The Australian house price crash of 2019 looks set to worsen

A feature of the credit crunch era has been policies which have been favourable for the housing market and house prices in particular. Central banks first cut official short-term interest-rates and then followed it up with Quantitative Easing and credit easing all of which reduced mortgage rates. As well as this the flows of liquidity created for the already wealthy by QE led to investment in property in the world’s capitals and major cities by foreigners. If we move to a land down under to my topic of the day this was added to by the resources boom which added to house prices in Western Australia and Perth in particular. From a central bankers point of view this was scene as a  type of paradise with higher house prices causing wealth effects and also boosting the asset holdings of banks via their mortgage book.

However the situation is seeing what David Bowie would call ch-ch-changes and perhaps a sleepless night or two at the Reserve Bank of Australia. Indeed it treated us to a full paragraph on the subject in last weeks monetary policy decision.

The adjustment in established housing markets is continuing, after the earlier large run-up in prices in some cities. Conditions remain soft and rent inflation remains low. Credit conditions for some borrowers have tightened over the past year or so. At the same time, the demand for credit by investors in the housing market has slowed noticeably as the dynamics of the housing market have changed. Growth in credit extended to owner-occupiers has eased over the past year. Mortgage rates remain low and there is strong competition for borrowers of high credit quality.

If you previously were unsure about the house price rise then central bankers calling it “large” settles it. They will be ruing the fact that this is taking place with mortgage rates being low but there is a clear hint that there is much less competition now for borrowers of lower credit quality.

Today’s News

Australia Statistics gave us an update about mortgage credit earlier.

“There were large falls in the value of lending for owner occupier dwellings in seasonally adjusted terms in both New South Wales (-5.7 per cent) and Queensland (-5.3 per cent) in March, after rises in both states the previous month” he said.

Nationally, lending for investment dwellings also contracted further in March, with the series down 25.9 per cent (seasonally adjusted) compared to March 2018. The level of new lending for investment dwellings is at its lowest level since March 2011.

The release picks out areas particularly hit in March but if we step back we see that over the past year it has been a general case of “ice,ice,ice, baby”. On a seasonally adjusted basis new mortgage lending at 16.9 billion Aussie Dollars was some 18.4% lower than a year ago.

This has helped pull down the overall level of credit.

The value of lending commitments to households fell 3.7% in seasonally adjusted terms. This follows a 2.2% rise in February 2019.

Overall the new trend of declining numbers began towards the end of 2017 and was 10.5% lower in March than a year before.

First-Time Buyers

Actually in lending terms at least they seem to be less affected by the  drop in credit as you can see below.

The number of lending commitments made to owner occupier first home buyers recorded a relatively small fall (down 0.5%) compared to the fall in the number of lending commitments made to non-first home buyers (down 3.3%) in March, seasonally adjusted.

However we are in an election campaign and something that will be awfully familiar to UK readers in particular hit the headlines yesterday. From the Sydney Morning Herald.

Prime Minister Scott Morrison will intensify warnings of a hit to property prices from a Labor election victory, after launching a $500 million scheme to help people buy their first home – a policy swiftly copied by Labor.

Ah “help” to buy which usually means help to take on even more debt. Let us look further at the details.

The centrepiece of the Coalition campaign launch, called the First Home Loan Deposit Scheme, would be available from January 1 for those who have saved at least 5 per cent of the value of the home.

The government would put $500 million into the existing National Housing and Investment Corporation to guarantee a portion of the home loans for single applicants earning up to $125,000 or couples with combined incomes of $200,000.

In essence the Australian government would top up such a deposit  to 20% of the purchase price, and here is an idea of the scale of it.

This means it would only be available to about one in every 10 of the 100,000 first-home buyers who take out loans each year.

It is no great surprise that this quickly became bipartisan policy. However the “help” element is really for the banks and their loan books who get a subsidy from the taxpayer. So the government listens to their song.

Help me if you can, I’m feeling down
And I do appreciate you being ’round
Help me get my feet back on the ground
Won’t you please, please help me, help me, help me, ooh?

The first-time buyer may well get a home but at the price of lots of debt and another line in John Lennon’s famous song.

My independence seems to vanish in the haze

House Prices

What we have looked at so far concerns future house price trends so let us bring ourselves up to date on current ones.

The national property market is enduring its biggest fall in values since the global financial crisis, being led down by double-digit drops in Sydney and Melbourne.

New analysis by CoreLogic shows house values in Sydney dropped 0.8 per cent in April to be down by 11.8 per cent over the past 12 months. The situation is worse in Melbourne where values fell by 0.7 per cent last month to be down 12.6 per cent over the past year…….

National dwelling values were down by 0.5 per cent in the month to be down by 7.2 per cent on an annual basis, the largest drop since the 12 months to February 2009.

That is the sort of thing that sends a chill down the spine of any central banker.


So far we have looked at the credit impulse in Australia and we can learn more by looking at broader economic data. For example narrow money supply measures have proven to be a good indicator of future economic activity. On April 2nd I pointed out this.

If we switch to the seasonally adjusted series we see that growth faded and went such that the recent peak last August of Aussie $ 357.1 billion was replaced by Aussie $356.1 billion in February so we are seeing actual falls on both nominal and real terms

We can now update with a March figure of Aussie $357.5 billion but even it only represents an annual growth rate of 0.3% so we can see that the RBA lacks monetarists as they would have voted for an interest-rate cut last week.

There is also the international issue of the trade war and its impact on what we sometimes call the South China Territories. This morning’s signal is the way that the offshore version of the Yuan/Renminbi has fallen through 6.9 to the US Dollar as we wonder about the impact on imports of commodities and resources from the SCT.

Thus the outlook for house prices is for status quo.

Get down deeper and down
Down down deeper and down
Down down deeper and down
Get down deeper and down


I am pleased to report that my weekly podcast is now available on both I-Tunes and @playerFM ( Android).


14 thoughts on “The Australian house price crash of 2019 looks set to worsen

  1. Nobody has the political courage to let markets do their job, which is to allow houses to find their natural level based on supply/demand/availability of credit. This FTB’s assistance program is a case in point. It’s politically divisive and ultimately is a hiding to nothing. The market always wins in the end.

    • Hi Andy Z

      The one thing establishment’s will not allow in the credit crunch era is any form of free housing market. So we have had an enormous amount of interference and yet I notice some at the US Fed talking about inequality being a problem. Er the same inequaity they have fed with their policies.

      I can recall the days of 20+ years ago when it was the Japanese who were pouting money in Australian property and making it expensive. Since then we have just seen more,more,more.

  2. “The market always wins in the end.”
    I agree Andy, but that only applies in countries where there are free markets, we haven’t had those for decades, with both governments and central banks’ interference, markets merely now represent their wishes and policies. A case in point being the UK housing market, anyone betting against it for the last forty years would be now both insane and bankrupt, it can never go down as long as the government keeps propping it up and endlessly devaluing the currency.I don’t see any signs of them letting up, in fact I believe as market forces try to re-assert themselves and prices fall, they will increase the stimulus until prices start to rise again.

  3. As Men at Work almost sang ‘we are central bankers down under, when house prices fall we all chunder! This is an international puzzle really when did nations forget that a house is for living in not an investment? That the state has a role to make sure affordable housing is available for all? I wonder how long it will take them to realise they’re wrong but then remember they’ll never admit to it anyway.

    • Hi bill40

      The “wealth effects” mantra worked for both central bankers ( our policies are working…) and politicians as they try to oil the wheels of re-election. The catch is implied in your point as more and more people see that asset prices are too high. In a way the share issues of Lyft and Uber are like that. those issuing them cannot believe they got that much for them.

      House prices as you say have been a much longer burn.

  4. Hello Shaun,

    I guess in the end there will be nothing the BoE or TPTB can do to stop a house price correction. As Oz is showing so are we going through this .

    Eventually even MSM will not be able to paper the cracks

    Will we have a gentle decline or out right crash ?

    dunno , my crystal ball is at the repair shop…..

    but there will be popcorn 🙂


    • Hi Forbin

      If we stay with Oz they did give things something of a push. This is from July 2018.

      “Precise numbers of Australia’s mortgage prisoners are hard to come by, but Mozo investment and lending expert Steve Jovcevski told that he expected most of them are those who have borrowed and bought in the last five years.

      He said the changes in how mortgage eligibility are calculated have made a huge difference for many recent borrowers, particularly as banks start to raise rates.

      Before lending criteria was changed, a flat rate for living expenses was applied, resulting in many hopeful homebuyers borrowing much more than they now could.”

      So they have decided to use some real numbers, what could have gone wrong?

  5. Congratulations on getting your podcast operational on new platforms, Shaun. I hope it gets you a lot of new listeners. Regarding the Australian housing bust, Dave Parkinson of the Globe would tell the Reserve Bank of Australia to stay cool, because housing is “one smallish sector that typically has considerable regional disparities”:
    (I hope that your British readers aren’t hit by the same paywall I am.) I wrote a letter to the editor on Dave’s housing musings that the Globe hasn’t published yet: “Dave writes: ‘Any central banker worth his or her salt wouldn’t use housing-market interests as its guide to interest rate decisions.’ If he only means an inflation-targeting central bank should not target a housing price index as its inflation measure then everyone can agree. If he means that the target inflation indicator should exclude housing or dwelling prices, this is not something the Bank of Canada has ever done, although other central banks, like the US Fed, have. Arguably, the Bank of Canada’s target inflation indicator should be reformed to include a net acquisitions approach to owner-occupied housing, which would make interest rate decisions more sensitive to house price movements. Canada is actually the only Five Eyes country that currently doesn’t target such an indicator (Australia and New Zealand), calculate one as an experimental index (the UK) or express an interest in doing so (the US). Governor Poloz has been useless on this topic. Under Poloz the Bank of Canada’s only contribution to the debate has been to misrepresent the scope of Eurostat’s OOH price index program, which is much larger and further advanced than our central bank claims it is.” If we are unlucky here, you will soon be writing on how the Canadian house price crash looks set to worsen.

    • I have just recently read about how Vancouvers property market has been over inflated by money laundering – is this widely reported there? Also reports of Chinese turning up at casinos with sports bags full of dollar bills. Is the government doing anything about it?

      • Hello, Pavlaki. You are very well informed! Yes, money laundering, mainly by Asian gangs, has substantially inflated prices in the BC housing market and the luxury car market. Premier Horgan’s government seems to be really getting tough in dealing with it now:
        This is not true of other governments although to be fair modest measures were announced in the 2019 federal budget. Hopefully this will be a case where the British Columbians save themselves by their own exertions and the rest of Canada through their example.

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