And for the broader Australian economy (jobs!).
Investment in the Australian housing sector has become a frantic activity, and prices have soared. This has been accompanied by a construction boom, particularly of large multi-family developments. But that construction boom is now creating a ballooning oversupply “up and down the East Coast of Australia,” warns Roger Montgomery, Chief Investment Officer of Montgomery Investment Management in Australia, in the short video below, “Property Implosion?”
In Brisbane, for example, vacancy rates have doubled, and it’s going to get much, much worse. Prices and rents will get hit as developers try to unload their apartments (condos) and as property investors will sit on vacant units.
The construction industry is already responding to the oversupply: Project approvals are plunging, which means that down the road, construction activity will be plunging. Alas, 12% of all jobs in Australia are in construction, and “some portion of that 12% will have to look for jobs elsewhere.”
(When he talks about Brisbane’s “CBD,” he means Central Business District).
The Australian housing bubble is accompanied by a slew of other issues of the kind that had dogged US Housing Bubble 1 and led to is ultimate demise during the Financial Crisis – including liar loans. According to a report by UBS, “misrepresentation is systemic.” Read… UBS: Liar Loans Surge in Australia’s Housing Bubble, Pose Risk to Big Four Banks, “Financial Stability”
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Canada is not far behind Australia, if not already there on the slippery down slope of a major property value reset.
Government attempts to stabilize the market in British Columbia prove this, as a new program is unveiled to “help” first time home buyers. This entails long term (30 years) low interest loans for down payments on new mortgages.
This, together with the punitive purchase tax levied against off shore buyers, is just a further attempt to “fix” the market. When the true fix should be to let the free market fix itself.
Governmental interference in the market place always ends with unforeseen consequences. Almost all being negative.
Oh, Canada is there alright. Posh neighbourhoods like West Vancouver are down close to 80% in YoY sales and prices are moving too. Down 30% YoY now.
The media is behind the curve on this, as they always are when it comes to negative consumer news.
Link to real time stats, west vancouver
https://www.zolo.ca/west-vancouver-real-estate/trends
Yet property prices on the Sunshine Coast and on Vancouver Island are still elevated. West Vancouver being just the tip of the ice berg!
Evidence has now surfaced that the off shore buyers (Chinese) have moved the focus of their buying from the Vancouver market, to south of the border into the Seattle area.
May we live in interesting times indeed!
I don’t think media lags unintentionally; I think the ultra-rich learned long ago that if you want to protect and increase your wealth, the best and cheapest way is to control the media. So, media is really a mouthpiece of the ultra-rich now; they are not there to inform you or help you. Why do you think we are on Wolfstreet? Because those of us who are sharper, whether by logical process or instinctively, have realized that MSM is not giving us the true pictures of the things.
Cyrus, I appreciate your suspicions of the media, but just to keep things in perspective here’s an interesting quote from a long time ago:
“I cannot endure the flunkeyishness of the newspapers of the whole world, … , in which almost every spring the journalists write articles upon two things: first, on the extraordinary magnificence and luxury of the gambling saloons … and secondly, on the heaps of gold which are said to lie on the tables. They are not paid for it; it is simply done from disinterested obsequiousness”.
– excerpt from “The Gambler” (1866), Fyodor Dostoevsky
If anything the media try and sensationalise stories. They’re in the business of attracting as many viewers/readers/listeners as possible. Higher ratings = more advertising revenue = higher profits. To suggest that the media are sanitising the news for the benefit of the ultra rich is absurd. Enough of these stupid conspiracy theories that are born of prejudice, ignorance and envy, and have no basis in fact. Let’s live in the real world, not some fantasy land.
Cyrus: I think one of the problems we have with the media is that the people employed therein have major conflicts of interest with real estate and finance in general. They are home owners or renters, and they have retirement plans like 401(k)s. That creates self interest in stories that impact those sectors that aren’t inherent in most other stories. Therefore, a bias exists based on that self interest. That bias presents in timing of stories, how they are presented, and outright lies if necessary. Is it a conspiracy? Depends on how you define conspiracy. As in, people often act in unspoken concert on issues simply because they know which side the bread is buttered on.
it’s not the media, it’s human nature and the media encourages the ‘animal spirits’ (of course, often to help the interests of their owners and favored politicians, or in the past their main advertisers).
My country already had a huge speculative bubble in 1637 (tulipmania) with a huge percentage of the common folk participating and without the ‘media’ that we have nowadays. Although news traveled by horse and pigeon in those days, the tulip bubble crashed by 90% in just two weeks. Compared to that, ‘price discovery’ in our ‘connected’ internet age moves at glacial speed. After the tulip bubble there were several housing bubbles in the centuries that followed, with the last real housing crash in 1981 (average price -50% in 1.5 years). The Netherlands now has one of the biggest housing bubbles in the world, with the most crazy collection of buyer incentives on the planet.
As night-train says, there are extreme conflicts of interest under the table, not just between the rich and the poor. In my country debate is heating up among the boomers who are still dominant in politics and the economy and want their gold plated government pensions protected (which is difficult with very low rates) AND also to keep the housing bubble going (which mainly depends on keeping rates low forever) AND free health care no matter how expensive the treatments they are demanding and while anyone can see that costs are surging. What they want simply isn’t possible so something has to give.
Just like that there will be conflicts between members of the elite, e.g. between ‘old’ and ‘new’ money or between private persons and multinationals, as they have different stakes in this financial game.
No doubt Vancouver is due for a correction but the Canadian economy is far more diversified and significantly larger. It has a large auto manufacturing sector. Like the UK’s, these are foreign owned but they aren’t ‘screw driver’ plants- engines and transmissions are built there.
There is also geography- Melbourne is nice and in the middle of nowhere.
Vancouver is actually closer to Japan than Melbourne is to Japan.
Canada is also contiguous to the world’s second largest market of 350 million and one looking more stable than the EU.
London, UK, to Toronto, Canada is about half the distance from Melbourne to Japan.
Yes the climate in winter is better in OZ, but last year there was no snow in Vancouver- and there is never the blistering really unlivable heat of the Oz outback.
BC residents are highly urbanized. like the rest of the developed world but they do not hug the coast or avoid the interior.
And although many white residents of Vancouver may not approve, the atmosphere and general acceptance of non-Caucasian people has resulted in Vancouver becoming a second capital city for an Asian diaspora.
Canada’s auto sector is dying by the day, and housing is by far and away the largest industry in Canada now, which says it all. After the longest stretch and lowest rates in history, this will be no “correction.”
I guess you are wrapped in a mortgage, which is why you choose to believe it will be a correction. Good luck with that…
The thesis of the comments, including mine, was a comparison of Australia and Canada.
With 2.1 million cars built last year, Canada is only in tenth spot, but far ahead per capita with all the top nine having larger populations.
Unfortunately for the thesis that the industry is dying by the day, recent, very well publicized negotiations with GM and others have secured work for another decade.
How does this compare ( the topic) to Australia, where the last plant, Ford’s, is closing?
To select just one other sector, the very considerable Canadian aviation industry, with its STOL turbo- props is well represented in Australian skies, but not the reverse.
Housing is of course a big factor in both economies but larger in Australia’s, and its banks are far more exposed.
No Canadian export occupies as large a percentage of its economy as iron ore does with Australia.
Mick,
Normalcy bias is everywhere, nobody stops and thinks anymore and will use every excuse in the book to explain why the good time will never end and why it’s “different here”
also, if it wasn’t for fraud and money laundering the Canadian RE market wouldn’t look anything like it does now.
p.s. I think it’s amazing to see the Chinese government print Yuan like crazy and then their citizenry is going around the world and are buying it up for $1,000,000 OVER ASKING!!!!
i present the best example of the insanity.
http://www.scmp.com/comment/blogs/article/1937267/stampede-inside-story-vancouvers-wildest-property-deal-gone-7200
C$60million for the site alone, which had just been valued at C$15.6 million by BC Assessment
Which is why MortgageDeception.com is open for business with lawsuits against banking regulators.
@Nick
I just have to correct one of your assertions: “BC residents are highly urbanized. like the rest of the developed world but they do not hug the coast or avoid the interior.”
Should read: “Some BC residents are highly urbanized, like the rest of the developed world, but they do not hug the coast or avoid the interior.”
I know that often residents of all places believe that where they live and how they live defines a population within a political boundary, (Province), but it certainly isn’t the case. For some reason Vancouverites seem to believe that Vancouver is BC, and that both the benefits and problems of being urban is a universal condition. From Wiki: (Egocentric) “More specifically, it is the inability to untangle subjective schemas from objective reality; an inability to understand or assume any perspective other than their own.”
I assure you that where I live has all the trappings of ‘the developed world’, but minus the crowds, noise, pollution, traffic, lack of privacy, and rat-race commutes. We have electricity, water, flush toilets, and t.v. We also have space and affordable properties. There are jobs for those with specific skills; jobs that will allow a young person to purchase a home in their twenties. My son, when he was 26 purchased 3 acres with two dwellings; riverfront. He paid $270,000 for it. In Vancouver, if you could find something like it, I would guess it would be in excess of 20 million? I don’t know, I am just imagining what 3 acres and an estate on the Capilano River would go for. He is an electrician. My daughter lives in Ladysmith. They have a lovely home about 1 block from the Stocking Creek land preserve, in town, and they paid $240,000 for it 5 years ago. They will have it paid for by the time they are 50.
My wife and I just got back from a walk on the Salmon River estuary. We saw two people and two dogs + 1 kayaker. Currently all properties are selling around here. People are moving in from the Prarries, and Alberta. Our neighbours across the river just sold their place for around $450,000; a heritage (but modernized) home, 24 acres, new barn, backhoe, and small sawmill included. The new owners have horses, we are told. They are refugees from the city. (Victoria).
The point of my reply is that BC, (read Canada) is as varied and diverse as anywhere on the planet. From the modified mediterranean climate of southern Vancouver Island, to the desert of southern BC and the high arctic, and everything in between from coast to coast, Canada, is certainly more than its few major cities no matter how cosmopolitan they believe they are. In fact, I daresay us rural folks will do quite well as the downturn unfolds.
regards
I thought it was obvious that ‘BC residents are highly urbanized’ meant that a large majority are- and as someone who taught English and written and edited hundreds of thousands of words for publication, within the context, population distribution, I don’t see how any other meaning could attach. The percent of the population that is urban versus rural is not a trait or characteristic- it’s a datum.
British Columbia is larger than France. But of its 4.5 million people, about half are in greater Vancouver. This arithmetic means some regions like the Cariboo, are practically uninhabited by comparison with, say, France.
However, if ‘largely urban’ instead of ‘highly urbanized’ will reduce whatever slight was taken, I amend it. The former does seem an improvement in style.
Returning to the context, which was a comparison between Australia and Canada, the residents of BC, although largely urban, are fond of exploring the province, including the wilderness.
Many writers and historians have noted the different attitude of the Australians to their interior- with good reason. The first expedition to cross its interior had few survivors. You can’t ‘dress appropriately’ for 140 degree F heat.
An urban dweller in Nanaimo, I share your horror of Vancouver. An oddity of the Nanaimo area is that wilderness is very close. ( A Vancouverite would say, ‘no doubt’)
I know the Nanaimo River estuary very well and have bushed my way into meadows where no one has been for decades, if ever, yet they are only 2 miles from a supermarket.
BTW: I’m fond of the area where you live. I’ve canoed the Salmon River twice.
Mr Montgomery is a man to be respected and taken notice of – I would certainly take into account every piece of advice & information which he puts forward!!!
Why? Who are you to say? No disrespect intended. But what is your interest?
Hmmm!!!!!
This theme is so old, it has to be true sometime.
And can we blame the Russians for this? I swear they were “hacking” the Ozzie / Canada Real Estate.
I missed the part blaming the Russians hacking the Aussies and Canadians. Truth is I just scanned the article. I take from your comment, that you do not believe the Russians have been interfering in our business with their hacking. Everyone who comments at this site has a degree of skepticism regarding governments. But your apparent willingness to support Vlad Putin over our President is just short of delusional.
What’s Steven keen have to say about this?
Steve predicts an Australian economic downturn and then this will flow into a heavily indebted economy and all hell will break lose. The dimwitted politicians should have tried to take some heat out of the market. Then I remembered that politicians collectively have over $300m in property investments.
http://www.abc.net.au/news/2016-07-29/australia-headed-for-recession-next-year,-professor-keen-says/7674154
Steve keen is not a very accurate forecaster, He reminds me of the old saw about economists who have predicted 9 of the last 3 recessions. But he’s good elsewhere and not a party to the mainstream’s fantasy land.
-If you live in the underground, the best thing you can do, for yourself, if you can :
1)pack & leave. Cut 30% to 70% of your overhead, by moving from places like S.F. or NYC to zones where Trump deplorable live . 2) throw stones at the crystal palaces of the media. They always keep the 99.9% in the dark, in a fog.
-The best moat a wealthy investor can have, isn’t a wonderful co.
or a honest management but, a good wonderful connection to the government. He can acquire it only if he accumulate enough media to influence all of us. If he has enough weight, positive things can make him a market wizard, who attract a lot of capital,
despite having possible losses on his media cos.
That doesn’t matter at all and can only make a small dent at his holdings. The risk is if the government change and a new one will
be hostile towards him. His most important moat will collapse. His beautiful castle will fall. His crystal palace will be shudder.
And Happy New Year to Wolf readers from the wonderful land down under – the magical land of Oz.
Good to hear that for umpteenth time that our real estate market is going to crash………….
Glad to hear that market forces actually work and that construction on those multi-family housing projects are going to start falling.
Guess what?
For those that are buying single family homes on blocks in the cities it has very little, if any, impact on prices, demand, or future direction.
Commercial banks here have already increased interest rates on ‘investor’ loans which is having an impact.
And as many times as these articles appear in the media not one of them address the biggest fundamental that really affect the real estate market in the single family home sector: demand.
Victoria’s population increased by over 120,000 people last year. Most of them moved to Melbourne.
Those pundits that are worried about housing prices should worry more about the real factors that will impact prices.
One of them is our stinking rotten public transport system. Yeah another storm on Thursday and the trains stopped, were late, and nobody could give passengers any up to date reliable information on what was going on.
Pathetic.
Maybe they should also focus on how prices for consumers are going up for items such as NG and electricity. Items that impact the ability of people to purchase and live in those houses.
Tomorrow the price of our electricity is going up by 13%. The monthly supply charge is only going up by 3.4%. Oh, and yes, we had two blackouts on Wednesday which the temps hit around 102F .
Just wonderful to get home late because the trains are running late as a result of the heat only to find out that you have no electricity and then to only repeat the process on the trains the next day as well.
SEE:
http://www.smh.com.au/victoria/gas-and-electricity-prices-to-surge-after-hazelwood-closure-20161201-gt238c.html
https://au.finance.yahoo.com/news/why-migrants-are-flocking-to-this-aussie-city-040019803.html
http://www.theage.com.au/victoria/live-melbourne-storms-wild-weather-hits-city-after-heat-wave-20161229-gtjgpj.html
Poor infrastructure, high consumer prices, and stupid governments at the state and federal levels are more important and worrisome.
As long as people keep moving here the market will be fine. One day the demand will dry up an the market will react.
Demand is referenced all the time, I’m. It sure how you could miss it?! The key point that is missed though is the real source of demand for real estate in Australia, which is investors. More than half of housing finance in NSW, ie Sydney, now goes to investors! Yields are at record lows and rents are now falling in real terms.
The government will have to do some serious can kicking – stimulus for housing – to ensure it doesn’t suffer a sizeable correction. We all know they’ll try, but the key question is will it will be enough to save the market, the banks, the economy?
yes, artificial demand spurred by low rates and other stupid government/central bank meddling with the markets.
In Netherlands there is relatively little building activity despite sky-high home prices, but the same effect can be seen. Much of the current home buying is vacation homes (mostly for Dutch investors, not for foreigners) that aren’t even used for vacations, and private homes for people who already have a home but buy more because savings accounts are punished with ZIRP and wealth taxes while homes are subsidized in many ways and gains on home prices are tax free.
Today it was reported that the Dutch economy had almost the best growth numbers from all EU countries. And why? Because people are selling more (expensive) homes to each other … There is very little real economic improvement, it’s all house price inflation. When rates finally start rising, much of this artificial demand will disappear quickly and the bottom will fall out of the market, with or without healthy building supply.
Wealth – real and imaginary.
Central Banks and the wealth effect.
Real wealth comes from the real economy where real products and services are traded.
This involves hard work which is something the financial sector is not interested in.
The financial sector is interested in imaginary wealth – the wealth effect.
Hardly any of their lending goes into productive lending into the real economy. They look for some existing asset they can inflate the price of, like the national housing stock. They then pour money into this asset to create imaginary wealth, the bubble bursts and all the imaginary wealth disappears.
1929 – US (margin lending into US stocks)
1989 – Japan (real estate)
2008 – US (real estate bubble leveraged up with derivatives for global contagion)
2010 – Ireland (real estate)
2012 – Spain (real estate)
2015 – China (margin lending into Chinese stocks)
Central Banks have now got in on the act with QE and have gone for an “inflate all financial asset prices” strategy to generate a wealth effect (imaginary wealth). The bubble bursts and all the imaginary wealth disappears.
The wealth effect – it’s like real wealth but it’s only temporary.
The markets are high but there is a lot of imaginary wealth there after all that QE. Get ready for when the imaginary wealth starts to evaporate, its only temporary. Refer to the “fundamentals” to gauge the imaginary wealth in the markets; it’s what “fundamentals” are for.
Canadian, Australian, Swedish and Norwegian housing markets are full of imaginary wealth. Get ready for when the imaginary wealth starts to evaporate, its only temporary. Refer to the “fundamentals” to gauge the imaginary wealth in these housing markets; it’s what “fundamentals” are for.
Remember when we were panicking about the Chinese stock markets falling last year?
Have a look at the Shanghai Composite on any web-site with the scale set to max., you can see the ridiculous bubble of imaginary wealth as clear as day.
The Chinese stock markets were artificially inflated creating imaginary wealth in Chinese stocks, it was only temporary and it evaporated.
It’s what happens.
Property prices in Australia, and other countries like Canada will fall, perhaps quite sharply. Almost every financial market prediction is correct – eventually. The challenge is trying to get the timing right. A lot of investors have lost a lot of money – and missed out on great investment opportunities – by making the right investment call, but getting the timing horribly wrong.
I don’t think a major fall in property prices in Australia is imminent. This is not a high conviction view, but is my best guess. While interest rates are low relative to historical averages and the economy is relatively buoyant, asset prices, including house prices, will continue to be elevated. The main argument in the video was that supply was increasing and interest rates are trending up due to the decline in bond prices globally. Yet, the video concludes with the comment that approvals for new developments in Australia have declined precipitously. This will obviously reduce future supply. The reduction in construction activity will also have a negative impact on the economy, as Mr Montgomery pointed out, but this will enable the Reserve Bank of Australia to keep interest rates low and perhaps cut them further. Bond prices will continue to fluctuate but you can’t escape the conclusion that we are living in a low interest rate world and bond prices will not fall to the levels we witnessed as recently as ten years ago for a very, very long time. High bond prices and low yields will continue to support asset prices – and make the rich richer, without commensurately benefitting the poor. This is one of the negative side effects of ultra easy monetary policy – and one of the reasons why nationalist and populist politicians and political parties are attracting so much support.
I doubt anyone is reading this, but I have one last comment. I like this site, but I get annoyed with extreme conspiracy theory comments. The mainstream media isn’t manipulating the news for the benefit of wealthy investors and individuals. It’s complete nonsense perpetrated by paranoid people who have no grasp of reality. It’s about time people made a stand against the dissemination of stupid conspiracy theories and fake news. It’s dangerous. There is no doubt it had an impact on the US election and it plays into the hands of politicians who have simplistic views which sound attractive but will probably have dire consequences.
Like creating angst over unsubstantiated claims about Russian hackers for instance.
Congrats on proving his point.
The US intelligence services are not dummies. For one thing, with Israeli help they engineered the most complicated malware yet devised (SYNMUX) that caused Iranian centrifuges to run amok.
The CIA has determined that Russia hacked the DNC.
If EVEN Trump now says he wants to hear the briefing, maybe you should wait for The Leader’s decision.
(Isn’t it embarrassing when the followers don’t get the word that management is ‘walking back’ stuff.)
yeah, right always blame the Russians; no need to prove it.
The Dutch prime minister already said that he fears the Russians will be hacking our elections in March. Of course, his party is going to get crushed by Mr. Wilders who in some ways is similar to Trump in the US. Never blame your own stupid and disastrous policies, blame the Russians!!
In Germany Ms. Merkel and her friends, and most of the media of course, are spreading the same BS (I guess she knows, as a former STASI agent?). Or maybe the Israelis know, as they are doing much of the secret service work for Netherlands and Germany ;-(
FBI/DHS Joint Analysis Report: A Fatally Flawed Effort
https://medium.com/@jeffreycarr/fbi-dhs-joint-analysis-report-a-fatally-flawed-effort-b6a98fafe2fa#.igg4uz6ti
There’s a good deal more on Jeffrey Carr’s Twitter threads.
Also this;
http://www.informationclearinghouse.info/46051.htm
That ICH article is very powerful and well researched. Here’s another one for the kool-aid drinkers. h/t Sane Progressive
https://theintercept.com/2016/12/31/russia-hysteria-infects-washpost-again-false-story-about-hacking-u-s-electric-grid/
WHAT’S THE PROBLEM here? It did not happen.
… There was no “penetration of the U.S. electricity grid.” The truth was undramatic and banal. Burlington Electric, after receiving a Homeland Security notice sent to all U.S. utility companies about the malware code found in the DNC system, searched all its computers and found the code in a single laptop that was not connected to the electric grid…
https://consortiumnews.com/2016/12/12/us-intel-vets-dispute-russia-hacking-claims/
Instead, sanctions should be placed on the corporate media, the DNC and Clinton campaign for their impacts, elevating Trump and colluding against Bernie. The CIA has been notorious for getting things wrong in the past.
“warns Roger Montgomery, Chief Investment Officer of Montgomery Investment Management in Australia”
Think about his employment focus.
The read the speech and think about it, reading is always better than video, as you can see the punctuation, then go back and think about it.
He is talking about the “Investment” sector not the whole market.
Brisbane has had multiple “Investment” sector implosions over the years.
Demand is still strong where it always has been single and multi generation owner occupier homes.
The sector “Investors” are not interested in as it is very hard to make money in.
When the Demand falls in the “Investment” sector. Constructors, may become a little more interested in owner occupier construction, which carries nowhere near as much fat a “Investment ” construction, but will still feed you..
Fake news is dangerous. The gulf of Tonkin “incident ” and weapons of mass destruction in Iraq come to mind and led to carnage on a huge scale. Maybe if we can get government fake news under control first then we could move on to individuals without even more loss of personal freedoms. If government uses fake news for political purposes they could also persecute individuals by using supposed fake news as an excuse.
Property prices will fall, some people will lose their jobs, the banks will take a hit, which they can afford, and everybody moves on.
The Australian economy isn’t a house of cards like the US economy.
This is amazing; you compare a country like Australia which is at best like some countryside in US, to the US, and then call US’s economy a house of cards, but Australia the land of gold, and riches? If US with its Boeing, Apple, Google, Amazon, Hollywood, etc. is a house of cards, then what do you call that country village that you live in?
I’m not saying US economy is not shaky; it’s very shaky, but a hell hole like Australia, is in no way comparable to US. What do you call economy? Bulldozing dirt out of Australian deserts and sending it to China to be converted to steel?
Sorry, Cyrus, but Australia is not a “hell hole” although many left wing nutter politicians are trying their best to imitate what obama has done to the USA over the past eight years.
√
You are confused. The right wing LNP nutters are the problem.
“Sorry, Cyrus, but Australia is not a “hell hole”
Then why is every reptile, insect and sea creature down under trying to kill everyone?
‘Then why is every reptile, insect and sea creature down under trying to kill everyone?”
Because stupid human immigrants have not learned to live with or respect the environment, or its natural inhabitants, who were perfectly happy there, long before stupid humans turned up.
Australia is still like much of the world used to be.
Stupid humans are on the menu.
The top predator in North America, was the wolf pack, until stupid humans wiped them out.
@d:
agree, much of the trouble comes from humans messing with nature. But I definitely prefer New Zealand to Oz (being similar to how things were even longer ago). Their only naughty creature that I know of are sandflies ;-)
“If US with its Boeing, Apple, Google, Amazon, Hollywood, etc. is a house of cards, then what do you call that country village that you live in?”
A house of solid resources, and clean food, everybody wants.
Les then 1 in 10 immigrant applications to Australia, is accepted.
We take who we want, when we want.
We like our “Village”, the way it is.
And we are going to keep it that way.
>>> ” hell hole like Australia…”
I hope you were trying to be funny. Because I’ve been to Australia, and “hell hole” is absolutely the last thing that comes to mind. Go there sometime and check it out. OK, it’s a little far, but it’s worth it. Great place, great people. It just has a property bubble that is getting in trouble. That’s it. And maybe it’s heading into economic rough waters, but all countries do sooner or later. And Australia hasn’t had a recession since I can’t remember when … long, long time ago.
“And Australia hasn’t had a recession since I can’t remember when … long, long time ago.”
Its had a few but they have mostly been what you would call “Local Correction’s”. The last was in the WA slow down, which has now bottomed.
People don’t understand. Australia dosent need lots more people its a huge DESERT continent that is still drying out, and has enough people to supply the world with what it wants when it needs it.
If it dosent have enough Labour, it can always temporarily import some of its cousins , who speak the same language, have their values, and look like them, from next door. Which it does in every boom, then sends them home in every bust.
Its been like that since the end of WW II.
Sydney and Melbourne are nasty American places, that have been exported to Australia, 1 Thinks its LA, and the other thinks its NYC, Australians live in them. They are not Australia..
Wolf: How would countries like Canada, Japan and Australia have to change if the USA did some serious downsizing of our military? How would it change their economies?
If the banks fail the clowns in government will then try to bail them out (the clowns signed a ‘guarantee’ to do this) which could be in the hundreds of billions or perhaps a trillion dollars. The only way forward would be to nationalise them and let the shareholders take the loss. On top of that a lot of debt in Australia is interlinked as people have borrowed to buy investment properties, borrowed for other things, etc. State government revenue is dependent on tax revenues related to property sales and so it goes on.
The point being that other than digging up dirt the rest of the productive economy has contracted so when the wheels come off the property wagon it is inevitable that the economy will contract sharply. Hence the politicians, who have a combined property portfolio of over $300m, protect and extend the housing bubble at any opportunity.
You should consider the following stats. In Australia property assets may up 60% of national assets while in the UK and US it is respectively around 25% and 15%. Trillions of dollars have been invested (wasted) in assets that will deliver NO future value in terms of tradable goods and service and are likely to drop in value like a stone. The decline could be epic.
“It would be some consolation for the feebleness of ourselves and our works if all things should perish as slowly as they come into being; but as it is, increases are of sluggish growth, but the way to ruin is rapid.” Lucius Anneaus Seneca, Letters to Lucilius, n. 91
Although the internal market conditions are quite different, Australia and Netherlands both have epic housing bubbles that will take the economy with them when they finally pop. The last housing crash in Netherlands was in 1981, in Oz in 1985 I think? People have forgotten that housing prices can go down as well …
Both countries use idiotic subsidies and other bad incentives that increase the leverage in the RE market. E.g. in Netherlands almost all recent mortgages up to 275K euro are insured against losses when selling the home, i.e. the owner supposedly can only win (tax free!) in the housing market, losing isn’t possible. About 200 billion of Dutch mortgage debt (total mortgage debt is around 800 billion) is insured against losses with a fund of just 0.9 billion euro. Such a thing is only possible in the dreamworld of politicians … all homeowners assume that in a housing crash, the government will come to the rescue and cover the many billions in losses that would occur. Similarly, many people use starter subsidies that only have to be paid back if the home appreciates in value; if not, the local government (taxpayers) will have to pay up. But in the end, the people who will get the bill are to a large extent the same homeowners who are expecting to be bailed out 100% …
Just like in Oz, government strongly depends on income from the RE market although in Netherlands this doesn’t come from property taxes but from land sales; local government controls almost the complete land market and makes sure land prices remain sky-high. Netherlands is a tax paradise for homeowners on the condition that you buy a severely overpriced home to start with.
And unlike in Oz, in Netherlands very few homes are sold to foreign investors so the value of the housing market for the real economy is even smaller. It is an extreme case of malinvestment :-(
Today’s headline news is still very bullish about Australia’s housing market, particularly for Sydney. They are not expecting a downturn anytime soon:
http://www.smh.com.au/business/the-economy/australias-new-five-speed-property-market-20170103-gtl4y0.html
For the icing on the cake, these developed countries need their outgoing administrations to take a big, caring dump on the living room floor.
I don’t know about other nations but It’s not as hairy in Australia as it might sound. Something like 2/3rds of home owners are mortgage free [I’m not sure of the exact figure] but they are benefiting from asset inflation and not at risk as long as they don’t invest too much into the property market. Here in Sydney there are many vacant flats in new buildings. The government is considering taxing such properties, often bought by overseas speculators who don’t care to let them. But Sydney is still growing and we have a housing shortage in spite of all the kerfuffle.
Also the units actually have to be as expensive as they are as construction industry needs such prices to get work. Carpenters are on $A 3,000 + a week. Eventually it will cave in, but it’s not looking likely just yet.
How do you reconcile the fact that Australia has the highest rate of debt to disposable income in the world?
A lot of those Debt’s shown in the AU stats.
Are actually held by NON Australian citizens/residents. (Particularly with regard to the “Investment Property” sector).
Something that is not in the stats.
The “Investment Property” sector, will get ugly in due course, which is why AU bank’s tightened the criteria for off shore borrowers. Considerably, a while ago now.
What nonsense regarding the statistics.
As if it matters who owes the money anyway.
If (as you say, which is highly unlikely) that foreign owed debts are not counted then the ratio of debt to income would be even worse!
The banks will still want that money back at some point and good luck getting it from an absentee property speculator in a foreign country whose property is underwater.!
Considering the majors set aside 2.5c in the dollar of real equity for property lending, in a 1990s style downturn, they are mathematically f###Ed
The difference in the 1990s was the the central bank could cut rates by 1000 basis points. Now?
If there is a property crisis in Australia it isn’t even a matter of opinion as to whether the banks fail. It’s maths.
We are just going harder at asset inflation than elsewhere. We are rated as the second wealthiest nation now, behind Switzerland. We do what the banksters want and our pollies make sure we have the means!
Is this THE John Doyle of Roy and HG?!!
No, just a namesake nobody.
The worrying thing for Australia is how undiversified the economy has become.
There is now no manufacturing sector to speak of and a “service” economy is inherently more at risk to both offshoring and technological disruption.
Mining iron ore and coal, whilst beneficial for government royalties, employs few people after the construction stage of the project.
The next downturn will be a real tide going out moment though the government will first open the floodgates to immigration to make it appear that the economy is surviving in a desperate attempt to fill all those properties.
A large drop in living standards is already in the works.
“The next downturn will be a real tide going out moment though the government will first open the floodgates to immigration to make it appear that the economy is surviving in a desperate attempt to fill all those properties. ”
Best you check Australian history.
Most of those “Investment ” properties, belong to Off Shore “Investors” and Local “Speculators” just like the last time’s. In the last “big one” the majorityof the “Investors ” were Japanese.
And just like the last times, the Government will allow a controlled implosion of that market sector, and quietly laugh whilst the speculators loose their shorts.
Very few of those property’s, are, or will end up, seriously underwater on their finance agreements.
When it Implodes real Australians, loose nothing.
Deja-vue
There are 528 cranes on the Melbourne and Sydney skyline V’s 419 cranes on the skyline of the 5 biggest cities in North America. No buuble here.
http://www.abc.net.au/news/2016-10-21/real-estate-warning-more-cranes-in-australia-than-us/7954108
Thanks for those numbers!
This time is different :).
Holy shit
Some the work being done in Melbourne in 2017:
http://www.theage.com.au/victoria/melbourne-2017-the-city-as-a-construction-zone-as-major-projects-begin-in-earnest-20161227-gtig9s.html
Kinda hard to find the ‘desert’ in the nice photos in the article.
By this standard, Dubai is a garden. I don’t see any sand in Dubai buildings, do you?
Yes, many construction cranes in the cities that have the highest rate of growth.
‘Have highest rate of growth’
‘Have’: present tense. i.e, ‘now’.
Product of crane: future tense. i.e., ‘then’
As in Miami, etc. the product that won’t be here for two to three years is entering a flooding market.
But like the addict, they CAN’T stop.
Once you see the crane swinging iron, a 12 to 18 month commitment process is over- they are COMMITTED.
This is happening in Calgary, Alberta, right now. The office market has a record vacancy rate, and a record rate of new construction coming on stream.
But the Canadian banks, arguably the soundest in the world, can weather it- they are far more broadly diversified.
They have also managed to lay off a lot of risk on the Canadian govt, but it also can weather it- it just doesn’t want to and has broached the idea of risk sharing to the banks, who don’t want to.
The only parallel for the Australian banks commitment to its real estate bubble is Ireland circa 2006. The Oz banks are mortgage companies.
When Ireland’s banks went bust it had to be bailed out by the EU.
Australia isn’t in the EU.
I’m a great admirer of Oz and the old style Matilda toughness, but some of that is going to have to be pulled out of storage.
PS: did I mention that we are in a rising interest rate environment?
The Fed Funds rate is currently at .75 percent.
The average of the last hundred years is just over 5 percent.
Have a look 5.56% s the current average mortgage rate in the ANZAC states.
The Fed Funds rate, still near the emergency financial crisis rate at .75%, is the ultra- low base rate on which all other rates are calculated- it is not a commercially available or mortgage rate.
If it was to regress to the mean and add at least 4 percent, mortgage rates will rise proportionally.
A Fed Funds rate of 5 percent would mean US mortgage rates of at least 7 percent and those would be the lowest in the world.
In March 2009 the average Australian mortgage rate was over 9 percent.
And what were they in the mid eighty’s.
And even at those rates speculators were still business.
Only the volume of the speculators changes, as rates raise and lower.
These new homes are chum for the Chinese buyers. I don’t see a problem with overbuilding as these homes are not meant to be lived in. They are the equivilent of ‘shares’, not actual parts of a living community. Australians may suffer, but as Canada has shown, nice people are ground down under the wheel then disposed.
There is a demand for ‘scrubbing’ dirty Asian money and Australia, like Canada has taken on the role of mother to those errant dollars (or maybe succubis).
Current population of Australia is 25 million on 3 million square miles of land. The USA is 3.8 million (including alaska).
Plenty of room to grow meaningless homes to the horizon.
But that’s now, and if you look closely you’ll realize what Australia has done is very clever. GDP is everything in the virtual world of economics. All Australia need do is offer the buyers easy immigration visas or dual citizenship and they will instantly accelerate their GDP!
Wake me up when Australia’s population is over 100 million.
Now, I know why Australians insist on using the word OZ as short for Australia; they think Australia is the land of OZ, and the wizard of OZ is looking after them. I thought Canadians are delusional; seems like Australians should be hired as tour guides to La La Land.
Yeah, each inch of the deserts of OZ land is worth a kilo of gold cause the wizard of OZ lives there.
That gives me an idea; I do have a few bridges that should sell like hot cake in the OZ land.
Cyrus,
What the hell is your problem?
Denied entry to Australia for some reason?
You sure have a chip on your shoulder!
That’s a good one :). There is as much chance of for me to want to even set foot in Australia as there is for me to want to set foot in Saudi Arabia. I can’t stand deserts.
I understand that you might not like to live in a desert. For most people, they’re forbidding and hostile environments. Though others can make them their home. But they ARE gorgeous!
So go to the part of Australia that isn’t a desert. Go where most Australians live. Most of them don’t live in the Red Centre. Most Americans don’t live in the desert either, though we have some big deserts.
Thanks for your advice Wolf; I think I’ll take that advice.
And I think I also buy an anger management kit so that I can filter out my sentences.
>>> “And I think I also buy an anger management kit so that I can filter out my sentences.”
Hilarious. I think we all need that from time to time. Happy New Year!!
Australia is not only covered with desert. Look at map of costal Australia and you will notice it is also forests and rain forests! Close to Great Barrier Reef there are plantations of sugar cane ( 70% export) bananas, coffe, tea, etc. Australia has 1800 different species…..you want to know how many North America has? 800!!!! South America 1200, Europe 900. Australia is an amazing place. I know because I have just visited Tasmania, Melbourne, Cairns, Port Douglass, Palme Cove, Sydney. All I saw was forest!!! Cows, sheeps and 800 different kinds of apples in Tasmania. People go and check by yourself before you start stereotyping. Very safe place. I am sure they have housing bubble and draugt issues…but what I saw is far better than most of the world. If you ever go there you need to see the reef!!!
Sounds like you missed the Skiing in snowies, cant get it all in 1 visit but.
And this http://thumbs.media.smithsonianmag.com//filer/de/21/de21968a-e912-499b-b2bf-c063c92add05/uluru_waterfall.jpg__800x600_q85_crop.jpg only happens about once every 50 years or more.
To psychically see that is a gift from the gods.
√
Unfortunately you are delusional. We just like the lazy word OZ as shorthand. No one here thinks it reflects what we think. The best description was “The lucky country” said by author Donald Horne, who added “and run by a second rate people”. This was back in 1960.
I’m heading to Australia by freighter next month…about 5 weeks at sea from East Coast USA…and then a few months in country. It will be interesting to see which comments about life in OZ hold up…perhaps I’ll post a few observations here.
And thanks for the wonderful site Wolf…always informative and entertaining.
Sounds like an awesome journey. We have quite a few readers in Australia. So keep us posted.
Have fun when you get here. Lot’s of things to see around the country. Some good, some bad.
Prices will be high for most things. The food and service will probably be a big let down.
If you get to the Melbourne area I’d rec a few side trips to see the Yarra Valley and Morning Peninsula areas.
The city will be a mess from all the construction going on and unlike other big cities (Yes, Cyrus Melbourne is a big city with over 4 million people in it!!) we don’t have a rail from the airport to the City.
Lack of Rail from Melbourne airport was not a problem…plenty of buses running all the time. I did not have traffic either, I arrived in the morning.
Well with all the construction going on now people are advised to allot an extra 40 minutes each way to the airport…………..
Buses are available 24 hours a day and the cost is $A35 round trip from the airport to Southern Cross Station.
Time varies – about 30 to 40 minutes according to their web site. Just hope there are no crashes when you travel!!!
I loved visiting Australia but on the other note I have few constructive criticisms. First hotels except ironically in Tasmania ( for some people the end of the world) had poor internet service for which in some places you had to pay. Second T mobile network which I use in US( Bergn County NJ and Manhattan and I have 4 LTE everywhere) provided me with 3G speed and my God I forgot how slow it is. It maybe not Australia’s fault ( do not know coverage of Australia with high speed internet) it could be cheap T mobile not allowing me to use 4G but if you go there and need fast internet make sure you talk first to your mobile network provider.
Third and really last thing that kinda annoyed me was restaurants. A lot of them not all do not have real waiters, waitresses :) since they require you to pay first and they give you a number and than bring food to your table or you have to bring it yourself. In US I saw it in some fast food places this kind of set up. What is annoying and I think they loose a lot of money this way is I usually like to keep ordering new things or more beer. But why you must stand in line again to make an order you just keep moving…
Don’t worry about the over supply .. middle class & upper middle class migrants are being sought & brought into Australia continuously.
It is the Australian buyer that has problems buying a home in Australia. The propaganda spewed forth by mainstream is that young Australians cannot manage to save the deposit.
Not true .. they have money .. there is a dead rat somewhere .. the Australian real estate market reeks of it.
My niece .. 30 years old & female .. just purchased a tiny apartment on the outskirts of Melbourne central as a property investment .. $400.000 plus.
Her father is a real estate agent.
What the Australian government need to do is step up migration & bingo .. only that they fear .. our response .. we the people .. so they sneak around cloak & dagger style.
Hey Wolf, great article. I think you are spot on in determining that Brisbane does indeed have an oversupply of apartments and things will get ugly, particularly in 2017/2018 once settlements start falling through due to increased regulation locally in Australia and a major crackdown of funds leaving China for aussie shores.
Another issue is the major debt which is now carried by Australian households https://www.buildsydney.com/when-will-australian-housing-bubble-burst/ where it states that the market has all the classic signs of a bubble including denial a bubble exists. We have some of the highest household debt in the world, Australia’s property prices are directly correlated to an increase in mortgage debt. Interest rates being at record lows have also not helped the situation.
Speak to anyone on the ground in Sydney and they will laugh in your face if you told them their property prices will drop.
The simple fact is Australia has not had a recession for 25 years and in this time property prices have had to major correction downward, people simply don’t know what it is like for their houses to be worth less than they bought it for (with the exception of Perth over the last 2 years).
There are scary times ahead for the Australian property market over the next 2-3 years.
Historically, house prices rise as salaries rise. That is why this boom is false. Salaries have flatlined for the last 5 years. The “boom” is based solely on artificially low interest rates. Many people believe interest rates will never rise. A quick check of history suggests otherwise. Caveat emptor
“:Historically, house prices rise as salaries rise. ”
Aye, and look at the average salary average house price 1970 and now. In all the major ANZAC centers.
The change in ratio is UNTENABLE long term.
There are three major speculator groups responsible for most of the ratio change:
The Japanese who came and went, many of them without their shirts.
The American’s who are still in the party but not as a major any more.
The chinese who have done huge untenable damage to the affordability ratio’s for the ANZAC States national working Citicen’s.
Wages or prices either way those ratios must go back or you will see Aggressive, unpleasant and even Racist, Protectionism, Particularly in Australia to force them back.
Every Street in any half decent suburb, in Auckland and Sydney, has at least 1 long term vacant property, belonging to a non-resident chinese speculator. Squeezing citizens rental and owner-occupier option’s. ENOUGH ALREADY.