Asset Bubble

Is This the Deepest Asset Bubble in History?

Australia looks like it is about to fall victim to a massive correction in the property market.

MacroBusiness writes:

Australian property is one the widest and deepest asset bubbles in the history of capitalism. Any objective assessment of this “market” can lead to no other conclusion.’

The Reserve Bank of Australia (RBA) continues to be typically ambiguous on housing despite having identified a glaring ‘unit glut’ in Sydney and Melbourne.

Dr Kearns, the RBA’s head of Stability, speaking to a group of Aus-China Property Investors said on Tuesday:

It’s not clear whether the net increase in demand by foreign buyers actually constrains the market in the long term.’

Does anyone have the slightest idea of what that means?

What is clear, however, is that huge numbers of first homeowners are being locked out of the housing market in favour of investors who often leave their premises vacant.

The property market is experiencing such massive distortion that vacancy is rewarded with a premium. Prospect Australia believes that, in Melbourne, as many as 80,000 homes, units and business premises are being left deliberately empty. In Sydney, 90,000 properties are ‘speculatively’ vacant. Across the country the estimate is over one million.

It’s an obscenity.

There is no doubt that overseas investors are part of the problem driving unaffordability.

According to the National Australia Bank (NAB), between January and April 2017, foreign investors bought more than 10% of all new housing in Australia. In NSW, foreign investors accounted for 25% of all new housing.

Credit Suisse says 80% of those investors were Chinese.

The Australian Financial Review recently reported:

In Australia, 70 per cent of Chinese buyers pay in cash and they represent the largest proportion of foreign purchases in the country.

In their March 2017 report, Transparency International named Australia as the ‘worst money laundering property market in the world.

With foreign investors showing loyalty to their money, a possible downturn in the market could see them ‘liquidate’ their assets.

Revealingly the RBA’s Dr Kearns said that this may ‘...amplify [the] cycle’.

Moreover, while household debt has skyrocketed, household income has flatlined.

Since 2008, income growth has fallen from 11% to just 3% in the three years since 2015. Employment growth barely registered at 1% in 2016, and unemployment is set to remain stagnant or rise.

While the RBA expects that interest rates will remain flat, any rise, however modest, will see mortgage defaults rising substantially.

Digital Finance Analytics reported in October:

Across the nation, more than 910,000 households are estimated to be now in mortgage stress with 21,000 of these in severe stress. This equates to 29% of households…

NSW had the highest number of households under stress (242,399) followed by Victoria with 250,259, Queensland with 162,726 and WA with 121,393.

Households are considered to be under stress when their net incomes do not cover their costs, including their mortgage repayments.

Most experts are now sounding the alarm bells.

Jonathan Tepper, chief executive officer at research firm Variant Perception, recently described Australia’s housing sector in a single word:


Duncan Wade

Duncan Wade

Duncan Wade has been working in the publishing and newspaper industry for 30 years. During that time, he has worked for numerous publications, mostly in regional areas. He has an interest in the big issues, the economy, politics and defence. Duncan believes that Australians have been extraordinarily lucky over the years, but there are some serious challenges on the horizon. He is a father of three girls, lives in a regional area and previously a tragic of his beloved Lions — the Fitzroy Football Club.

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