Australian Real Estate Bubble Bursting?

The land of Oz is called the Lucky Country, and it could not have been clearer during the past two years as the Great Recession barely touched the shores down under. In the past two months, however, the real estate market has taken a sharp dip, and may be signaling the beginnings of trouble. Could there be danger lurking just below the surface?

This drop has been essentially ignored in the global business press as the travails of the Euro, the fall of stocks and the repudiation of Obamanomics by G20 have led the headlines. Softness in the Oz property market began earlier this year as the central bank raised rates, causing a slight drop in price of 2.7% in Q1. Recently home sales have dropped and a glut of homes has emerged in major cities, including Melbourne and Brisbane, although not in Perth, the center of the resource river to China. 

The tenor of these stories is still positive, and it seems the newspapers down under got more animated over a rainfall of drunken parrots than the potential drop in housing. Such should be expected in a Lucky Country - bad news needs to slap them in their faces to be taken seriously. But I have heard anecdotal evidence of sharp drops in the 15-20% range, such as from this recent comment, and the softening of the market is leading to predictions of a "record fall in house prices" in Q3 and Q4. A similar fall is also seen for the other Lucky Country, New Zealand. 

There have been warnings, such as a warning reported in early May in The Australian. The most interesting debate has been between the Roubini of Oz, Steve Keen, and plenty of glass-half-full property pundits. Keen has been very visible in Australia warning of a housing bubble as early as 2008, and has suffered the Chicken Little fate of being premature in his calls. He lost a bet on the price collapse and had to endure his Walk of Shame recently. He may now be getting ready for the last laugh, as his predictions seem to be starting to be realized. 

Keen notes how Jeremy Grantham just pricked the Oz real estate bubble, and uses the following chart to show how bubblicious Oz property has become: 

It is clear that Oz property has been on a tear, but the cause is not the Lucky Country so much as playing catch-up with US mortgage debt levels. Since 1990 Australians have increased mortgage debt as a percent of GDP three times faster than the US, and have now reached similar levels to those of the peak of the US bubble in 2006. It is clear that not all the drunks are parrots - the whole country has been on a bender:

Steve Keen attributes the rise in part to gimmickry of each new Prime Minister: first the Hawke government (Labour) in 1988 pushed an incentive for homebuyers that spiked sales; then the Howard government (Liberal) repeated this in 2001 (not, however, as a way to launch his new government since he had been in power for a while by then, but as part of post-dot-com reflation policies), and now Rudd (Labour) began his short regime with a similar giveaway to create happy voters following the change of government: 

 

The last twelve months have shown, however, an accelerating fall in loans to homeowners (vs landlords), meaning real demand is falling below actual supply. Rudd's incentive last year cleared out the buying interest, and along with those drunken parrots the sky may be beginning to fall on the Australian property owners:

Comments

[molecool]

Good work - btw, it's a dolphin. The dorsal fin of a shark is rarely that nicely curved.

[Roger D.]

China,Canada,and down under,who else?

Roger D.

[Whitebear]

Those people that have been bearish on Vancouver, Canada real estate has been wrong for so long that listening to them is like listening to Pretcher preaching how the Dow Jones should go to 2000 since 1990.

You can go to any of the vancouver housing blog for comments from bears. They have been saying that Vancouver housing should drop since 2005. Where is the drop? My enquiring mind would like to know. When will it happen? Don't tell me that it will drop some day since it is like predicting it will rain some day.

Mind you. Vancouver Single Family House averages 1M now. http://www.yattermatters.com/real-estate/another-vancouver-record/

[Wave Rust]

futures broken low with some momentum
points to sp at new lows rth
980 gaps for wednesday low

wave rust

[Roger D.]

"Those people that have been bearish on Vancouver, Canada real estate has been wrong for so long that listening to them is like listening to Pretcher preaching how the Dow Jones should go to 2000 since 1990.

You can go to any of the vancouver housing blog for comments from bears. They have been saying that Vancouver housing should drop since 2005. Where is the drop? My enquiring mind would like to know. When will it happen? Don't tell me that it will drop some day since it is like predicting it will rain some day.

Mind you. Vancouver Single Family House averages 1M now. http://www.yattermatters.com/real-estate/another-vancouver-record/"

They said the same thing about bay area real estate. Now it's finally cracking. Bubbles always collapse, Ihave never seen one that hasn't,even Debeers will come down in this wave and that will be someting.

Bloomberg tonight:

Deficits Shrinking Most in Decades as Growth Lets S&P 500 Rally

Who rights this crap? Pravda refugees?

Rogoff Says China Property Starting to ‘Collapse’

" China’s property market is beginning a “collapse” that will hit the nation’s banking system, said Kenneth Rogoff, the Harvard University professor and former chief economist of the International Monetary Fund.

As China’s economy develops, “especially at the speed it’s growing, it’s going to have bumps,” said Rogoff, speaking in an interview with Bloomberg Television in Hong Kong. He also said that while recoveries across the global economy are “very slow,” the danger of a return to recession isn’t “elevated.”

Now does the 1st paragraph jive with the 2nd paragraphs conclusion;"Isn't elevated"

I guess they think the majority of people are dumb or we think these guys are too smart.

http://noir.bloomberg.com/?b=0

[Danny]

Norway is also a country where the real estate prices seem to never want to stop increasing.

[JT]

Roger,

Come in 200% short for yet another collapse? How's this morning's opening working for you?

[Steven_737]

It appears that wave 4 of (1) retraced a little more than 38% of wave 3 of (1) and tested the 1040 level.

One may expect that a retracement to ES 1020~1024, SPX 1024.5~1029 is in order.

If this is the w of wave of 4 (somewhat unlikely as the correction has already taken 2 days) than the y of 4 will attempt to reach the 50% retracement of wave 3 at ES 1043, SPX 1047.5

cheers :)

[Roger D.]

JT, I'm fine.

The big banks aren't buying the REIT's, so this market is poised for a reversal.

Roger D.

[Steven_737]

Of course this could be iv of 3

:)

If so, then iv of 3 could be already complete at 10:15 EST top

SPX pivot at 1023.75, crossing below is teltale of weakness.

[Roger D.]

The DAX has got a reversal in progress.

Roger D.

[Roger D.]

That daily candle and finish on the DAX would give me pause as a bull. As a bear i would count this as a "c" up in a 1,2. The financials and REITS,especially the DJR look to have a 5 down from this mornings high.

Roger D.

[Roger D.]

In fact with the DJR heading down I stepped in and went short.

Roger D.

[Real.Estate]

There is an obvious lack of understanding of the supply and demand fundamentals for the australian market and you obviously have not looked at the impact of the recent dip on the australian dollar and how expats and foreign investors are looking at buying back in Australia. With the positive population growth and our migration policy seeing over 200,000 migrants that have wealth and are looking for secondary homes added to the fact that expats returning to the australia to live signals strong demand.

The interest rate rises are starting to hurt the local market and buyers as the proceed with caution and with the upcoming election people are sitting on their heels. Lets also remember the main selling season is not in Winter so demand does drop and has always dropped in winter!
What are the sharp drops and where Is this drop based on actual former sales or is it based on what vendors had been asking for the property and they have readjusted there pricing because they were too greedy? Are these numbers referring to investment properties/units or homes? Is it top end as this has been affected globally but does not represent the whole market.

I could go on and on but ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ.....

[Fred]

Some of your articles are 2 years old in saying Melbourne and Brisbane prices are falling, that's not current.
In Sydney prices are still astronomical and are selling before auction ie people are bidding high before auction to get the property. Anything above $3mill has come back but that is just a drop in the overall market.
I hope Steve Keen is correct as I can't see how my children could ever afford a home within 5 kilometres of the city centre.

[yelnick]

Fred, the articles are recent. The Brisbane one refers back to a 2008 drop but also gives current info

[Jordans 5]

use your crystal goblets.do not save your best perfume,and use it every time you feel you want it.