The Housing Bubble

A weekend topic starting with Steve Keen, an Australian economist and author. “Australia’s central bank, the RBA (Reserve Bank of Australia) didn’t have to rescue its economy from the crash, because prompt fiscal action by the Australian government (and re-starting the housing bubble via a bribe to entice first-home buyers into the market) stopped the private sector deleveraging that caused the crisis everywhere else. So Australia’s long boom since its last recession in 1990 was prolonged by continuing its private-debt bubble.”

“However, this isn’t how the RBA interpreted Australia’s success. Because its chieftains are as blissfully unaware of the importance of private debt to macroeconomics, as was Ben Bernanke (and I know this from personal interactions with them at up to the deputy governor level). Instead, Australia’s apparent success led its political and economic pundits to believe that the GFC was not in fact a global phenomenon, but a ‘North Atlantic Financial Crisis’ due to how poorly financial systems were managed in the US and UK, versus their excellent management in Australia.”

“Ha! The real reason that Australia (and Canada) avoided the worst of the GFC is that they kept on drinking the Kool-Aid that caused it: private debt, and especially household mortgage debt. Whereas the other Anglo-sphere countries which had serious crises in 2007-08 (the US, UK and Ireland) have reduced their household debt levels since then, Canada and Australia have continued to lever up – Australia to the spectacular level of over 120 percent of GDP. This additional leverage is what has kept the housing bubbles alive in both these countries well after they burst in the rest of the English-speaking world. But it’s starting to turn in both states now.”

From Nine Finance. “The number of properties being sold at or above the magic $1 million mark has plummeted as Sydney and Melbourne’s more expensive properties struggle to find a buyer. New data from CoreLogic shows that over the 12 months to June 2018, just 16 percent of all houses and 8.8 percent of units sold nationally cracked seven figures. At the peak of the market in March 2018, a staggering 50.4 percent of all houses in Sydney sold for at least $1 million or more.”

“Analyst Cameron Kusher said things are only looking worse for owners hopeful of pulling a record result from the auctions market in the coming months. ‘With dwelling values declining and much more rapid declines across the most expensive housing stock it is reasonable to expect the share of $1 million sales to trend lower over the coming year,’ said Kusher. ‘This will be driven by weakening in Sydney and Melbourne. Smaller capital cities are also likely to continue to see the share of $1 million sales climb further too.’”

From Sunday Telegraph. “Although the clearance rate yesterday was 56.9 per cent — 5.92 per cent lower than last week — it disguises some of the auction misery. Many of the deals were stitched up ahead of the big day. Vendors are also having to lower their reserves at auction. The most significant drop was 34 per cent in Leppington, in the heart of the state government’s South West Growth Area.”

“Investors who bought into estates several years ago are trying to cash in but are competing with a sea of house-and-land packages in newer suburbs. ‘I’ve been selling property for 20 years and been through a few downturns, but not coupled with this rapid new development we’re now seeing, Ray White’s Julie Latham said. ‘Vendors are starting to adjust their expectations, but the market is falling faster than what their expectations are.’”

“Tommy Sipina of McGrath insists he is still achieving sales within four to six weeks, provided homes are marketed well and priced right. He sold a four-bedroom family home at 25 Jamboree Ave, Leppington, to young Horsley Park couple Brendon Inthachack, 23, and his partner, Tayla Hancock, 24, at the lower end of the $830,000 to $860,000 price guide, Mr Inthachack, who sells real estate for Ray White Erskineville, thinks he’s on a winner long-term.”

“‘It’s going to have good capital growth in the future because there’s so much infrastructure going in,’ he said.”

“The second-biggest drop in house values was 12.2 per cent in Campsie and, interestingly, it was exactly the same in North Bondi. The biggest drops for apartments have been 21 per cent in Hunters Hill, followed by 13.4 per cent in Concord in the inner west, and then 12.7 per cent in North Sydney.”

From The Advertiser. “Adelaide’s northeastern property market is facing a glut of townhouses, according to three leading area-specialist agents. Tom Hector of Harris Real Estate, Gary Musolino of Real Estate Partners and Tony D’Angelica of Harcourts Glynde say heavy sub division developments in the Campbelltown council area have resulted in a market flooded with two-storey high density housing that lacks broad market appeal.And it is starting to affect price. ‘What we’re finding at the moment is the prices have definitely softened for townhouse development,’ Mr Hector says.”

“Campbelltown Mayor Simon Brewer said developers only built what they thought they could sell and that no one was forcing them to subdivide or build particular types of properties. ‘If speculative developers have overextended then it’s a case of not reading or adapting to the changing market very well.’”

From the Daily Mercury. “Queensland’s cheapest house has been sold for less than the price of a new hatchback. The property at 19 Hardwicke St in Hughenden was listed for sale in ‘as is’ condition for $18,000. Ray White Richmond agent Alison Vohland said the property was now under contract, and had sold ‘for less than $18,000.’”

“Another property on Ms Vohland’s books is 52 Brodie Street, also in Hughenden. The three bedroom cottage is on the market for $24,900 and sits on a 1012sq m block. To put that in perspective - that amount of land alone could set you back over $20 million in some of Sydney’s most expensive suburbs. Another house at 38 Brodie St in Hughenden is on the market for $40,000.”

“In the mining regions, a search for jobs yielded 1430 mining-specific listings on employment website, seek.com.au Of those, 550 job ads were listed for Dysart, where the median house sales price has fallen from a whopping $330,000 at the height of the mining boom to just $71,000. Raine and Horne Moranbah agent Emmarina Watene has 4 Roper Court, which is on the market for $70,000. ‘I have had some interest, mostly from investors down south,’ she said. ‘I feel like we have hit rock bottom now and we should hopefully start seeing some improvement.’”