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Perth Construction Boom; Land prices in Perth Boom 25% in one year.
Topic Started: 22 Oct 2014, 01:17 AM (4,462 Views)
Mike
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I notice none of the bears address the real issue here, property is driven by the price of land. Land prices have skyrocketed, up 25% in the last year.

Why?
http://mike-globaleconomy.blogspot.com.au/
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skamy
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Sometimes I think it is like a cult. They have been told that property owners are somehow acting unethically to home their families. They really believe that they deserve some kind of divine retribution for having bought in cities that have grown and they have earned some capital gains.

So they are sitting around waiting on the market to deliver punishment on home owners. They cannot let go of this dream without fearing heresy accusations from their fellow crash cult acolytes.

Most bears know the game is up and can see they were sold lemons, but some hang on through some sense of misguided loyalty to the high priests of the doomsters.

This is Veritas, Doubleview and Perthite to a T.

I don't know how they will ever extricate themselves from the doomster's loony brigade.
Definition of a doom and gloomer from 1993
The last camp is made up of the doom-and-gloomers. Their slogan is "it's the end of the world as we know it". Right now they are convinced that debt is the evil responsible for all our economic woes and must be eliminated at all cost. Many doom-and-gloomers believe that unprecedented debt levels mean that we are on the precipice of a worse crisis than the Great Depression. The doom-and-gloomers hang on the latest series of negative economic data.
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USianinPerth
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skamy
22 Oct 2014, 03:13 PM
> [rent price volatility as a leading indicator of valuation shifts]

...it is very common for yields to drop when prices rise and vice versa. Rents rise when people fear buying, and house prices drop when people fear buying. When people rush out to buy in great numbers, rentals drop as people buy instead of renting.
Income constrains outflows for debt service and maintenance.

When income can't sustain outflows, pressure builds to sell - until foreclosure forces the issue.

Individually, it's a sad story of a failed property owner. In aggregate, it's a crash. One where lowered income across the board forces a glut of sales, thus lowering prices, thus feeding even further reduced rents. Thus creating a cycle of expected decreasing returns, much like the upswing cycle of growth into a bubble. Then you get overshoot. Prices go down too much. Velocity of money decreases, total money supply declines. Economic activity, stagnates.

Same psychology at work on both sides of the bubble equation.

You keep looking at change of asset valuation as indicators of future valuation. No. Income potential is what determines future valuation. When markets lose sight of this, they go crazy.
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miw
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skamy
22 Oct 2014, 03:13 PM
This is not true it is very common for yields to drop when prices rise and vice versa. Rents rise when people fear buying, and house prices drop when people fear buying. When people rush out to buy in great numbers, rentals drop as people buy instead of renting.
+1 This is exactly what happens, although it is more likely that rents will just stop rising rather than actually drop. I've been through two cycles of this and only had to reduce rent from one tenant to the next on two occasions. Been forced to spend a bit of money sprucing up and then accept the same rent a couple of times as well.

The truth will set you free. But first, it will piss you off.
--Gloria Steinem
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skamy
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USianinPerth
22 Oct 2014, 03:42 PM
Income constrains outflows for debt service and maintenance.

When income can't sustain outflows, pressure builds to sell - until foreclosure forces the issue.

Individually, it's a sad story of a failed property owner. In aggregate, it's a crash. One where lowered income across the board forces a glut of sales, thus lowering prices, thus feeding even further reduced rents. Thus creating a cycle of expected decreasing returns, much like the upswing cycle of growth into a bubble. Then you get overshoot. Prices go down too much. Velocity of money decreases, total money supply declines. Economic activity, stagnates.

Same psychology at work on both sides of the bubble equation.

You keep looking at change of asset valuation as indicators of future valuation. No. Income potential is what determines future valuation. When markets lose sight of this, they go crazy.
But Australia has no bubble, the last decade has been pretty flat.

Posted Image

Maybe your recent experience of a very overheated market in the US is colouring your risk management.

It is not often that the housing market provides neither yields nor capital gains. Especially in a rich egalitarian society like Australia.



Definition of a doom and gloomer from 1993
The last camp is made up of the doom-and-gloomers. Their slogan is "it's the end of the world as we know it". Right now they are convinced that debt is the evil responsible for all our economic woes and must be eliminated at all cost. Many doom-and-gloomers believe that unprecedented debt levels mean that we are on the precipice of a worse crisis than the Great Depression. The doom-and-gloomers hang on the latest series of negative economic data.
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doubleview
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skamy
22 Oct 2014, 03:35 PM
Sometimes I think it is like a cult. They have been told that property owners are somehow acting unethically to home their families. They really believe that they deserve some kind of divine retribution for having bought in cities that have grown and they have earned some capital gains.

So they are sitting around waiting on the market to deliver punishment on home owners. They cannot let go of this dream without fearing heresy accusations from their fellow crash cult acolytes.

Most bears know the game is up and can see they were sold lemons, but some hang on through some sense of misguided loyalty to the high priests of the doomsters.

This is Veritas, Doubleview and Perthite to a T.

I don't know how they will ever extricate themselves from the doomster's loony brigade.
Apparantly we are 'looneys'......... coming from u Skamy I take that as a compliment!

Becasue your a senile old house ridden fool Ill spell it out 4 you again....I am not gainst ppor espec if you have kids.

Your disinfo campaign though is a good laugh!
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skamy
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doubleview
22 Oct 2014, 04:23 PM
Apparantly we are 'looneys'......... coming from u Skamy I take that as a compliment!

Becasue your a senile old house ridden fool Ill spell it out 4 you again....I am not gainst ppor espec if you have kids.

Your disinfo campaign though is a good laugh!
Aww come on doubleview, if you accuse home buyers of eating their children, people are gonna think you are one fruit loop short of a full bowl.
Definition of a doom and gloomer from 1993
The last camp is made up of the doom-and-gloomers. Their slogan is "it's the end of the world as we know it". Right now they are convinced that debt is the evil responsible for all our economic woes and must be eliminated at all cost. Many doom-and-gloomers believe that unprecedented debt levels mean that we are on the precipice of a worse crisis than the Great Depression. The doom-and-gloomers hang on the latest series of negative economic data.
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USianinPerth
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skamy
22 Oct 2014, 04:03 PM
But Australia has no bubble[...]
Begging the question, I see. Since the entire forum is filled with debate about the existence - or not - of an Australian property bubble, it seems premature to conclude there is none - therefore, there is none.

Peter Shiller, Professor of Economics at Yale, Nobel Prize winner, disagrees. As discussed on this forum here:

http://australianpropertyforum.com/topic/10028743/1/

He's not the only one.

Which brings us to the central question in this thread about fundamentals. That is, high vacancy rates, trending declines in rental incomes, and a vast build-out which anyone living in Perth can see for themselves.

I say it's a bubble. Not because prices are flat, but because lowered earnings demands reduced prices going forward in the standard P/E equation. This is about fundamentals. At current valuations the property market is unsustainable. Badly so.

This is pure Underpants Gnomes territory.

https://www.youtube.com/watch?v=tO5sxLapAts

Folks have been collecting underpants - housing - in the hopes of endless PROFIT! But there's that ???? in the middle. All the bulls here have forgotten about Step 2 in the Underpants Gnomes' profit cycle.

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Veritas
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Mike
22 Oct 2014, 03:22 PM
I notice none of the bears address the real issue here, property is driven by the price of land. Land prices have skyrocketed, up 25% in the last year.

Why?
That's easy Mike.

Because there is a construction boom on.

Lots of people are building houses and need somewhere to build them.
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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Mike
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Veritas
22 Oct 2014, 04:51 PM
That's easy Mike.

Because there is a construction boom on.

Lots of people are building houses and need somewhere to build them.
But supply of land has increased from 1 year ago over the same period that prices have boomed.

Can you pull out a graph to show us why rising supply is leading to a 25% increase in land prices?

Come on should be easy for you, rising supply and booming prices, why?

http://mike-globaleconomy.blogspot.com.au/
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