Following September's 9.3% MoM plunge in Aussie home approvals, hopes were high that October would see a bounce (expectations were for a 2% gain) as central bankers jawboned confidence higher. However, it didn't... Building approvals collapsed 12.6% MoM and a shocking 24.9% year-over-year decline is equal to the worst drop since Lehman. Ironically, just this month Aussie Treasurer eased restrictions on foreign buyers (otherwise known as bag holders it would seem).
It's been weak year anyway but this is an utter disaster as the Aussie housing bubble finally pops... (on a non-seasonally-adjusted basis the year-over-year drop is 28% - the biggest since Nov 2008)
This is the lowest level of building approvals per capita in 2 years as it seems China's credit impulse has faded entirely.
The cracks have been showing with default rates on the rise (as AFR reports)
Mirvac said it experienced a rise in the default rate for the settlement of off-the-plan residential sales, above its historic average of 1 per cent.
On top of defaults, the Australian apartment markets – which boomed in the last four years – are facing other fresh risks...
On Friday, HSBC said an oversupply of apartments in Melbourne and Brisbane could send unit prices down by as much as 6 per cent in 2017.
The apartment building boom, an ongoing concern for the Reserve Bank of Australia, especially in inner city Melbourne is likely to "start showing through" in price drops of between 2 per cent and 6 per cent in that city next year, HSBC chief economist Paul Bloxham said in a note.
It's a similar story in Brisbane where apartment prices are forecast to fall by as much as 4 per cent.
"A national apartment building boom, which has been part of the rebalancing act, is likely to deliver some oversupply in the Melbourne and Brisbane apartment markets, which is expected to see apartment price falls in these markets," Mr Bloxham said.
"A modest shakeout in the inner-city apartment markets in Brisbane and Melbourne, as we are forecasting, is not expected to have a broad-based impact on the overall housing market or economy."
Which perhaps explains why Aussie Treasurer Scott Morrison said the government will make changes to the foreign investment framework to allow foreign buyers to buy an off-the-plan dwelling that another foreign buyer has failed to settle as a new dwelling.
The federal government has announced it will make it easier for foreigners to buy new apartments amid concerns of a looming glut that will drive down prices.
Previously, on-sale of a purchased off the plan apartment was regarded as a second hand sale, which is not open to foreign buyers. Foreign buyers can only buy new dwellings.
The move effectively opens up the pool of buyers who can soak a potential flood of apartments hitting the residential markets due to failed settlements.
Hoping for some of the capital taking flight from China to rush down, we are sure.
Yesterday Citi produced a new index which pinned the Australian property bubble at 16 year highs:
Bubble trouble. Whether we label them bubbles, the Australian economy has experienced a series of developments that potentially could have the economy lurching from boom to bust and back. In recent years these have included:
the record run up in commodity prices and subsequent correction;
the associated boom in mining investment and current reversal;
record low bond yields;
the boom in housing construction, specifically apartments, that was spurred by the low interest rates.
Housing indicators in the bubble meter are at record highs but interest rates remain at record lows. Typically monetary policy is well into tightening mode at this stage in the housing cycle. A destabilizing housing burst (both in activity and prices) is a clear risk, particularly the longer the upswing runs.