There is an iron law. Every single bubble in history that has ever burst (in any asset class) has demonstrated a very large increase in price/income ratios for many years immediately prior to the bubble bursting. You will not be able to find a single case of a bubble ever popping after a decade of relatively steady price/income ratios. I challenge you to find a single example. You won't be able to... not in property or any other asset class ever.
And you are unable to provide even one piece of academic literature that insists that all bubbles must follow this pattern.
Why cant a bubble inflate and then hold for a time before bursting? Who says it cant?
Please produce one piece of independent research that corroborates your iron law.
Just one. Cheers.
The fact of the matter is that there is no literature that says anything of the sort. What it does say is that sentiment must change. There basically has to be a run and that has never happened here. Even when things looked shaky in 08 sentiment never turned sour enough, arguably, to precipitate a sell off and a collapse in demand. Naturally, Government did everything it could to ensure that fear did not take hold.
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You will never buy a home. You can't afford one.
How the fuck do you know and what does it matter?
You own two houses and you could get throat cancer tomorrow. Do you think owning a house makes you superior you arrogant git?
And by they way, I thought everyone can afford a house? Thats what you keep telling us anyway
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
There is an iron law. Every single bubble in history that has ever burst (in any asset class) has demonstrated a very large increase in price/income ratios for many years immediately prior to the bubble bursting. You will not be able to find a single case of a bubble ever popping after a decade of relatively steady price/income ratios. I challenge you to find a single example. You won't be able to... not in property or any other asset class ever.
Absolute nonsense, on two counts:
Some bubbles are extremely ephemeral, ramping up and bursting within a single year:
e.g. the early 1980 silver spike.
Here there was no "very large increase in price/income ratios for many years [emphasis added] immediately prior to the bubble bursting". Rather there was a flat to dipping price in 5 of the 6 years leading up to the bubble--which in real terms amounted to a pronounced real price drop for silve in the inflationary late 1970s--followed by a price spike of a few months duration as the Hunt Brothers tried and failed to execute their silver corner.
* * *
Others bubbles are elongated, like the Japanese real estate bubble outside the major Japanese cities, which took 18 years to build, plateaud for about a decade, then took over a decade to collapse. (Mind you, Shadow has been viscerally opposed to conceding that one, despite the clear statistical evidence for it. He just can't get past his reflexive prejudice on the subject...)
Consider the following graph, not disputed even by Shadow.
The red line shows the mainstream story of the Japanese real estate bubble, concentrated in Japan's six largest cities. It's a classic bubble, nobody disputes it--not even Shadow. But the more interesting story concerns the blue line (all Japan)--or rather, what the blue line would look like with the red line excluded: "rest of Japan".
"Rest of Japan" supposedly did not experience a real-estate bubble at all.
But look at the two lines carefully. Both 6-cities Japan and All-Japan experienced a near identical runup of real-estate prices from 1970 to 1987. Then the 6-cities index takes off; if you then subtract the 6-cities effect from the All-Japan series, it is clear that "rest of Japan" real estate prices basically flat-lined for about a decade, 1987 - 1997. Meanwhile, the 6-cities index experienced "classic" boom and bust real estate pricing in that same period.
But then the two lines start to coincide again. That means that "rest of Japan", after a decade of flat-line real estate prices in 1987 - 1997, experiences the same continued collapse of real estate prices that the 6-cities index does, or indeed, all of Japan does. And that collapse lasts for a further 12 years to 2009.
So to recap, "rest of Japan" (i.e. Japan outside its 6 largest cities) experienced a bubble-like runup rate in real-estate prices for 18 years. "Rest of Japan" prices then flat-line for over 10 years. "Rest of Japan" prices then decline at a bubble-like rundown rate for 12 years.
But according to Shadow, this is not a bubble, because he just cannot accept that a bubble might behave that way, in those timeframes.
Tell me the EXACT NG deductions, exemptions and allowances for IP for individuals in the US and let's see how identical it really is compared to Australia.
I didn't say the US was identical to Australia.
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And AGAIN, the exact wage and the exact house prices over the decade
I posted ABS data, including links to source if you want more details. If you refuse to believe the official data, that's fine by me.
Veritas
20 Jul 2014, 03:17 AM
Why cant a bubble inflate and then hold for a time before bursting? Who says it cant?
Nob bubble ever has done before. So basically you are saying Australia has a special new type of bubble never before experienced in the history of the world.
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How the fuck do you know and what does it matter?
I know Chris can't afford a home for the same reason I know you can't afford one. He told me so. He says he finds homes unaffordable.
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And by they way, I thought everyone can afford a house? Thats what you keep telling us anyway
Everyone with a job can afford a home as long as they don't squander their finances as you and Chris have done. The fact that so many of your peers already own homes must tell you that you could have done it too, if you had only been more sensible with how you use your money.
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you arrogant git
Temper temper.
Sober
20 Jul 2014, 05:23 AM
But according to Shadow, this is not a bubble, because he just cannot accept that a bubble might behave that way, in those timeframes
Neither of your charts is relevant. They show prices, not price/income ratios.
Please try not to forget that my statement is based on price/income ratios, not straight prices. You keep forgetting this.
Your first irrelevant chart shows a brief price spike, not a bubble.
Your second irrelevant chart, along with your verbose and convoluted spin attempt to make it say what you want it to say, is easily dismissed by the chart below which shows actual price/income ratio movements in Japan (bottom right quadrant)...
Sober: If you look at the 1970's silver bubble the seeds for it actually were planted a decade before. That's when the bubble began. You can't see it in the early stages because it isn't a full distortion at that stage. Similarly the aus housing bubble, which is alive and well, began 30 years or more ago. It has been masked too, by statistical manipulation mostly.
The relationship of house prices to household income is probably the biggest manipulation of all. A house of a certain quality in a certain location costs what it costs and relative to income this is important. But it must be apples for apples. Median home price V median single income, not some abstract household income that includes two adults and x adult children. You can't compare the cost of a home bought in 1970 when there was a single breadwinner contributing to the repayments with the cost of the same house 45 years later when 2 or more people are contributing and pretend the home is equally as affordable.
The comparison seems logical at some level I know, but in reality it is complete bullshit because while the modern mother is working and bringing in income, back in 1970 she was working and offsetting a myriad of household expenses.
Child care Meals now eaten out instead of at home Savings on an unnecessary second car Often cloths manufacture Even the offset of primary produce as many families had a backyard garden. How many wives today make their husbands and children's lunches? The list is almost endless.
Then there is the adult children now living at home whose income is included to make house prices look cheaper still. That was unheard of back in the 1970's when the bubble in housing was starting to form, now it is indemic.
Silver and gold had corrections in the 70's just like housing has had corrections in the past 30 years but housing has not reverted back to it's long term average price. If it wasn't for abnormally low (emergency) interest rates this would have already happened.
It will happen though, all markets correct eventually. Usually when they run out of greater fools to support their mania.
Shadow was hopelessly wrong about the Gold Bull Market. What else is he wrong about?
Easily dismissed with charts that have nothing to do with the point he was making? The particular comment was centered around the fact that out of the big cities in Japan there was no huge run up in prices; your hand-waving, empirically dubious 'Iron Law' was addressed in a previous comment
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convoluted spin attempt
Eh? Compared to a big portion of what passes for debate here it was a pretty well thought out and intelligent post. It's clearly rattled you. Perhaps because of his comment that price corrections are primarily focused around sentiment rather than previous medium-term price/income ratios.
Sentiment which is clearly changing against you at the moment.
"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.
Easily dismissed with charts that have nothing to do with the point he was making? The particular comment was centered around the fact that out of the big cities in Japan there was no huge run up in prices; your hand-waving, empirically dubious 'Iron Law' was addressed in a previous comment
Eh? Compared to a big portion of what passes for debate here it was a pretty well thought out and intelligent post. It's clearly rattled you. Perhaps because of his comment that price corrections are primarily focused around sentiment rather than previous medium-term price/income ratios.
Sentiment which is clearly changing against you at the moment.
Well said, the other thing to remember is Shadows favourite little golden age was entirely supported by a once in a life time mining investment boom and easy access to credit (which is back again), these are not permanent features of the Australian economy.
Assuming you're in your 30s to 40s, the majority of your peers already own homes. The majority of people your age and who earn a similar income to you already own one of those homes that you find so unaffordable. Just because you can't afford to buy a home doesn't mean nobody else can
Bull shit alert Bull shit alert Bull shit alert
How many in their 30s and 40s own their home Shady?
"The majority"!
Please!Up for auction is a fine example of DaDa Art by the renown exponent of the form- Shadow.
This one he ingeniously named "THIS IS NOT A BUBBLE!"
charts that have nothing to do with the point he was making?
Correct - Sober's charts had nothing to do with the point I was making regarding price/income ratios - hence I dismissed them. If Sober (or anyone) can find an example of a bubble that burst after price/income ratios had been sustained at roughly the same level for a decade, then they are welcome to post the details.
The relationship of house prices to household income is probably the biggest manipulation of all.
Another not so obvious factor is the large proportion of interest only loans have been used to buy homes here. This drastically reduces the repayments and makes homes feel affordable for those that otherwise wouldn't have been able to manage the repayments. I'm sure they made sense too, back in the boom days when everyone thought prices could only ever go up and would double in price every 10 years. But that is not the case anymore.
Buying a home on interest only finance is little more than renting and if the price of the house doesn't rise appreciabley, and your income doesn't rise appreciably, what have you gained? You have taken on a huge risk with no actual return. It's like renting and having a bank as your landlord.
This practice has also allowed home prices to be inflated well above their inflation adjusted cost. Houses in a bubble? No doubt about it.
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