Oz housing market 4 times GDP, (UK 3.5 times).Party's over according to Bloomberg

[Sancho Panza]

This was posted in the Oz thread and is worthy of a thread of it's own imho.

Oz housing market 4 times GDP,UK 3.5.

Some choice quotes from the Bloomberg video

'Aus national obsession with property, banks eager to lend, part of the national psyche, TV shows on every night treating renovators like sporting heros.

Hattip Society of Fools

https://www.bloomberg.com/news/articles/2017-11-23/australia-faces-housing-hangover-twice-size-of-u-s-subprime-era

'The party is finally winding down for Australia’s housing market. How severe the hangover is will determine the economy’s fate for years to come.

 

After five years of surging prices, the market value of the nation’s homes has ballooned to A$7.3 trillion ($5.6 trillion) -- or more than four times gross domestic product. Not even the U.S. and U.K. markets achieved such heights at their peaks a decade ago before prices spiraled lower and dragged their economies with them.

 

Australia’s obsession with property is firmly entrenched in the nation’s economy and psyche, fueled by record-low interest rates, generous tax breaks, banks hooked on mortgage lending, and prime-time TV shows where home renovators are lauded like sporting heroes. For many, homes morphed into cash machines to finance loans for boats, cars and investment properties. The upshot: households are now twice as indebted as China’s.

 

So far, the Reserve Bank of Australia has relied on banking regulators to apply the brakes with lending curbs. It reckons the financial system is well-placed to withstand any shocks, but isn’t so confident on consumers. That puts it out of step with developed-world peers that are incrementally tightening policy, with Governor Philip Lowe this week making clear local interest rates aren’t going anywhere soon.

 

To be sure, there are key dynamics that differentiate Australia’s housing boom with those that soured in recent years around the world. Aussie banks can claim against other income and assets or chase individuals into bankruptcy if borrowers default. Tax deductions for interest paid on investment loans also support demand, as does a rich pipeline of demand from Asian buyers, especially Chinese.

But with prices in major cities like Sydney finally leveling off and a wave of new apartments about to hit markets in Brisbane and Melbourne, it’s worth taking a look at housing’s out-sized influence on Australia’s economy.

1. World Leaders

The weight of Australian homes on the economy is heavier than policy makers would like. On one hand, the dizzy valuations reflect a desirable location and strong population growth. But they also reflect the massive liabilities that are now tied to these assets. “The risk is that it leaves the Australian economy extremely exposed, and a minor shock could become far more significant,” said Daniel Blake, an economist at Morgan Stanley in Sydney.

2. Gung-ho Banks

The increasing treatment of housing as a financial commodity has seen borrowers rush into a byzantine maze of mortgage-related products. That’s made banks very profitable, but very exposed. While the RBA is satisfied that lenders have adequate buffers to cope with any downturn, banks may find it harder to value their collateral in a falling market as investors look to consolidate their portfolios of multiple homes, said Blake.

3. Borrowing Binge

Aussie households have racked up record private debts and aren’t getting the pay rises to help service them. That’s a core concern for the RBA and frequently cited as a deterrent for hiking interest rates. Macquarie Bank has said such debt levels mean any hikes will have triple the impact on consumers than tightening cycles in the mid-1990s. With retail sales looking grim and wage growth near record lows, debt will likely vex policy makers for years.

4. Out of Reach

Soaring prices have seen home ownership among young Aussies fall to the lowest level on record, squeezing out all but the wealthiest buyers. Fueled by cheap money, a lack of supply and a tax system that favors property investors, Sydney has vaulted past London and New York to rank as the world’s second-most expensive housing market. Sydney housing prices fell for a second straight month in October, while national values flat lined.

5. Still Building

While cranes dot the Sydney skyline for miles, the central bank remains confident that population growth will eventually fill all those new apartments. Its worries about a Melbourne glut have eased off recently, with the main concern in the Brisbane market, where peak completion is expected this year, capping a three-year period in which the number of apartments has increased by more than a third. Overseas buyers comprise up to 15 percent of new dwelling purchases nationwide, according to the RBA.

“Australia’s world-record housing boom is officially over,” UBS Group AG economists declared at the start of this month. “The cooling may be happening a bit more quickly than even we expected.”'

[North London Rent Girl]

3 minutes ago, Sancho Panza said:

3. Borrowing Binge

Huh, Switzerland, well I never. Anyone?

All lovely bear breakfast, thanks very much.

[TheCountOfNowhere]

24 minutes ago, North London Rent Girl said:

Huh, Switzerland, well I never. Anyone?

All lovely bear breakfast, thanks very much.

Switzerland whey Andy Sax Coburg invested the day before the currency shot up.

 

[Si1]

7 hours ago, Sancho Panza said:

To be sure, there are key dynamics that differentiate Australia’s housing boom with those that soured in recent years around the world. Aussie banks can claim against other income and assets or chase individuals into bankruptcy if borrowers default. Tax deductions for interest paid on investment loans also support demand, as does a rich pipeline of demand from Asian buyers, especially Chinese

Err

[deadasadodo]

A couple of friends live in Sydney. Prices are breathtakingly high and the general HPI frenzy seems even more intense than in the UK. Apparently the latest thing is to buy a house, demolish it then rebuild a new, larger house on the site - bit like the McMansions that were popular in the states a few years back.

Unlike the UK prices apparently drop off quite quickly as you get out of the major cities, but the transport networks just not good enough to make commuting a goer.

 

[Wayward]

1 hour ago, deadasadodo said:

Apparently the latest thing is to buy a house, demolish it then rebuild a new, larger house on the site

Seen a lot of this here in Hampshire...hence premium prices for bungalows with land.

[dropbear]

The housing stock in Sydney suburbs is usually 60s-70s fibro board or very outdated brick bungalows. For the most part they’re not really worth renovating. 

In Brisbane there are some nice older houses - queenslanders - that are often renovated. 

[Mrs Bear]

21 hours ago, Wayward said:

Seen a lot of this here in Hampshire...hence premium prices for bungalows with land.

In some of the most expensive roads in Kingston, some really nice but unpretentious older houses have been demolished and ghastly WAG palace types put up instead - massive pillared entrance, you know the kind of thing.  

[spyguy]

22 hours ago, deadasadodo said:

A couple of friends live in Sydney. Prices are breathtakingly high and the general HPI frenzy seems even more intense than in the UK. Apparently the latest thing is to buy a house, demolish it then rebuild a new, larger house on the site - bit like the McMansions that were popular in the states a few years back.

Unlike the UK prices apparently drop off quite quickly as you get out of the major cities, but the transport networks just not good enough to make commuting a goer.

 

Thats what i dont get about Oz.

Youve got huge amounts of money being pumped in yet the publuc metro transport is shit.

[deadasadodo]

Yeah - the trains out of Sydney (when I visited) were the same Intercity trains we've had in this country, but for some reason they crawl along at a really low speed. For house prices that seems to mean that towns that would be in the commuter belt here are relatively cheap, as you'd have to be nuts to endure the commute. It's ironic that a country with so much land, and so few people, has such an issue with housing costs.

With the McMansion thing my friend's point was that people were buying places to knock down, develop right up to the boundaries then sell on. I worked with an American guy a few years back and he said exactly the same thing was happening in the States before the crash.

[Toast]

43 minutes ago, spyguy said:

Thats what i dont get about Oz.

Youve got huge amounts of money being pumped in yet the publuc metro transport is shit.

I guess the money is getting pumped into land & house values, rather than much of it being captured through taxes by the government. Hence not much incentive for the authorities to spend on infrastructure to support it. If key decision makers own land or property in the booming areas, there may even be an incentive for them to (corruptly) keep the FDI geographically concentrated.

When I lived in the States, it was obvious that a lot of infrastructure was crumbling and run down, even though the people were wealthier than back in the UK, so public works and GDP don't necessarily correlate closely. In the US, that's also due to an abhorrence for any form of "socialism", of course.

[spyguy]

17 minutes ago, Toast said:

I guess the money is getting pumped into land & house values, rather than much of it being captured through taxes by the government. Hence not much incentive for the authorities to spend on infrastructure to support it. If key decision makers own land or property in the booming areas, there may even be an incentive for them to (corruptly) keep the FDI geographically concentrated.

When I lived in the States, it was obvious that a lot of infrastructure was crumbling and run down, even though the people were wealthier than back in the UK, so public works and GDP don't necessarily correlate closely. In the US, that's also due to an abhorrence for any form of "socialism", of course.

Oz has some miserable congestion. Made worse by being so hot.

[Fence]

"Article" seems to have some nice analysis but does not seem to mention why things are cooling?  Why and could that apply to the UK?

And why the comparison of household debt levels with....China?

Wow, Swiss debt level.  High very long term mortgages or what?

CB out of step?  Short the Aussie dollar?

Edited November 26, 2017 by Fence

[Si1]

17 hours ago, Mrs Bear said:

In some of the most expensive roads in Kingston, some really nice but unpretentious older houses have been demolished and ghastly WAG palace types put up instead - massive pillared entrance, you know the kind of thing.  

Indeed. When you divorce personal wealth from merit, and instead derive it from a credit bubble, you get chavvy tastes instead. Hot tubs and circular netted trampolines.

[Funn3r]

2 hours ago, Si1 said:

Indeed. When you divorce personal wealth from merit, and instead derive it from a credit bubble, you get chavvy tastes instead. Hot tubs and circular netted trampolines.

I do like hot tubs though. Went to outdoor one once in frozen Canada, floating in warm water bubbly water while drinking the other sort of bubbly, while your hair freezes, now that's weird. Also if you must have a trampoline the net is essential (safety.) 

[Guest]

7 minutes ago, Funn3r said:

I do like hot tubs though. Went to outdoor one once in frozen Canada, floating in warm water bubbly water while drinking the other sort of bubbly, while your hair freezes, now that's weird. Also if you must have a trampoline the net is essential (safety.) 

Slightly off topic.. if you buy a house with a hot-tub in the UK can you insist the vendor removes it? I can imagine they'd be a pig to remove and I certainly wouldn't want to keep it.

[Si1]

27 minutes ago, Funn3r said:

I do like hot tubs though. Went to outdoor one once in frozen Canada, floating in warm water bubbly water while drinking the other sort of bubbly, while your hair freezes, now that's weird. 

Fine in Canada. Not so sure about Blackburn.