The dud Kangaroo bounce thread

[Sugarlips]

The wheels are quite literally fallling off down under...

https://www.macrobusiness.com.au/2019/01/auto-delinquencies-surpass-gfc-high/

[spygirl]

4 hours ago, Sugarlips said:

The wheels are quite literally fallling off down under...

https://www.macrobusiness.com.au/2019/01/auto-delinquencies-surpass-gfc-high/

Again, as I keep stating o nthe Tos and here - Oz is the new Nairu.

Replace ancient guano with coal n iron ore.

 

[sancho panza]

8 hours ago, Sugarlips said:

The wheels are quite literally fallling off down under...

https://www.macrobusiness.com.au/2019/01/auto-delinquencies-surpass-gfc-high/

Worth a ful reprint methinks.15% drop in new car sales in 2018 is really an imprssive effort given the debt deflation is in it's infancy

 

By Leith van Onselen

Hot on the heels of the heavy 15% decline in new car sales in 2018, along with the 9% decline in motorcycle sales, Moody’s has released the below chart showing that delinquencies for Australian auto loan asset-backed securities (ABS) has surpassed Global Financial Crisis (GFC) levels:

Auto loans are non-revolving with a fixed interest rate so they are decent guide to true credit stress and do not paint a great picture of underlying Australian financial stability.

[sancho panza]

On 22/01/2019 at 08:07, Barnsey said:

This'll warm your cockles (from Oz):

https://www.afr.com/real-estate/im-selling-now-to-beat-crash-says-disillusioned-property-investor-20190116-h1a4w2

SOme accompanying headlines on the most viewed

Housing market confidence sinks to new low: NAB

https://www.afr.com/real-estate/housing-market-confidence-sinks-to-new-low-nab-20190124-h1af5m

Sydney house prices fall at fastest rate in 20 years

Housing costs have fallen by 11.4% since peak, while nationally prices record steepest fall in 15 years

https://www.theguardian.com/australia-news/2019/jan/24/sydney-house-prices-fall-at-fastest-rate-in-20-years

The downturn in Sydney and Melbourne home prices may not even be halfway through

https://www.businessinsider.com.au/australia-property-sydney-melbourne-price-crash-rba-implications-amp-2019-1

Sydney and Melbourne home prices have been falling for over a year with median values down 11% and 7% respectively from their cyclical peaks.

And they’re still falling in January, according to CoreLogic’s daily data, with Sydney and Melbourne prices down 1% and 1.3% respectively. And there’s still eight more days to go.

To AMP Capital’s Chief Economist Shane Oliver, already among the most bearish mainstream Australian house price forecasters, there’s plenty more downside to come in the coming years.

He says the declines in Sydney are probably not even at their halfway point yet, while those in Melbourne could quadruple from what’s already been seen.

 

[wherebee]

2 hours ago, sancho panza said:

SOme accompanying headlines on the most viewed

Housing market confidence sinks to new low: NAB

https://www.afr.com/real-estate/housing-market-confidence-sinks-to-new-low-nab-20190124-h1af5m

Sydney house prices fall at fastest rate in 20 years

Housing costs have fallen by 11.4% since peak, while nationally prices record steepest fall in 15 years

https://www.theguardian.com/australia-news/2019/jan/24/sydney-house-prices-fall-at-fastest-rate-in-20-years

The downturn in Sydney and Melbourne home prices may not even be halfway through

https://www.businessinsider.com.au/australia-property-sydney-melbourne-price-crash-rba-implications-amp-2019-1

Sydney and Melbourne home prices have been falling for over a year with median values down 11% and 7% respectively from their cyclical peaks.

And they’re still falling in January, according to CoreLogic’s daily data, with Sydney and Melbourne prices down 1% and 1.3% respectively. And there’s still eight more days to go.

To AMP Capital’s Chief Economist Shane Oliver, already among the most bearish mainstream Australian house price forecasters, there’s plenty more downside to come in the coming years.

He says the declines in Sydney are probably not even at their halfway point yet, while those in Melbourne could quadruple from what’s already been seen.

 

It's going to be very very interesting down under soon.  My problem is where do I keep my money?  I don't want more than about 20k in any one aussie bank, in case there is a bail in.

[sancho panza]

Highlights are mine

 

https://wolfstreet.com/2019/01/21/sales-of-new-houses-in-australia-plunge-to-lowest-since-at-least-2001/

As Investors Flee Australia’s Housing Bust, Sales of New Houses Plunge to Record Low

by Wolf Richter • Jan 21, 2019 • 46 Comments

But first-time buyers cling to hope.

Sales of newly built detached houses in Australia plunged 6.7% in December 2018 from November, to just 4,622 houses, according to the Housing Industry Association (HIA), easily whizzing by the prior record low of 4,769 sales in August (chart via TradingEconomics.com):

In the fourth quarter of 2018, sales plunged 14.9% compared to the fourth quarter in 2017. On this year-over-year quarterly basis, sales fell in all states and territories. Here are the results for the most populous states:

• Queensland: -26.5%
• New South Wales: -18.8%
• Victoria: -10.9%
• Western Australia: -7.9%
• South Australia: -0.3%

The HIA report blamed “regulatory interventions” – in other words, the long overdue regulatory crackdown on mortgage fraud, the Royal Commission investigation into wrongdoing at the banks, and a crackdown on excessive housing speculation – for the decline:

Regulatory interventions in the lending market restricted access to credit for some home buyers and this was the catalyst for the broader housing market slipping into the contractionary phase, characterized by a softening in prices and a drop in the number of property transactions.

The tighter credit environment has been a factor in the reduction in new home sales, but the deterioration in the broader housing market has also dented household confidence.

Would-be new home buyers are far more cautious and this translates into weaker demand for new housing.

And this time it’s not rising interest rates that have caused the downturn: Mortgage rates in Australia are near record lows, and the policy rate of the Reserve Bank of Australia is stuck at a record low 1.5%.

Instead, the downturn was triggered by sky-high prices in one of the world’s most fabulous housing bubbles that smacked into a regulatory crackdown on some of the elements that had made those sky-high prices even possible: Mortgage fraud, bank wrongdoing, reckless lending, and excessive property speculation aided and abetted by the banks.

And so, as a consequence, the housing market in Australia, particularly in Sydney and Melbourne metros, has started spiraling down viciously.

And given these price drops – in Sydney, prices have already fallen by the double digits – and the regulatory crackdown, investors no longer have the hots for speculating in this market, and banks no longer have the hots for lending to them.

Interest-only mortgage were a favorite with investors. Then regulators limited the big banks in terms of what portion of their originations could be interest-only mortgages, and banks looked at speculators with greater scrutiny. And now, according to CoreLogic, interest-only mortgages have plunged from 45.6% of purchase-mortgage originations in 2015 to just 16.1% at the end of 2018.

This is by far the lowest investor share in the data going back over a decade. Even in 2008, during the Financial Crisis, interest-only mortgages bottomed out at a share of 27%.

New mortgage commitments to investors in December plunged by 17.9% year-over-year, according to CoreLogic, and are down nearly 33% from the speculative peak in 2015, before the crackdowns started. But wait…. Investors are still very active – just somewhat less so. The share of purchase-mortgage commitments to investors dropped to a still high 41.6%, but that’s down from the speculative peak in 2015 of nearly 55% (chart via CoreLogic):

But first-time buyers are still trying to buy, and demand from them has increased in 2018, according to CoreLogic, “on the back of incentives, falling investor demand, and falling values in the largest cities.” But in the big cities, they’re mostly limited to buying lower-end condos, and not single-family detaches houses.

So for now, much of the impetus for the deflation of the housing bubble comes from a portion of investors and speculators that are trying to stay out of the way of the steamroller.

While prices at the low end — realm of the first-time buyers — are hanging on, prices of more expensive homes are falling at a rapid clip. But it wasn’t the central bank that pricked the bubble. Read....  The Housing Bust in Sydney & Melbourne, Oh My!  

[spygirl]

https://www.economist.com/finance-and-economics/2019/01/26/australia-has-dodged-many-banana-skins-is-it-about-to-come-a-cropper

An extended business cycle has led to an over-extension of finance

You dont say ....

 

in short, Oz is going to get the US Saving and loans crisis, the  late  90s endowment misselling, the mid 90s pension misselling, the US sub-prime scandal, and RBS and HBOS and Northern Rock blowing up .... all in one downturn.

Its going to be absolutely brutal.

 

[wherebee]

2 hours ago, spygirl said:

https://www.economist.com/finance-and-economics/2019/01/26/australia-has-dodged-many-banana-skins-is-it-about-to-come-a-cropper

An extended business cycle has led to an over-extension of finance

You dont say ....

 

in short, Oz is going to get the US Saving and loans crisis, the  late  90s endowment misselling, the mid 90s pension misselling, the US sub-prime scandal, and RBS and HBOS and Northern Rock blowing up .... all in one downturn.

Its going to be absolutely brutal.

 

YEAH.

I'm timing my return fantastically.

I think it's time to have little or no savings in the bank, and make sure that we have lots of canned goods in the basement.

[sancho panza]

9 hours ago, sancho panza said:

Great advert for debt deflation,the bit I highlight and underline makes the point and that I and a few others have that raising IR's may not be necessary to pop this bubble.

 

https://wolfstreet.com/2019/02/01/im-in-awe-of-how-fast-the-housing-markets-in-sydney-melbourne-come-unglued/

I’m in Awe of How Fast the Housing Markets in Sydney & Melbourne Are Coming Unglued

by Wolf Richter • Feb 1, 2019 • 41 Comments

The largest three-months fall “since at least the 80’s”: CoreLogic

“Can we still describe this as an orderly slowdown in housing conditions?” mused CoreLogic Asia Pacific’s head of research Tim Lawless about the Australian housing market today. Over the last three months, the index for Sydney dropped 4.5%, and the index for Melbourne 4.0%, the “largest rolling quarterly fall since at least the 80’s.”

Across the metro area of Sydney, prices of all types of homes combined, according to CoreLogic’s Daily Home Value Index, fell 1.35% in January from December, the third month in a row with a monthly decline of over 1%. The 4.5% decline over the past three months pencils out to an annual rate of decline of 17%. The index is now down about 12% from its peak in July 2017. Note the accelerating decline over the past three months:

The 12% drop from the peak in July 2017 pushed the index back where it been in July 2016 – which shows how crazy and unsustainable the price boom had been on the way up. Now it is getting unwound at a slightly slower pace on the way down.

Over the 12-month period through January, the index fell 9.7%, with house prices down 10.9% and condo prices down 6.9%. At the same time, the number of homes of all types listed for sale in the Sydney metro jumped by 24%.

Prices of more expensive homes are falling faster than the lower end of the market: In the top quartile of the market, prices fell 10.8% over the past 12 months and are down nearly 15% from the peak.

“Buyers are now in a position where they can negotiate harder, take their time in making a purchase decision and be selective in finding a home that is right for their budget and lifestyle,” the CoreLogic report said. “On the other hand, vendors are clearly facing more challenging selling conditions.”

In the Melbourne metro, the second largest market in Australia, the housing bust is also taking on momentum, instead of slowing down, but started about four months behind Sydney’s. According to the CoreLogic Daily Home Value Index, since the peak in November 2017, prices of all types of homes fell about 9%, which pushed prices back to January 2017 levels. Note the acceleration over the past three months:

In Melbourne, too, the more expensive end of the market got hit the hardest: prices at the top quartile dropped 12.4% over the 12-month period and are down nearly 14% from their peak.

And supply is growing: the number of homes listed for sale in the metro jumped 34% from a year ago.

Across all capital cities, the picture is mixed, with some still booking year-over-year increases, such as Hobart, though its 7.4% rise is down from the double-digit increases last year. This list of the capital cities shows the percentage change of the CoreLogic Home Price Index for each city for the 12 months through January and the median “value” in Australian dollars:

• Sydney: -9.7% ($795,509)
• Melbourne: -8.3% ($636,048)
• Brisbane: 0.0% ($494,345)
• Adelaide: 0.9% ($430,711)
• Perth: -5.6% ($441,920)
• Hobart: 7.4% ($457,785)
• Darwin: -3.5% ($412,940)
• Canberra: 3.8% ($596,933)

The national CoreLogic index has dropped 6.1% from its peak in October 2017, largely driven by the vast Sydney and Melbourne markets. This pushed the index back to where it had been in October 2016.

But there are large differences, with prices in some sub-regions plunging, while rising in others. On CoreLogic’s list of the 10 weakest performing sub-regions of the capital cities, seven are in the Sydney metro and three are in the Melbourne metro (image via CoreLogic’s report):

In some other sub-regions of the capital cities, prices rose, but none of the top 10 are in the metros of Sydney and Melbourne (image via CoreLogic’s report):

The report blames the “the worsening conditions” of the housing market primarily on these factors:

• “Tight credit conditions”
• “Weakening consumer sentiment”
• “Less domestic and foreign investment”
• “Higher levels of housing supply.”

Note the absence of interest rates on this list of factors. The Reserve Bank of Australia cut its policy rate to a historic low of 1.5% in August 2016 and has kept it there. Mortgage rates are hovering near historic lows. This would normally stimulate a housing market. But no.

Sky-high prices that have become unaffordable are reason enough to prick a bubble. Part of the reason the bubble even inflated this far is the now widely disclosed scandal of banking and mortgage shenanigans, along with crazy levels of investor speculation, supported by the same banking and mortgage shenanigans. After a lot of media coverage of these shenanigans, and after continued revelations about them by the Royal Commission, there is now pressure on banks to clean up their act, and this results in — to use CoreLogic’s phrase — “tight credit conditions.”

And CoreLogic adds: “Housing finance conditions are likely to remain tight after the hand down of the Hayne Royal Commission report which is due on Monday.” Hence, more revelations and more pressures on the banks to clean up. 

Oz collapsing with out interest rate rises.

 

This is the canary in the coalmine to me.

[wherebee]

The 'street' price for our house in Melb is 1.2 million, apparently up from mid 700's in 2014.  Tells you all you need to know.

I don't care if it drops to 500k.  I will care if the government and local council start bailing out overdebted fools and banks who helped blow the bubble.

[sancho panza]

11 hours ago, wherebee said:

The 'street' price for our house in Melb is 1.2 million, apparently up from mid 700's in 2014.  Tells you all you need to know.

I don't care if it drops to 500k.  I will care if the government and local council start bailing out overdebted fools and banks who helped blow the bubble.

I'm watching Oz closely,as where they go,I suspect the rest of the West will follow not long thereafter.CB's and investors have been trained by recent experiecne to assume that at any po9int,CB's can lower borrwing costs and the party will start again.

 

Those price rises are off the scale unsustainable in a fractional reserve world.

Debt deflations are based on debt aversion and Fishers paradox.

[sancho panza]

 

and here is the typical response.let's cut rates.
 

 

It jsut won't work.the buyers have stopped buying,prices are dropping.The vicious circle has formed and is working through the economy.

https://www.theguardian.com/australia-news/2019/feb/01/melbourne-sydney-property-prices-plunge-january

Melbourne and Sydney house prices plunge further in January

Melbourne market falls 1.6% in a month as property crash continues to accelerate

 

Property prices in Sydney and Melbourne dropped sharply again in January as the decline in the once-booming housing market continues to gather pace.

Prices in the Melbourne market fell by a huge 1.6% in the first month of the year, eclipsing even Sydney’s 1.3% fall, researcher CoreLogic said on Friday in its regular monthly release.

Other capital cities have also begun to lose steam as restrictions in mortgage lending – especially to investors – weak wages growth and oversupply in apartments took their toll on buyer sentiment and increasingly threatens to impact economic growth.

The figures will increase the chances that the Reserve Bank will be forced to cut interest rates before increasing them, bringing an intense focus on Tuesday’s monthly meeting of the bank’s rate-setting committee.

 

 

[wherebee]

https://www.domain.com.au/news/when-you-should-have-bought-in-australias-capital-cities-797932/?utm_campaign=featured-masthead&utm_source=the-age&utm_medium=link#Melbourne

[Sugarlips]

Some cracking charts and stats in this;

 

[No One]

On 02/02/2019 at 23:20, sancho panza said:

Oz collapsing with out interest rate rises.

 

This is the canary in the coalmine to me.

It's Amazing with a capital A

[A_P]

Will we see programs like this in the UK soon?

 

[UmBongo]

On 08/02/2019 at 17:16, A_P said:

Will we see programs like this in the UK soon?

 

I was just going to post this video! It randomly appeared on my YT home page.

AU$ 800,000 down the swannie on those flats. Strewth mate.

[wherebee]

5 hours ago, UmBongo said:

I was just going to post this video! It randomly appeared on my YT home page.

AU$ 800,000 down the swannie on those flats. Strewth mate.

It's interesting to think how many high risk buildings thrown up in the past 20 years around the world are going to have structural problems.  If you look at the impact of cheap chinese steel, plus other substandard construction materials, plus easy credit leverage meaning that builders had to put less of their own money in (which means less successful firms could do larger projects).

Imagine when the first block collapses (there have been several collapses in China, but the world media has not, I think, drawn the link between globalisation of materials and exportation of risk).

I have never bought a property less than 80 years old.  Yes, you can have upkeep costs, but my beliefs is that you are unlikely to lose the whole lot.

[sancho panza]

On 08/02/2019 at 03:10, Sugarlips said:

Some cracking charts and stats in this;

 

46 minutes....I can't watch this while the Mrs is watching narco's.

 

Looks superb

[Sugarlips]

1 hour ago, sancho panza said:

46 minutes....I can't watch this while the Mrs is watching narco's.

 

Looks superb

If you like that, you’ll like this...equally long but worth it

https://www.macrobusiness.com.au/2019/02/depression-economics-arrives-downunder-nobody-noticed/

[sancho panza]

On 08/02/2019 at 17:16, A_P said:

Will we see programs like this in the UK soon?

 

450,000 of 4.75 mn houeholds in negative equity across Oz

 

impressive story of neg eq

 

That was proper bear MSM food and not a rate rise in sight.

 

welkocme to the 2020's

58 minutes ago, Sugarlips said:

If you like that, you’ll like this...equally long but worth it

https://www.macrobusiness.com.au/2019/02/depression-economics-arrives-downunder-nobody-noticed/

I'm workign through these.Watched the 46 minutes,it was pretty compelling from the pioint of view that OIz if fubar.Some incredible stats.

[sancho panza]

https://www.news.com.au/finance/real-estate/buying/almost-100-fewer-milliondollar-suburbs-in-australia-after-house-price-falls/news-story/56c6a67e84ca00faf713e7c00c14d595

'Nearly 100 suburbs around Australia are no longer members of the “million-dollar club” after steep drops in house and unit prices.

Suburbs in southwest Sydney and Melbourne’s inner ring have been impacted the most after falls of almost 10 per cent in Sydney since its peak in September 2017 and 4 per cent in Melbourne since April 2018, according to realestate.com.au.

The latest figures from CoreLogic show there were 649 suburbs across Australia in January this year that had a median house or unit value of at least $1 million.

“Although this figure had increased substantially from 123 suburbs a decade earlier, it has actually fallen from 741 suburbs in January 2018,” CoreLogic research analyst Cameron Kusher said.

The drop of 92 suburbs also means there are now fewer million-dollar areas than in 2017, when 651 suburbs had a six-figure median.

Houses in Box Hill in Sydney’s north west saw the biggest drop in value, falling from $1.5 million to $896,000 in a year, although NSW still has the most suburbs with a median value of at least $1 million.'

Auckland sees price falls

http://www.xinhuanet.com/english/2019-02/14/c_137820448.htm

WELLINGTON, Feb. 14 (Xinhua) -- Two-tiered real estate market continues in New Zealand as five regions see record prices, but Auckland and Canterbury, the two densely populated areas, see price falls, according to the latest data released from the Real Estate Institute of New Zealand (REINZ) on Thursday.

January has pointed to a two-tiered real estate market continuing with 14 out of 16 regions experiencing annual increases in the median price for residential properties, while Auckland and Canterbury saw prices fall, REINZ statistics showed.

[Virgil Caine]

On 08/02/2019 at 17:16, A_P said:

Will we see programs like this in the UK soon?

 

The women who escaped with only losing $50,000 dollars of her $140,000 deposit on a property probably not realise it but she has dodged a bullet. In 12 months time she could have lost the lot and been in negative equity. If the property market tanks in Oz  she will find the $90,000 she got out with will buy her a lot more in the future than her original deposit.

[sancho panza]

On 16/02/2019 at 16:02, Virgil Caine said:

The women who escaped with only losing $50,000 dollars of her $140,000 deposit on a property probably not realise it but she has dodged a bullet. In 12 months time she could have lost the lot and been in negative equity. If the property market tanks in Oz  she will find the $90,000 she got out with will buy her a lot more in the future than her original deposit.

I rememebre the tech bubble bursting and watching people take their first losses of the campaign.Then a year later most were wiped out and it was strange how the acceptance phase was less emotionally draining than the inital loss phase.ust my observations but the Oz housing market will move ot that acceptance in a year plus ie when people give up fighting the tide

[sancho panza]

WOlf lays in

 

https://wolfstreet.com/2019/02/20/forced-end-of-ponzi-like-leverage-fraudulent-lending-turns-australias-house-price-bubble-into-property-bloodbath/

Forced End of “Ponzi-Like Leverage” & “Fraudulent Lending” Turns Australia’s House Price Bubble into “Property Bloodbath”

by Wolf Richter • Feb 20, 2019 • 31 Comments

What banks & housing markets in Sydney and Melbourne are facing in 2019.

As investors are fleeing Australia’s housing bust, sales of new houses have plunged to record lows, and home prices in the Sydney and Melbourne metros have dropped 12% and 9% from their respective peaks in mid and late 2017. Combined, the two metros account for about two-thirds of residential property value in Australia. A two-decade-long housing boom, interrupted by only a few minor dips, led to two of the most magnificent housing bubbles in the world, and they’re not “plateauing” or anything.

The over-ripe bubble was pricked not by rising interest rates – the Reserve Bank of Australia’s policy rate remains at record low – but when bank regulators finally started to crack down on some of the bank-lending shenanigans required to inflate that kind of bubble, and when the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (RC) was established in December 2017 to investigate those shenanigans and then started “revealing an epidemic of crime.”

“The financial regulators, APRA and ASIC, have now been sufficiently embarrassed by the findings of the RC to force banks to adhere to responsible lending obligations,” writes Lindsay David, of LF Economics, in a report on the headwinds that the market and the banks face in 2019. The regulatory crackdown “restricts lenders’ ability to conduct business as usual,” he says, and this has “resulted in a credit squeeze.”

Speculative investors who purchased more recently have been impacted the most. Some of them may try to sell either because they fear further price drops, or because they “have been caught out in the tsunami of IO [Interest-Only] loan resets.” But selling at survivable prices will be tough, as buyers at those prices have evaporated, “primarily due to stricter loan serviceability requirements,” as a result of the regulator crackdown, writes Lindsay David who has for years been warning about mortgage fraud and the now unfolding housing bust in Australia.

“These developments risk turning the current minor credit squeeze into a looming credit crunch,” he says in the LF Economics report.

The “so-called ‘property bloodbath,’” he writes, “is the inevitable outcome of the irrational exuberance driven by debt-financed speculation that has seduced and mesmerized a large proportion of society into becoming over-leveraged.”

And the report points out how some of the banking shenanigans contributed to the bubble on the way up, and how curtailing them is contributing to the downturn now:

Australia’s house price growth model revolved around Ponzi-like leverage, with lenders systematically accepting the unrealized capital gains of a property as a substitute for a cash deposit to borrow to purchase another property during the boom period. This has resulted in many property purchases using 100% financing, forming a clearly excessive cohort of speculative buyers that otherwise wouldn’t exist if lenders had adhered to responsible lending obligations.

The declines in Sydney and Melbourne house prices since the peak in 2017 have diminished some of the unrealized capital gains, leaving speculative property buyers, particularly those who recently purchased, at or close to negative equity. Without enough unrealized equity to make a large so-called cash deposit, this cohort of buyers will increasingly be shunted to the sidelines with no ability to purchase.

The report by LF Economics then lists a slew of headwinds that will put further pressure on this still over-inflated market as it heads lower and on the banks. Here are some of them, quoted from the report:

Mortgage application rejections: The rate of rejections has skyrocketed by over 1,000%, half of all new applications are rejected, 90% of those with pre-approval have their loan sizes reduced and refinance rejections have increased from 5% in 2017 to 40% in 2018. This is the outcome of the RC prompting lenders to abide by responsible lending obligations. With credit becoming tighter, rejections are likely to keep on rising, causing some potential borrowers to wait on the sideline.

Interest-only-loan reset shock: Approximately A$120 billion in IO loans will reset to principal-and-interest (P&I) loans over 2018, 2019, 2020, and 2021, tapering off thereafter. Banks and regulators have already softened their stance on these borrowers, allowing some greater time to sell [the property] or extending the IO period for a while longer. Nevertheless, with debt repayments rising anywhere between 20% to 50% upon conversion to P&I, many recent borrowers will be placed under considerable financial stress.

Class action lawsuits: A supportive legal and financial environment for class action lawsuits has hit fertile grounds with the RC revealing widespread criminality and misconduct in the financial services industry. Driven by the profit motive, experienced litigators will fund numerous class-actions on behalf of those harmed by the industry. In doing so, this may bring more criminality to light, reduce industry profitability, and force banks to adhere to the rule of law in a way the captured regulators have not done in decades.

Foreign buyer exodus: China is the largest source of foreign investment into the housing market, in terms of both the number of purchases and value of investment. With China’s central government ramping up capital controls to stem the outflow of capital and imposing jail time for those facilitating such flight, purchases of new and established dwellings have fallen considerably. Furthermore, there is mounting evidence the Chinese government is now forcing the sale of properties owned by nationals and repatriating foreign currency back to the homeland. This will particularly affect the off-the-plan apartment complex market.

Rent slowdown: The annual growth in nominal rents is very low and negative in real terms. Sydney is particularly affected given that nominal dwelling rent growth is falling by -3% annually and more so in real terms. With current construction rates delivering a considerable flow of new houses and units, nominal rents will continue to decline into the near future, harming the balance sheets of investors, especially those who are heavily negatively-geared [investors with rental properties that have negative cashflows whose only hoped-for benefits are capital gains and full tax deductibility of losses].

Construction faults: With the Opal Tower and aluminum-cladding scandals, the media and public have become more aware of the veritable plague of construction defects within the mass of apartment complexes and townhouses…. OTP [Option to Purchase contract] buyers may choose to relinquish their deposit rather than purchasing a potentially defective dwelling and bearing the future costs of rectification. In some cases, rectification costs are greater than the purchase cost of the complex, leading to an expected negative value.

Expense benchmark crackdown: The RC indicated that lenders could not rely solely on expense benchmarks such as the HPI, HEM and internally-derived estimates [to determine if ongoing household expenses render a loan unaffordable]. Lenders must perform due diligence and obtain verified expense information from borrowers. This will significantly reduce the maximum loan size that can be originated, given such benchmarks have woefully underestimated actual expenses of borrowers, often by half or more.

Comprehensive Credit Reporting: CCR is currently 50% active and will be 100% active by July 2019 as lenders are obliged to provide relevant borrower data to credit agencies…. It also allows lenders to see any and all existing debts of borrowers which may have been previously unavailable or hidden.

Bank funding and capital raisings: International money markets have provided remarkably affordable funding, enabling lenders to originate large and risky loans. But they now face cost pressures. If house prices continue to fall, there are risks of credit downgrades stemming from lower profitability and rising non-performing loans (NPLs). This will likely cause wholesale funding costs to rise, particularly short-term rollovers and future hybrids, or other capital offerings despite backdoor coverage by the RBA. APRA is also requiring the major banks to raise tens of billions of dollars more to boost Tier 2 capital buffers, diluting earnings.

For 2019, LF Economics anticipates nominal house prices (not adjusted for inflation) to drop between 15% and 20% in Sydney and Melbourne, on top of the drops suffered in 2018 and 2017. “While forecasts of -20% falls in a calendar year alone may be dramatic, some commentators will point to the significant run-up in prices over the years,” Lindsay writes. “This fails to note that housing is not a simple unleveraged ETF; it is a highly-leveraged play, amplified by fraudulent lending practices and Ponzi finance, with implications for financial stability on the downside.”

And CoreLogic of Australia is getting outright gloomy: “Can we still describe this as an orderly slowdown in housing conditions?” Read… I’m in Awe of How Fast the Housing Markets in Sydney & Melbourne Are Coming Unglued