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
But isnt it you who likes to say less than 2% of countries have ever had property crashes. Enough of a sample size?
You are a quack that cant cite a single scholar to substantiate your claim.
Not one.
Remember you are saying that there must be one inflection point.
Who else says this apart from you? So I take it you are expecting there to be a major crisis in the real economy?
If you forsee ZIRP, perhaps you could describe the circumstances under which we get there?
No need for a crisis.
In Australia, we have automatic leakages of income due to our CAD and forced superannuation contributions. The first law of macroeconomics is one persons income is another's expenditure. So structural savings are are drag on the economy in the absence of a supplement.
The supplement can be either government deficits or private sector credit growth. The politics of today required budgets to be balanced etc, so the heavy lifting is left to the RBA to encourage private credit growth. This increases the stock of private debt, requiring the RBA to drop rates lower and lower each cycle. A bit like a junkie needing a bigger hit each time.
The end result is zero interest rates, and monetary tools become useless.
If we have a crisis we will get there quickly. No crisis, it will just grind lower each cycle.
This summary is a bit abbreviated (I'm doing this on an iPad). There is much more to it, But that is the main mechanics.
In Australia, we have automatic leakages of income due to our CAD and forced superannuation contributions. The first law of macroeconomics is one persons income is another's expenditure. So structural savings are are drag on the economy in the absence of a supplement.
The supplement can be either government deficits or private sector credit growth. The politics of today required budgets to be balanced etc, so the heavy lifting is left to the RBA to encourage private credit growth. This increases the stock of private debt, requiring the RBA to drop rates lower and lower each cycle. A bit like a junkie needing a bigger hit each time.
The end result is zero interest rates, and monetary tools become useless.
If we have a crisis we will get there quickly. No crisis, it will just grind lower each cycle.
This summary is a bit abbreviated (I'm doing this on an iPad). There is much more to it, But that is the main mechanics.
Thanks for that.
I see the logic in your argument.
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
In Australia, we have automatic leakages of income due to our CAD and forced superannuation contributions. The first law of macroeconomics is one persons income is another's expenditure. So structural savings are are drag on the economy in the absence of a supplement.
The supplement can be either government deficits or private sector credit growth.
Yes, but the bulk of superannuation contributions are put into equity markets, which is private credit. So superannuation contributions ARE growing private credit, just not from the banking system.
Quote:
The politics of today required budgets to be balanced etc, so the heavy lifting is left to the RBA to encourage private credit growth. This increases the stock of private debt, requiring the RBA to drop rates lower and lower each cycle. A bit like a junkie needing a bigger hit each time.
I agree with your metaphor, but disagree with who you label as the junkie. It is the banking system that needs the credit growth, not the borrowers. The banks are the junkies, and the RBA is their pimp.
Quote:
The end result is zero interest rates, and monetary tools become useless.
Monetary tools become useless before you hit zero. They tend to become useless after the point where you pass a debt to GDP ratio of 100%. When your debt to GDP ratio goes over 100%, lowering interest rates is deflationary, and raising them is inflationary, the opposite of what the interest rate lever is supposed to do.
Still can't come to grips with the volatility I see.
The volatility is called the property cycle. House prices don't rise every year. Sometimes they fall or stagnate, but wages do tend to rise every year.
So over the short term we get periods of a few years where prices move ahead of incomes, and then a few years where prices fall back while incomes catch up.
The net result is that Australia's house price to income ratio is roughly the same as it was over a decade ago.
Prices have been sustained around this level for more than a decade.
Sometimes the ratio rises slightly and sometimes it falls slightly, but it has basically been tracking within 10% above/below the same ratio since 2003.
The volatility is called the property cycle. House prices don't rise every year. Sometimes they fall or stagnate, but wages do tend to rise every year.
So over the short term we get periods of a few years where prices move ahead of incomes, and then a few years where prices fall back while incomes catch up.
The net result is that Australia's house price to income ratio is roughly the same as it was over a decade ago.
Prices have been sustained around this level for more than a decade.
Sometimes the ratio rises slightly and sometimes it falls slightly, but it has basically been tracking within 10% above/below the same ratio since 2003.
How about 2002 or 2001 or 2000, or 1999? I ask as there were massive price gains in most markets during these years.
At a conference in Perth last week with a mining focus and there was a lot of talk of wage reductions taking place.
How about 2002 or 2001 or 2000, or 1999? I ask as there were massive price gains in most markets during these years.
House prices rose faster than incomes during the late 90s and early 2000s as a result of financial deregulation, a lower inflation and lower interest rate environment, and increased willingness of banks to lend based on dual incomes. That process had played out by 2003, after which prices just started tracking income growth over the medium-long term again.
Yes, but the bulk of superannuation contributions are put into equity markets, which is private credit. So superannuation contributions ARE growing private credit, just not from the banking system.
Sorry but that is complete bollocks. Superannuation savings (however they are invested) do NOT add to aggregate private debt (unless the trustee borrows on behalf of the fund to invest, which is currently rare as a proportion of aggregate funds invested). This would be the same as saying that bank deposits add to private debt!
Where do you get this idea from? Is this some new theory floating around the blogosphere, or did you come up with this one yourself?
Quote:
Monetary tools become useless before you hit zero. They tend to become useless after the point where you pass a debt to GDP ratio of 100%. When your debt to GDP ratio goes over 100%, lowering interest rates is deflationary, and raising them is inflationary, the opposite of what the interest rate lever is supposed to do.
Again, where do you get this idea from??? Australia has a debt/GDP ratio that is around/over 100% - and we have had rates lowered several times - where's the deflation? And if rates were raised now - why would that be inflationary? Rates would only be raised in *response* to inflationary pressures.
Maybe you are surmising that lowering rates raises the value of the AU dollar and raising them does the opposite, and this affects the prices of imported goods and services in the manner you are thinking? If this is your thought process, you need to understand that inflationary/deflationary effects due to exchange rate movements are transient / one off, not permanent. So the RBA tends to "look through" such impacts with respect to setting monetary policy.
For Aussie property bears, "denial", is not just a long river in North Africa.....
House prices rose faster than incomes during the late 90s and early 2000s as a result of financial deregulation, a lower inflation and lower interest rate environment, and increased willingness of banks to lend based on dual incomes. That process had played out by 2003, after which prices just started tracking income growth over the medium-long term again.
Ten years does not represent anything other than the last ten years. In the overall scope of things it means NOTHING at all, just history. You missed the boat then shadow, came to the party too late
Why not take the stats back to 2000 instead of your cherry picked fantasy.
You did not address his comment about wages because that would mean dealing with and facing reality.
Wages are dropping all throughout the western world. The fact is Australians wages are in a bubble and need to correct much much more than the US or euro or UK
How about 2002 or 2001 or 2000, or 1999? I ask as there were massive price gains in most markets during these years.
At a conference in Perth last week with a mining focus and there was a lot of talk of wage reductions taking place.
Are you arguing that some fundamental / systemic changes in the market 15 years ago are the reason why prices "must" crash / correct today (or in the near future)? Shadow listed the primary/systemic changes that drove the rapid price rises during those years - do you think any of those factors are likely to be unwound / undone any time soon? Eg, we get long term inflation back like we had in the 70s/80s and corresponding high interest rates? Re-regulation of the financial system? Woman de-liberating and going back to the kitchen en-masse rather than pursuing careers and so on?
Re wages, wage growth may slow due to the slow down in mining investment, but they will not go backward in aggregate.
For Aussie property bears, "denial", is not just a long river in North Africa.....
Australian Property Forum is an economics and finance forum dedicated to discussion of Australian and global real estate markets and macroeconomics, including house prices, housing affordability, and the likelihood of a property crash. Is there an Australian housing bubble? Will house prices crash, boom or stagnate? Is the Australian property market a pyramid scheme or Ponzi scheme? Can house prices really rise forever? These are the questions we address on Australian Property Forum, the premier real estate site for property bears, bulls, investors, and speculators. Members may also discuss matters related to finance, modern monetary theory (MMT), debt deflation, cryptocurrencies like Bitcoin Ethereum and Ripple, property investing, landlords, tenants, debt consolidation, reverse home equity loans, the housing shortage, negative gearing, capital gains tax, land tax and macro prudential regulation.
Forum Rules:
The main forum may be used to discuss property, politics, economics and finance, precious metals, crypto currency, debt management, generational divides, climate change, sustainability, alternative energy, environmental topics, human rights or social justice issues, and other topics on a case by case basis. Topics unsuitable for the main forum may be discussed in the lounge. You agree you won't use this forum to post material that is illegal, private, defamatory, pornographic, excessively abusive or profane, threatening, or invasive of another forum member's privacy. Don't post NSFW content. Racist or ethnic slurs and homophobic comments aren't tolerated. Accusing forum members of serious crimes is not permitted. Accusations, attacks, abuse or threats, litigious or otherwise, directed against the forum or forum administrators aren't tolerated and will result in immediate suspension of your account for a number of days depending on the severity of the attack. No spamming or advertising in the main forum. Spamming includes repeating the same message over and over again within a short period of time. Don't post ALL CAPS thread titles. The Advertising and Promotion Subforum may be used to promote your Australian property related business or service. Active members of the forum who contribute regularly to main forum discussions may also include a link to their product or service in their signature block. Members are limited to one actively posting account each. A secondary account may be used solely for the purpose of maintaining a blog as long as that account no longer posts in threads. Any member who believes another member has violated these rules may report the offending post using the report button.
Australian Property Forum complies with ASIC Regulatory Guide 162 regarding Internet Discussion Sites. Australian Property Forum is not a provider of financial advice. Australian Property Forum does not in any way endorse the views and opinions of its members, nor does it vouch for for the accuracy or authenticity of their posts. It is not permitted for any Australian Property Forum member to post in the role of a licensed financial advisor or to post as the representative of a financial advisor. It is not permitted for Australian Property Forum members to ask for or offer specific buy, sell or hold recommendations on particular stocks, as a response to a request of this nature may be considered the provision of financial advice.
Views expressed on this forum are not representative of the forum owners. The forum owners are not liable or responsible for comments posted. Information posted does not constitute financial or legal advice. The forum owners accept no liability for information posted, nor for consequences of actions taken on the basis of that information. By visiting or using this forum, members and guests agree to be bound by the Zetaboards Terms of Use.
This site may contain copyright material (i.e. attributed snippets from online news reports), the use of which has not always been specifically authorized by the copyright owner. Such content is posted to advance understanding of environmental, political, human rights, economic, democratic, scientific, and social justice issues. This constitutes 'fair use' of such copyright material as provided for in section 107 of US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed for research and educational purposes only. If you wish to use this material for purposes that go beyond 'fair use', you must obtain permission from the copyright owner. Such material is credited to the true owner or licensee. We will remove from the forum any such material upon the request of the owners of the copyright of said material, as we claim no credit for such material.
Privacy Policy: Australian Property Forum uses third party advertising companies to serve ads when you visit our site. These third party advertising companies may collect and use information about your visits to Australian Property Forum as well as other web sites in order to provide advertisements about goods and services of interest to you. If you would like more information about this practice and to know your choices about not having this information used by these companies, click here: Google Advertising Privacy FAQ
Australian Property Forum is hosted by Zetaboards. Please refer also to the Zetaboards Privacy Policy