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As Investors Flee Australia’s Housing Bust

Scorpio

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#1
As Investors Flee Australia’s Housing Bust, Sales of New Houses Plunge to Record Low
by Wolf Richter • Jan 21, 2019 • 45 Comments

But first-time buyers cling to hope.
Sales of newly built detached houses in Australia plunged 6.7% in December 2018 from November, to just 4,622 houses, according to the Housing Industry Association (HIA), easily whizzing by the prior record low of 4,769 sales in August (chart via TradingEconomics.com):

In the fourth quarter of 2018, sales plunged 14.9% compared to the fourth quarter in 2017. On this year-over-year quarterly basis, sales fell in all states and territories. Here are the results for the most populous states:
  • Queensland: -26.5%
  • New South Wales: -18.8%
  • Victoria: -10.9%
  • Western Australia: -7.9%
  • South Australia: -0.3%
The HIA report blamed “regulatory interventions” – in other words, the long overdue regulatory crackdown on mortgage fraud, the Royal Commission investigation into wrongdoing at the banks, and a crackdown on excessive housing speculation – for the decline:

Regulatory interventions in the lending market restricted access to credit for some home buyers and this was the catalyst for the broader housing market slipping into the contractionary phase, characterized by a softening in prices and a drop in the number of property transactions.
The tighter credit environment has been a factor in the reduction in new home sales, but the deterioration in the broader housing market has also dented household confidence.
Would-be new home buyers are far more cautious and this translates into weaker demand for new housing.​
And this time it’s not rising interest rates that have caused the downturn: Mortgage rates in Australia are near record lows, and the policy rate of the Reserve Bank of Australia is stuck at a record low 1.5%.
Instead, the downturn was triggered by sky-high prices in one of the world’s most fabulous housing bubbles that smacked into a regulatory crackdown on some of the elements that had made those sky-high prices even possible: Mortgage fraud, bank wrongdoing, reckless lending, and excessive property speculation aided and abetted by the banks.
And so, as a consequence, the housing market in Australia, particularly in Sydney and Melbourne metros, has started spiraling down viciously.
And given these price drops – in Sydney, prices have already fallen by the double digits – and the regulatory crackdown, investors no longer have the hots for speculating in this market, and banks no longer have the hots for lending to them.
Interest-only mortgage were a favorite with investors. Then regulators limited the big banks in terms of what portion of their originations could be interest-only mortgages, and banks looked at speculators with greater scrutiny. And now, according to CoreLogic, interest-only mortgages have plunged from 45.6% of purchase-mortgage originations in 2015 to just 16.1% at the end of 2018.
This is by far the lowest investor share in the data going back over a decade. Even in 2008, during the Financial Crisis, interest-only mortgages bottomed out at a share of 27%.
New mortgage commitments to investors in December plunged by 17.9% year-over-year, according to CoreLogic, and are down nearly 33% from the speculative peak in 2015, before the crackdowns started. But wait…. Investors are still very active – just somewhat less so. The share of purchase-mortgage commitments to investors dropped to a still high 41.6%, but that’s down from the speculative peak in 2015 of nearly 55% (chart via CoreLogic):

But first-time buyers are still trying to buy, and demand from them has increased in 2018, according to CoreLogic, “on the back of incentives, falling investor demand, and falling values in the largest cities.” But in the big cities, they’re mostly limited to buying lower-end condos, and not single-family detaches houses.
So for now, much of the impetus for the deflation of the housing bubble comes from a portion of investors and speculators that are trying to stay out of the way of the steamroller.
While prices at the low end — realm of the first-time buyers — are hanging on, prices of more expensive homes are falling at a rapid clip. But it wasn’t the central bank that pricked the bubble. Read.... The Housing Bust in Sydney & Melbourne, Oh My!

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https://wolfstreet.com/2019/01/21/s...stralia-plunge-to-lowest-since-at-least-2001/
 

chomper

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#2
Housing prices have a lot further to fall in Australia, a perfect storm is brewing here but alas, the locals have their heads buried in the sand so deep, they can see their own asses. And this price downturn was triggered by just a small change of regulatory practices...

Unlike the US and Germany, Australia is on the verge of losing all manufacturing capability. Currently it directly employs 900,000 people and indirectly closer to 2.5 million. Considering the current workforce is approximately 12 million people strong, that's a Depression-era 25% unemployment level using official numbers; that number rises to over 30% when the bullshit criteria of classing someone as employed if they do at least one hour of paid work a week is removed.

That's when the retail sector collapses as it won't be able to sustain losing 25% of it's customer base. Those who lost their jobs in manufacturing will be joined on the dole queue by at least another 900,000 people. Retail however won't die, it will just shrink to reflect the purchasing power of the consumer base.

With the tax base collapsing, that's when the local federal government will be eyeing off the trillions in superannuation funds and making a play for those monies. Bailouts will be the order of the day and handouts to the unwashed will quickly evaporate these funds.
 
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chomper

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#4
please expand on that,
would like to know more,
Ford, GM (Holden) and Toyota up until 2017 used to manufacture cars from scratch in Australia. At the time of the closures, they directly employed about 20,000 people. In the grand scheme of things, that isn't a big number, but the suppliers to all three employed close to 250,000. These suppliers relied on their own supply chains, whose numbers aren't exactly clear. In any case, these component suppliers only existed as the big three provided the economies of scale required.

Textile manufacturing in Australia used to be massive, it peaked in the early 1970's and is essentially non-existent save for a few niche and/or boutique makers. The destruction happened on the watch of successive governments of either colour, initially with raw material being shipped to China, processed and sent back to be made into garments, but ending up with foreign raw material being processed and made entirely in China (and other low cost countries since).

Add to the two examples above tooling, industrial supplies, cleaning products, building materials and even food... big business has convinced govco that labour costs are far too high in Australia and as a result, they are moving production to low labour cost countries en masse. However, it is the small to medium businesses that hold most of what little capital is in Australia, the capital flight hasn't even begun...
 

Scorpio

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#5
Interesting stuff,

Much of the initial exodus here was due to labor and enviro nazis, the .corps could no longer pollute at will, so they moved the stuff off shore to hide the enviro damage they were creating.

But, over time, others seeing the possibilities then did the same thing, the rest of manufacturing started hitting the high seas.

All this was happening while Japan was the initial purveyor of 'free trade' which really wasn't free at all. They decimated whole industries here which is what the miracle of the 80's were for them. This coupled with the .corps here being stupid, fat, and lazy and it was a recipe for leaving. Of course they blamed it on the unions, and much of that was true, but in the whole, it was corporate largesse overall including labor.

from where I sit, it was always assumed Australia was just a resource farm for asia. I did not realize there was that much manufacturing and exporting from there.

which then also means you are seeing directly what we speak to also.

Thanks much!
 

DodgebyDave

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#6
the locals have their heads buried in the sand so deep, they can see their own asses.
Well played, good sir, well played indeed!

Aussieland losing its car identity is a damn shame. You boys had some respected, pretty cool and unique iron down under.


The Fords and Holden gave us the Mad Max interceptor/pursuit special.

Should gave seen CenterBrook drive in let out the night MM first showed!
 
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chomper

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from where I sit, it was always assumed Australia was just a resource farm for asia. I did not realize there was that much manufacturing and exporting from there.
It still is to a certain extent. The glory days of the mining boom where China and the rest of Asia were falling over each other to get their hands on Australian coal and iron ore are long gone; the sorts of numbers these days are far lower. Unlike Norway and their sovereign wealth fund that was created on the back of their oil resources, the local idiots essentially gave away Australian resources with no regard for the people of the country. Considering how much ore they exported, had they charged the mining companies an appropriate level of tax for extracting local ores, the Australian sovereign wealth fund could have been an order of magnitude larger than the Norwegian counterpart.

However, manufacturing was never a big export earner for the country. To use automotive as the example, it was purely for local purposes; any export opportunities were nixed by Ford or GM as they saw that Australian product would risk the ire of the UAW back home. Toyota though had a very healthy export program, they sent Camry and a few other models to the Middle East for many years; at one point, most of their local production was exported.

The powers that be in the wake of WW2 determined that self sufficiency as much as possible was preferable to relying on imports. So they encouraged foreign capital to flow in and set up local manufacturing of pretty much anything. Up until WW2, Australia relied on wool as it's big ticket export. And the elder statesmen of the time realised that Australia could no longer ride on the sheep's back. As a result, Australia defined itself on the economic miracle of manufacturing from the late 1940's through to the early 1980's. A house on a quarter acre wasn't a dream, it became the norm due to not only the level of employment available, but to the good money on offer.

The early 1980's is the time when the globalist cockroaches realised that they couldn't leave Australia to it's own devices as a prosperous and egalitarian country like what Australia had become was detrimental to them. Big business was convinced to move production overseas, the local government was subverted and policies like the Button plan (https://en.wikipedia.org/wiki/Button_car_plan) and the floating of the Australian dollar were rolled out. It is no coincidence that interest rates would hit 17-19% in the late 1980's and last through the early 1990's as the various governments of the country engaged in a debt binge and had nothing to show for it. The debt situation was sold as being such a perilous problem, that the state government of Victoria in 1992 began a sell off of pretty much anything that wasn't nailed down to pay off the debt.

The State Electricity Commission of Victoria (SECV) was the government authority that generated and distributed all electricity in Victoria. This department was self funded and returned healthy profits to the government day in, day out. Power prices were cheap, the grid was (proactively) well maintained and the generating capacity was far greater than any demand. The Victorian electrical grid was the envy of the nation and arguably, the world. I'm no fan of state-run anything, but they ran this so bloody well. Yet the Victorian govco of the time sold not only the golden eggs, but the goose, all for chump change. Fast forward to today and the Victorian power grid needs active intervention and load shedding when the temps go over 35 degrees (celscius) to prevent total grid collapse. The whole network is in such a perilous state, it is a miracle we even have power.

These are but a few examples of how multi faceted the cluster fuck Australia faces actually is.
 
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newmisty

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chomper

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Leave it to big government, the bloated, dumbass glutton.
Ordinarily I'd agree with you, but the rot had well and truly set in when Australia had a (relatively) small government at the federal level. The cocksuckers put their hooks in well before it became the bloated beast it is today.
 

newmisty

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Ordinarily I'd agree with you, but the rot had well and truly set in when Australia had a (relatively) small government at the federal level. The cocksuckers put their hooks in well before it became the bloated beast it is today.
Yeah, you're right, here's a more accurate version

Leave it to big government, the bloated, dumbass glutton.
 

chomper

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#12
I can wax lyrical for ages about this, as the owner of a small business, I have to have my ear to the ground and keep abreast of pretty much anything that comes across my desk.

As such, I would love to hear what the other Australians on here think about the situation.
 

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Zed

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And this price downturn was triggered by just a small change of regulatory practices...
... if you call reducing a borrowers ability to borrow by 40% small!
 

Zed

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#16
So far this thing is still in corrective territory price wise. Can't be called a bust, yet and its nothing like what went down in he US...yet. People are still quite confident in the long run, I'm guessing that will change significantly but... we wait and watch.