Australian housing bubble thread

[nfamousyoungest]

Macro, Alex, and Runningbear

what headlines/data are you guys looking for to mark the start of a correction? And what would be your trade? Short AUD/USD? Equities?

Thanks for your insights.

 

[Ghost of Cutten]

Quote from Runningbear:



This has resulted in about 1 in 4 Australian adults becoming direct property investors, (basically everyone). This places a lot of pressure on the market. The government have no plans to change this.

Secondly, your primary residence in Australia if free of capital gains tax, so there is huge emphasis on buying dumps and adding value to the property you live in. They upgrading after 5 or so years. Any gains are free. I know a lot of people that make cash money in retail businesses and instead of declaring it to the tax man, spend it on extension and renovations. Then when they sell, it all looks like capital gains on which they pay no tax.

Thirdly, Australia's housing bubble is to a large degree, also a labour cost issue. The mining boom has dragged skilled tradesman away from the building industry, and driven up the real cost of trade wages in the building industry. A brick layer in Australia can earn about $150,000. As can an electrician or a plumber. This means the cost of building a house in Australia is one of the highest in the western world.

Now all the tradies working for mining companies have piles of spare cash, so you know what they do with it? The buy houses and apartments with it.

Finally, because building has become the backbone of the Australian economy, at the expense of other industries, the government has been forced to continue fueling the growth of the sector to maintain full employment. And the only way they could do this was through immigration.

The whole set up works while your increasing your population by 3% a year. But now all of a sudden, Australians have realised we're running out of things like water. And we actually can't continue down this path.

Make no mistake, if china bursts, everything in Australia will burst. Ask any corporate lawyer or banker what he is working on. It's all property or mining deals.

I walked into a bar in perth a year ago and I couldn't get served. I hold the manager she needed to get more staff. She turned around and said' I'll give you $45 an hour if you start now. I cant get any staff. Everyone is working in the mines.'

There is not a business or job in Australia that is not reliant of the mining/building boom. It is going to end ugly.

Sounds like a classic bubble. However, as we all know, bubbles can go on longer than expected. While we wait for it to burst, we can research Australian housing and banking stocks, to see which ones are the most likely to go under. The big name banks usually get bailed out, and the big name builders can survive better, but the secondary and tertiary names will experience total carnage because of their weaker balance sheets and market positions. At least this is what happened in Asia 1998, dot.coms 2001, and banking/real estate 2008-early 09.

Another good plan is to draw up a buy list of the very best, most solid and conservative banking and building names, then when the crash comes and they are trading for bargain prices, you can start thinking about averaging in over 12 months to bottom fish the best of breed companies.

 

[macroman]

Quote from nfamousyoungest:

Macro, Alex, and Runningbear

what headlines/data are you guys looking for to mark the start of a correction? And what would be your trade? Short AUD/USD? Equities?

Thanks for your insights.

It will be decision in government&co to start correction. Probably when their models show prices too hot. Other option is when international lenders stop believing in sustainability of prices and this hurts perception of AU and AUD and must do something about it. Third option when China corrects. Anotehr option is EU debt gets even pricier, this will force rates here higher as AU banks need to compete for loans. Another option is JPY moving rates up as many loans are manufactured using carry trades, i suspect.
Dont fool yourself, they play poker game well, and want you to think they are stupid. I give more than 50% chance that we'll see real recession in next 12 months in AU.

 

[Runningbear]

To be honest, I think the correction has already began. In Melbourne where I live, property prices in the inner city are down about 10% from 12 months ago. Properties that were 800K a year ago are now going for low 700s. I've been in the market and actively looking at property and talking to real estate agents. So I think I have a pretty good idea of what's going on. I don't care what the stats say. A lot of the heat has come out. Housing is fully priced at the moment. There can be no more upside until wages catch up which is at least a five year process. Auction clearance rates are down 25% from their highs. Interest rates have risen 6 times since the 2008 with more rises being promised.

But understand that while tax incentives favour property investment over other types of investment, Australians will continue to support the market. I don't think we may slide much more unless we get a big external shock from China. Then all bets are off.

 

[Alex_in_Oz]

A couple of years ago, when it looked as they we were going to have 'the correction we had to have' what did the Federal Government do?

They gave everyone (but the rich) thousands of dollars in 'stimulatory payments', tens of thousands of dollars in Federal and State incentives to build their own house* (slightly less if you bought an existing one)

This kept the party going for a while......


The money the government is throwing at the housing sector is incredible. When the China tap turns off, this country will experience a recession that will make Ireland look tame.


As with all financial shocks, this will happen when people will least expect it and will happen really fast.

I am long puts on the FXA btw.












*Provided one was a 'first home buyer'.

 

[macroman]

communists promised no worker without job and drove economy to the bitter end. In AU property investors are promised property prices WILL NEVER GO DOWN. And driving the economy in same direction as comms. There is a chance that it will be same final result as property lobby just too strong, same as comms lobby in olden days.

My point is that property may never go down but instead whole system will.

 

[macroman]

Cash : since '82 AUD cash return investing in short term MM securities 7.51% after fees, which is near risk free. 100K turned in 759K in 28 years. Last 10 years annualised return 4.4% pa,3.1% below 28 years average. Seems similar return to housing based on anecdotical evidence.

Does it mean next 10 years average cash return will be 7.51
+3.1 = 10.61% ?

see :

http://www.colonialfirststate.com.a...undName=&FundNames=&SearchProdIDs=&Redirect=1

and click on "cash management trust"

 

[Cherrypicker]

Quote from Runningbear:

There is not a business or job in Australia that is not reliant of the mining/building boom. It is going to end ugly. [/B]

This statement couldn't be further from the truth. The mining boom is a relatively new phenomena. It is responsible for sucking the life out of many rural and agricultural communities. In the city I live mining only accounts for about 20% of the local economy and this city has one of the most stable growth rates in Aus. Don't believe everything you read in this thread.

 

[TRS]

Quote from Cherrypicker:

This statement couldn't be further from the truth. The mining boom is a relatively new phenomena. It is responsible for sucking the life out of many rural and agricultural communities. In the city I live mining only accounts for about 20% of the local economy and this city has one of the most stable growth rates in Aus. Don't believe everything you read in this thread.

You're thinking micro, not macro.

 

[EON Kid]

Quote from Ghost of Cutten:

Sounds like a classic bubble. However, as we all know, bubbles can go on longer than expected. While we wait for it to burst, we can research Australian housing and banking stocks, to see which ones are the most likely to go under. The big name banks usually get bailed out, and the big name builders can survive better, but the secondary and tertiary names will experience total carnage because of their weaker balance sheets and market positions. At least this is what happened in Asia 1998, dot.coms 2001, and banking/real estate 2008-early 09.

Another good plan is to draw up a buy list of the very best, most solid and conservative banking and building names, then when the crash comes and they are trading for bargain prices, you can start thinking about averaging in over 12 months to bottom fish the best of breed companies.

But wont they at first opportunity ban short selling ? How do you get around this?

http://www.theaustralian.com.au/new...to-shield-market/story-e6frg6nf-1111117548240