Macrobusiness

Auction Action – 7/10: How crook is the housing market?

Doesn’t time fly.

It has been over 2 years since the last “Auction Action” on the Glass Pyramid.

In June 2016 the Sydney property market was bubbling away furiously as noted in   Auction Action: Big Bubbles? No trouble!

Back in the winter of 2016 the RBA was enjoying the results of chopping down interest rates over several years, like dry tinder and feeding them to the property market bonfire.  APRA continued its fantastic impersonation of ‘Silent Bob’ by not asking the banks too many questions about their approach to credit approval (though to be fair APRA may have been swinging its ‘suasion’ wet lettuce behind the scenes to little effect).

Foreign investors (often incredibly liquid students) were flying in by the plane load to buy up residential property by the armful, and everything was just peaches and cream as those Aussies with a foot on the property ladder watched their ‘paper wealth’ rocket.

All the ‘right people’ were getting ahead of the average person and Mr Scott Morrison thought it was just fantastic. Praise be.

new-home-1540889_960_720

Yet with all that money being made so easily,  some people (including the entire editorial staff of the Australian Financial Review) are still wondering why we ended up having a Bank Royal Commission this year. A Royal Commission that quickly discovered that the banks had been spraying credit at anyone with a pulse and pilfering the wallets of many without one.

Panic stations?

Last week we heard the unsurprising news that the senior staff of the RBA and Treasury have been “pillow talking” with the Treasurer about the housing market and have let him know that they have some serious concerns about the health of the “Great Aussie housing bubble”. Though they apparently made it clear that they will leave no stone unturned to save the bubble. With an election on the horizon they know which side their bread is buttered.

In addition newspapers, televisions programs and meddling blogs are full of doom and gloom about how the world will surely end if the prices of Sydney and Melbourne real estate do not resume their trajectories to the outer edge of the galaxy.

Plus the Big Business Big Australia crowd have been out in force cranking out op-eds explaining to everyone that unless we continue to stuff our cities to the gills with population growth there is no way we can hope to stay ‘vibrant’, keep driving up the prices of housing and ensure our roads, public transport, schools and hospitals remain as congested as possible.   They also remind everyone endlessly that if you disagree with their people stuffing program you are clearly a racist.

So how bad is it?

The Sydney property market is certainly lacking the zip and zest it had in winter 2016.

Back in the frosty days of May – June 2016:

  • Clearance rates started with a 7 or an 8.   Not a 5.
  • The value of sales was almost double what they are now – and naturally agents commissions were a lot higher as well.  Those Audi leases must be paid for!
  • Hammer Time  was also much better in winter 2016 with usually at least 30% of the listed auctions selling under the hammer or shortly afterwards.  Only 16% sold under hammer this weekend.

1810-06 - Summary - May June

But what about compared to this weekend in previous years?

Comparisons between this week and the same week (weekend following the long weekend) over the last 8 years is not a source of joy for all those “mum and dad” speculators just trying to get ahead by the ‘buy-renovate-flip’ business plan.  See Tables 2 and 3 below.

  • Only 27% of the properties listed for Auction sold and the reported clearance rate was even lower than the 55% in 2011 before the RBA decided to get out the kero tin and get a fire going.
  • The average price was also lower than in 2013, 2014, 2015, 2016 and 2017.   A lot lower.   This week the average price was only $699,000. Whereas the average price was at least $900,000 and twice over $1,000,000 in the previous 6 years.

Table 2

181006 - Year on Year

Table 3

181006 - Hammer Time

So what happens now?

Considering that blowing asset price bubbles with household debt has been the only economic strategy pursued over the last 20 years by:

  • The government……mostly on the advice of Treasury
  • The Reserve Bank of Australia with its super cheap interest rate strategy
  • APRA curling up in a corner and muttering the magic words ‘suasion’, ‘stakeholders’, ‘industry partners’ etc etc.

We can be fairly sure that the plan now is to wait, until everyone has forgotten the Royal Commission and stopped paying attention to what the banks are doing, and then quietly let the Banks get back to what they do best.    Racking up hundreds of billions of dollars worth of offshore debt and external liabilities and use them to deliver more “bait rates” to the Australian public so they can load up and have a punt on housing.

To get the public excited the RBA may even throw a interest rate cut or two into the mix (though they don’t have too many left to play with), Scott and Josh will offer some sugar to first home buyers and APRA will go back to not asking too many questions or poking around the lending practices of the banks as they get back up and start “dancing” for market share.

Too easy.

If you want to know when the Australian housing market will crash try this.  Crystal Balls – When will Aussie house prices crash?

Categories: Macrobusiness

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