An Australian Property Boom and Bust all at Once

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It just goes to show how confused things are on the ground when property developers and recent homebuyers are struggling while the economic talking heads babble about a renewed Australian property boom. Welcome to a world full of monetary distortions.

Well, Stockland (ASX: SGP), one of Australia’s largest property groups, provided a reality check yesterday with a profit downgrade. The reason? A weak Australian property market. Is that the same property market that’s been inflating for years and is apparently at risk of going bubble-like again because of a few interest rate cuts from the RBA?

Yes, that’s the one. If you’re confused, don’t worry. Australia’s housing market has some major structural problems. In an efficient housing market, higher prices (reflecting strong demand) should bring about an increase in supply. But that hasn’t happened. In fact, supply of new housing is very poor, given the decade long surge in Australian property prices.

Perhaps we need falling house prices — as in substantially falling prices — to reignite demand and bring about a supply response. And maybe if governments got their noses out of the property trough and encouraged new home construction (instead of just swapping existing homes in a credit fuelled boom) the Aussie property market might make a little more sense.

But what’s this? In an astounding move, State Governments are enacting some mildly sensible changes by removing taxes and obstacles to building new houses. Credit where (some) credit is due.

Before you get too excited listening to the RBA and other assorted economists talking about a housing resurgence, take a look at this. It gives you an idea of what’s really going on. It’s about how 40% of people who bought homes just AFTER the financial crisis are now in a state of mortgage stress.

That’s what happens when you take financial advice, or financial incentives, from the government. The property bubble peaked in 2010, it’s enjoying a minor resurgence now but it’s certainly not because of the RBA’s recent interest rate cuts. The reasons for the property mini bounce are complex. But all you need to know is that the major trend is now down.

Regards,

Greg Canavan
for The Daily Reckoning Australia

From the Archives…

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12-10-2012 – Greg Canavan

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11-10-2012 – Satyajit Das

Super Clueless For Your Retirement
10-10-2012 – Nick Hubble

An Investment Strategy for the End of Australia’s Lucky Run
09-10-2012 – Dan Denning

How The Fed’s Forecast Fallacy Leads to Stagflation
08-10-2012 – Nick Hubble

Greg Canavan
Greg Canavan is the Managing Editor of The Daily Reckoning and is the foremost authority for retail investors on value investing in Australia. He is a former head of Australasian Research for an Australian asset-management group and has been a regular guest on CNBC, Sky Business’s The Perrett Report and Lateline Business. Greg is also the editor of Crisis & Opportunity, an investment publication designed to help investors profit from companies and stocks that are undervalued on the market. To follow Greg's financial world view more closely you can subscribe to The Daily Reckoning for free here. If you’re already a Daily Reckoning subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Daily Reckoning emails. For more on Greg go here.
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Ross
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It was always a supply side bubble. This : http://www.bloomberg.com/news/2012-10-21/worst-carry-trades-show-central-banks-reaching-stimulus-limits.html And the subsequent climb in wholesale funding spreads to the banks is all that matters. When QE fails to facilitate the 1% getting their assets out of the nations that they have ruined you know the end game is in sight. Perhaps the best tip is now to look for physical movements of assets and the 1% themselves. The US military’s Virginian multi football field sized floor map designed for gaming the extraction all their global assets and getting them home in a headlong rush in a domestic crisis is… Read more »
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