(Bloomberg) Sep 12, 2011 — Australia, where home prices are falling at the fastest rate in more than two years, may have a glut of properties and be set for a U.S.-style crash.
The warning from tax-reform advocate David Collyer, commentator Kris Sayce and academic Steve Keen contrast with banks and developers that say a shortage of about 200,000 homes will underpin prices.
The housing bears say builders and lenders are pushing flawed government data to keep prices afloat in the English-speaking world’s costliest place to buy a home. “It’s important for the government and banks to keep the myth of a shortage alive,” said Sayce, editor of Melbourne- based online newsletter Money Morning Australia. “Without it, prices drop, and negative equity results in housing repossessions and insolvent banks.”
More than two-thirds of the government’s shortage estimate arises by including people who can’t afford housing, such as the homeless or those living in trailer parks, Sayce said. Collyer at tax-reform lobby group Prosper Australia says there’s actually a surplus of more than 250,000 dwellings after 15 years of overbuilding, while Keen argues the shortage estimate is swollen by inflated demand from handouts to property buyers of as much as A$21,000 ($21,700).
Banks in Australia have more than A$1 trillion of housing loans outstanding, with the four-biggest lenders accounting for about 87 percent of the total. The Australian Bankers’ Association said it doesn’t have a position on the so-called housing shortage myth and declined to comment.
Australia has the most unaffordable homes in the English- speaking world, Illinois-based consulting company Demographia said in January, with homes costing 6.1 times the average annual income. The median price of apartments and houses in Australia’s eight state capitals has declined 3.4 percent in 2011 -- the most since 2009 -- to A$455,000 in July, according to a report from Brisbane-based researcher RP Data on Aug. 31. The average full-time workers’ annual earnings is about A$70,860. The ratio of household debt to disposable income in Australia is 155 percent, higher than the 133 percent Americans accumulated at the height of the subprime mortgage boom. Demand for housing credit in Australia has plunged to the slowest annual growth pace since central bank records begin in 1977, data Aug. 31 showed.
[...] The Housing Industry Association, a Canberra-based builders’ group, said on Sept. 1 the nation will have a shortage of about 500,900 homes by 2020 if it continues to build at the pace it has over the past 20 years. The greatest shortages will be in Brisbane, Queensland; Stirling, Western Australia; and the Gold Coast in Queensland, the group said. Recent statistics show that projection is doing little to buoy prices or lower delinquency rates in those areas. Prices in Brisbane fell 6.6 percent in July from a year ago, the biggest decline among Australia’s capital cities, according to RP Data figures. House prices in the Gold Coast dropped 5.4 percent and apartment prices plunged 7.7 percent in the year to March 2011, RP Data said in a July report. Stirling, a suburb 10 kilometers north of Perth’s city center, was among the 100 worst postcodes in Australia with mortgage repayments more than 30 days late as of March 31, according to Fitch Ratings. Across the nation, home loans more than 30 days overdue rose to a record 1.79 percent of residential mortgage-backed securities in the first quarter, while the number of riskier “low-doc” loans more than 30 days late climbed to a record 6.74 percent, Fitch said in May. Bank Research Westpac Banking Corp. (WBC), Australia’s second-biggest lender, in an October report on the nation’s housing market estimated a shortage close to 200,000. Commonwealth Bank of Australia (CBA) and Australia & New Zealand Banking Group Ltd. (ANZ) -- the largest and third-largest banks -- have also published reports in the past year that attribute the run-up in prices over the past decade in part to an undersupply of housing.[...]
‘The Block’ — one of Australia’s top-rated television shows -- highlighted the housing market’s recent malaise. The series followed four couples as they renovated homes to attract the highest price at auction over set targets. More than 3 million watched the finale on Aug. 21 as just one of the four homes sold, for A$855,000, versus its A$840,000 asking price. Australand, Stockland (SGP) Australia had a total of 377,315 homes listed for sale online in July, a 22 percent jump from a year earlier, according to SQM Research. The percentage of successful sales at auction - - a common sales method in Australia -- in the week ended Aug. 21 was 50 percent, down from 60 percent a year earlier and 78 percent at the same time in 2009, according to RP Data.
Developers including Australand Property Group (ALZ), Stockland and Meriton Pty, and developer-backed Urban Taskforce Australia, are among groups arguing an undersupply of homes will underpin prices.[...]
Prosper Australia’s Collyer says there’s actually an excess of 256,324 homes, equivalent to double the housing stock in the nation’s capital, Canberra. That’s because Australia has built one new dwelling for each 2.32 new people for the past 15 years, Collyer said, more than is needed for a nation with an average 2.66 people per home.
“When residential property prices blow into a bubble, the tragic error often made is in attributing price rises to housing shortages,” Melbourne-based Collyer said. “The U.S. experience shows this conviction is shattered as soon as price declines begin.” Prosper Australia’s documentary ‘Real Estate 4 Ransom’ is scheduled to play in cinemas in Sydney, Canberra, Melbourne and Hobart this month and next.[...]
More than 100,000 properties lie vacant across Australia, 46,220 in metropolitan Melbourne alone, according to Karl Fitzgerald, director of Earthsharing Australia, a subsidiary of Prosper. The group’s estimate is based on the number of homes that used less than 50 liters (13.2 gallons) of water a day between July 1 and Dec. 31. Credit, Supply “When a credit bubble has been created, the only things that keep it growing are more credit and the belief that the commodity is in short supply,” Sayce, who has been warning of a collapse since late 2008, said.
“Credit supply has grown exponentially and is starting to taper off, so all that’s left is the shortage argument.” Sayce expects home prices will fall by as much as 40 percent from their peak in the second quarter of 2010. Money Morning Australia offers commentary on financial news -- paid by advertisers -- to 87,000 subscribers.
The government’s first-homeowner grant and a resulting spike in mortgage debt have created a false perception of under- supply, according to the University of Western Sydney’s Keen [...]
As the global credit freeze dented Australian home prices, the government doubled the grant in October 2008 for those purchasing existing homes, and tripled it for buyers of newly constructed housing. Home prices jumped 13.6 percent in 2009. “Households simply can’t and won’t take on more debt relative to income than they already have,” said Keen, an associate professor in economics who is publishing the second edition of his book Debunking Economics in October. “So this avenue for profits for the banks has come to an end.” Keen, who said his Debtwatch blog draws an average of 200,000 hits a day, sold his Sydney apartment in the inner-ring Surrey Hills suburb in 2008, missing out on further gains over 2009 and into 2010. He walked 224 kilometers (139 miles) from Canberra to the top of Mount Kosciuszko in April 2010 after losing a bet made in November 2008 that home prices would drop 40 percent to then Macquarie Group Ltd. economist Rory Robertson. “Dr. Keen continues to bang his one-dimensional drum on the Australian housing market, still oblivious to the stark differences between the situation in Australia and what occurred in Japan and the U.S.,” Robertson, who no longer provides housing forecasts in his current role as an economic analyst at Westpac, wrote in an e-mailed response to questions. “Most economists are not so silly as to literally ‘bet the house’ on an economic forecast,” said Robertson, who has owned his own home since 1999.And here are quotes from another aspect of the whole Bubble Economy and Denial: the job market and the politicians.
Sept. 12 (Bloomberg) -- Australia’s rise in unemployment last month doesn’t fully reflect the demand for workers in an economy that “continues to outperform” the U.S. and Europe, Treasurer Wayne Swan said.
“Recent jobs data has underestimated the strength of demand for labor in our economy given an increase in working hours,” Swan said yesterday in his weekly economic note. Australia’s jobless rate jumped to a 10-month high of 5.3 percent in August, the second straight monthly rise, according to a government report Sept. 8.
Prime Minister Julia Gillard’s administration is trying to counter declines in consumer and business sentiment that last month helped lift the ranks of the jobless to 636,800, the most since October. [...]
“On top of this, the lingering effects of the global financial crisis and continuing international uncertainty have resulted in Australian consumers being a lot more cautious in their spending,” Swan said. “This is making life harder for sectors like manufacturing, tourism and retailing.” [...]
Swan also said a tax forum he’s convening next month will focus on ways to keep Australia’s government debt under control. “We’ve seen how important it is to maintain a strong budget position in recent months as the United States and Europe have struggled to get their public finances on a sustainable footing,” he said. “The government will not be in the cart for any measures that compromise our strict fiscal discipline.”Denial is not going to change anything. The report also mentions
- that the AUD strength is hurting exports
- that the borrowing costs are too high.
Expect the RBA to decrease rates to support banks during a collapsing property prices cycles and to help exports. The AUD will take a major hit in consequence of these actions.
Finally, the shift in mood has occurred and things will go downward from here. Here's an example showing the negative mood in action:
Sept. 15 (Bloomberg) — Australia’s central bank, which pays its governor more than Federal Reserve Chairman Ben S. Bernanke and European Central Bank President Jean-Claude Trichet combined, will for the first time lose its sole power to set compensation for its board and executives, Treasurer Wayne Swan said.
The salaries at the Reserve Bank of Australia will be fixed within benchmarks that exist in the Remuneration Tribunal, a body that decides how much politicians and civil servants earn, Swan said. The independent authority determines, reports on or provides advice about pay, including allowances and entitlements for federal lawmakers, judicial and non-judicial offices of federal courts and tribunals.
[...] The move is a culmination of months of debate over central bank salaries, with lawmakers including Bob Katter of northern Queensland state saying RBA Governor Glenn Stevens’s pay increase during the global financial crisis was “outrageous.” Swan wasn’t told until almost a year after the central bank chief got a A$234,000 ($239,000) raise in October 2008.The savings generated are meaningless and the wasted time (paid for, by salaries) enormous. The fact is that lawmakers are attacking the Central Bankers via their salaries and they show the negative perception of the Central Bank is well entrenched. Having the Central Banks under attack is a good thing!
The RBA chief’s 2010 total compensation was A$1.05 million, with an A$805,000 base salary. Trichet was paid 367,863 euros ($504,900) last year, 2 percent more than his 2009 salary, according to the ECB’s annual accounts published in March. Bernanke earned $199,700.