As a top-down property analyst, I am consistently reappraising my view and sometimes I have similar thoughts about structural adjustments and wonder of Australia hasn’t created the perfect bubble market. After all, consider its strengths:
government guarantees across the board vested political sponsorship in every quarter tax distortions creating strong fiscal support high immigration levels proximity to China and property obsessed Asia planning and supply side bottlenecks a Reserve Bank that just loves a good boom banks that aren’t interested in anything but mortgages capital discounting that allows huge leverage in the banks a property obsessed population
I could go on. It is always tempting to roll over and see these forces as inexorable, inevitable and indomitable.
Yep DLS - I did read your reply.
Quote:
The bubble only continues to exist owing to the flow of this credit. And it is most definitely a bubble because it exists only owing to government fiat. Had it not been explicitly guaranteed by the public balance sheet in the GFC, and implicitly ever since, it would long ago have deflated. I would not call this a “maturing” banking system unless that equals too-big-to-fail.
The key, then, to making a judgement about the sustainability of property prices is to ask whether or not authorities will be able to continue to support it.
It is a near certainty that the next global crisis will result in some kind of repeat seizure in global credit markets. It may or may not be as severe as the GFC, depending upon the fate of Europe, but it doesn’t need to be to end the property bubble. In 2012, Australian bank funding costs were expensive enough to deliver the end, but the spike was short enough to be handled and tumbling interest rates, as well as higher net interest spreads absorbed those higher funding costs. Now they they’ve gotten cheaper again for a while.
But imagine what happens when the AAA sovereign rating is lost for good. That will be the key inflection point for the bubble. The budget has 10% of net debt to GDP in fiscal spending in reserve before that event. The RBA has no more than 100bps left in monetary policy easing to support it. Both will be exhausted by one more moderate global crisis, let alone a severe one.
The Burgess rollover is ringing the bell at the top.
Yawn.
Any expressed market opinion is my own and is not to be taken as financial advice
I find it amazing just how may commentators are hopelessly out of paradigm.
As you know, the loan creates the deposit. We do not get funding from cheap savings from Asia - or from the superannuation industry. But the Bears are now backfilling their story to explain why their models were wrong. Unfortunately they are jumping on brand new models which are just as wrong.
I do believe there is a real chance of a housing correction in a couple of years time (2016-2017) unless something changes soon. Of course any correction will come from a much higher price point - probably when SK buys....
As the bears capitulate, the end draws closer. It is all going to script. Where's that bubble chart? Somewhere between enthusiasm and greed perhaps? A few headed toward delusion....
Brilliant. The loan creates the deposit. It's really that simple so we don't need these ridiculous spiels from the media.
If I were the boss, I would have you running the scripts.
What I don't get is this, if this model/frameworkof housing investment and price speculation we adopt here in Oz is so successful and sustainable then why is it unique to us?
Think about it Canada, America, Russia etc all are recourse rich and have monopolised banking systems. They also have the ability to follow house price escalation through government assisted funding like NG. If it is so fool proof, as you argue it is here, why don't they all just follow the same closed circuit system for this infallible, penultimate 'wealth creation' for individuals?
It just seems a bit silly that we found the magic allexer but no other nation wants to take a sip.
I do believe there is a real chance of a housing correction in a couple of years time (2016-2017) unless something changes soon. Of course any correction will come from a much higher price point - probably when SK buys....
Yes I agree, the prices in Sydney, Melbourne and Perth can't rise forever, and the developers seem to be building too many small units that Australians don't favour, so something in the market has to give at some point.
Any expressed market opinion is my own and is not to be taken as financial advice
What I don't get is this, if this model/frameworkof housing investment and price speculation we adopt here in Oz is so successful and sustainable then why is it unique to us?
Think about it Canada, America, Russia etc all are recourse rich and have monopolised banking systems. They also have the ability to follow house price escalation through government assisted funding like NG. If it is so fool proof, as you argue it is here, why don't they all just follow the same closed circuit system for this infallible, penultimate 'wealth creation' for individuals?
It just seems a bit silly that we found the magic allexer but no other nation wants to take a sip.
Huh??? Canada and the UK have vey similar housing "systems" to ours, and very similar outcomes. The US is also the same, but due to a much more decentralised economy and population (due to being larger and more scaled), over-all houses are cheaper there - but if you look at the big/popular cities where demand outstrips supply they are just as expensive as Oz cities.
And Russia is just so completely different in so many respects it's not worth mentioning them....
For Aussie property bears, "denial", is not just a long river in North Africa.....
What I don't get is this, if this model/frameworkof housing investment and price speculation we adopt here in Oz is so successful and sustainable then why is it unique to us?
Think about it Canada, America, Russia etc all are recourse rich and have monopolised banking systems. They also have the ability to follow house price escalation through government assisted funding like NG. If it is so fool proof, as you argue it is here, why don't they all just follow the same closed circuit system for this infallible, penultimate 'wealth creation' for individuals?
It just seems a bit silly that we found the magic allexer but no other nation wants to take a sip.
Start the graph at 2000 and input USA, Australia, Canada, UK, NZ. Unfortunately they don't have Russia.
If the USA hadn't shot itself in the foot with poor quality lending, they would be where the other countries are.
Don't plug in South Africa, it will really scare you although that's probably explained by the social and economic changes that are unique to that country.
I don't think that it's a magical way to wealth creation, it's just a phase where everyone want to move to western countries who have higher standards of living, rates of pay, and natural wealth, thus there is pressure on house prices. One day it will reverse, but when.
Start the graph at 2000 and input USA, Australia, Canada, UK, NZ. Unfortunately they don't have Russia.
If the USA hadn't shot itself in the foot with poor quality lending, they would be where the other countries are.
Don't plug in South Africa, it will really scare you although that's probably explained by the social and economic changes that are unique to that country.
I don't think that it's a magical way to wealth creation, it's just a phase where everyone want to move to western countries who have higher standards of living, rates of pay, and natural wealth, thus there is pressure on house prices. One day it will reverse, but when.
You got it chief. The difference between us and the U.S. is the quality of our lending. It's something that we share with our close friends.
Canada and the UK are more like us.
Sydneyite
27 Oct 2014, 06:18 PM
Huh??? Canada and the UK have vey similar housing "systems" to ours, and very similar outcomes. The US is also the same, but due to a much more decentralised economy and population (due to being larger and more scaled), over-all houses are cheaper there - but if you look at the big/popular cities where demand outstrips supply they are just as expensive as Oz cities.
And Russia is just so completely different in so many respects it's not worth mentioning them....
Spot on brother. The rest of the world can learn from us. San Francisco is probably more expensive than Australia.
The uber inflated house prices, and private debt, are to this day and age what tariff protection was to another day and age.
They are an investment in protection from competition rather than an investment in engaging with competition. They are an investment on harnessing demand locally rather than having it addressed by elsewhere (particularly where the ‘wealth effect’ stimulates retail &services spending).
If you have a look through Australian history you can see that the idea of addressing tariff protection only came apart when people like Rattigan started to openly question whether it was providing a net benefit overall – until then it was basically a consensus of the ‘we need to be protected’ mentality Lib, Lab and Unions and about all owners of capital. At the moment we are having high house prices are better than the alternative shoved into our consciousness at every possible point – from all sides of politics – along with the there is no alternative point of view.
In the end it became obvious that what we had in terms of protection wasn't sustainable, and the politics embedding that (particularly after the departure of people like Jack McEwan) wasn't sustainable either. The politics of sustaining high house prices will melt when a serious and concerted attempt to politically undermine the existing monopoly point of view is a factor in who holds power, against a backdrop of the economic costs being increasingly unsustainable. I reckon that latter part is there now.
That moment is looming fairly quickly for mine. From there it is a matter of how the adjustment is made (supply, AUD, legislation etc) not if it will be made or not.
I find it amazing just how may commentators are hopelessly out of paradigm.
As you know, the loan creates the deposit. We do not get funding from cheap savings from Asia - or from the superannuation industry. But the Bears are now backfilling their story to explain why their models were wrong. Unfortunately they are jumping on brand new models which are just as wrong.
I do believe there is a real chance of a housing correction in a couple of years time (2016-2017) unless something changes soon. Of course any correction will come from a much higher price point - probably when SK buys....
As the bears capitulate, the end draws closer. It is all going to script. Where's that bubble chart? Somewhere between enthusiasm and greed perhaps? A few headed toward delusion....
MMT alert!!!!!
Any minute now B_B or Peter Fraser is going to tell us that nation state's that control their own currency cant go broke.
They can just print those deficits away don't you know.
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
What I don't get is this, if this model/frameworkof housing investment and price speculation we adopt here in Oz is so successful and sustainable then why is it unique to us?
Think about it Canada, America, Russia etc all are recourse rich and have monopolised banking systems. They also have the ability to follow house price escalation through government assisted funding like NG. If it is so fool proof, as you argue it is here, why don't they all just follow the same closed circuit system for this infallible, penultimate 'wealth creation' for individuals?
It just seems a bit silly that we found the magic allexer but no other nation wants to take a sip.
They all have similar house markets to Australia what are you talking about?
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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