The vulnerability of the Australian housing market should be well-known to the market by now,
but there is no reason to fight this and be contrarian for contrarian’s sake. The latest housing
market data in Australia continues to deteriorate and maintains the very bearish 2019 outlook for
the Australian economy and asset markets.

Coincident data in Australia paints a pretty dire picture for house prices, which are not only
falling nationally, but declines are now widespread across most regional markets (top-left chart).
Ordinarily, whenever most regional markets see price falls, it has usually marked the bottom in
the housing market, as we saw back in 2009 and 2012. However, this time around, leading data
continues to worsen, with no sign of a rebound. The top-right chart shows that building permits
are falling 20% YoY while housing finance is also declining rapidly. In particular, interest-only
loans (last chart), which had fuelled the speculative fervour amongst property investors, have
now declined rapidly. Auction clearance rates also continue to collapse, showing very weak
demand from buyers. Relief rallies in AUD or Australian banks should be sold, while we maintain
a buy-the-dip attitude to Australian fixed-income.

(Click image to enlarge.)