Tue, Aug 9, 2011
The housing boom in Australia is now an escalating bust. Many Australian homeowners put every cent they had into their homes and they needed double incomes to just scrape by. Unfortunately, those jobs are disappearing in a construction and commercial real estate bust.
I warned about this event for years, but in Australia, like everywhere else “It’s Different Here” until it’s not.
60 Minutes Australia picked up the Secretly Broke story in “The Big Squeeze“. Click on link for a 60 Minutes video. Here is a partial transcript.
ALLISON LANGDON: To the world, Tracy and David Dodd are the very model of Australia’s relaxed and comfortable middle-class. They’re living the dream – three kids, a mortgage and a suburban family home on an acre block. But Tracey and David have been keeping a secret from their family and friends – they’re drowning in debt. No-one to look at you would think that you are struggling.
TRACY: It might look like we have got everything but you don’t see the mortgage, you don’t see the loans. You don’t see everything and nobody wants to talk about it you know, because it is embarrassing.
ALLISON LANGDON: Has it taken a toll on you both?
DAVID: Oh it has – it has taken its toll but you’ve just got to do it.
ALLISON LANGDON: Like most young couples, the Dodds invested their heart and soul and every spare cent they had into the ideal of home ownership – the biggest mortgage their double income would allow. But last June, Tracy lost her job in the construction industry and David was made redundant. Just to keep money coming in, he’s taken a lower-paying job. Ever since, the Dodds, like tens of thousands of middle class families have been going secretly broke in the suburbs.
TRACY: We went from having a really great income including a company car, fuel card, phone – things like that – to basically losing all of that.
ALLISON LANGDON: So do you have more money going out each week than what you’ve got coming in?
ALLISON LANGDON: How much difference are we talking about?
TRACY: Probably – it’s getting very embarrassing – probably about 400 bucks…$ 400.
ALLISON LANGDON: This is the outskirts of the Gold Coast. When you look around and see the big, shiny new houses, the nice lawns and two cars in the driveway, you can’t help but think, ‘life must be pretty good here.’ But this version of the Great Australian Dream is just a facade – nowhere is mortgage stress being felt more keenly than right here. And the figures are staggering – one in 50 families are at risk of losing everything. The number of Australians behind on their mortgage repayments by more than a month is at an all-time high. Areas of mortgage stress can be pinpointed right around the country. Mostly in areas, that just five years ago, were booming. Families who borrowed to the limit in the real estate gold rush are the ones who are now struggling to pay their bills.
The story continues with Phil and Sandra Box who claim they never did anything wrong. Of course they did. So did Tracy and David Dodd.
Not only did they pay too much for a house, they had no cash cushion if one or more of them lost their job.
Up until May 2011 or so, I received numerous emails every week from persons in Australia telling me how Australia was different, how China and commodities were a sure thing and would keep housing afloat, and how the Australian stock market would not sink. Those emails continued but at a dwindling pace for another month or two.
This is what the Australian stock market looks like now.
$ AORD Daily Chart
click on chart for sharper image
Poof – Just like that 20% evaporated since Mid-April. Moreover, China is clearly slowing which will put a damper on commodities. Indeed the world appears poised for another global recession.
The RBA was actually thinking of hiking last week. I said they wouldn’t and it would not matter one iota once the housing bust got underway. The housing bust has now smashed commercial real estate as well.
So who is going to be hiring now?
The party is over in Australia. Many anti-dollar investors and Pollyannas living down under just don’t realize it yet. Nonetheless, Australia faces an economic crunch as family finances collapse under the burden of record debts, rising interest rates and utility bills.
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.
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.
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
I am curious, did anyone down under reading that post exit the stock market and pick up some popcorn?
Flashback April 13, 2011: Housing Denial in Australia Feeds Off Same Myths We Heard in the US
It is amusing to watch Australian analyst after analyst cite the same silly myths regarding housing that we saw in the united states.
- It’s Not Different in Australia
- There is Not a Shortage of Housing
- Australia is in a Bubble
- Now is Not a good time to Buy
- It’s Better to Sell Now than Next Year
Those looking for bad news can find plenty of it in Australia, which in my opinion is soon headed for recession and rate cuts.
RBA Calls For Unemployment Rate to Drop
What the hell is it that the RBA sees that I don’t? The property bust is underway and going to accelerate, retailers are going under, and consumers are tapped out.
How exactly does that translate to lower unemployment rate?’
Norris Way to Optimistic
I disagree with the CBA chief executive Ralph Norris on nearly every point.
- I highly doubt the RBA hikes twice more.
- I expect cuts as the Australian economy slumps into a big recession.
- I expect delinquencies to rise further.
- I expect profits at CBA have peaked or will soon do so.
Except for my economist friend Steve Keen, I have to ask: Has anyone down under learned anything from the property bust in the US?
Select Clichés from the Article
- “It’s definitely a buyer’s market” – Richard Wakelin, director of Wakelin Property Advisory
- “This is a really good time for people to be trading up” – Richard Wakelin, director of Wakelin Property Advisory
- “Buyers should be sitting back and watching for opportunities, looking for properties that have been passed in on the weekend” – Mark Armstrong, from Armstrong Property Planning
- Century 21 director Charles Tarbey suggests buyers focus on the $ 400,000 to $ 600,000 range in coastal and tourist properties.
Alternative Mish Suggestions
- Trading up now will greatly increase losses
- Tourist properties will be especially hard hit
- Now is a poor time to buy in general
- Wait 5 years, then see what prices are
- In the meantime, rent
Australia’s bust has just started. Expect a 5-year decline minimum. As a point of reference, the US housing bust will be 6 years old this summer.
At the height of every boom, bullish clowns inevitably come out of the woodwork touting the “permanently high plateau” prices will not drop much theory.
Such a theory is presented in the Herald Sun although one might not quickly spot it because of the headline Decade of pain for Melbourne’s property market
The implosion in Australian housing is now in full swing as Eighty-five building and construction firms go under in a month.
Uncertainty? What Uncertainty?
Peter Jones at Master Builders Australia is blaming “uncertainty”. The irony is that it would make far more sense to blame “certainty”.
It is quite certain that Australia’s housing bubble is now in crash mode. It is equally certain there is not a damn thing the Reserve Bank of Australia or any of the home builders can do about it.
Crazy to Buy a House in Australia Now
If you live in Australia and are thinking about buying a home, here is everything you need to know in a single sentence: It’s still a crazy idea to buy a house in Australia at the current prices.
This story is so sad because Australians had every warning in the world. All they had to do was watch the US housing bubble burst. However, you cannot explain anything to anyone with a firm conviction “It’s Different Here”.
Australian homeowners are now finding out they do not own their home. Instead, their home owns them.
Here is a 9:27 PM Central snapshot of Asia-Pacific Equities from Yahoo!Finance.
Mike “Mish” Shedlock
Mike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
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