you are on to a winner. And very high prices.

The same cannot be said for appartments which are relatively overpriced and poor value especially new developments. Due to ever increasing numbers coming close to oversupply they have rather high owners corporation fees and mismanaged sinking funds, and unauthorised sub-letting is rampant. Many buildings have overcrowded floor plates, balcony dwellers, and internal partitioning to accomodate shift workers and students. And on top of this the materials and workmanship are barely average and in some buildings dangerous, noting the recent fire in one building where cladding caught on fire and ongoing investigations into how many other buildings have the same potential disaster lying in wait. If you have been to Hong Kong I think you will appreciate the parallels.

Further out of the majors there are quite reasonable deals to be found in all States but not so much in the territories. If you enjoy a semi-rural lifestyle and fewer self-important 'baristas' then look to the regional cities.

The 'tyranny of distance' (Blainey, G), has served the antipodeans well up until now but the future is uncertain. The threat of hordes desecending from the north will no doubt become more of an issue as resource scarcity drives people to basic survival. With a coastline the 7th longest in the world (25,760 km (16,006 miles)) it will be difficult to defend should an all out mass arrival eventuate. But I think that the generosity offered by Australia to 'boat people', undocumented 'refugees' and illegal immigrants which has Sweden in such a state will lead to Australian governments hardening up on social benefits, fewer free lunches and bleeding hearts, creating a disincentive to risk the move unless apocalyptic conditions exist.


J. Peasemold Gruntfuttock

BigDuke6's picture

If you are only thinking of getting out of blighty now then you are a dumbfuck that we dont want or need.

Anyone with any get up and go has got up and gone from that shithole.

And dont try to analyse OZ - she'll be right mate

J. Peasemold Gruntfuttock's picture

Thank you for the feeback Bd6cm and your kind sentiments.

Her indoors and my good self have not just stumbled upon this idea recently, it has been in progress for a number of years, but the Brexit vote and the situation in France has meant that it is now more pressing. Our American cousins have been buying safe haven lots in New Zealand for quite a while but have not yet made the jump.

And I have to disagree with you that we are not wanted or needed. Australia is multi-cultural but the relative proportions of races and religions is shifting such that I would think that the country would welcome and appreciate having people settle who are not a burden on the tax payer and pay their own way, can live in peace and harmony, have no assimilation 'issues' or religious gripes with the majority of citizens or the government, and have no desire to turn the country into anything else other than a fine place to live. Bring back some balance! We might even come to love australian rules football, but you will have to be a bit patient.

To your third point I think Australia will be alright and I believe you are correct that analysis alone is not going to keep it that way. Certainly take notice of what is happening in Europe and how inaction or actions with ulterior motive are causing social upheaval on a scale I have not seen in my lifetime, and ensure that the same does not happen down south. The constitutional monarchy governing Australia might by the last vestige of the old empire, for that we have in common, but you have not inherited the problems on a scale so great brought on in the UK and now the USA and EU by short sighted thinking, appeasement, corruption, and government self interest not in the interest of the people. Australia is not untouched by this but you are 'lucky' in that there is still time, in our lifetimes, to ensure it remains a most remarkable and safe place to live.


J. Peasemold Gruntfuttock



BigDuke6's picture

The way that you have stuck out the UK for this long perhaps tells me you are of an iron constitution and brave of heart.

Get thee over here and let us enjoy "digging shit up" together.


J. Peasemold Gruntfuttock's picture

I shall dispose of the garden trowel and take up residence in spades.

Might have to tone down the verbose rhetoric a little, but.


J. Peasemold Gruntfuttock

BigDuke6's picture

end your sentences in ..but .. every time and you will win many friends here

they will say you are an educated man

Iconoclast's picture

Sure, it's always demand that increases prices and never loose monetary policy, lax lending policies and new Chinese money; brought into existence as debt getting the hell out of dodge, before it goes bang and takes Aus with it.

peterk's picture

Being in Sydney, i can attest to those "crane " figures.Even in the smaller suburbs you see  ALOT of  cranes

Locally i can see 4 big ones building  30 story apartment buildings , with 4 apartments on each level

making 120 apartments per building in an area where the second  tallest building is just 3 stories high. Its like a pillar

sticking out of the flat earth. On the other side of my area, single storey residential buildings suddenly give way in a similar fashion

to 10 story  apartment buildings. I do not ever recall   so many  cranes and  building activity , normally you see it in  more central areas in

the city, but his time around its very common  even in less affluent areas.

Another feature here is the numerous  private small businesses all centered around  property, You see alot of  vans outside houses parked

saying  "plumber,  tiles, bricklayers, carpets, curtains, renovators, painters.." all these small provate  housing enterprises, seems the

boom has swept people up into these industries. If ever it crashes it will be   unlike anything in history i believe.

All these things traditionally are omens of a crash, where exuberance exceeds all things. BUT  this AUSTRALIAN property market

is in a different class to other bubbles.  The theoretical side of me say it must crash sooner or later.... BUT the practical side say it never will.

Im almost drawn to the conclusion that I think it  will crash, but not in our lifetimes. SO in essense it can never crash as far as we are concerned.

The government here is a small town idiot, it just does what the  big banks want, much like the  MIC military industrial complex in the US 

does in controlling  the actual government of the US.

Do you think the MIC in the US will ever just give up?.. never.. it burn the  nation down first if need be.

Same here in Australia.. the BANKS will NEVER FAIL. They will never be let to fail. The banks ARE the Government.


In 1993 the government even closed down the trading and redemption of listed  Property unit trusts for  1 year as prices were crashing

and they just shut the  whole thing down.  They also banned short selling of finaincial stocks, banks in 2008. Then gave the banks a

governmemtn guarantee ont heir debt so they could fin  offshore  funding. THat  guarantee is still there to this day.

Just last week the state of victoria slashed stamp duty on  first hoime buyers below $600,000... meaning the govt thinks a house less than $600,000 is  way too cheap, so lets boost the the price.

Australia one big property ponzi scheme... retail manufacturing   are all dying.. its just a debt binge bubble left.




Ghost who Walks's picture

Thanks Peterk,

Interesting as you are there as an observer.

What doesn't the Goverment understand about input costs to manufacturing and primary industry?

The same thing with the services industry?

What happens when the country really needs to replace imports and the traditional exports are in the bottom of a commodity cycle?


HankPaulson's picture

The Australian government deployed various mechanisms to keep house prices high, e.g. negative gearing and capital gains tax rules, first home buyers bonus scheme, relaxed regulation of the finance "industry" (citizens are heavily regulated), relaxed rules on foreign ownership, high immigration rate, etc. Through these manipulations, house prices are pretty much as high as the government wants them to be (which is pretty high, despite protestations of concern about "affordable housing" for "battlers". Stamp duty, GST, extra income tax etc: money-for-nothing, you know).

Meanwhile, as global banks originated a megatsunami of fake money via fractional reserve lending and frank money printing, the government - far from defending its citizens - was at pains to usher this megatsunami in. As above, there's a lot more fake money where that came from, so it's far from clear that the top is in for some time to come.

The result is essentially a land of house flippers and slumlords ("high net worth individuals") whose progeny can't afford a roof over their heads.

As for the FIRE "industries" (do they actually produce anything?) - throw another loan on the barbie!!

She'll be right mate ;)

Nexus789's picture

Financialisation and rent seeking are the only games in Australia. Exceedingly dumb and it will be epic when it all stops.

sigmund-freud's picture

australian real estate is a religion, a cult who sucks in the stupid naive plebs... banks, government, council , building industry and real estate agent are the biggest mafia there. people doing money laundering for the big 4 banks by paying back the fony air money created loans with hard earned cash... cant none of those stupid plebs do a 5th grade maths? if you take out a 500k 600k loan on 4-5% interests over 20-30 years... what you have paid after 20-30 years? and do those plebs dont know that they also have to pay council rates ( which are huge), insurance and possible repairs? do those naive stupid brainwashed plebs really think that housing will double again and average house price will be 2 mio dollars soon? where are all the new jobs, where are all the newly raised wages... this is a sick bubble controlled by convict offspring corupt greedy people in this country. does anyone know what happen in japan in the 80tees.... cos this will come to australia in the near future... onces this bubble burst australia will fall back into a second world class country... it will be a lost few decades the same way like it still is in japan... naive stupid plebs dont learn the right things in school the just follow lemming style... and by the way in the end they dont even own the house... nobody can own anything not even a car, they can purchase a licence and a registration but thats about it... if the country goes to shits and government needs money they can impose a 50% wealth tax on all properties above lets say 700k.... whats than? cant happen.... look back in history.. happened in many countries before. stupid plebs wanna be house owners are livelong bank slaves.


the word for the future in australia will be negative asset value... where your loan is more than the value of ur house.

have i even mention the quality of housing?? one of the worse in the western world.

keep up the laundering with ur TIME!!! you wanna be smart... move away from big cities and rent!!!

Lies All Lies's picture

Really hard to read. Put some paras in

JohnGaltUk's picture

House prices are up 95% since about 2009.

Its a bubble

sigmund-freud's picture

what goes up must come down... at the moment only idiots buy properties and bitcoins.... the world is full with them...

sigmund-freud's picture

its brainwashing.... media plays along... suck in the plebs as soon they out of college.... start life with 40-60k student debt, run up 35 billion in credit card debt... trillions in housing.... private sector the most indebted in whole world...


aussis are perfect interests paying bank slaves !!!


and nobody even asked where the banks got all those billion trillions from?  the plebs creating it by taking out those loans...


does anyone knows this? money is been created when people taking out loans... its nothing more than cooking the books...


the plebs launder it than later with real time and hard earned cash. 

charlie303's picture
charlie303 (not verified) Mar 10, 2017 6:43 AM

I always ask people 'Where does the bank get the money for your mortgage'.
Very few care let alone know.
Interest rates on variable and fixed rate, home owner and investor mortgages are now starting to rise, albeit very slowly, because of the trend of raising rates in the States.
A rise of just 1% in Australia will see many heading for the exits.
A 2% rise is unthinkable for most people.
We live in interesting times.

peterk's picture

i think your right ... 1% is HHHUUGGEE for aussies, 

I always  laugh at the  published saving rates  from the beaure of statistics, they say saving rates have gone up etc, nonsense

they recalibrated they way they calculate savings to NOT inclide mortgage payments and to INCLUDE supeeranuuation (401k for our yank freinds).

70%  of Australians are already paying interest only loans.

its  a huge farce, almost laughable .

PT's picture

The people who can do maths are out-bid by the people who can not do maths.

Income vs Expenditure.  99% of the population did maths at school for at least ten years.  Why is this so hard?

peterk's picture

Strangley enough the ACHILLES HEEL of the  Australian property market is the Banking industry itself.

Think of it,  unlike other  advanced economies,  Australian Mortgages are  FULL RECOURSE and VARIABLE rate loans.

ALmost 100 % of  all mortgages are  VARIABLE interest rate in nature, which  gets decided every month by the RBA. So if interest rates go the entire  populace gets effected, even te guy who took out a loan 20 years ago. Its not just  NEW borrowers that get effected but the  ENTIRE economy. An increase in rates will decimate  ALL borrowers.There are NO fixed rates. My local bankonly offers 3 years fixed and no one takes those  packages.

When rates are cut as they have been for the last 20 years its a BIG stimulus for  everyone as all variable rates are effected. But now when rates go up it will equaly be as forceful.

Also,  wrt, full recourse,  borrowers  MUST pay the entire  mortgage debt off even after the BANK reposses the property. So if house prices crash  and   a borrower has negative equity, too bad, it now becomes a  PERSONAL  unsecured loan that must be paid in full.

These 2 unique aspects of banking in australia are unlike other countries, so i dont think there will be a  soft landing like japan, there will be no lost decades. Japan has a high saving rate, australians have  "bugger all" savings.

I think it will be more like  the 1929 crash, fat and furious.

But it will only occurr if rates go up  substantially and  importantly are KEPT high. Australians would rather not eat than not pay the interest on mopnthly mortgage payment. THis is why the impact  in 2008 was small, as  rates didnt rise nor did they stay high, there was just a freeze on new loans as a liquidity cruch set in temporarily.

Ghost who Walks's picture

Yes Peterk,

All correct.

We have all heard "too big to fail" with regards to banks.

What if this all goes down and then people are very curious as to how the banking system really works, and then become active listeners?

We might actually get a new phrase "Too big to save"

There is going to be a lot of skin in this game and people will be looking for exits very carefully.

It will consume them day and night

Peter Pan's picture

There is only one problem with that crane graph. Once you adjust it for the relative populations of the US and Australia, you need another dozen computers stacked on top of the one you have to fit the graph in.

Houses Depreciate's picture

US housing is far more toxic than AUS will ever be.

sigmund-freud's picture

in US you could give your keys back and walk out of the door... in aussi they will go after every penny you got...


bit different...

raybies's picture

As long as Australiasia can suck on chinese noodles, she'll be right.

So as long as China is hunky dory, Australiasia will be right.