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Monday, January 10, 2011 10:36 AM


Australia's "Tulip Mania" About to Crash; 44% Jump in Property Listings Proves the Proposed Housing Shortage is Gargantuan Myth; Playable Actions


For years I have been hearing about a housing "shortage" in Australia. That myth has been shattered by latest stats that show a 44% jump in property listings.

The property market could be set for early-year price falls due to a build up of unsold properties, with new figures by property research company SQM Research showing the number of listings swelled 44% over 2010.

Managing director Louis Christopher says overall the huge number of listings means prices are now hanging by a thread and a market downturn is imminent.

"It's still very clear to us that they are now at levels that would suggest a downturn in the housing market, although the stock levels have fallen seasonally. The overall number is up now by 44% across the nation."

"I wouldn't like to see another interest rate rise anytime soon – it will accelerate the downturn."

The new figures suggest that the shortage has been overblown. Residential property listings were 328,270 during December, representing an increase of 44.9% over the year.

"In Surfer's Paradise, for instance, I know there are now over 2,000 properties on the market in one postcode – just one. That area is really struggling at the moment, and it is now the equivalent of Florida in the United States."

Christopher also says he is concerned about Darwin, which recorded the largest increase out of all capital cities at 57.3%. Listings increased in Brisbane by 59.4% and Perth by 54.8%. Melbourne followed closely with a 42.7% rise, although Canberra recorded a rise of 46.5% as well.

The region with the highest growth in stock levels was North Queensland, with an increase of 216.3%. The region with the highest month-on-month stock growth was Launceston, with 18.1%.
Australia Heads For Economic Crunch

The Daily Telegraph reports Australians sinking under debt burden
AUSTRALIA is heading for an economic crunch as family finances collapse under the burden of record debts, rising interest rates and utility bills.

With banks warning they will be forced to raise mortgage rates by 0.50 per cent in 2011 and Sydney rents forecast to rise by between $160 and $190 a month, according to analysts Residex, householders look set to suffer.

Repossessions and tenant evictions are expected to rise sharply. "It's going to be tough" said Shane Oliver, chief economist at AMP Capital.

According to the Reserve Bank, Australians have added almost $220 billion to household debt levels since the beginning of 2008, taking our borrowings to a record $1.3 trillion.

"Unlike the rest of the world, Australia has slipped back into its old habits," said Steve Keen, professor of economics at the University of Western Sydney.

"We're spending ourselves right back into trouble. With so much extra debt to service, we don't need interest rates to reach anything like the 9.6 per cent they hit in 2008.

Mr Oliver has estimated that debt will become unmanageable for many households when mortgage rates rise from 7.80 per cent to about 8.50 per cent.

"At that stage homeowners could hit a wall," he said.

Economists are forecasting three 0.25 per cent rate hikes for 2011, taking the typical mortgage rate to 8.55 per cent.
Australia's Tulip Mania

I rather doubt those interest rate hike are coming. I would guess there is one more hike at most. Then at some point there will be panic cuts by the Reserve Bank of Australia.

History suggests it will not matter one bit once.

Remember the housing "shortage" in Florida? People stood in lines overnight and entered lotteries for the right to buy condos. Others were going door to door making offers on homes that were not even for sale.

From that aspect, it sure looked like there was a shortage. There wasn't. It was nothing more than a speculative mirage much akin to the shortage of quality tulip bulbs in the year 1635 during Holland Tulipmania.
So anxious were the speculators to obtain them that one person offered twelve acres of building ground for the Harlaem tulip. That of Amsterdam was bought for 4600 florins, a new carriage, two grey horses, and a complete suit of harness.
Housing mania did not get as far out of hand as tulip mania. Nonetheless, many lives were ruined in Florida, Las Vegas, Phoenix, and dozens of places in California and elsewhere in the US.

Until the bubble pops, speculative manias always make it appear as if there are shortages and infinite demand.

Playable Actions

The day of reckoning has finally arrived for Australia. A day of reckoning awaits Canada, China, and the UK as well. It's too late now to do much of anything except

  • Exit the Australian stock market
  • Get out of the Australian dollar
  • Pick up some popcorn
  • Stay on the sidelines and watch the collapse unfold

Addendum:

Steve Keen added this comment to the blog.
Spot on as always Mish. One factor that I'm following closely in all this is what Biggs, Meyer, and Pick called "The Credit Impulse".

This is the change in the change in debt, expressed as a percentage of GDP, something I've covered in a couple of recent posts:

A Fork in the Road?

Deleveraging, Deceleration and the Double Dip

It follows from my argument that aggregate demand in a credit-driven economy is the sum of GDP plus the change in debt, since it also follows that change in aggregate demand is the sum of the change in GDP plus the acceleration of debt.

Australia got out of the crisis in 2009 by exploiting the upside of this factor: if you can encourage people into debt, then aggregate demand grows as debt accelerates--so even slowing down the rate of deleveraging gives a positive boost to demand (this stuff is a bit hard to get one's head around, but it's correct and aligns with the impact of inventories on aggregate demand).

That's how the USA looked a bit better in recent months--you slowed down deleveraging. But since Australia went from marginal deleveraging to releveraging, the acceleration in debt was all the more extreme--and we had a apparent boom.

That appears to be ending now, since though the Credit Impulse is still positive on a yearly basis, it's turned negative in the last few months. So this should be a leading indicator of an "unexpected" (don't you love that word from the mainstream?) slowdown in Australia.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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