The Party’s Over For Australia’s $5.6 Trillion Housing Frenzy
Early this month, we discussed whether the world’s longest running bull market – 55 years – in Australian house prices had come to an end. This was UBS’s view following the October 2017 monthly report on Australian house prices from CoreLogic suggested that measures to tighten credit standards and dissuade overseas buyers (especially Chinese in Sydney and Melbourne) have finally begun to bite. As CoreLogic’s summary table shows, Sydney prices fell in October, for the second month running, and poised to lead national prices lower.
We followed up that discussion with “Why Australia’s Economy Is A House Of Cards” in which Matt Barrie and Craig Tindale described how Australia’s three decades long economic expansion had mostly been the result of “dumb luck”.
As a whole, the Australian economy has grown through a property bubble inflating on top of a mining bubble, built on top of a commodities bubble, driven by a China bubble.
Now Bloomberg has followed UBS in calling the end of the bull market, while showing some of the frankly scary metrics for Australian housing versus the country’s GDP.
The party is finally winding down for Australia’s housing market. How severe the hangover is will determine the economy’s fate for years to come. After five years of surging prices, the market value of the nation’s homes has ballooned to A$7.3 trillion ($5.6 trillion) — or more than four times gross domestic product. Not even the U.S. and U.K. markets achieved such heights at their peaks a decade ago before prices spiraled lower and dragged their economies with them.
Australia’s obsession with property is firmly entrenched in the nation’s economy and psyche, fueled by record-low interest rates, generous tax breaks, banks hooked on mortgage lending, and prime-time TV shows where home renovators are lauded like sporting heroes. For many, homes morphed into cash machines to finance loans for boats, cars and investment properties. The upshot: households are now twice as indebted as China’s.
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