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Is This The Canary Of Australia's Collapsing Housing Coalmine?

Tyler Durden's picture


When thinking of Australia, one traditionally imagines a country that is nothing but a secondary derivative of China's trade surplus, and an unpegged currency that allows for more trading flexibility than the Yuan. As a result, recurring calls warning of a housing weakness in the country are often ignored as there always appears enough liquidity to mask the issue just long enough. That may all soon be changing. Earlier today, insurance company Genworth Financial pulled the IPO of its Australian unit, sending its shares plunging by over 20% and its default risk soaring. Unfortunately for GNW, and soon for the entire Australian financial sector, instead of merely blaming market conditions, in the IPO, which was supposed to take public up to 40% of the company's Australian mortgage business, and has instead been delayed to 2013, GNW laid out a far more nuanced, and detailed explanation of what is happening. Alas, it also may be the canary in the coalmine that has been so long overdue in yet another regional, bubblelicious housing market.

Morgan Stanley's David MacGown explains:

Genworth announced that it will delay the IPO of up to 40% of its Australian mortgage business to 2013 from a previously targeted 2Q12 transaction. Recent news reports hinted that weak equity market conditions could delay the unit’s IPO, but GNW’s rationale was more problematic: the company cited deteriorating market conditions in the Aussie mortgage market. Specifically, the company noted “…elevated loss experience in Australia as lenders accelerated the processing of later-stage delinquencies from prior years through to foreclosure and claim at a higher rate and severity than expected, particularly in coastal areas of Queensland that experienced natural catastrophes and regional economic slowdowns and among certain groups of small business owners and self-employed borrowers.

If anyone is desperately looking for a clue that things may be about to go, er, downer underer in Austrlia, it doesn't get any clearer than this. And if China is indeed facing a hard landing, or whetever the CCP wants to telegraph to the world in its first and foremost desire to avoid popular discontent, this may just be the straw that breaks the camel's back.


Unlike the troubled US MI business, GNW’s Canadian and Australian businesses have been consistently profitable, with the Australian business producing run rate quarterly earnings averaging about $50 million per quarter over the last two years. GNW now expects the Aussie MI business to report a “modest” first quarter loss.

It gets worse for the US company, whose loss of nearly $1 billion in market cap today alone may be just the beginning.

  • I had been constructive on the GNW recovery story, anticipating an improving trajectory of US MI losses (helped by profitable new business written), continued performance of the International MI business, and in particular the 2013 return of the US life companies to positive earned surplus and thus dividend-paying status to the holding company. I viewed the Australian MI IPO as another positive step in this process in that it was expected to provide additional financial flexibility (estimated proceeds of approximately $500mm as estimated by MS equity analyst Nigel Dally (Pressure Building to Shrink to Prosperity, 2/1/12) to the holding company while managing the company’s global MI exposure.
  • With the IPO shelved until 2013, I see little in the way of near-term positive catalysts for the credit. But it’s important to note that a 2012 IPO isn’t necessary for the company to maintain strong holding company liquidity. With $1.4B of cash in hand, GNW can easily cover an estimated $350mm of holdco interest and operating expenses and $222mm of maturities. Moreover, with the US MI subsidiaries running above the 25:1 risk-to-capital ratio limit (28.8:1 for the segment, 32.9:1 for the lead company at 12/31/11) and climbing as the company writes new business this year, it’s reasonable to posit that GNW’s North Carolina regulators will require the company to inject additional capital in order to continue writing new business. NC and numerous other state regulators have granted waivers of the 25:1 limit, allowing the company to write new business without injecting fresh capital. I estimate as much as a $250mm injection. The net of these cash uses implies that GNW would still end 2012 with nearly $600 million in holdco liquidity, and note that this estimate assumes no dividends from operating subsidiaries. GNW has previously projected $300mm of dividends from its life insurance and wealth management units this year and dividends of $160mm from International MI. Holding company liquidity is the key credit positive for GNW at this point.

Yet for those who are worried the only move here in GNW is up, the trade may well be to start getting increasingly cautious on other Australian equities such as QBE, ANZ, NAB, WBC and CBA. Because, to mix metaphors, when the light is shone, there is never just one canary. And central-planner can only delay mean reversion for so long...


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Wed, 04/18/2012 - 14:49 | 2355625 Conman
Conman's picture

It's ok we can bail them out too, then the Reserve Bank of Australia can get in on the race to debase.

Wed, 04/18/2012 - 15:31 | 2355740 ihedgemyhedges
ihedgemyhedges's picture

TD, shouldn't the tagline be "emu" instead of canary............

Wed, 04/18/2012 - 15:43 | 2355764 NotApplicable
NotApplicable's picture

Red Alert! Red Alert! Man your swap-lines!

Wed, 04/18/2012 - 15:54 | 2355845 TheGardener
TheGardener's picture

A cockatoo at the coal pit does`t mean a thing.

80 years of makeshift housing can`t be wrong, at any price.

Wed, 04/18/2012 - 15:42 | 2355778 pashley1411
pashley1411's picture

Bank of Zimbabwei have the jump on all you lame-ass 1st world Ctl-P mf's. 

"To become the financial cornerstone around which Zimbabwe's economic fortunes and developmental aspirations are anchored."

Fed, eat your heart out.

Wed, 04/18/2012 - 14:51 | 2355631 ekm
ekm's picture

There is only one natural rule that defines housing prices and one only:


Whoever thinks that this natural rule can be abolished, is an idiot, either here in Canada or 180 degrees away in Australia.

USA proved this natural rule is unbreakable.

Wed, 04/18/2012 - 15:02 | 2355661 Ratscam
Ratscam's picture

as can be observed in Germany, Austria and Switzerland. RLST is becoming unaffordable for the average income earner, but interest rates are low and financing conservative. Never the less, the consumers are out of the stock and bond markets and are going all in with their 20% equity into RLST. During hyperinflation or during outright default the terms, even of the 10 yr. fixed loans WILL change.
Good luck on that house.

Wed, 04/18/2012 - 16:01 | 2355862 Arnold Ziffel
Arnold Ziffel's picture

rats, I'd rather wait until interest rates rise to their historical median (7.5%) and house prices fall another 50%. The median house price in Ozland is $635,000. The median income is lass then $60,000. Not good. 

Renting is too cheap right now and gives wonderful freedom to relocate whenever...were ever.

Wed, 04/18/2012 - 16:27 | 2355955 Ratscam
Ratscam's picture

that's exactly what I,m telling my friends but they don't listen.
They believe that the interest expense will be their rent, forgetiing their cost of capital, maintenance,insurance, taxes, garden, heck there are so many obligations as an owner. If i have a problem i delegate it to my landlord, ha!

Wed, 04/18/2012 - 17:03 | 2356068 ekm
ekm's picture

...and add to that the house value will end up being under water so they can't have home equity line of credits to spend with, particularly for the ones late in their age.

I love renting. In Toronto is a little bit high, but way better than voluntary enstupidation by enslaving yourself to a house.

Wed, 04/18/2012 - 15:02 | 2355664 qussl3
qussl3's picture

Never underestimate the sheep and their willingness to go into debt regardless of how much of lifetime income they are sacrificing.

Japan and their multigenerational BS mortgages come to mind.


Wed, 04/18/2012 - 15:05 | 2355666 wang (not verified)
wang's picture
Household debt is ‘biggest domestic risk:’ Bank of Canada

Bank of Canada warns on home equity lines of credit

Wed, 04/18/2012 - 14:52 | 2355637 resurger
resurger's picture

New Zeland FTW

Wed, 04/18/2012 - 15:36 | 2355756 NotApplicable
NotApplicable's picture

Is it really too much to ask for you to get your own ID? Or do you have too much time invested in being fake slewie?

Wed, 04/18/2012 - 15:39 | 2355757 chunga
chunga's picture

That's awful slewie.

The Last Waltz is something everyone needs to see at least once in their lifetime.

[edit - we have a fake slewie - wtf]


Wed, 04/18/2012 - 15:58 | 2355857 slewie the pi-rat
slewie the pi-rat's picture

yeah!  and they aren't making any more aussie real estate, either!

[clonie continues to mix up her posting times and try to establish a "newPattern"]

Wed, 04/18/2012 - 16:02 | 2355873 TheGardener
TheGardener's picture

Waltzing Matilda still running in Aussie

Wed, 04/18/2012 - 18:05 | 2356328 slewie the pi-rat
slewie the pi-rat's picture

billabong, BiCheZ!

Wed, 04/18/2012 - 14:56 | 2355646 theMAXILOPEZpsycho
theMAXILOPEZpsycho's picture

even so I still find it hard to be too bearish about a country with tonnes of gold, silver, copper, iron, coal, uranium, farmland, and huge wide open spaces and a pretty hard working population and still (relatively speaking) smallish public sector...its not like those houses are in southern spain; there where many europeans and americans would like to flee to

Wed, 04/18/2012 - 14:59 | 2355654 GeneMarchbanks
GeneMarchbanks's picture

Dry as a bone though. Desalination plants are going to be needed long term, not to mention over reliance on metro areas.


Wed, 04/18/2012 - 15:19 | 2355712 theMAXILOPEZpsycho
theMAXILOPEZpsycho's picture

populated areas are not dry as a bone; unpopulated areas have enough natural resources to pay for irrigated until said resources are used up...

I'm sure a gold price above $2000 and silver above $40 would keep kallgorlie going a few more years...

Wed, 04/18/2012 - 16:04 | 2355881 AttilaTheHun
AttilaTheHun's picture

Kalgoorlie has got a finite life-span due to the geology of the situation. It will close in about 2017. Can't dig it any more irrespective of the price of Au.

Wed, 04/18/2012 - 20:46 | 2355997 TheGardener
TheGardener's picture

Bearish for Perth's females "work" vacation ?

Sell the place to Hollywood studios for a second moon landing as sequels , though mad max can be made at any location by then.

Wed, 04/18/2012 - 19:14 | 2356530 Rantabulous
Rantabulous's picture

Hi Attlia - I lived in Kal for 5 years about 10 years ago. I did not work in the mines - but most of my friends did and all everybody talked about was mining. 

My understanding is that the mountains of lower yield tailings have decades of recoverable gold (Kal has been mined for 100+ years), but recovery was not viable at the "current" (at that time) price (which was a few hundred dollars p/oz then).

I had assumed with gold up and going up that people would start to look recovering that lower yield stuff now... 

I am curious about your 2017 date - what is the basis of that. Ta in advance.

Thu, 04/19/2012 - 07:29 | 2357637 AttilaTheHun
AttilaTheHun's picture

"I am curious about your 2017 date - what is the basis of that. Ta in advance."

I actually went on an official tour of the super-pit and spoke with some folks there. Check e.g.

AFAIK the mine is getting too close to the water table now.

There may be plans to open other sites, I do not know.

Check the owner's site for further info


Thu, 04/19/2012 - 09:27 | 2357952 ChookChoker
ChookChoker's picture

I have lived in Kalgoorlie for 15 years now and spent 5 years with KCGM at the Superpit at one stage. The pit has been below the natural water table for many years and is now about 300 metres deeper than the natural water level. Historic underground workings go down over 2 kilometers and at no stage did the underground workers have to wear SCUBA gear. Dewatering is an old and well understood business now.

The mine life at the superpit is alway about ten years. It is the same at the majority of mines worldwide. This is a function of the difference between blue sky, inferred and indicated resources and the cost of drilling a resource to the level where a sane person can confidenty plan the mining of it. At current gold prices, KCGM will continue running indefinitely. They are making good profits at 2 g/t au at the moment and could probably turn a profit processing 1 gram dirt. There are many millions of tonnes of 1 gram plus dirt in the vicinity of the current pit. Hell, there are millions of tonnes of low grade ore stockpiled to process after active mining is finished.

KCGM recently negotiated an Enterprise Bargaining Agreement with the majority of its workers. One of their tactics was to talk down mine life during negotiations in an effort to cry poor in order that the workers would ask for less concessions. This was seen through and the workers recieved the majority of the concessions they were after. Another EBA is currently being negotiated with a subset of workers so the same tactic is probably being extended.

Kalgoorlie is in no risk of shutting down in the near future unless the gold price drops back well below $1000.

Wed, 04/18/2012 - 15:19 | 2355715 Gully Foyle
Gully Foyle's picture


Not to mention the deadly snakes, insects and plants.

Wed, 04/18/2012 - 16:32 | 2355968 TheGardener
TheGardener's picture

Who junked you maxi ? Probably Aussies "taking offence" of being called pretty and hard working...

Wed, 04/18/2012 - 19:08 | 2356508 Dugald
Dugald's picture

Yeah, pull yers flaming head in yer wanker.....

Wed, 04/18/2012 - 19:22 | 2356565 o2sd
o2sd's picture

It's not a difficult economy to run. However, there are plenty of reasons to be bearish on HOUSING in Australia, if not the economy as a whole.

Wed, 04/18/2012 - 21:33 | 2356928 GlenD
GlenD's picture

Don't agree. During great depression not all countries collapsed at same time, many were years apart, but none escaped.

Major percentage of Australians gdp growth comes from importing debt for the housing bubble. As soon as import of debt slowed Government started to import their own debt - National insulation, broadband etc etc Look graph greece GDP growth and compare to australia's.

The mining sector only represents 10% of Australia GDP. 1/3 profits are owned by oversea's investers and they have been re-investing to grab increasing profits from mining sector (research financed by greens party).

Like US, unemployment has been massaged to hide true picture (see roy morgan research).

Australian Public sector is huge and unsustainable.

Wed, 04/18/2012 - 14:54 | 2355647 GeneMarchbanks
GeneMarchbanks's picture

Long overdue.

Wed, 04/18/2012 - 23:11 | 2357096 Mentaliusanything
Mentaliusanything's picture

Long overdue maybe but the blood is flowing out of a gashing wound.

Tis only a small canary but it mirrors the "Big Four"

From little things big things grow.

Wed, 04/18/2012 - 15:07 | 2355675 JW n FL
JW n FL's picture



The reality is.. that GNW is still going to do the Business and ALL! that Extra cash no wasted on an IPO.. which is nothing more than PR in a down market.. will be put into a war chest for the bumpy ride that thus way comes!

EVERYONE!! Around! the World! is STASHING CASH!! for an EVENT!

No one knows what this EVENT IS!!??!!

But EVERYONE! is NONE! the less putting money under the Mattress..

Lines of credit (think Ford Motor Co back in 2006 2007) are being extended..

People are preparing for some Invisible Threat

a LOT of Long Tailed Cats are Nervous!

I hope they ALL GET CAUGHT!


China 8.1% LOL Growth!! they need an extra 5 Cities next year on top of the 20 already on the board!


Wed, 04/18/2012 - 15:11 | 2355695 Jonas Parker
Jonas Parker's picture

Everyone is stashing cash, which will be great as long as the currencies don't crash. If (more like when) that happens, there will be lots of both digital and printed toilet paper available, but damn little cash!

Wed, 04/18/2012 - 15:22 | 2355724 Gully Foyle
Gully Foyle's picture

Jonas Parker

Global reset, digital currency, cash not necessary.

Black market will not use it, just trade, crack for sex/weed for tide.

Lot easier to keep tabs on everyone.

Probably during Romneys second term.

US crash, mid Mittens first term.

Genpop will be happy with troops in the street, Rap music will have meaning once again.

Wed, 04/18/2012 - 15:08 | 2355684 buzzsaw99
buzzsaw99's picture

MI is a scam within a scam.

Wed, 04/18/2012 - 15:10 | 2355691 Dick Darlington
Dick Darlington's picture

Very bullish for ACGB's. Until it's not, of course.

Wed, 04/18/2012 - 15:12 | 2355693 junkyardjack
junkyardjack's picture

When will we finally be able to conquer weather so it can stop causing all these problems in the financial markets!! Isn't anyone working on this? Forget the war on drugs, terror women, Christmas, etc, we need a war on Mother Nature

Wed, 04/18/2012 - 15:13 | 2355702 catacl1sm
catacl1sm's picture

So that we can lose to 'her' too?

Wed, 04/18/2012 - 16:18 | 2355937 TheGardener
TheGardener's picture

Weather already got conquered down under. In meteorology
the term "no significant weather" is used for the conditions
prevalent in outback Australia. No pressure differences, therefore no wind , no clouds, nothing but sun. The weather
report always says "fine" , rain or shine :-).

Wed, 04/18/2012 - 15:16 | 2355697 ebworthen
ebworthen's picture

The U.S. housing market is a much bigger rotten bananna; much more forestalled and fluffed than the Aussie market.

U.S. FED and Fannie/Freddie backstopping combined with bailout banks hiding losses in their mortgage portfolios is the skeleton in the closet in the U.S.S.A.

This is why the State Attorney Generals abandoned the rule of law and rubber stamped the mortgage robo-signing scandal "settlement" which was 100% about cash and kickbacks to states and 0% about right and wrong and justice.

People can't afford the 1995-2007 inflated house prices they mortaged their futures out for on unemployment or non-career jobs.

Jobs, jobs, jobs; and no, $10 an hour part time or full-time with no overtime or benefits won't cut it.  The stock markets can double and it won't matter, millions upon millions will default.  You can't make a mortgage payment for long with "savings" or "investments" that are taxed out the ass and difficult to withdraw in the first place (if they let you).

We've all been Corzined and the only people laughing are the Corzines.

Wed, 04/18/2012 - 15:22 | 2355720 theMAXILOPEZpsycho
theMAXILOPEZpsycho's picture

exactly...there are still good fundamentals at play in ozzy land...

Sure house prices will crash - but its not like it will be a tear them down and farm the land kind of crash like detroit or andalusia...

Wed, 04/18/2012 - 15:15 | 2355704 catacl1sm
catacl1sm's picture

I'm waiting for Canada's RE to go bust. Then WHAT will HGTV show all day?!

Wed, 04/18/2012 - 15:31 | 2355737 worbsid
worbsid's picture

Not to worry.  HGTV will turn into a history channel.  "See little boys and girls, this is what your grandma and grandpa did to you." 

Wed, 04/18/2012 - 16:53 | 2356046 TheGardener
TheGardener's picture

No worries, mate. Mateship getting morphed into some soft
fascismo in popular fashion of world politics and when the dust settles elsewhere , Aussie will still be very dusty .
Can`t hide can`t run, unless you are adapted to the arid part of your continent.

Wed, 04/18/2012 - 15:14 | 2355706 Snakeeyes
Snakeeyes's picture

Nothing to do with Austrlalia's housing market, but Reuters has a cool MORTGAGE WRITE DOWN CALCULATOR to see how much Obama's vote buying with cost taxpayers.

Pretty cool!

Wed, 04/18/2012 - 15:20 | 2355718 Silversem
Silversem's picture

No country can escape this worldwide crisis. I stick to daytrading with cfd's.

Wed, 04/18/2012 - 15:28 | 2355732 Ted Baker
Ted Baker's picture


Wed, 04/18/2012 - 15:46 | 2355802 OpenThePodBayDoorHAL
OpenThePodBayDoorHAL's picture

Seems there are lots of offshore Aussie experts (who are mostly wrong) but I've lived here for 6 years. Here's my take (plusses and minuses):

1. Property: way overvalued relative to income but supported by a very strong ownership culture. Something like 28% of taxpayers declare income from rental property. Home ownership is a religion even more than the US, and they've been right for decades. Some pockets of regional strength and some very good demographics and low housing starts so not a supply overhang the US has with homebuilders continuing to build and foreclosure inventories.

2. Bankrupt country? Hardly, about to announce a government *surplus*. Best-managed central bank in the world (and I hate central bankers).

3. Resources: more resource wealth per capita than Saudi Arabia, by far. Not just iron ore but coal, natgas, gold, uranium, beef, wheat etc etc.

4. High median net worth compared to the US, they enacted mandatory pension reform decades ago so now the *median* net worth of Australians is $228K versus $49K in the US. This is a wealthy country.

5. Water? Chronic droughts in areas but has been bucketing rain in the populated areas for the last two years, the dams are full and the de-sal plants are sitting idle (for now).

6. In general this place is a barometer for the decline of the UK, as people get fed up with that place, knifings, immigrants they move here and love it. Something like 20% of the population is first gen English. they bring their money with them.

7. Stock market: avoid, not supported by unlimited free money

8. Overall quality of life rating: 8.95 (out of 10, my views). C'mon down, most of them still love Yanks (if you can take a little ribbing)

Wed, 04/18/2012 - 17:08 | 2356095 Dr. Gonzo
Dr. Gonzo's picture

I'm here in Brisbane right now. It's nice but I'm not sure I would agree. Real Estate is just way to high and they all are holding large debt at rates above 7%. That is a recipe for disaster. Yes. the quality of living is nice and you can't afford it if you are Americian. (I just paid over $10 USD for a pint of Fat Yak at a downtown pub for lunch.) I don't care how much resourses they have they can't afford to pay 1/2 million for a simple house in a simple suburb even if they make 40% more than the average American. Besides prices of things here are about double the US. On the positive they don't frisk you or x-ray you at the airport. I got frisked 2 times in the States on my way out here. 

Wed, 04/18/2012 - 17:09 | 2356099 Trad3er_1337
Trad3er_1337's picture

As somone that "ACTUALLY LIVES" in Australia i couldnt agree with you more.


Wed, 04/18/2012 - 17:09 | 2356110 Trad3er_1337
Wed, 04/18/2012 - 18:54 | 2356448 freebo
freebo's picture

I'm in Brisbane too. Gold Coast and Sunshine Coast are the Vegas and Miami of the Aus housing crash, i.e. the real canaries in the colamine. I have it on several good authorities that the banks here in SE QLD are sitting on a large pile of reposessions, and are dripping them onto the market to forestall an even bigger crash. 

Asking prices on the Coasts appear to be back to 2004 levels, and there's huge stock on the market.

Also, remember that although govt. debt here is low, personal debt is certainly not, dwarfing even the levels seen in the US pre 2008.


Wed, 04/18/2012 - 19:22 | 2356574 Rantabulous
Rantabulous's picture

From another Aussie:

You are absolutely spot on about homeownership being a religion here. People will start going without food before letting their homepayments fall in arrears.

I think the Australian bubble will be unlike others for this reason.

People will hold on to their house for their life and I can't tell if this means that the bubble popping here will be more or less severe.

Maybe less defaults will happen and although things will be tough, it will basically all 'hold together', or maybe everybody will hold on and the bursting will be more like an explosion and MASSIVE social upheaval.

Wed, 04/18/2012 - 19:35 | 2356616 o2sd
o2sd's picture

1. Pointless to compare with the US. Aussie house market has been very robust for 100 years, but STILL goes through bubbles and corrections. 1987 saw an average correction of 15%, but that varied widely based on location. I see the coming correction as closer to 30%, again varying widely between the major cities and regional areas. The problem, like everywhere else, is excess leverage. Since the introduction of mortgage insurance, LVR has risen off it's traditional base of 70% to 95% for new mortgages. Once the prices drop more than 5%, the mortgage insurers are fucked, and there will be a collapse of available credit, the bubble will top out and we will get our long overdue correction.

2. Yes, a surplus, but when the Government is collecting 40-50% of income through taxes direct and indirect, it would be a worry if they were running a deficit.

3. Agreed, but the resources are a long distance away from the people.

4. True, however all the biggest super funds are equities heavy, so too much cash chasing too little equity means bubble.

6. Unfortunately yes, the place gets a lot of immigrants from Britain.

8. Yes, but prefer free thinkers over Democrats or Republicans.

Wed, 04/18/2012 - 20:38 | 2356771 TheGardener
TheGardener's picture

Dream on. Obtained ownership in , yes 1987 ! and sold in
2001 with a cool zero attached. Other deals not so smooth,
ocean front development land being degraded by council
converting nature reserve into industrial area, still got a bigger fool to sell to and google map says no planed subdivision ever happened nor events to justify the sale price.

And just to make a point of what we are talking about :
desert patches and dwellings. Real mortar and bricks houses and land back in the old world being compared to that : on pennies on the dollar to construct.

Or shacks on sand, for the risk of offence and all the junks
of new world dwellers combined.

Wed, 04/18/2012 - 20:54 | 2356827 OpenThePodBayDoorHAL
OpenThePodBayDoorHAL's picture

Good to meet you all, come by for beers when you're in Sydney. For the record, I left the US after Bu$h got "re-appointed" in 2004. I voted for Obomba but he's a complete fraud. I think Julia Gillard is a fat lecturing cow and I wish she would just go. Why won't Malcolm Turnbull run, because the Tony Abbott/Joe Hockey show will be so arrogant, nasty, and unpleasant as to remind me of the Bu$h years...

I also believe in evolution so that makes me different from 55% of 'merkans, just sayin'

Wed, 04/18/2012 - 21:04 | 2356858 Ox
Ox's picture

The Malcolm Turnbull thing is really sad.


I'd normally vote liberal, but I just can't bring myself to vote for Tony Abbott. The guy is quite simply a muppet. If they brought back Turnbull I'd be there in a heartbeat, but sadly Gillard looks set to hand the Liberals victory, so there is no reason for Abbott to be replaced.

Thu, 04/19/2012 - 09:35 | 2357990 ChookChoker
ChookChoker's picture

Are any of you aware that Turnbull is/was the head of Goldman Sach's Australian tentacle? I am a liberal voter but could never knowingly vote to hand control of my country to the vampire squid bank. If Turnbull was the only option I would prefer Gillard, and I very strongly dislike the red headed witch.

Wed, 04/18/2012 - 20:51 | 2356814 Ox
Ox's picture

It's certainly a different scenario than the US housing bubble, but it's still a bubble so I'm sure it will correct at some point, the question is more how dramatic it will be.


As I see it, one of the major factors in the way of a hard collapse is government policy. Negative gearing is such a popular tax strategy (and property a wealth building vehicle) for even mum and dad investors that it distorts real demand housing demand. Hell, my dad and his sister have been buying up investment properties like they were on sale, and neither is planning on selling any time soon - that's a mentality that makes me think that it's more likely housing gradually corrects rather than crashes (as well as the fact that it's not as easy to just walk away from a mortgage here). But as a young person, I'm not even considering property until it comes down to a more sensible price ratio with income.

Externally, I am of the belief that China's own property bubble will burst, and that will have consequences for us. It will probably come down to whether China has a soft or hard landing, as China is our sugar daddy, and it might be that our domestic bubble dynamics are less important than what happens with our neighbours.

Fri, 04/20/2012 - 05:02 | 2360513 Tompooz
Tompooz's picture

"6. In general this place is a barometer for the decline of the UK, as people get fed up with that place, knifings, immigrants they move here and love it. Something like 20% of the population is first gen English. they bring their money with them."

The same goes for the property market in New Zealand. The median house price here actually went up last year. Immigration supports housing demand.  

If things (taxation) gets much worse in the Northern hemisphere, net immigration props up Aus and NZ



Wed, 04/18/2012 - 15:35 | 2355749 JPM Hater001
JPM Hater001's picture

72 cents was brutal in March 2009.  They have been acquiring and accumulating cash for 2-3 years.  This is the 4th or 5th sale after half their canadian MI, Genworth Financial Securities to Cetera and their Med-Supp business to Aetna.

Still not sure why they are still in Payment protection Services of Europe.  Seems to me that Austerity = Increased joblessness.  Increased joblessness = more PPI defaults there too.

But Europe is actually just fine.  Nothing to worry there.  And I am sure China is good to go.

Wed, 04/18/2012 - 15:58 | 2355837 Ben Burnyankme
Ben Burnyankme's picture

Sell the muppets Australian REITs now!

Wed, 04/18/2012 - 15:55 | 2355843 Arnold Ziffel
Arnold Ziffel's picture

Can't they bundle all those C+ mortgages together, call it a new fancy name, and get S&P to give the new package a AAA?

I heard it's been done before somewhere.

Wed, 04/18/2012 - 17:16 | 2356107 wang (not verified)
wang's picture

Isn't Wirsz the Vegas Mortgage dude (Diamond Bay)

As for Stevey Keen he makes Rosie look like an uber Bull ( )

Some data


Index results as at March 31, 2012

Median dwelling price

Change in dwelling values March 2012 qtr


























There is no shortage of pundits and blogs  e.g. greaterfool calling for the end of the world in housing but I am not sure a half million for a dump in Sydney is exactly a "crash"  though it is probably twenty percent cheaper than the $650 median that is currently  San Franciso ( ). 


Problem is guys like Mish have been calling for a housing implosion in Canada and Oz for the better part of three or four years, I personally think that the insanity that is the Canadian market cannot go on much longer but who knows, cause I was saying that three years ago.

Wed, 04/18/2012 - 21:13 | 2356882 TheGardener
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Darwin . Read : Darwin , an exotic moist hellhole that did not get any uglier by being wiped out by Japanese raids or more devastating thunderstorms , has her house prices 15x overvalued

Fri, 04/20/2012 - 05:10 | 2360516 Tompooz
Tompooz's picture

Darwin. Home for thousands of traumatized American troopers that can no longer be  safely let loose in American society. 

Wed, 04/18/2012 - 16:27 | 2355949 blu
blu's picture

GNW: I was just watching the bottom-feeder stock action on the symbol and out of nowhere someone bought nearly $16M worth, at a $.16 premium per share. Made no difference, it is down to $5.77 as I write.

The ghost of Richard Whitney still walks the trading floor. He cannot rest until he saves the day.

Wed, 04/18/2012 - 16:28 | 2355959 geminiRX
geminiRX's picture

Canada's next...

Wed, 04/18/2012 - 16:50 | 2356032 vh070
vh070's picture

Out in the Big Smoke, they're saying that the 500K level is flat, the over 2,000K down by perhaps 25% from the 2010 highs, the under 450K level is up 16%.  The place is awash with Irish building labor.  

Wed, 04/18/2012 - 17:03 | 2356076 Trad3er_1337
Trad3er_1337's picture

My goodness, what a load of crap.... Just because the US had, and most of the world had a housing bubble that burst dosnt mean that everyone will have one... I am an Australian and i can tell you that this is the biggest peice of crap zero hedge has posted yet. Australia is a very different situation to the US, who gave every broke looser a loan just to line their own pockets... It is almost impossiable to get a loan in Australia and has been very difficult even before the US got smashed... Its so interesting to see the uninformed mob mentality that follow the content on this site, making judgements without a clue of what their talking about... i guess thats why the majority loose their money. Dont forget that australia has "real assets" not "paper ones" (commidities, not to mention the some of the largest un mined gold reserves in the world)... Thats not to say Australia is imune to what happens to the rest of the world, but id much rather be here then in the US or Europe, Australia is still yet to hit the print button... By the way, what was the debt to GDP ratio of the US and Eurpe again?... go figure...

Wed, 04/18/2012 - 17:15 | 2356128 wang (not verified)
wang's picture

Steve Keen

November 03, 2009

AN ECONOMIST known as the "Merchant of Gloom" will have to walk from Canberra to the top of Australia's highest mountain after losing a bet about the resiliency of Australian house prices.

Last November, University of Western Sydney associate professor of economics and finance Steve Keen made a high-profile bet with Macquarie Group interest rate strategist Rory Robertson.

The bet was that house prices would tank by 40 per cent.

Wed, 04/18/2012 - 18:13 | 2356350 Poor Grogman
Poor Grogman's picture

The government has been successfully coming to the rescue of the housing bubble every time it takes a turn for the worse. Recently they (the government) were paying over 20000 to a new home buyer when they signed up for a new home. Steve Keen would have been correct on his call but didnt anticipate the government stick save.

My personal view....I don't give a shit because I'm out of the RE market now. If it goes up further so be it, I have done ok. If it blows up I'll grab some more.

Without real wage growth I just don't see much more upside.

A small freshly minted house block in Canberra will set you back 300k+ in a country with land to spare? Ridiculous...

Wed, 04/18/2012 - 21:59 | 2356961 GeoffreyT
GeoffreyT's picture

If you think $300k is steep for a block in Parasite Paradise (Canberra), you would have conniptions if you'd seen a flat in the unrenovated 1970s apartment block next to ours (in Deepest Darkest South Yarra) go for $10k/sq.m... that's right: a 52 sq.m. shit-awful 2-bedroom flat - market rental of no more than about $375 a week (at rent-bubble rents) - went for $550k.

As I always tell my 'studes' (pronounced 'steweds') when I tutor them... start from a 'sensible' (equilibrium) rental share in post-tax income of 20% - the historical mean - for the demographic that will live in such a place. (Nobody on $100k is living in a shithole, so you're talking about a top-whack equilibrium rental rate of $200 in current dollars).

Then value the thing based on a gross rental yield that's 150 percentage points above mortgage rates... and that gives you a sensible valuation. And you will arrive at a number less than $200k.


What has happened in Australia, is that households have lapsed into a stupid situation where they think that what saved people in the 1970s will save property investors again.

The 1970s was a combination of low, 30-year fixed mortgage rates from the 1960s, and rising post-tax real wages - however, even if wages had not risen in real terms, inflation was so high that nominal debt servicing loads shrank rapidly.

By the end of the decade, every man and his dog was sitting on a house that had tripled... and promptly came to the conclusion that it must have been the result of their genius.

That 'zeitgeist' has been passed down to the current crop of 30-40 year olds, who have no conception of how different their initial conditions are, to their parents... most notably, the non-fixedness of rates over any horizon greater than 2-3 years. (You can get a 5-year fix, but pay a premium).


It's fun to watch - all these wannabe-property-magnates, paying a price that gives them a gross yield of 3-4%... they remind me of tech stock buyers in 2000 - people who said I should be sacked when I told them that their precious $60 CSCO was worth maybe $20, and their DavNet and OneTel were worthless. They think that they've done sufficient due diligence - for the biggest, most heavily leveraged bet of their life - by talking to someone on the sell side of the market, plus others who are already long.

I'm not sure who coined the aphorism "Any trend that cannot continue, won't". Might have been Soros.


One last thing: 'rental property' types always seem to believe that the opportunity cost of whatever money they use as a deposit is zero: that's not the case. They should do all their sums as if the opportunity cost of their deposit is 6.05%, because that's what you can get for a term deposit these days.

Disclosure: I was the guy who bought a place in Station Street, Carlton - a 2-bed single fronted terrace - for $155k in 1991 (and thought I was overpaying), pretty much at the trough (by good luck, not good management).

Last year it sold for $780k to a pair of teachers (joint pre-tax income, maybe $140k). I bet that at some stage in the next 20 years I will be able to buy it back for $155k 1991 dollars.

People will get jack of the idea that they have to pay twice the multiple (of income) that their parents paid, for half the living space. It's already happening.

Wed, 04/18/2012 - 17:24 | 2356172 zerotohero
zerotohero's picture

Thank god the 5 major Canadian banks and our gov't won't allow this to happen in Canada - we are soooo above all these economic problems the rest of the world have (sarc insert here)

Wed, 04/18/2012 - 17:49 | 2356273 Barometer
Barometer's picture

When the money stops flowing from China, the real estate crashes in Australia and Canada will make the US housing crash look orderly.

Wed, 04/18/2012 - 18:00 | 2356313 Red Herring
Red Herring's picture

Ha! The hard working comment is definitely made by someone who knows Australia from newspapers and tv about how Aussies are "doing it hard".

Beautiful place though.  Especially WA.

Wed, 04/18/2012 - 18:10 | 2356345 savagegoose
savagegoose's picture

our last big big house crash was halved, from £1000 to £500, per house in melbourne in 1890's  thers prob other big crashes, but still , houseing has bubled and crashed  here before and will again.  50 oz of gold may well do it for me eventually. most here dont even accept house prices can go down never mind half.

Wed, 04/18/2012 - 18:41 | 2356418 gezza65
gezza65's picture

My experience is that there are serious problems in the Australian property market.  However, it has held relatively steady by the refusal of owners to accept new market realities.


Wed, 04/18/2012 - 23:50 | 2357138 Mentaliusanything
Mentaliusanything's picture

"it has held relatively steady by the refusal of owners to accept new market realities."

18 years an no recession has led to a "acceptance" that Life is a never ending party.

When "the recession we have to have" comes back. Reality will strike hard.

Seen it before, lived through it and survived it and now I see a far worse recession unfolding.

The "Owners" will fall over themselves to exit when income from work Dies.

You can't eat a McMansion

Get an education - if you fail to learn from history you will fail again

Ian Macfarlane is no fool and he is warning again - we are about to exhale bursting lungs.

Wed, 04/18/2012 - 19:54 | 2356668 chump666
chump666's picture

Australia will be squeezed by two fronts: China slowdown and housing bust.  ASX200 is overbought and looking tasty for short positions.  It will be curious if Canada and Australian implode/explode at the same time

* China going to ease RRR requirements.  

They are finally done, oil price should do the rest. 

Wed, 04/18/2012 - 20:49 | 2356810 Poor Grogman
Poor Grogman's picture

Already shorted that .... so it will probably go up now

Then dodo trader will turn up and say told ya to buy Cra and Ap

Wed, 04/18/2012 - 21:42 | 2356939 Anne Ominous
Anne Ominous's picture

Australian housing market is fucked - Steve Keen was right - just the Gubment here juiced the market with home buyer grants and changes to foreign ownership laws when the correction was just beginning. Bigger bubble bigger pop.


It's a big market with lots of inertia - but sentiment is a bitch when it finally goes against you and this is happening now.


Huge levels of personal debt - massive exposure to residential real estate and it is already a distorted market due to negative gearing - this is going down hard.


Have a long-running myth of a housing shortage based on homeless and caravan park dwellers. Total bullshit - 2006 census showed that 10% of all houses were unoccupied (using less than 50L water a day).


The mania here for houses in 2006 would make tulips blush - people were camping out 3 days to buy land "because it always doubles every 7 years". Of course it does - until it doesn't.


It is only us and Canada left - my money is on us beating the Canucks to the "We're finshed line" first.


Anyone who thinks the gross unaffordability of the Aussie market - now almost solely supported by investors rather than first home buyers - can continue is a total fucking idiot.


Grab some popcorn it will be good. In a few years when it is cheaper to buy than rent I will swap some gold bricks for real bricks and be much better off than those listening to MSM and their vested interest Real Estate Owner/Bitchez!

Wed, 04/18/2012 - 22:05 | 2356984 GeoffreyT
GeoffreyT's picture

To quote the great Dennis Commetti (as ably impersonated by my Greek Cypriot mate, Mav)... your comment was

Gold! Rare gold... the best kind of gold.

Thu, 04/19/2012 - 08:16 | 2357700 JustinObodie
JustinObodie's picture

A correction to an earlier post re mining as a % of Australian GDP. It's around 19%, not 10%. It is significant, as is the Australian economic realtionship with China.

Australian house prices started to rise significantly when Treasurer Paul Keating deregulated banking in the mid 80's. Before then one would have to go cap in hand to the bank manager and prove you could manage the mortgage repayments. Then it went bananas, banks lent more and more (aggressively), with less oversight - it became a competition with only one winner: the banks.

Over the years when the market showed signs of weakening the government would step in with grants etc. - that's democracy - this only made homes dearer and bankers happier - the punters simply took on more debt. It was always going to end in tears, but governments have kept proping the market up.

It won't take much for things to get ugly in Oz, fortunately Australians dedicate quite a bit of time persuing the fine arts of  alcohol and drug consumption, having long, er lost weekends, going to the races, perving at topless girls on Bondi Beach and watching that boringest game called cricket - they don't do any of this in style but with the youthful enthusiasm that such art forms deserve; so it probably won't make any difference at all, when things fall apart.

I know these things - I'm from Tasmania, have six fingers on each foot, and share a sir name with 95% of my fellow Tasmaniacs - we don't give a rats about nuffin - just the way it should be.

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