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Mortgage war erupts as CBA, NAB, Westpac slash interest rates; CBA cuts 70bp from its five-year fixed mortgage rate to 4.99%
Topic Started: 23 Jul 2014, 01:45 PM (10,166 Views)
b_b
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o2sd
23 Jul 2014, 09:32 PM
A couple of questions.

1. Do you calculate replacement cost ex. land purchase or inc. land purchase?

2. Is the uptick of 2-3% in replacement cost simply an inflation effect, or something else?
1. Replacement cost includes DEVELOPED land. The cost of undeveloped land or englobo land (c$20-$50 spqm) is pretty small in the scheme of things

2. Building inflation, which us generally in line with overall inflation. But if the government decides to lift the GST, which seems to be on the agenda, then building cost will jump more than 2-3% per annul.
(S – I) + (T - G) + (M - X) = 0
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MMM
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Dr Watson
23 Jul 2014, 02:06 PM
What would that mean for Australian house prices?
Not much when people don't have jobs doc .But you clowns just don't get it.

Are you people so blind that you are unable too see that our interest rates are so low because our economy is so screwed.

And that all our jobs and business are dissapearing because of cheap overseas labour. Can you not see and understand that doc ?

Can you also not see that this is continuing and that there is no end in sight whatsoever of this decline ?

Can you also not see it is something on a scale we have never had to deal with or face before ? Not even close.

Bulls :wak:

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Ex BP Golly
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Ovbiously the banks expect Oi Oi Oi to go full tilt ZIRP.

If we can get enough people to fix, there may be some hope that our banks might just scrape through this!

Roll up, roll up.....
WHAT WOULD EDDIE DO? MAAAATE!
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Lou Ellen
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It’s not just concern about global growth that is driving down Australian money market rates. It’s concern about Australian growth given the capex cliff, struggling consumer confidence, little conversion of house prices into consumption, ongoing fiscal tightening and the dollar sitting on tradables. That’s why you can’t take another rate cut off the table (interest rate markets certainly haven’t, although early next year is now more favoured than late this year).

Nor is inflation a problem for the RBA.

Paul Bloxham wrote late yesterday that:

Last week’s carbon tax repeal means we revise our headline CPI forecast for 2014 to 2.5% (from 2.8%) and to 2.6% (from 2.9%) for 2015, with smaller revisions to the core measures

We continue to see the RBA’s easing phase as done and expect them to look through the impact of the repeal of the carbon tax on inflation.


The RBA is not going to “look though” carbon tax effects if the Australian economy is not rebalancing away from mining owing to a rampant dollar. The inflation outlook remains benign and is getting more so with every utterance of the hawks driving up the currency. Moreover, Bloxham is forecasting a rate hike in Q1, Q2 and Q3 next year. If you agree, I suggest you sell everything immediately because that sure won’t end well. Not that it matters, housing will slow or APRA will be forced to act anyway.

As for banks filling out the unutilised economic space with their housing bubble, obviously. But there is still no evidence that competition, such as it is, is driving down aggregate lending rates.

The banks remain firmly in control of the mortgage market with three-quarters of market share and aren’t going to compress their margins when they don’t need to. The last time I looked, fixed rate mortgage were only one quarter of the market.
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o2sd
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b_b
23 Jul 2014, 11:15 PM
1. Replacement cost includes DEVELOPED land. The cost of undeveloped land or englobo land (c$20-$50 spqm) is pretty small in the scheme of things

1. Sorry, that is what I meant. If a cleared 500 sqm developed block costs $350K in Hornsby and $1500K in Mosman, you are saying that the land component of replacement cost is $350K in Hornsby and $1500K in Mosman, correct?

Quote:
 
2. Building inflation, which us generally in line with overall inflation. But if the government decides to lift the GST, which seems to be on the agenda, then building cost will jump more than 2-3% per annul.

OK. All else being equal, if CPI < AWE then the cost of building is not getting more expensive in real income terms, correct?
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Dr Watson
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MMM
24 Jul 2014, 12:34 AM
Are you people so blind that you are unable too see that our interest rates are so low because our economy is so screwed.

And that all our jobs and business are dissapearing because of cheap overseas labour. Can you not see and understand that doc ?

Can you also not see that this is continuing and that there is no end in sight whatsoever of this decline ?

Can you also not see it is something on a scale we have never had to deal with or face before ? Not even close.
I see all of that Ted but house prices continue marching higher. They are higher now than one year ago.

Australia is a case apart. Our housing market defies gravity. It defies the normal laws of physics that seem to apply in the US or the UK. Our economy is weak but our property market is red-hot.

I can't explain it — but it is what it is.
The trouble with the world is that the stupid are cocksure and the intelligent are full of doubt — Bertrand Russell
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b_b
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o2sd
24 Jul 2014, 02:06 PM
1. Sorry, that is what I meant. If a cleared 500 sqm developed block costs $350K in Hornsby and $1500K in Mosman, you are saying that the land component of replacement cost is $350K in Hornsby and $1500K in Mosman, correct?
The real estate market has many different components. When I think of replacement cost, I think of the commodity end of the market (not Hornsby or Mosman), but the new estates being developed on the city fringes.

Inner suburban locations move away from being a commodity style asset and more toward franchise asset. So land really has no marginal cost of production, and replacement cost becomes far less relevant.

But in 2011-2012 when Sydney MEDIAN house price was $650k (ish), and new commodity style assets on the fringe were being delivered for the same price, it did not take rocket science to realise the median had to increase to a level that the price difference would encourage new supply. That is where we are today.

Quote:
 
OK. All else being equal, if CPI < AWE then the cost of building is not getting more expensive in real income terms, correct?


I think you meant to say if CPI > AWE (real wage declined) then the average cost of building is not keeping up with inflation (wages being the substantial component cost of a new house).
(S – I) + (T - G) + (M - X) = 0
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Ex BP Golly
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This move by banks probably means rba wont drop rates at next meeting.

But it means more pressure for rba to do so in the future, as $AUS will now stay too high.

Banks doing out of cycle cuts will be a real game changer for the rba as it now has even less control over the economy.

This is getting really interesting :lol
WHAT WOULD EDDIE DO? MAAAATE!
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Sydneyite
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MMM
23 Jul 2014, 08:51 PM
And what have we done to achieve so little since 2010. We dropped rates to record lows , relaxed foreign ownership rules and allowed people to use their superfund to leverage into property. We have increased fhb grants and removed stamp duty and created building grants on top of these.

So this is all we have achieved over this time by using all these measures, measures that are not real economic growth measures for now or for the future.So with all these things and at a time that our economy was absolutely thriving by comparison to today, we could only manage such little.
Ted, most of what you wrote there is either wrong, or outdated - interest rates are not at "record" lows - they are low, especially relative to recent times, but they were this low for decades prior to the 70s. Most states dropped the FHB grants for established property 1-2 years ago now (eg NSW) and yet those markets have boomed since. Same for stamp duty exemption for established. So from your list that only really leaves some limited relaxation of foreign ownership rules (when most comparable countries have NO restrictions), and the super funds, which only represent a very small segment of purchasers (less than 2% of self managed super funds have borrowed to directly invest in residential property).

And then, I don't know why you mix-up building grants with the above measures - building grants stimulate the purchase / construction of new dwellings, which places DOWNWARD pressure on prices via increased supply - so as a housing bear you should be happy about such measures? New building also creates signifcant jobs, generates economic activity and adds to GDP both directly and indirectly.

So over-all, the market is performing well and probably about in line with what the RBA was hoping to see in response to their monetary policy settings - especially with the supply response now kicking in and adding to GDP as well.

MoreCrazyStuffFromMMM
 
Soon you will realize that people who do not have jobs , cannot get a place to rent or obtain a mortgage to buy a home, now with our youth unemployment around 25%, higher than US , UK or euro. And those that rent now or have a mortgage to pay will not be able to pay it anymore once their jon is gone.

So what have we got now.
Record low interest rates.

Record lvrs

Record number claiming negative gearing and losses.

Record number of investors leveraging their super into property.

Record number of foreign buyers.

Record number paying interest only loans.

Record number of vacancy rates or headed there.

Record number of building in all capitals.

Record job losses

Record buisiness closures.

And last but not least, record number of bulls turning bears ;)
Most of your list is just made up crap, and often contradictory, or irrelevant, or just the reality of the market suggesting ongoing price rises: Eg, re investor activity - both foreign and local/super funds etc, negative gearers and so on - any "record" levels in those are a bullish indicator, not bearish.

And you have all this other stuff just plain wrong:

* How can we have record (high?) vacancy rates yet also have climbing rents and you claiming people can't find somewhere to rent? We don't anyway - vacancy rates are at historically low-ish levels almost everywhere.
* We do NOT have record job losses, or record business closures, not even close - you are old enough I believe to remember the early 90s as a comparison???
* We do not have record "LVRs"
* We do not have record low interest rates, and besides, rates arelikely to stay low for some time now, so it's moot whether they are "record" or not!

And as for "bulls turning bears" - in your dreams. :oo:
Edited by Sydneyite, 24 Jul 2014, 04:23 PM.
For Aussie property bears, "denial", is not just a long river in North Africa.....
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Veritas
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Banks compete for market share by offering cheaper money to customers to buy houses.

Did I miss anything?

I think we should just start calling our banks mortgage lenders because that's increasingly what their business model is.
Edited by Veritas, 24 Jul 2014, 04:27 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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