As Australia's Housing Bubble Bursts, Optimism For The Year Ahead Crashes To Record Low

Zero Hedge readers might have noted our increasingly bearish tone on all things Australian – economic that is, since the cricket team just whipped the English in the first test match in Brisbane. The focal point of our concern is the housing market and, earlier this month, we discussed how the world’s longest-running bull market – 55 years – in Australian house prices appears to have come to an end. We followed this up with “Why Australia’s Economy Is A House Of Cards” in which Matt Barrie and Craig Tindale described how Australia’s three decades long economic expansion had mostly been the result of “dumb luck”.

As a whole, the Australian economy has grown through a property bubble inflating on top of a mining bubble, built on top of a commodities bubble, driven by a China bubble.

Last week, in "The Party's Over For Australia's $5.6 Trillion Housing Market Frenzy", we highlighted some scary metrics for Australia’s housing bubble cited by Bloomberg. In particular, we showed how the value of Australian housing is more than four times gross domestic product. This is higher than other western nations, like New Zealand, Canada and the UK, which are experiencing their own housing bubbles. The ratio of house values to GDP in the US seems positively tame in comparison.



It seems that it’s nor just us and other market commentators who are becoming progressively more pessimistic on Australia’s outlook. Australians are coming round to the same opinion, as Australia's Domain.com explains (note: Roy Morgan is an Australian market research company).

The number of Australians optimistic about the year ahead has dropped to a never-before-seen low as mortgage holders eye a combination of record-high household debt and the possibility of interest rate hikes in 2018.

 

According to a Roy Morgan survey taken in mid-November, 31 per cent of people think 2018 will be “better” than 2017 – the lowest figure recorded since the survey began in 1980.

Along with a slide in positivity, the survey showed a spike in active negativity, with 30 per cent expecting next year to be “worse” than 2017 and 39 per cent saying it will be “the same”. Younger Australians are more positive than older generations, with almost half (46%) of 18-24-year-olds expecting next year to be better, while just 20 per cent of over 65s feel that way. In fact, a noticeable drop in optimism can be seen as Australians age.


AMP notes that the greater level of optimism among younger Australian’s is probably due to them being saddled with less debt.  Their older countrymen are becoming fearful that a rise in interest rates could lead to a housing crash.

“(Older Australians) have the debt,” AMP Capital chief economist and head of investment strategy Shane Oliver told Domain. “There’s a growing problem in Australia where a lot of people might own their home by the time they’re 65 but they still have a lot more debt than previous generations.

“If you were going to worry about a property price collapse, you wouldn’t be as worried about it if you were a younger Australian – they might actually see an opportunity. If you’re an older Australian with a lot of debt it might be more of a worry for you.” Households are sitting on record high debt, above 190 per cent of income, which is why talk of interest rate hikes have been hitting confidence.



While the Australian central bank sees a rate hike as unlikely in the “near-term”, Domain.com notes that the next move is likely to be up.

Reserve Bank governor Philip Lowe reiterated last week he sees the next move from the central bank as being upwards, and while most economists expect those hikes in late 2018 or even 2019, ANZ is hanging onto its call that two rate hikes await next year.

While Australian citizens are the second most-indebted in the world, the country’s banks are the most exposed to housing debt.



They are also potentially in the firing line for a government enquiry as AMP’s Shane Oliver tells Domain.com.

Meanwhile, confidence in the institutions to which Australians are so deeply indebted has scarcely been lower, with scandals and the threat of a royal commission a part of the landscape.

 

“The bank questions seem to keep coming – it seems to have a life of its own,” Dr Oliver said. “This idea of the royal commission or commission of inquiry… putting aside the should we or shouldn’t we… that constant talk that there’s some sort of problem with the banks is probably affecting people as well.”

This was Australia’s ABC News earlier today.

The calls for a full inquiry have been relentless for years, emanating from a broad section of the community — from farmers, small business and households, jaded and disillusioned with the industry's rampant profiteering, fee gouging and blatant disregard for the law. How many times can a Commonwealth Bank chairman sincerely apologise for a yet another breach of trust? What, pray tell, will be the cause of next year's?

But the overwhelming reason for an inquiry rests on just one principle — accountability. What has been forgotten in the endless round of scandals in recent years is that the Australian banking sector is a taxpayer subsidised industry. It's an industry that pays ridiculously bloated salaries to its leaders; that showers itself with massive bonus payments when profits are soaring but instantly demands taxpayer protection and support when the tide turns.

Having resolutely opposed a formal enquiry, the Australian government may have its hand forced as Liberal National Party Senator, Barry Sullivan, is threatening a to put a motion to the senate, possibly as early as this week. This might undermine confidence in Prime minister, Malcolm Turnbull. Furthermore, as ABC News notes, the banks have also taken the usual, and likely misguided step, of appealing to their biggest critics.

Senior Coalition members are terrified, having been forced for so long to walk the tightrope between hauling bankers into line and staunchly opposing an inquiry. If the motion gets up, it would be a major loss of face for Mr Turnbull and the Government, with serious ramifications for his grip on leadership.

In a show of desperation, the banks have opted to go straight to the public, the area where they possibly have the least support, with a multi-million dollar propaganda campaign on free to air television and newspapers. And the fight is likely to get ugly.

With pessimism on the part of Australian public already at record low levels, we suspect that a messy political confrontation between politicians and the banking sector could only be an additional negative for the popping of Australia’s housing bubble. AMP’s Shane Oliver is not optimistic, as Bloomberg notes.

And the general sense of “malaise” could be here to stay, according to Shane Oliver.

“It seems the old days of ‘she’ll be right, mate died off with the Holden Ute,” he said.

For those unfamiliar with the Australian vernacular, a Holden Ute is an iconic pick-up truck. Sales hit record lows last year and the Adelaide manufacturing plant is being shut at the end of this year.
 

Comments

Laowei Gweilo Tue, 11/28/2017 - 01:10 Permalink

I'm not sure if this is bullish or bearish for Canada in 2018 o.0Either bearish cuz it shows how stupidly all these markets are overvalued :POr bullish because Canada is not quite at Australian levels of 'peak batshit crazy' :O

Laowei Gweilo TheSilentMajority Tue, 11/28/2017 - 02:56 Permalink

true but Uncle Xi going Cultural Revolution on currency outflows heheheall the other East Asians (Kor;Jpn)  just swarm DT and stack up 4-7 ppl an apartment o.0 so they doing their part to addess housing shortages hahaand most of the [new] Sikhs and pakis are super FOTB poorthe wealth is gonna still come but it's definitely slowed a lot, the next 10 years will be less about wealth inflow and more about wealth growth*  and also population growth***because so much is already here... so, a growing disparity between the 'investment enriched' and 'rent poor' **as the gov't continues to bring over shit tonnes of immigrant working poor since those appear to be the only employees that the service or telecom company here hire. white people go to restaurants and retail; immigrants in fast food and telecoms :P I'm not sure if white people even work in fast food here anymore :P I don't care either way and I don't want spend an extra $1 per burger so it's served by a white Millenial rather than a Mexican or Korean haha. Just noting that it is pretty crazy that basically vast majority of every single fast food or coffee shops DT are genuinely almost all immigrants, like probably >90-95%.

In reply to by TheSilentMajority

A Dollar Short Tue, 11/28/2017 - 01:22 Permalink

You kidding me?A country with taxes beyond comprehension, this real estate bubble will not just crash, it will burn and burn again before it stabilizes.  Good luck you Aussies!

peterk Tue, 11/28/2017 - 01:21 Permalink

Hey im in Sydney.. theres no  COLLAPSE in OPTIMISM... this story is propganda.I tell you what i see here in SYDNEY.....BUILDING CRANES,,!!!  EVERYWHERE. Even the poorest suburbs like Bankstown, alot of middle eastern people live  there... its generally regarded as a poor  area.. but BUILDING CRANES are everywhere   there too. So if the poorest suburbs are going "bat shit crazy" with devlopements, sounds like a  good warning sign........  but theres one problem with that theory.There have been many similar warning signs over the years, yet the market always goes up.  WHY?Because AUSTRALIANS would rather eat  food from the rubbish bin than NOT pay theyre Mortgages.Its unlike the US UK and similar  CIVILISED countries, people here seek nothing  but a  house as it offers  the path to  buying everyting else you want...  car, holiday, boat, jet ski.. 2nd wife!.. its all yours  as long as you make you $1000 downpayment on the house and  interest only monthly replayment of $1999 over 30 years.!!!ONLY ONE THING WILL CRASH THIS MARKET.... interest rates at 10% domestically.If you see  rates in JAPAN.CHINA move up as they are, then  that may happen, a good credit crunch... but until that gains momentum here, Australians will sell their FIRST BORN MALE CHILD to finance that monthly mortgage.

Ghost who Walks AUD Tue, 11/28/2017 - 05:34 Permalink

Yes that is correct, if graphic.Then watch how things play out with suggestions for State Income Taxes (which existed prior to WW2).The GST issue will be in play in Western Australia for the next few years and whoever has their hands on the levers of power in Canberra will lose seats in the west while this farce continues on. (I'm starting to sound like BritBob on the Falklands!)

In reply to by AUD

nufio peterk Tue, 11/28/2017 - 02:04 Permalink

lol im inclined to believe you, there were articles like this 5 years ago about vancouer when i lived there and I was expecting an imminent crash. but ofcourse prices are still going up there. cdn itself has devalued but prices in cdn have fucking gone up.. a lot. I had to fucking get out of that city because there was no way i was going to pay 2 million dollars for a 2 bedroom split level house on a 2000 sqft lot. but one thing ive learnt is that the govt is hell bent on blowing up the bubble and will not let it pop.

In reply to by peterk

Parrotile nufio Tue, 11/28/2017 - 02:46 Permalink

Nufio - that's a TINY 185 sq. metres. Even the relatively tiny blocks of land in the new developments south of Sydney are (usually) no smaller than 250 sq. metres (= 2,700 sq. feet), and most blocks of land start around the 300 sq metre (3,220 sq. feet) mark. Those of us who live "far South Coast" usually expect a 1200 sq metre block (13,000 sq feet) and by your calculations, if I "transplanted" my home to Canada I'd be an overnight multi-millionaire! :-)

In reply to by nufio

Jack Oliver peterk Tue, 11/28/2017 - 04:20 Permalink

I also live in Sydney - the 'boom' is created by CHEAP money and low interest rates !

Our 'Reserve' bank is a Rothschild's bank - and every intelligent 'punter' knows that the FUCKING FED has 'created' trillions out of thin air and GIVEN it to good little 'vassals' like Australia !!

Why do you think that the Zio/US even has a FUCKING 'coalition' ???

Because they have threatened those 'vassals' with total economic collapse if they don't 'toe the line' !!!!

The good ship USSA won't go down ALONE !!
Australia has stupidly 'lashed' themselves to the FUCKING mast !!

Why - just today - our FUCKING 'brave' police 'foiled' a terrorist attack 'planned' for New Years Eve in Melbourne !!

YES - they 'potentially' - 'possibly'- saved tens of thousands of NYE 'revellers' from certain FUCKING death !!

Like a good 'vassal' - we will keep the terrorist FUCKING dream alive !

In reply to by peterk

effendi Tue, 11/28/2017 - 01:35 Permalink

peak batshit crazy sums up the Sydney property market. Average new mortage for first home buyers is over half a million dollars. Affordable when interest rates are the lowest they have been EVER. I doubt people could ever think that a 3.39% mortgage was possible (saw that rate offered 1 minute ago). What happens when rates go up even 1% on that loan will be a 30% increase in monthly repayments and if rates go back to normal levels their repayments will double. Most people might be able to make those higher payments but those that don't and are forced to sell will depress the market. Plus the loss of jobs after a construction boom will cut overtime, cut pay rises, cut promotion opportunities, cut headhunting/poaching opportunities for any real estate related field and force yet more owners to sell and would be buyers to not be willing (or able) to buy.There must be over half a million jobs in Sydney in the construction industry or support industries and half of those jobs might vanish in under a year just to get back to normal construction levels of previous recessions.

Fundies Tue, 11/28/2017 - 01:47 Permalink

Australian ZH'er here. Prices are still going up in some areas, and in the main hot spots, Sydney and Melbourne, prices may have come down 5% on average. So the worm may? have turned......but waiting for a crash.

Parrotile Fundies Tue, 11/28/2017 - 03:18 Permalink

The problem will be that if there IS a sustained fall in property prices, those tempted to buy might suddenly look at recent past events in other Countries (such as Ireland), and decide to wait, to see "how low prices can go". If that happens, and there are a number of distressed "owners" who NEED to sell - then things could get very nasty very quickly.

In reply to by Fundies

Jafo trillionaire Tue, 11/28/2017 - 17:54 Permalink

Buyers of these developments do not put down a deposit but take out a deposit bond to satisfy the requirements of the developers and their banks.  Allianz Insurance has the lions share of the depposit bond market.  When the market does eventually revert to normality most people will default on their purchases and forfeit the deposits.  Allianz Insurance will be left holding the bag.  They will try to sue the clients for the forfeited deposits but that will take years and it is unknown how many do not live in Australia. If you wanted to short the real estate bubble this would be one pathway to do so.  Allianz is not listed on the Australian Stock Exchange but is a wholly owned subsidiary of Allianz SE headquartered in Munich.

In reply to by trillionaire

SMD Tue, 11/28/2017 - 02:04 Permalink

Australia will continue to print money. Australia's laws have always favored real estate, in brazen ways. Chinese criminals have untold billions of dollars to launder, and this market is not even remotely saturated. Australia is a great place to live if you are Chinese. This is not good for white Australians, though, as Chinese are, by and large, pure nihilistic scum, and there has been some push back. But the government has a lever it can adjust as needed, namely Chinese migration. Australia has all the vacant land in the world and only 25 million or so people. 

Tubs SMD Tue, 11/28/2017 - 02:46 Permalink

CHinese people work a helluva lot harder than your average Aussie and dont depend on social security. To call them scum is offensive - do u know any personally? Back in China it's dog eat dog (pardon the pun) but nihilistic tendencies hasnt been my experience for the locals. Chinese immigrants built up the Oz economy in our colonial history, they have been here almost as long as the locals.By the way, most of our land is uninhabitable - 90% is desert. Engage brain before openining mouth please.PS: I am not CHinese but I know many and they are the best meaning people around.

In reply to by SMD

Concertedmaniac SMD Tue, 11/28/2017 - 04:20 Permalink

You remind me of a dumbshit truck driver who was ranting to me about the 'chinese' taking all the 'jurbs'. I told the dumbshit just like I'll tell you, what about the government and all the greedy rentier class who sold us all down the river? The US gov helped us out as well and has been infecting us with their propaganda for decades, thanks americunts.

In reply to by SMD

Tubs Tue, 11/28/2017 - 02:32 Permalink

Someone very important related to the Melbourne Cup lives near me in the Hills District in Sydney. He rents a Mcmansion, owned by a Chinese national.

Mustahattu Tue, 11/28/2017 - 02:47 Permalink

Dumb politicians in struggle for power and popularity ruined it for Stralians. It started with Rudd and the ridiculous handouts post GFC (that never hit the country), and the selling of the country to Chinese billionaires. I remember stories of Chinese paying 20%+ premiums just for a "lucky" street number. Those Chinese have now "washed" their cash and will be the first to dump their properties even if they take a small loss. The time to buy was late 1990s early 2000s.. and the time to sell is now. Many have tripled their investment during that time. A time to buy will come again, one day.

Md4 Tue, 11/28/2017 - 03:12 Permalink

"As a whole, the Australian economy has grown through a property bubble inflating on top of a mining bubble, built on top of a commodities bubble, driven by a China bubble."

A China bubble blown by the need to fuel a new manufacturing base there to replace the now-outsourced American (and greater western) one, leading to the severe loss of western middle class income needed to sustain the new Asian behemoth, now choking on its own credit-driven debt "prosperity" and, no longer in need of raw materials to produce cheap goods for western middle class customers who are now, mostly broke, and unable to buy them, ultimately pops bubbles initiated by a greed-inspired global train wreck started several decades ago...

lakabarra Tue, 11/28/2017 - 03:27 Permalink

The economy can't live from serving burgers to each other. There is nothing real about these cities. But still, if Chinese keep buying prices won't fall. Our government is ruthless enough to let them all in while families can't afford to buy or to rent,