While you guys bicker over the definition of stimulus, Rome is burning: Melbourne house prices have reached a new peak. It's bad news for our children. But the issue here isn't stimulus. It's immigration and foreign buying. That's where your attention ought to be directed.
This whole post/point is undermined by the this false underlying assumption.
Banks do NOT lend based on the size of your deposit, they lend based on your income and capacity to repay your loan. If you only have income that makes you credit-worthy for a $300k loan, then you will only get a $300k loan, no matter what your deposit, (as long as you at least have the minimum deposit the bank requires + LMI costs etc).
This is the old "easy credit makes asset prices rise" myth, that I was told the other day is never actually said by anyone! Even Steve Keen fell for this one and propogated this myth for a while in some of his more outrageous claims about the impact of FHB grants and so on. The reality is that credit is only an enabler, which may add to demand (if the underlying demand exists in the first place).
Utlimately people can only borrow based on their credit-worthiness and capacity to repay, not based on some simple multiple of their deposit as this poster is arguing. And prices will only rise if demand in the market significantly outstrips supply, regardless of credit conditions.
*Scratches head*
If a bank migrates from having one set of lending standard to another then how could you argue that credit availability is not a massive factor in asset price inflation?
Unless you are saying that bank lending standards were the same before financial deregulations then they were after?
Dr Watson
14 Jul 2014, 12:35 PM
While you guys bicker over the definition of stimulus, Rome is burning: Melbourne house prices have reached a new peak. It's bad news for our children. But the issue here isn't stimulus. It's immigration and foreign buying. That's where your attention ought to be directed.
Incorrect.
Have you not listened to Shadow?
2/3rds of people own houses. therefore, more expensive housing is an unmitigated good.13 times the median income. Bring it on!
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
House prices tracking incomes over the medium-long term since 2003 is not the same thing as the property cycle.
The property cycle is where prices cycle between periods of growth, decline, and stagnation.
This cycle existed long before house prices started tracking income growth in 2003.
Seriously, your knowledge of the housing market is very limited if you didn't realise this.
What did you think happened prior to 2003? Did you think prices had just been rising forever with no cyclical declines?
When I hear you talk about the cycle this is what I hear:
House prices rise, then fall a bit, and then keep rising so really, you cant lose.
I distrust this message.
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
1930 to 1950. And rents fell to. You missed the bubble runup by 20 years shadow. Now you will ride it down. At least until they take the properties back. Banks do that when you default on repayments you know.
IO Loans, what were you thinking shadow. You have nothing, no equity. Pathetic when you think about it hey? You dependant on Ponzi gains to bail you out in an era when the whole world is in economic contraction. You're already bankrupt, you just can't see it yet.
Shadow was hopelessly wrong about the Gold Bull Market. What else is he wrong about?
If a bank migrates from having one set of lending standard to another then how could you argue that credit availability is not a massive factor in asset price inflation?
Unless you are saying that bank lending standards were the same before financial deregulations then they were after? Incorrect.
Have you not listened to Shadow?
2/3rds of people own houses. therefore, more expensive housing is an unmitigated good.13 times the median income. Bring it on!
More expensive housing does NOT benefit people who only own a single property. Basic analysis might show it to be good, but the only possible net benefit is as a defence against overseas buyers. If anything a % gain on PPOR is a net negative since people need to live somewhere and their next house will be as as expensive, or more expensive if they are trading up. It's only a benefit if the majority of Australians are trading down. Speaking of which there is a shortage of low priced small properties for these people to buy.
More expensive housing does NOT benefit people who only own a single property. Basic analysis might show it to be good, but the only possible net benefit is as a defence against overseas buyers. If anything a % gain on PPOR is a net negative since people need to live somewhere and their next house will be as as expensive, or more expensive if they are trading up. It's only a benefit if the majority of Australians are trading down. Speaking of which there is a shortage of low priced small properties for these people to buy.
The RBA contends that rising house prices do benefit people who want to go into business. It enables them to borrow more money and fosters an entrepreneur culture, according to the RBA. The next (Australian) Steve Jobs or Bill Gates might be denied if house prices fell because they wouldn't have security to borrow against, the RBA contends.
I'd like to see your evidence that house prices didn't cycle through rising and falling periods between those dates.
Quote:
You missed the bubble runup by 20 years shadow. Now you will ride it down. At least until they take the properties back. Banks do that when you default on repayments you know. IO Loans, what were you thinking shadow. You have nothing, no equity. Pathetic when you think about it hey? You dependant on Ponzi gains to bail you out in an era when the whole world is in economic contraction. You're already bankrupt, you just can't see it yet.
I'm not sure how this rant is relevant to the discussion?
Thatguy
14 Jul 2014, 01:33 PM
More expensive housing does NOT benefit people who only own a single property.
Yes it does. It gives them equity they can leverage to invest in more property, or shares, or to start a small business etc. They can also sell or downsize and pocket the cash. They have more financial options than renters and other homeowners whose homes did not rise in value.
This whole post/point is undermined by the this false underlying assumption.
Banks do NOT lend based on the size of your deposit, they lend based on your income and capacity to repay your loan. If you only have income that makes you credit-worthy for a $300k loan, then you will only get a $300k loan, no matter what your deposit, (as long as you at least have the minimum deposit the bank requires + LMI costs etc).
This is the old "easy credit makes asset prices rise" myth, that I was told the other day is never actually said by anyone! Even Steve Keen fell for this one and propogated this myth for a while in some of his more outrageous claims about the impact of FHB grants and so on. The reality is that credit is only an enabler, which may add to demand (if the underlying demand exists in the first place).
Utlimately people can only borrow based on their credit-worthiness and capacity to repay, not based on some simple multiple of their deposit as this poster is arguing. And prices will only rise if demand in the market significantly outstrips supply, regardless of credit conditions.
*Scratches head*
If a bank migrates from having one set of lending standard to another then how could you argue that credit availability is not a massive factor in asset price inflation?
Keep scratching - you might eventually work out how things *actually* work for once.
A bank can change it's lending standards all it likes, financial regulation can be reduced by the government of the day to increase competition - these things on their own may have exactly zero impact on house prices - *unless* someone actually WANTS to borrow the "extra" money now available in order to buy a house. Please also be clear I am not talking about interest rates here - that's a different discussion and interest rates absolutely flow into / impact asset prices. We are talking about credit conditions - LVRs, deposit requirements, ease of getting a loan approved, interest rate *margins* and so on.
Without the fundamental, underlying demand, from credit-worthy want to be borrowers, credit conditions don't mean shit.
Prices rose in the 90s because prior to that credit was in effect rationed, resulting a long term build up of prent up demand. but the wealthy and well connected made out like bandits in the pre-90s era. When the market was de-regulated, credit conditions eased considerably, enabling this demand to be unleashed. Add to that falling interest rates and resulting changes in inflation / interest rate expectations long term, and there's your answer as to what happened in the 90s.
Quote:
Unless you are saying that bank lending standards were the same before financial deregulations then they were after?
Ummm, no.
PS: By the way - it was you who asked me the other day "says who" when I mentioned the "bears say that easy credit is the cause of high house prices"! a) the post I responded to is a classic example of "who says", as did Steve Keen, and you yourself seem to be making the same (false) argument still as well?
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