Australian Housing Illusion Set to Burst
Possibly driving an already weak economy into recession.
Every day, we have investment banks and others telling us that the Australian housing party is over. Estimates for price declines over the next year or so vary from 7.5% to a plunge of 25%.
Even the Reserve Bank of Australia is in on the act. But it is trying to put a positive spin on any downturn after having for years encouraged new house and apartment construction as being “good for the economy.”
The full impact of new housing supply will not be felt for a year or so. It is almost certain that there will be a major surplus when everything now under construction is complete. This is a bad omen for the Australian economy, where building and selling of houses and apartments has been playing an outsized role.
Macquarie Bank has estimated that new supply will be greater than 200,000 dwellings, whereas demand will be 170,000 to 180,000.
The effect: downward pressure on both house prices and rents; and possibly, an already weak economy driven into recession. There are many signs of a coming downturn:
- For Sale signs are springing up everywhere.
- Auction clearance rates continue to decline. In parts of Sydney it is down to 40%.
- More properties are now being bought by investors, mostly domestic, than by owner-occupiers.
- Household debt has soared, it is now around 140% of income.
- The house-price-to-income ratio is a stratospheric 6.4 times.
- Rental yield is now around 1% after costs.
- Some banks have raised mortgage rates in an attempt to calm the market and are charging investors more than owner-occupiers.
- The big four banks have recently raised $18 billion to help cover potential losses from the housing market.
- Some sell-side analysts now have the big four banks as a sell because of housing exposure.
…click on the above link to read the rest of the article…
