World's Longest Bull Market (55 Years) In Australian House Prices Is Over, According To UBS

Tyler Durden's picture

This morning, CoreLogic released its monthly report on Australian house prices – the world’s longest running bull market. Finally, measures to tighten credit standards and dissuade overseas buyers (especially Chinese in Sydney and Melbourne) are beginning to bite and price rises ground to a halt last month. From the report...

Since moving through a peak rate of growth in November 2016, capital gains across Australia’s housing market have been losing momentum, with national dwelling values unchanged over the month of October. For October, conditions were flat across both the combined capital cities and the combined regional areas of Australia, however over the past twelve months growth in the capital cities (+7.0%) has outperformed the regional areas (+4.9%).

 

CoreLogic head of research Tim Lawless said, “The slowdown in the pace of capital gains can be attributed primarily to tighter credit policies which have fundamentally changed the landscape for borrowers.” 

 

“Lenders have tightened their servicing tests and reduced their appetite for riskier loans, including those on higher loan to valuation ratios or higher loan to income multiples.  Additionally, interest only borrowers and investors are facing premiums on their mortgage rates which are likely to act as a disincentive, especially for investors who are generally facing low rental yields on investment properties. 

 

“In fact, the peak rate of growth in dwelling values lines up closely with the peak growth rate for investment lending in late 2016.   We saw the housing market respond in a similar fashion through 2015, and the first half of 2016 as investors faced tighter credit conditions following the announcement from APRA that lenders couldn’t surpass a 10% speed limit on investment lending.”

The top line in CoreLogic’s summary table below shows that Sydney prices seem to be leading national prices lower.

Following the release of the data, Bloomberg reports that UBS is calling an end to the boom in Australian housing...

The housing boom that has seen Australian home prices more than double since the turn of the century is “officially over,” after data showed prices now flatlining, UBS Group AG said.

 

National house prices were unchanged in October from September, while annual growth has slowed to 7 percent from more than 10 percent as recently as July, CoreLogic data released Wednesday showed. “There is now a persistent and sharp slowdown unfolding,” UBS economists led by George Tharenou said in a report.

 

“This suggests a tightening of financial conditions is unfolding, which we expect to weigh on consumption growth via a fading household-wealth effect.”

 

An end to Australia’s property boom will be welcome news for first-time buyers, who have struggled to break into the market after surging prices propelled Sydney past London and New York to be the second-most expensive housing market. Less impressed may be property investors, already squeezed by regulatory lending curbs that drove up mortgage rates.

 

The cooling housing market may encourage the Reserve Bank to keep interest rates at a record low. A rate hike would be undesirable as it would put further downward pressure on dwelling prices, said Diana Mousina, senior economist at AMP Capital Investors.

The regulatory crackdown on the insanely loose practice of lending on high loan to valuation ratios is well overdue. This was permitting speculators to use unrealized gains on one property as a down payment on another property, then another property as prices roses, and so on. See our post from last month “Australia Mortgage Market Is Now A $1.7 Trillion ‘House Of Cards.’”

As we noted at the times, over a decade ago, the U.S. residential housing market was revealed to be perhaps the biggest ponzi scheme ever created as easy financing enabled people to buy/build countless investment properties, that they were in no way adequately capitalized to own, with no money down all based on the premise that the house could be 'flipped' before the first mortgage payment even came due.  It was a classic ponzi that worked great for a while but inevitably turned south when home prices suddenly soured and their was no cash equity backing the trillions of dollars in outstanding mortgage debt. But, if a new report from LF Economics is even directionally accurate, then the bubble currently percolating in Australia could take the residential housing ponzi game to a whole new level courtesy of a 'creative' little product called "cross-collateralized residential mortgages."

The Australian mortgage market has “ballooned” due to banks issuing new loans against unrealised capital gains of existing investment properties, creating a $1.7 trillion “house of cards”, a new report warns.

 

The report, “The Big Rort”, by LF Economics founder Lindsay David, argues Australian banks’ use of “combined loan to value ratio” — less common in other countries — makes it easy for investors to accumulate “multiple properties in a relatively short period of time despite high house prices relative to income”.

 

“The use of unrealised capital gain (equity) of one property to secure financing to purchase another property in Australia is extreme,” the report says.

 

“This approach allows lenders to report the cross-collateral security of one property which is then used as collateral against the total loan size to purchase another property. This approach substitutes as a cash deposit.

 

“This has exacerbated risks in the housing market as little to no cash deposits are used.”

Yes, you read that correctly...Australian housing speculators can literally use unrealized gains in investment properties as a 'cash substitute' for down payments on other investment properties.  Of course, we're not experts at 'the mathematics,' but if you constantly take every dollar worth of equity you accrue and pledge it as collateral toward a new purchase then doesn't that mean the entire system is built on debt and no actual equity at all?

Earlier this month, the Bank for International Settlements (BIS) released a new working paper“Interest rates and house prices in the United States and around the world”.

This identified Australia’s 55-year housing bull market – 50 years from 1961-2010 then 2013-2017 without a downswing in between – as the longest in world. The US housing bull market from 1992-2006 was a mere 15 years. This was the BIS methodology.

Another way to appreciate the persistence of house prices is to contrast the length of their upswings and downswings. We define an upswing (downswing) as a period of house price increases (decreases) sustained in an individual country for three years or more. Based on this definition, periods of upswing accounted for nearly 80% of the advanced economy sample. The up swings lasted on average 13 years; with the longest one, in Australia, still continuing after half a century.

Here are the results in tabular form – Australia is third from bottom...

Since 2000, the BIS found that Australia has seen the second largest increase in real house prices, only exceeded by New Zealand – where the new government has just banned foreign buyers from the market.

 

Our gut feeling is that today’s data signals the beginning of a “Minsky Moment” for the Australian housing market.

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Luc X. Ifer's picture

And Canada ... :) ?!

World Cash Day's picture

Just s mismanaged as Australia.

The Australian economy has been mismanaged for decades. Several decades.

I called this bubble in 1970 and I expect it will pop soon and maybe then I will enter the property market of anyone will lend me a million dollars at my age!

LOL

Dame Ednas Possum's picture

Several weeks ago i spoke with a mate from school back in Sydney.

He was complaining about drowning in debt.

He, the mrs. and the kids lived back with his parents for 8 years to save to buy a piece of land and build a house. They finally moved in a year or two ago.

Dual income, 60% of income gone on a mortgage.

I asked him what he’s doing about it...

He’s just had a pool installed.

Yen Cross's picture

  I think people should read this article. Additionally, I'd like to suggest that the $aud is WAY overvalued.

 Don't expect to buy property on sale in Australia, and then flip it. Very expensive to maintain, and the currency arb is often offset by location.

  *example ~ I purchased property when aud/usd was trading 60's handle.

PT's picture

Good.  About bloody time.  Now we just have to wait for the prices to drop another 90% and Australian property MIGHT become affordable.

wisehiney's picture

Over the years, I have partied across this country with Aussies.

From Ft Lauderdale to Purgatory.

My two favorite Roo Partys, they were.

(Not to mention the continuing, occasional local good stuff.)

 

"Hey you guys, Let's keep up with wisehiney, we're losing our momentum!

 

How fucking true.

thestarl's picture

Also something like 40% of new owner occupier mortgages are interest only.Then throw in all the credit card debt,leased cars,equity loans etc coupled with the fact of how many are living paycheck to paycheck and you know at some point this has an unhappy ending.

Bloody Fkn Muppet's picture

"New Zealand – where the new government has just banned foreign buyers from the market."

 

About feckng time.


wisehiney's picture

NZers make good bar managers and good Rocky Mountain raft guides.

That is all that I know for sure about them.

Yen Cross's picture

Agree. The Kiwis were getting overun by Chinks and Rug Pilots.

Ross123's picture

NZ has just done what Aussie has had for sometime --banned foreigners (except Aussies ) from buying existing homes. They can still buy new ones.

The only time NZ ( or any other country) will see the real effect of overseas buyer is if China , for example,has a major down turn in their own real estate. Then the Chinese will sell up their overseas real estate assets to help prop up their Chinese assets. This is what happened in the 1990s with Japan --the Japanees had done exactly what the Chinese have done, in the 1980s. The crunch came, the Japanese sold up overseas real estate assests very quickly.

peterk's picture

Here in Australia, we dont give a damn about  costs, interest rates, if its expensive, supply demand, debt levels.... or anything else that will get in the way of loading everything that moves with DEBT and more DEBT.. as long as it keeps prices in real estate  going up.!

NOTHING maters here.. its ALL realestate.

The 2 main retailers (shopping) Myer and David jones, just had an 80% profit slump.... there maybe going bust like Macys in th US. Today  the biggest bank NAB just announced a 6000 person layoff. They made $5billion for the quater(check that period) , but its all accounting profits imo..nonsense... so there laying off 6000.

In other words, the Economy is  CRAP.

Here in SYdney i kid you not, there are  building cranes EVERYWHERE...... Im mean EVERYWHERE!

If i catch a train  1 hour out of the city to the city, i will count maybe 50 cranes building apartments within eyes view of the railway lines. There are cements trucks, all day long  on main roads.

Understand that i hate the property bubble, im not a fan , but  the last  property crash in this country happened in  the year 1896! Prices here just dont move down. They do everything to restrict land supply (sydney is ringed by national parks artifically) and  boost first home buyers grants to prop up demand (debt), apply retstrictive  zoneing laws (ie your not allowed to build a house on a farm lot if it aint more than 1 acre..... its a captive dictated maket

I want to see it crash 80% like in japan..... but to even utter a word about unsustanable debt is cause to make you look like a fool to everyone.

Real estate prices NOT moving UP.. is looked upon as being unrealistic.

Prices moving down.. well thats ludicrous!

chubbyjjfong's picture

I here you bro, here in NZ (Auckland) the exact same thing. Cranes, scaffolding, recladding, dozers, building contruction is everywhere and the word spewed out by Hosking and his radio stooges just churn codshiite about how marvellous the world economy is cranking. Heaven forbid one utters the word slowdown or "fuck-off you tinfoil hat wearing maggot" recession. Its just ludicrous. Nothing realistic in the world economy is even remotely allowed to be mentioned. Its all just peachy and gangbusters in the US; China is a mutha fucking unstopable jugganaut; EM is smashing it, and I wouldnt be surprised if the big Hosk media ball sac grab start heralding Zimbabwe as the next big Iceland of the 90's. Money has flooded here courtesy of the Chinese print-fest and every bastard and his British Blue moggy was just flabbergasted when Peters warned of a shit Tsunami sandwich this way a cometh. Even a half brain-celled Akaroa sea slug knows something is coming but no one is dared allowed to suggest it anywhere, period. Its beyond fucked dude.

Dame Ednas Possum's picture

((They)) control the banks, media, retail... the government, and pretty much fucking everything in Aus and NZ.

Just sayin’

IvannaHumpalot's picture

YES Peter K you are right and the key is migration. Any time the market looks like seriously falling they will open the gates to more middle class or wealthy chinese / indians who will flood in and buy property to live in or rent.

The train line south through cronulla: from redfern to Kogarah.... Block after Block, tower after tower, cranes on top, building little boxes for the 3rd world to move into, people who will never own a dog or plant a tree. Green square, same.

The govt cant afford for property to crash as it would drag down the banks and the super funds and there's no money in the kitty to pay all the benefits, housing and health costs for all the people who live north of the line drawn from Brisbane to Perth. None of those people have jobs that aren't govt jobs. The mines hire very few people. They're all kept pets on reservations or servicing them.

we don't make anything or do anything all we do is sell each other property

Nexus789's picture

Spot on. They will keep on kicking the can down the road untill eventually it will blow up and at that point the collapse will be epic. In the meantime the country is being well and truely trashed.

Bingo Hammer's picture

Australian banks are merely doing the Governments dirty work, raising investor deposits to 20% of value and yes tightening criteria. Its not from lack of buyer demand or need for housing; its all being artificially induced (like every friggin' asset class across the globe) but the Aussie government is in a bind how to slow things up but still keep the engine from stalling..

gunzeon's picture

also, banks are 40% of the ASX and in essence they "own" all the allegedly overpriced property. There's no way the government can let them go and so cause a stock market crash.

They - the govt - will do what it takes to keep prices from retracing, always have, always will, no worries !

Caught_Fish's picture

Visited my mother last week. Still living in the home I grew up in that dad built. Her 104 year old neghbour died and the children auctioned off his house. Built late 50's early 60's, unrenovated, three bedroom brick, small brick garage, East of Melbourne. 1.4 million.

I will believe the boom is over when it hits the ground.

Is-Be's picture

Where's Keen when you need him?

Heaven forbid that we dont owe the banks our souls for a tin roof.

peterk's picture

Only ONE thing will cause this  real estate bubble to pop  her ein SYDNEY.

Japanese interest rates must RISE.

We saw it last year in January when  the BOJ Kuroda lost control of the long end of the yeild curve as japanese banks and insurance companies were loosing  income a the super dooper low rates. Then  rates sht up a little,  China   stocks CRASHED,  funding rates went up all over the world, albeit it was tiny. Still it was enough for  EURODOLLAR rates to move up too.

Thats the KEY.. JAPANESE INTEREST RATES. Japan is the LENDER OF FIRST RESORT... there the ones with the lowest rates and that funds all the  arbitrage strategies around the world. Once that moves up  it sends a shot of electricity through all markets.

Only when i see  Japanese rates move up, will i beleive  that the Australian property market is going down 80%. Until then, they will keep goosing the market with  first home buyers grants, stamp dty cuts etc...as always.

 

IvannaHumpalot's picture

that is REALLY interesting about japanese interest rates. i've long thought the bond markets are key to this, but i thought the trump election would spark inflation in the US and drive up international rates that way. But you reckon Japanese long bonds are the root of all the arbitrage. Makes sense what you say.

JohnGaltUk's picture

Bonds under pin nearly evey other asset class.

When sovereigns start to default, run for the hills. The whole of Europe defaulted in 1931/2.

IvannaHumpalot's picture

It won't be over till they cut migration

peterk's picture

Alot of talk about  foreigners   like the chinese making things expensive in property , as if they are buying... its all NONSENSE.  Blaming foreigners  for the high COST of housing is the politicians way to  ABSOLVE  government policy from being the  demon.

A Politician  CANNOT say to the public : " Your son and daughter cant  ever   afford to buy  a house because we the government are goosing the market with the reserve bank"....  so its easier to blame  a nonexistent  enemy.. "foreigners".

THere ar eno chinese buying of any importance. Its DOMESTIC  DEBT to DOMESTIC  CITIZENS. THats wy Austrlaia  OWES $1.7 TRILLION in Mortgage debt. Thats $60,000  for every man woman child int eh country.... maybe 300% of income on average per man woman child. That aint including  Auto Debt, Personal loans Credit card debt etc.

Thats massive.

And thats whats caused sydney prices ot be $1milion for a  crappy 50 year old house.

 

To the extent that immigration is needed, it only required so the banks have NEW meat to load up with NEW debt to keep the wheels going forward on the DEBT caravan.

AUD's picture

I heard the figure that 200000 immigrants, predominately Asian, are coming here every year. That cannot be having no effect

God is The Son's picture

Zionist Banker Policy, look at the USA, Canada, UK, Ireland, Australia. Notice their Forgein Policy is the same, and their HOUSE Prices are very HIGH. This Concept of DEBT is Jewish Concept. Get Rich Scheme's, Instant Credit. These BANKERS don't have the MONEY, they lend, in order to enrich themselves, while giving the excuse of creating Jobs and Keeping the Ecomeny going. Central Banks should not be PRIVALY OWNED. They should be PUBLIC OWNED abd their EARNINGS, and their Profits should be used as a TAX for the Benfit of the Nation. But INSTEAD, they huge LOANS 1.7 Trillion go all back to the Zionsits Jewish Banksters.

BigWillyStyle887's picture

UNPOSSIBLE!!!!! 

 

Housing prices can ONLY go up!!!!!!!!

Tugg McFancy's picture

People don't realise how fucking stupid these prices are.

Australian houses are some of the shittiest builds in the world.

Take Hobart for example. You've pretty much got the climate of Seattle only without double glazing or insulation.

Yeah I'm not kidding. In my estimation you'd need a house built in the last 10 years to be assured of having insulation and they're still not building them guaranteed with double glazing.

Don't even get me started on the corner cutting builders and tradesmen.

 

pc_babe's picture

Time to import a few more Moooslims

God is The Son's picture

Australia has only really benfited from White and Asian Immigration. Everyone Else is a Burden on the System to some degree.  Third World Immigration creates BURDEN, these people will not take out LOANS. Instead create Friction of the Culture. White's and Asians TAX;s will fund Social Secruity of Third World Immigrants. All These Socialist Marxist Policy trying create UPTOPIA via a Mupliply Cultures will END in Disaster. IQ is the reason why people have Jobs and other Don't. Religion is the reason why some people work, and other Pray all Day.

God is The Son's picture

DEBT breaks the Rules of Living with in your means, Instant CREDIT Society is DOOMED.

God is The Son's picture

Zionist Banker Policy, look at the USA, Canada, UK, Ireland, Australia. Notice their Forgein Policy is the same, and their HOUSE Prices are very HIGH. This Concept of DEBT is Jewish Concept. Get Rich Scheme's, Instant Credit. These BANKERS don't have the MONEY, they lend, in order to enrich themselves, while giving the excuse of creating Jobs and Keeping the Ecomeny going. Central Banks should not be PRIVALY OWNED. They should be PUBLIC OWNED abd their EARNINGS, and their Profits should be used as a TAX for the Benfit of the Nation. But INSTEAD, they huge LOANS 1.7 Trillion go all back to the Zionsits Jewish Banksters, for World Domination and to fund their crimnal Zionist State. How Many Rothschild Banks in the World, Whats the TOTAL Issued DEBTS? 1 Trillion for Australia? 20 Trillion for the USA, 5 Trillion for UK, 3 Trillion Germany, 10 Trillion Japan. Now imagine the INTEREST RETURN from 100 Trillions Dollars? THE amout of POWER that gives to Roschild Zionists and the Zionists. They could BUYOUT every Company, every Material Assets, and when things CRASH they legally can take Hard Assets for their PHONEY loaned Money. Using Captialism to bring about International Communism, the PARTY manuplaties all and TAKES all the PROPERTY.

 

 

PhilofOz's picture

They HAVE bought out controlling interest in EVERY major company on the planet. You think there is seriously competition in the market when all sides have the same boss? They squeeze the planet to the max they can and when things get too tough for the plebs they release their grip just enough!

Lies All Lies's picture

Observing the quality of replies  from these good ‘ol Aussies, one can’t help conclude that migrants to Oz from ANYWHERE will only serve to raise the general I.Q. level.