These ingredients created the big growth last two decades:
1. LVR's increasing through the introduction of LMI. In the late 80's, LVR's were at 80%. So if you had a 50K deposit, that represented 20% - meaning the bank would give you 200K. That = 250K budget. When 90% + LMI deals started in the early 90's , your 50K = 10% deposit, which = 500K budget. When 95% + LMI deals became commonplace by mid-late 90's your 50K = 5% deposit, which = $1 Mil budget.
2. Deregulation from the late 80's and into the early 90's = massive drops in rates, increased competition, and banks were allowed to lend much higher ratio's against the capital they were required to hold.
3. Securitisation from the early 90's = plentiful supply of easily available money, coupled with bank product innovation. i.e equity /cash out restrictions being lifted. servicing calcs going fro 3.5 x income to 7-8 x income, + addbacks, neg gearing etc...
4. Decades of incompetent Govt planning ( local, state and federal, and all parties)
5. Favorable tax environment for investors
Essentially, across 7 or 8 years from the early - late 90's, we went from having Situation A - 4 banks who would lend you 3.5 x income and required 20% deposits, and who had limited funds available, to Situation B - dozens of banks ( local and foreign) non bank lenders , mutuals and building societies and credit unions who would lend you any amount you wanted, with little or no deposit required. Coupled with falling rates, a tax system that rewards speculation, aggressive migration and hopelessly incompetent Governments, we had the mother of all booms between 92-2005.
Or put more simply, borrowing capacity doubled and then re-doubled across a 10-15 year period because of points 1,2 and 3 above , created by an oversupply of cheap global money , while point 4 created an undersupply of stock and point 5 created the tax environment to make it all gel together.
Once 1,2 and 3 had been exhausted by the mid noughties, growth slowed dramatically - everywhere. Some places did better than others, but we went from 12% compounding growth to less than half of that, in every capital city after 2004/5 .
And we have only seen two mini booms since. Once after the GFC, when rates were cut aggressively... and the last 9-12 months , when you guessed it, rates hit historical lows.
Both are examples of why borrowing capacity ( interest rates) is now the largest driver of growth. All growth in the last 25 years has coincided with periods of freely available, ultra cheap money. All of it. No exceptions. Without that key ingredient, growth has been much less impressive
So the real question is whether interest rates will keep falling - in which case the evidences suggests further growth, or whether the rate cycle is at its lowest and will start moving back to "normal " settings - in which case growth will be at much lower levels than people might want to believe.
The RBA has a very difficult problem. A high dollar is forcing them to keep rates artificially low- which is creating uncomfortably high prices. They want the dollar down , but if they lower rates any further they will simply drive more property speculation and risk inflation blowing out. You have heard Glen Stevens warn people about investing in Sydney in particular.... and he had the same message after the min boom following the GFC. The RBA is ultra conservative so when they start jawboning these conservatively worded warnings - I think it bodes well to listen up...
I suspect the RBA are praying the US dollar recovers and the Aussie falls to mid 80 cents so they can get rates up 2% or so to take the steam out of the property market , but I also think they realise that's not going to happen any time soon, so they are starting to try and talk down property in an effort to slow it down. Dont be surprised if they consider some form on macro policy intervention such as that which NZ introduced- i.e capping LVR's . They have always maintained they are against it, but their dilemma is very real.... if they cant get rates up because of a stubbornly high dollar, they face a serious housing bubble forming at some point. Macro intervention may be their only solution. All things considered - it's very hard to make a case for another 10 years of boom times... its much more likely to be 10 years of slow and steady . The good news is that the incompetence of every layer of Govt for decades ensures that undersupply remains a genuine safety net that will provide some insurance against a collapse of any sort. Only a serious recession/unemployment rate will lead to big price falls.
Yep, in a year or two when this boom ends there will be another downturn. Always is. Just part of the cycle. We had similar downturns in 2004, 2008, and 2011. They happen pretty regularly. We have booms, then downturns, then stagnation, then another boom. Seriously Ted, stop panicking, this is just how the housing market works.
Of course, this is the cycle that was invented in 2004.
We arent allowed to conisder anything that happened before that "part of the cycle"
"The cycle" established in 2004
Shadow
14 Jul 2014, 12:26 AM
There is usually some form of stimulus during the growth phase of a cycle.
It could be grants, changes to tax policy, low interest rates, falling unemployment, population growth etc.
This time it happens to be interest rates, but I wouldn't rule out the re-introduction of FHB grants next time.
Does this magical cycle do anything else?
Control the tides perhaps?
Female conception rates?
Who controls this wonderful cycle that soothes our nations' cottage industry of property investors at the first sign of trouble?
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?
The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly. Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
No offence Peter, but you have never had a clue on anything meaningful.
Heres what ted said here Peter, can any so called expert make predictions like this. No they cannot, they could only ever hope to. Last post in thread linked below. Clowns
Of course, this is the cycle that was invented in 2004.
We arent allowed to conisder anything that happened before that "part of the cycle"
"The cycle" established in 2004 Does this magical cycle do anything else?
Control the tides perhaps?
Female conception rates?
Who controls this wonderful cycle that soothes our nations' cottage industry of property investors at the first sign of trouble?
The answer is simple, the mass media. See how they rolled out the old favourites like the block, house rules and all that other shit again a couple of years ago? What about that atursday news article or feel good story on seven news on a Saturday about the Sydney property market "going gangbusters". Come on.
There is usually some form of stimulus during the growth phase of a cycle.
It could be grants, changes to tax policy, low interest rates, falling unemployment, population growth etc.
This time it happens to be interest rates, but I wouldn't rule out the re-introduction of FHB grants next time.
Hmm not much left in the pot though mate: there's no huge govt surplus to bail us out like last time. Mining tax receipts could be in for a reduction too.
It's possible the wheels are about to fall off your magic cycle.
"It were not best that we should all think alike; it is difference of opinion that makes horse races." - Mark Twain on why he avoids discussing house prices over at MacroBusiness. "Buy land, they're not making any more of it." - Georgist Land Tax proponent Mark Twain laughing in his grave at humourless idiots like skamy that continually use this quip to justify housing bubbles.
Hmm not much left in the pot though mate: there's no huge govt surplus to bail us out like last time. Mining tax receipts could be in for a reduction too.
It's possible the wheels are about to fall off your magic cycle.
There's not so much left in the way of interest rate reductions, that's true ... but there is always the mass migration policy lever. For that can be ramped up effortlessly, like turning a dial. Reintroducing the FHBG wouldn't make much of a dent in the federal budget. It's a relatively inexpensive but powerful form of stimulus. Not that I'm advocating either of these policies.
The trouble with the world is that the stupid are cocksure and the intelligent are full of doubt — Bertrand Russell
There's not so much left in the way of interest rate reductions, that's true ... but there is always the mass migration policy lever. For that can be ramped up effortlessly, like turning a dial. Reintroducing the FHBG wouldn't make much of a dent in the federal budget. It's a relatively inexpensive but powerful form of stimulus. Not that I'm advocating either of these policies.
Does Australia really want anymore migration, not to mention mass migration, might make a good poll.
You seem to forget that we already have mass migration. Do you now wish to bring more in, and have the taxpayer fund them and their ever extending families. Even if they could find or get a job, they will only be taking it away from and Australian citizen already struggling.
We have mass migration now, prices are barely above 2010 for most places, and thats with all these government grants, stamp duty exemptions , foreign investment, recent superfund leveraging into property and record lows Interest rates and yet we still can't make it work. No real growth measures, these artificial ones are having less effect by the day
There's not so much left in the way of interest rate reductions, that's true ... but there is always the mass migration policy lever. For that can be ramped up effortlessly, like turning a dial. Reintroducing the FHBG wouldn't make much of a dent in the federal budget. It's a relatively inexpensive but powerful form of stimulus. Not that I'm advocating either of these policies.
Your post spells out, not only our narrow mindedness but the clear desperation of the situation, like shadows post calling for similar things.
All they had for suggestions were ways of artificial growth. There was no mention of any REAL fundamental growth measures. Just look at what the government has created. Theze clowns did not suggest any jobs programme for our increasing unemployed or ways of decreasing record levels of youth unemployment that is not only at record levels, but our youth unemployment in Austtalai is now worse than the US, UK and euro zone according to most statistics.
Yet nothing about jobs for the youth to buy the houses in future,. Not one single mention at all. It shows this is the pjtiful level of economic growth we now look for and that even these two dopes relize nothing can be done about our evr increasing unemployment and don't even waste their time to mention it.Or the government has them so brainwashed that they consider these things economic growth.
There's not so much left in the way of interest rate reductions, that's true ... but there is always the mass migration policy lever. For that can be ramped up effortlessly, like turning a dial.
I would have thought that wouldn't be as easy with falling unemployment. When you have strong GDP growth, immigration can be dialed up effortlessly, but in a recession?
Quote:
Reintroducing the FHBG wouldn't make much of a dent in the federal budget.
No, but it might cause a political problem in a time of 'budget emergencies'.
Shadow
14 Jul 2014, 01:00 AM
No, I meant what I said.
Oh, in that case I think you are wrong.
Quote:
OK, but make sure to buy as soon as the grant is introduced.
If the grant is $200K, I will buy immediately. Like, the day it is introduced. I'll even take the day off work.
Quote:
If you leave it for a year or two, then prices will just have increased by the amount of the grant, or more.
I think it is optimistic that it would take a year or two.
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