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When will the 'inevitable' Australian property crash begin? When does 'The Bubble' actually pop?
Topic Started: 14 Jul 2014, 11:31 AM (12,136 Views)
Veritas
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Shadow
16 Jul 2014, 02:31 PM
You've been reading too much Macrobusiness.

1. Unemployment is pretty steady and residential construction is taking over from the mining boom. Apart from the mining boom slowing, everything else is actually going OK.

2. The USA also had massive stimulus, but it didn't prevent house prices there crashing because they had an actual housing bubble. Also Australia government debt is very low by global standards. Plenty of scope for more stimulus there if needed.

3. Until their next one.

4. Rates can be cut further if needed, although increased banking competition will probably do the RBA's job for them here.

I think you're right, but I was assuming Wisebear meant restricting to 3x single income - i.e. pre-financial deregulation style of not considering the wife's income etc.
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1. Unemployment is pretty steady and residential construction is taking over from the mining boom. Apart from the mining boom slowing, everything else is actually going OK.


Lets see. Its rising and youth unemployment is high. They are the "greater fools" you are relying on.

Quote:
 
2. The USA also had massive stimulus, but it didn't prevent house prices there crashing because they had an actual housing bubble. Also Australia government debt is very low by global standards. Plenty of scope for more stimulus there if needed.


But where was their China?Yes, there is plenty of scope. Bailing out overleveraged Investors is part of the cycle by your own admission.

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3. Until their next one.


Oh sorry, forgot Chinese fiscal policy is also "all part of the cycle"

Quote:
 
4. Rates can be cut further if needed, although increased banking competition will probably do the RBA's job for them here.

I think you're right, but I was assuming Wisebear meant restricting to 3x single income - i.e. pre-financial deregulation style of not considering the wife's income etc.


And all of a sudden Monetary policy and "the cycle" become one. Jeez, this is cast iron. Better go buy some investment properties.





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
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Shadow
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Veritas
16 Jul 2014, 02:56 PM
And all of a sudden Monetary policy and "the cycle" become one.
You are only now figuring out that the property cycle is related to interest rates?

Quote:
 
Better go buy some investment properties.
You will never own property.
Edited by Shadow, 16 Jul 2014, 03:05 PM.
1. Epic Fail! Steve Keen's Bad Calls and Predictions.
2. Residential property loans regulated by NCCP Act. Banks can't margin call unless borrower defaults.
3. Housing is second highest taxed sector of Australian Economy. Renters subsidised by highly taxed homeowners.
4. Ongoing improvement in housing affordability. Australian household formation faster than population growth since 1960s.
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Poontang
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Shadow
16 Jul 2014, 02:31 PM
You've been reading too much Macrobusiness.

1. Unemployment is pretty steady and residential construction is taking over from the mining boom. Apart from the mining boom slowing, everything else is actually going OK.

2. The USA also had massive stimulus, but it didn't prevent house prices there crashing because they had an actual housing bubble. Also Australia government debt is very low by global standards. Plenty of scope for more stimulus there if needed.

3. Until their next one.

4. Rates can be cut further if needed, although increased banking competition will probably do the RBA's job for them here.

I think you're right, but I was assuming Wisebear meant restricting to 3x single income - i.e. pre-financial deregulation style of not considering the wife's income etc.
Unemployment is at a 10 year high and tipped to rise further.

Youth unemplyment is high and will be high for some time.. especially if the retiring age is continually raised.


The massive stimulus in the USA was for the benefit of the banks, not mortgage holders or the housing market.
There are some people who seem angry and continuously look for conflict.
Walk away, the battle they are fighting isn't with you, it's with themselves.

The first lesson of economics is scarcity: There is not enough of anything to satisfy all who want it.
The first lesson of politics is to disregard the first lesson of economics. ~ Thomas Sowell.

Who was the fool, who the wise man, who the beggar or the Emperor? Whether rich or poor, all are equal in death.
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Wisebear
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Shadow
16 Jul 2014, 02:02 PM
If mortgages were restricted to 3x income then we could see price/income ratios fall back to 3x household income instead of the current 4x to 5x household income.

Which aspects of financial deregulation do you believe will be reversed, and when?
So you accept that there are circumstances under which real price declines of up to 40% are possible. That's good progress Shadow.

While I eventually expect more regulation I don’t think it’s necessary in order for the property market to correct significantly. I’m a strong believer that market forces trump everything and that everyone acts in their own best interest. Banks will therefore not continue to lend into a bubble forever and people won’t bid up the prices of bubble assets forever regardless of whether prudent lending standards are imposed or not.

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Shadow
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Wisebear
16 Jul 2014, 03:08 PM
So you accept that there are circumstances under which real price declines of up to 40% are possible.
There are circumstances under which Australian house prices could fall to zero.

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Banks will therefore not continue to lend into a bubble forever and people won’t bid up the prices of bubble assets forever regardless of whether prudent lending standards are imposed or not.
If house prices keep tracking incomes as they have done for over a decade then the banks and the people are not going to worry about bubbles.

Which aspects of financial deregulation do you believe will be wound back, and when?


Poontang
16 Jul 2014, 03:08 PM
Unemployment is at a 10 year high
Yet house prices are still rising. And let's put it in perspective...

Posted Image

Quote:
 
and tipped to rise further
Tipped by who... gloomers? Many economists are tipping the unemployment rate to fall.
Edited by Shadow, 16 Jul 2014, 03:21 PM.
1. Epic Fail! Steve Keen's Bad Calls and Predictions.
2. Residential property loans regulated by NCCP Act. Banks can't margin call unless borrower defaults.
3. Housing is second highest taxed sector of Australian Economy. Renters subsidised by highly taxed homeowners.
4. Ongoing improvement in housing affordability. Australian household formation faster than population growth since 1960s.
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Ex BP Golly
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Shadow
16 Jul 2014, 02:02 PM
It did in the late 90s and early 2000s as a result of financial deregulation, but that process ended more than a decade ago, and since then prices have simply tracked income growth. So current price/income ratios in Australia have been sustained for over a decade. The current ratio appears to be sustainable.

In all other countries that had a housing crash, the crash happened immediately after the sharp rise in price/income ratios and construction boom. That's because price/income ratios in those countries grew to levels that could not be sustained.

There have been no cases ever in the history of popped bubbles where a bubble suddenly popped after relatively stable price/income ratios had been sustained for a decade.

Incorrect. I have always said the run up in price/income ratios during the late 90s and early 2000s was a result of financial deregulation. If that financial deregulation is reversed, then house prices would fall back to earlier price/income ratios. But in my opinion the likelihood of financial deregulation being reversed any time soon is pretty remote. If anything, there is likely to be further deregulation, lower structural interest rates, increased competition from foreign lenders and supermarkets etc.


If mortgages were restricted to 3x income then we could see price/income ratios fall back to 3x household income instead of the current 4x to 5x household income.

Which aspects of financial deregulation do you believe will be reversed, and when?
U.S. was under 2x in the early 80s and had what I would describe 'a minor blip', and are back around 1.8x 30 years later..

We were slightly above 2x in early 80s, and at parity with US in 1986, and have had a sustained huge growth and are now around 4.5 to 5x. ( Chris Joye recently said 6x didn't he?)

Somehow, you see that as sustainable.

I certainly don't.

It might be if we were a first world economy, but as we have slaughtered manufacturing, and predominantly rely upon resource exploitation and the rural sector, I just cannot see how our urbanised population that services each otherer with cheap Chinese product can compete in a globalised market.

They are a dead weight relying upon tax concessions just to survive!

Flogging houses to each other just isn't going to cut it.
WHAT WOULD EDDIE DO? MAAAATE!
Share a cot with Milton?
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Shadow
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Ex BP Golly
16 Jul 2014, 03:25 PM
U.S. was under 2x in the early 80s and had what I would describe 'a minor blip', and are back around 1.8x 30 years later.
The US has the lowest price/income ratio in the world, but they have very high property taxes, so the overall cost of ownership is much higher than their price/income ratio suggests.

Australia's price/income ratio is about average compared other comparable countries...

http://www.numbeo.com/property-investment/rankings_by_country.jsp

House Price to Income Ratio, Country
29.39 Hong Kong
28.09 China
24.14 Taiwan
21.84 Thailand
21.66 Singapore
20.24 Indonesia
19.39 Philippines
19.10 Vietnam
16.59 Brazil
14.65 Russia
12.33 South Korea
11.61 Italy
11.57 Israel
11.05 Poland
10.87 Greece
10.39 India
10.38 Spain
10.31 France
10.19 Austria
09.68 Sweden
09.59 Hungary
08.70 Portugal
08.34 Japan
08.32 Luxembourg
08.27 Malaysia
07.80 United Kingdom
07.76 Norway
07.43 Australia
07.01 Switzerland
06.54 Netherlands
06.13 Germany
06.10 Ireland
05.97 Belgium
05.94 Denmark
05.80 New Zealand
05.71 Iceland
05.41 Canada
03.32 South Africa
02.41 United States

Quote:
 
now around 4.5 to 5x. ( Chris Joye recently said 6x didn't he?
Depends on how the ratio is calculated. Houses vs dwellings, single vs household income, gross vs disposable vs discretionary income, mean vs median etc.
Edited by Shadow, 16 Jul 2014, 03:37 PM.
1. Epic Fail! Steve Keen's Bad Calls and Predictions.
2. Residential property loans regulated by NCCP Act. Banks can't margin call unless borrower defaults.
3. Housing is second highest taxed sector of Australian Economy. Renters subsidised by highly taxed homeowners.
4. Ongoing improvement in housing affordability. Australian household formation faster than population growth since 1960s.
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Ex BP Golly
Member Avatar


Shadow
16 Jul 2014, 03:34 PM


House Price to Income Ratio, Country
29.39 Hong Kong
28.09 China
24.14 Taiwan
21.84 Thailand
21.66 Singapore
20.24 Indonesia
19.39 Philippines
19.10 Vietnam
16.59 Brazil
14.65 Russia
12.33 South Korea
11.61 Italy
11.57 Israel
11.05 Poland
10.87 Greece
10.39 India
10.38 Spain
10.31 France
10.19 Austria
09.68 Sweden
09.59 Hungary
08.70 Portugal
08.34 Japan
08.32 Luxembourg
08.27 Malaysia
07.80 United Kingdom
07.76 Norway
07.43 Australia
07.01 Switzerland
06.54 Netherlands
06.13 Germany
06.10 Ireland
05.97 Belgium
05.94 Denmark
05.80 New Zealand
05.71 Iceland
05.41 Canada
03.32 South Africa
02.41 United States.
7.43x

Is that household income?
Edited by Ex BP Golly, 16 Jul 2014, 04:32 PM.
WHAT WOULD EDDIE DO? MAAAATE!
Share a cot with Milton?
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Veritas
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Shadow
16 Jul 2014, 03:05 PM

Quote:
 
You will never own property.


How do you know? You don't know anything about me.

But even if I don't, what's the diff?

You cant take it with you buddy.
Ex BP Golly
16 Jul 2014, 04:30 PM
7.43x

Is that household income?
In Numbeo we trust.

Dumbeo more like.
Quote:
 
You are only now figuring out that the property cycle is related to interest rates?


I have translated what you mean when you say "all part of the cycle"

What you mean is the "cycle" is controlled by monetary and fiscal policy and rosy assumptions regarding underlying economic fundamentals and buyer sentiment.

Oh, and that we cant talk about the cycle before 2003. That doesn't matter you see.

But we can talk about interest rate fluctuations going back 160 years.


Edited by Veritas, 16 Jul 2014, 04:42 PM.
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
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The corollary of what is a reasonable extrapolation (consistent with historical practice) of ex-post data for house price growth is the implication for real income growth in Australia at higher than historical averages, which fits with the accordant pressure for higher rates of real income growth in the developing world, both of which will serve to ensure the labour competitiveness gap between Australia and those countries does not widen while still allowing for the stability of asset prices which also have the complimentary effect of maintaining the level of investor support for house price sentiment in this country, as well as the flow on effect to rates of credit growth supporting our financial system and employment generally.

This provides the RBA with ample scope to pursue a policy of sustained lower interest rates without undue concern for what would otherwise be construed as ‘inflationary’ effects on asset prices, as any increases will generally be effectively capitalising the implied future gains in real domestic income growth relative to the expected trend of Chinese income growth. The combination of these factors should continue to support and in some cases arguably improve on the affordability of housing at existing levels, notwithstanding some occurrences of excesses in highly sought after and naturally or effectively constrained markets, which serve merely to create noise in the aggregate data.
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