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Will the bubble ever be allowed to pop?
Topic Started: 19 Sep 2014, 11:21 PM (1,619 Views)
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What worries me is that Australia may well prove to be different after all. As far back as 2002 and 2003 there was talk of a housing bubble, and by 2007 it really seemed then as though prices couldn’t go much higher as they were already far overpriced. And sure enough, just as predicted, in 2008 prices did start to fall. But who could have predicted the lengths the government would go to to reinflate the bubble?

And now the bubble is so big that to let it pop or even deflate would be catastrophic. So they won’t let it pop. They’ll do anything, that is ANYTHING to keep the bubble inflated. And that is why we have absolutely no enforcement of FIRB laws. It’s why we have massive immigration. And it’s why the 457 visa laws have been loosened, even as more and more people are unemployed or underemployed. And it’s why negative gearing is never discussed. It’s also why the inquiry into foreign investment will come to nothing when even Blind Freddie can see that certain suburbs are being pushed up way beyond what they would be without foreign buyers.

Nothing is off-limits when it comes to propping up our housing bubble. Who cares if first home buyers can’t get on the ladder? In any case, if we did need more first home buyers it would be easy – just let them use their super, which I’m sure, if enacted, would be heartily cheered on.

So yes, the consequences of a housing bust would indeed be brutal, but who would allow it to happen?

Both sides of government have chosen to inflate the bubble to the max, and when we reach the max to keep inflating it.

And there seems to be no end to the measures they will take to keep the bubble ever inflating. We have seen the death of manufacturing in this country. We see unemployment rise as jobs are being sent offshore, while at the same time, urgently bringing in immigrants to boost our population and demand for housing. We see courses shut down and HECS fees rise while workers on 457 visas are being rushed in to supply the skilled shortages.

And there’s so much more that can still be done to keep the bubble inflating. We could lower interest rates even more. Bring in even more people. We can’t relax the foreign investment laws any further as they are not enforced anyway but there is still a wall of money to come from China that will be welcomed here without question if it props up (and inflates) prices. We could always find funds for a FHOG if necessary and of course there is talk of using super to buy housing. What about 40 or 50 year mortgages?

The point is that the Australian government will do whatever it takes to prop up our housing bubble. If it means there is no other economy other than real estate, then so be it. If it means destroying the whole fabric of society to keep the bubble inflated, then that is what they will do. If massive debasement of the A$ has to happen and that means even more foreign investment in our bargain property prices to the point where very few Australians can buy in their own country, that will be the option taken.

I’m not saying the bubble can never burst. But I am saying it won’t happen without the government (whoever is in power) putting up the fight of a lifetime to stop it bursting.
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Black Panther
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19 Sep 2014, 11:21 PM
What worries me is that Australia may well prove to be different after all. As far back as 2002 and 2003 there was talk of a housing bubble, and by 2007 it really seemed then as though prices couldn’t go much higher as they were already far overpriced. And sure enough, just as predicted, in 2008 prices did start to fall. But who could have predicted the lengths the government would go to to reinflate the bubble?

And now the bubble is so big that to let it pop or even deflate would be catastrophic. So they won’t let it pop. They’ll do anything, that is ANYTHING to keep the bubble inflated. And that is why we have absolutely no enforcement of FIRB laws. It’s why we have massive immigration. And it’s why the 457 visa laws have been loosened, even as more and more people are unemployed or underemployed. And it’s why negative gearing is never discussed. It’s also why the inquiry into foreign investment will come to nothing when even Blind Freddie can see that certain suburbs are being pushed up way beyond what they would be without foreign buyers.

Nothing is off-limits when it comes to propping up our housing bubble. Who cares if first home buyers can’t get on the ladder? In any case, if we did need more first home buyers it would be easy – just let them use their super, which I’m sure, if enacted, would be heartily cheered on.

So yes, the consequences of a housing bust would indeed be brutal, but who would allow it to happen?

Both sides of government have chosen to inflate the bubble to the max, and when we reach the max to keep inflating it.

And there seems to be no end to the measures they will take to keep the bubble ever inflating. We have seen the death of manufacturing in this country. We see unemployment rise as jobs are being sent offshore, while at the same time, urgently bringing in immigrants to boost our population and demand for housing. We see courses shut down and HECS fees rise while workers on 457 visas are being rushed in to supply the skilled shortages.

And there’s so much more that can still be done to keep the bubble inflating. We could lower interest rates even more. Bring in even more people. We can’t relax the foreign investment laws any further as they are not enforced anyway but there is still a wall of money to come from China that will be welcomed here without question if it props up (and inflates) prices. We could always find funds for a FHOG if necessary and of course there is talk of using super to buy housing. What about 40 or 50 year mortgages?

The point is that the Australian government will do whatever it takes to prop up our housing bubble. If it means there is no other economy other than real estate, then so be it. If it means destroying the whole fabric of society to keep the bubble inflated, then that is what they will do. If massive debasement of the A$ has to happen and that means even more foreign investment in our bargain property prices to the point where very few Australians can buy in their own country, that will be the option taken.

I’m not saying the bubble can never burst. But I am saying it won’t happen without the government (whoever is in power) putting up the fight of a lifetime to stop it bursting.
Now your getting it.
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ThePauk
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Summary : Australia is in a property bubble. Noted.
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Lef-tee
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I do tend to agree that everything possible will be done to ensure it continues inflating. Another factor is that our political class on both sides of politics owns a hefty investment property portfolio between them. Self interest will ensure that this thing is pushed until there are simply no more options to be found.
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b_b
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If we have a bubble, there is nothing anyone can do to stop it popping. The USA tried a number of policies in 2009, and housing remain depressed for many years after. Japan has been at ZIRP for 20 years - ditto.

"Bubbles" are when the factors of production earn excess returns (Capital and labour) such that supply response overwhelms demand. Bubbles are not resilient, they do not melt, and can not be re-inflated. They "pop", and the do so with the slightest external force. Hence the use of the term.

IMO, we are not quite at that point yet, but supply in our two largest cities is a concern.

Unless there is some restriction on supply, there is nothing the government (or anyone else) can do to prevent a correction.
(S – I) + (T - G) + (M - X) = 0
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Dr Watson
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b_b
29 Sep 2014, 10:01 AM
IMO, we are not quite at that point yet, but supply in our two largest cities is a concern.
Supply of apartments — especially the "micro" varierty — is a concern. Victorian Planning Minister Matthew Guy can't sign off on new developments fast enough. But these tiny dwellings can't satisfy demand from families. Families need detached housing or, at the least, half a duplex. It isn't clear who will fill all the apartments. But you'll never fully satisfy demand for well-located detached housing. In Australia, that's like pure gold.
Edited by Dr Watson, 29 Sep 2014, 10:52 AM.
The trouble with the world is that the stupid are cocksure and the intelligent are full of doubt — Bertrand Russell
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peter fraser
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b_b
29 Sep 2014, 10:01 AM
If we have a bubble, there is nothing anyone can do to stop it popping. The USA tried a number of policies in 2009, and housing remain depressed for many years after. Japan has been at ZIRP for 20 years - ditto.

"Bubbles" are when the factors of production earn excess returns (Capital and labour) such that supply response overwhelms demand. Bubbles are not resilient, they do not melt, and can not be re-inflated. They "pop", and the do so with the slightest external force. Hence the use of the term.

IMO, we are not quite at that point yet, but supply in our two largest cities is a concern.

Unless there is some restriction on supply, there is nothing the government (or anyone else) can do to prevent a correction.
If so then it's developers who firstly withhold supply (due to a lack of bank finance due to the economic outlook) and then bring on far too much supply (due to banks becoming more willing to fund due to a better economic outlook)

Or looking at that with more pinpoint accuracy it's the banks misreading of future supply demands both when the economy is slowing and again when it has picked up that leads to the pricking of the bubble and perhaps to the rise in prices in the first place.

Is that a lack of management skill or do they simply not have enough data to make the right decisions. Banks tend to listen to valuers on small projects and read their SWOT analysis very carefully, and on large projects they rely heavily on the analysis done by marketing professionals who quite frankly are very vested in seeing the project completed. There is no money in advising developers not to proceed because they see problems ahead.

It's all very easy to say that banks should increase lending to developers in the trough but it's only a very brave lender who would.

What solutions are there to that issue?
Any expressed market opinion is my own and is not to be taken as financial advice
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b_b
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peter fraser
29 Sep 2014, 11:24 AM
If so then it's developers who firstly withhold supply (due to a lack of bank finance due to the economic outlook) and then bring on far too much supply (due to banks becoming more willing to fund due to a better economic outlook)

Or looking at that with more pinpoint accuracy it's the banks misreading of future supply demands both when the economy is slowing and again when it has picked up that leads to the pricking of the bubble and perhaps to the rise in prices in the first place.

Is that a lack of management skill or do they simply not have enough data to make the right decisions. Banks tend to listen to valuers on small projects and read their SWOT analysis very carefully, and on large projects they rely heavily on the analysis done by marketing professionals who quite frankly are very vested in seeing the project completed. There is no money in advising developers not to proceed because they see problems ahead.

It's all very easy to say that banks should increase lending to developers in the trough but it's only a very brave lender who would.

What solutions are there to that issue?
IMO, we can not escape the fact real estate is cyclical. The decision to buy can be instant - yet the decisions to create supply takes time. The lag between the two creates the peaks and troughs. That is the nature of the beast.

It is a problem that has no real solution. In the same way we can not control stock markets etc....

FWIW, banks relied on valuers reports for commercial property in 1989 - three years later they were all sued. Valuers, who quite often use comparable sales as part of their methodology, are part of the problem.
Edited by b_b, 29 Sep 2014, 11:34 AM.
(S – I) + (T - G) + (M - X) = 0
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peter fraser
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b_b
29 Sep 2014, 11:33 AM
IMO, we can not escape the fact real estate is cyclical. The decision to buy can be instant - yet the decisions to create supply takes time. The lag between the two creates the peaks and troughs. That is the nature of the beast.

It is a problem that has no real solution. In the same way we can not control stock markets etc....

FWIW, banks relied on valuers reports for commercial property in 1989 - three years later they were all sued. Valuers, who quite often use comparable sales as part of their methodology, are part of the problem.
Valuers still use comparable sales as the basis for their valuations of resi property. It gets more complex for developments where they use three valuation methods, but effectively if I as a buyer offer $1M for a property on any given day then I have set the market price for that house on that day, so to value it at another price the valuer has to have a strong argument.

I agree that is a significant weakness in the system for banks, but for me as a buyer knowing the cycles is a significant strength. If I do happen to get crushed at some point, I know that there are gains on offer a few years later. There are still enormous gains to be had from the GFC that people drive past everyday, but they are not in Sydney or Melbourne.
Any expressed market opinion is my own and is not to be taken as financial advice
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b_b
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peter fraser
29 Sep 2014, 11:47 AM
Valuers still use comparable sales as the basis for their valuations of resi property. It gets more complex for developments where they use three valuation methods, but effectively if I as a buyer offer $1M for a property on any given day then I have set the market price for that house on that day, so to value it at another price the valuer has to have a strong argument.

I agree that is a significant weakness in the system for banks, but for me as a buyer knowing the cycles is a significant strength. If I do happen to get crushed at some point, I know that there are gains on offer a few years later. There are still enormous gains to be had from the GFC that people drive past everyday, but they are not in Sydney or Melbourne.
Whats supply like in Brisbane ATM?
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