Well, all the parts are finally in place for the big housing bubble burst, Australia has been waiting for. All the while trying to reassure itself and the world, that it was never going to happen of course. Just like it was never going to happen in the US.
But now, like a roller coaster that finally clanks to the top and seems to pause, poised majestically before the screaming descent, everything is ready. All that is ahead is blue sky and rails heading almost straight down. House prices have almost stoped rising. And in at least three markets they seem to have topped and may have started to roll forward and down. Remember in a roller coaster if you aren’t going up then you are going down. It’s the same in a bubble market. If you aren’t rising massively then the leveraged debts cannot be held off for very long. Leveraged debts require constant growth. Cut off that growth for even a little while and apoxia sets in fast.
Of course even a roller coaster starts to fall slowly. Look back at the Dow or the Ftse in 08. Long befor the ‘crash’ the descent had started. A slow slide picking up pace , before the heart in the mouth moment when it all goes vertical.
So where are we on the housing bubble and bank ride? Well at the top and looking down I’d dsay. Commitments of new builds have suddeenly fallen by 15% in April. And Oz bank shares are now being shorted by American funds. That they are being shorted means we are already passed the sell off stage. For funds to want to short they must have already sold any shares they themselves were holding. Those US funds are already out, sold and clear to short. That means Oz banks are being targetted as a means to a quick profit by shorting not investent.
The most vulnerable Oz bank is Westpac. It is widely seen as the most exposed to residential mortgages. It is probably the most leveraged and is suspected of having the most dodgey portfolio of loans. Whether this is all true becomes less important as its share price is targetted, than the rumour that it might be true. Already Westpac has been savaged. It has lost 19.4% of it share price since April. Think back to the days of Northern Rock or later when HBOS and RBS were getting hit. The numbers are similar.
And it’s not just Westpac, NAB’s has lost 15.5%, CBA 13.9% and ANZ 12.8%. Those are big losses. How long till they have to raise capital holdings to cover the loss in the banks’ value? And when they do need to raise capital they will turn to where? The bond markets. And as soon as they do that – it’s goodbye lunch hello air gulping panic. The low over the top is losing share pruce and investor confidence. The moment you need to go to the Bond market for a top-up and find the market says – ‘sorry old boy not sure I like your assets any more’, that’s when you find you’re in free fall.
The government knows a crash is on the cards. Why else the rather obviously panicky announcement of the 40% super tax on miners? Which the Government seemd to lose faith in almost as soon as it had announced it. Panic and dithering – good, confidence inspiring combo!
China could still save them by collaterally funnelling hot money off-shore to hide in OZ. But it looks less and less likely this will be Oz’s saviour.
Golem
re-"And it's not just Westpac, NAB's has lost 15.5%, CBA 13.9% and ANZ 12.8%. Those are big losses. How long till they have to raise capital holdings to cover the loss in the banks' value?"
Excuse my ignorance, but why would a banks share price fall require capital to be raised?
Tom,
You're right it doesn't automatically mean they have to raise capital. But very often it does for two reasons. First they bank may well own some of its own shares and count them as realisable capital holdings due to the saleable nature of shares. As their value declines so therefore does that portion of the banks capital cushion.And given how highly leveraged banks are and how little capital they hold against vast debts often a small decline is enough to take them under the minimum.
Second most banks hold quite a ,lot of other banks debts as capital. So as the share price of other banks goes down each bank holding that debt looses capital.
Other than that the decline in share price also is just a proxy measure of other likely troubles in other assets being held – as such it doesn't make them have to raise capital but it measures how likely it is.
So you're right to be question the bald statement. Sorry. I should have been a little more cautious in how I phrased it.