Australian Housing Market Strikes Out; Canada Is Last Batter Up

From bloomberg.com 13 Apr 2011“We have a very overvalued housing market and even a small adverse shock can be magnified by a large adverse impact on property values,” said Gerard Minack, Sydney-based global developed markets strategist at Morgan Stanley, who asserts Australian home prices are as much as 40 percent overvalued. “We’re seeing that now in parts of Queensland.”
Australia’s housing is the most overvalued in the world, the Economist newspaper said last month. The country had the most unaffordable homes among English-speaking nations, with the Gold Coast and Sunshine Coast markets near the top, according to a Jan. 24 report by Belleville, Illinois-based consulting company Demographia, which compared 325 housing markets in seven developed economies.”

Guess who was second to Sydney in the ‘Severely Unaffordable Housing Markets’ category of the Demographia study? Yeah, your home team, Vancouver.
Canada and Australia have been moving lock-step: Resource based economies, strong dollars, and housing bubbles with off-shore buyers. We expect Canada to follow Australia with respect to RE weakness. This could herald the beginning of our crash. -vreaa

The Aussie RE turn is also covered in recent posts at Mish’s ‘Global Economic Trend Analysis’, ‘Australian Home Sales Sink, Luxury Units Sell for Half Cost; New Home Loans at 10-Year Low; Australia Retailers in Deep Trouble; Party Officially Over’, 10 Apr 2011

15 responses to “Australian Housing Market Strikes Out; Canada Is Last Batter Up

  1. Australia is not short of land – Queensland is not hem in by natural constraints for RE development.

    I should get out there, bring in labour from some cheaper country, and build massive tracts of North American suburbia – I will make a fortune. And yes, the postal code for the new estate will be 88888.

  2. Did you guys see this? http://www.cbc.ca/news/canada/british-columbia/story/2011/04/11/bc-vancouver-ladner-residential-restrictions.html

    I find the comments under it fascinating. People try to find someone to blame and it is the “Asian investor” or to be more accurate the “foreign investor”.

    It puzzles me really. As an investor why would you bother with SFHs? I can see a few reasons why Chinese would want to buy a house here, mostly in order to establish a toe hold in Canada for maybe a future move, or if they have a lot of money to have a place for their kids to attend UBC or SFU at.

    But investors? I would never end up investing into SFHs, I’d buy a large rental property maybe or even better invest into them via REITs.

    • Polly Pollyanna

      the real culprits are the bank of canada and the RE industry,

      and of course, our basic greed.

      we ought to be happy that HAM are some of the last in – once bitten twice shy.

  3. SFH is used as a hedge against other investments; additionally it is a status symbol (very important in business circles; like having a vacation home on Salt Spring Island).

    • Sorry but I don’t “buy” that.

      Yes, I can see the Status symbol aspect of it, but why would you buy one in a place that non of your business partner ever sees it? And we’re supposedly talking about foreign investors with very deep pockets indeed.

      It just doesn’t add up in the way it’s now being framed.

      What *I* think is going on here is simple the attempt to find someone to blame for our own Greed. As one guy pointed out in the comments (and was promptly voted down) that the locals don’t lower their prices either but enjoy the high return on their “investment”.

      I’d love to see someone do an audit and I am pretty sure that if the numbers would come in it would turn out that the majority of buyers are Canadians, not Chinese investors from abroad who “try to park their money”.

      • Ha! I wish you were right.

      • You don’t have to ‘buy it’ for it to be true, Michael… In a word, the appropriate riposte to your ‘circumscribed vision’ is…

        Guanxi.

        The following link may help – albeit Guanxi is a unique, deeply ingrained, vertically transmitted and horizontally diffuse ‘granular’ Chinese cultural conception with no known comparable ‘Gwailo’ equivalent (as opposed to a merely awkard linguistic/semiotic equivalency).

        http://tinyurl.com/cogo9d

        And there it is!…

        PS – for a LensMan, you should get out more… ;)

      • Polly Pollyanna

        i remember a friend coming back from china with a huge notebook full of business cards in plastic hockey card/business card sheets.

        LOOK AT ALL MY CONNECTIONS

      • Polly Pollyanna

        love the wikipedia “good ol’ boy” equivalent in english

        so i guess gordo’s got good guanxi.

      • @Nemesis

        Guanxi.

        I am aware of Guanxi, but I still won’t buy that this is behind the Vancouver prices. You invest where it makes sense, not where you get to pay the most. There is no reason to invest here outside of a wishful thinking.

        If you’re business savvy you invest where you get a return for your money. I just have a hard time to believe that rich Chinese are that stupid, I have dealt with too many small shop owners and see how they are with money.

      • @Westsider

        Ha! I wish you were right.

        Doesn’t really matter. Once it corrects it will just be bad.

        If anything, you should hope that there are many foreign investors holding these properties, it will mean less locals will be wiped out.

  4. I think what he means to say is “we have a bubble and even a small adverse shock will pop it”, creating a much larger shock of course since real estate and mining are the Australian economy.

  5. I live in the Arbutus area and many of the Chinese residents are obviously having difficulties making ends meet. It seems they buy into a myth that they will be able to make a go of it here in Vancouver but the reality is much different. People in the big 8 bedroom 9 bathroom houses around here are renting rooms out to ESL students, running B & Bs, selling Amway (!) and more recently, crazy Chinese medical quackery out of their houses. If things go south I am sure many of these people will just bail – they’re not invested in the community as a place to live, more as a place to make money. If the equity train grinds to a halt I am positive many of the new immigrants will just leave.

  6. Polly Pollyanna

    isn’t that what vreaa has pointed out, these are momentum investors. what’s their pain threshold? 10%? 15% drop?

  7. When the chinese demand economy finally implodes, than many of these Asian investors will sell into a panic. Not good for vancouver and sydney real estate prices.

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