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House prices have created a ‘lost generation’
Topic Started: 27 Oct 2014, 02:20 PM (3,703 Views)
Lef-tee
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If interest rates rise, property will tank. Demand is only being held up because money has never been cheaper.


Which is why 5%-6% OCR will no longer be considered neutral for the forseeable future.

We can't feed price rises for much longer simply by making it ever-cheaper to borrow, we've nearly exhausted that avenue. When the next economic shock hits, monetary policy will be of little use as a counter-stabalisation tool since we have used it all up to ensure continuously rising asset prices.

Inflating prices will have to be fed by any combination of alternative means - allowing people to tap the super until it's purpose as a retirement saving becomes fully transmuted into a housing deposit saving account could well come to pass. Allowing as much foreign buying of Australian housing as possible is another. The pressure will probably grow to allow lending standards to grow steadily more lax. Bank of mum and dad will probably feature more and more prominently.

Where this all ends I don't know but I'm pretty certain there is no chance of anything positive being done to address it so long as endlessly rising prices remain widely considered the greatest positive of all.

Increasing numbers of young people may be indicating that they are buying investment units because more appropriate family housing is growing beyond their reach - but the moment they do so, they are desperately hoping for the biggest, fastest price gains possible so as to give them the leg up they need. Of course, if the price of their investment unit is surging up then probably so is the value of the house they actually desire to live in so they may be just running at the horizon, not really getting closer.

I have to wonder just how much of society's wealth can be committed to a single kind of debt repayment before it becomes a drain that seriously affects the economy.
Also in the case of the US, their bubble really took off when they suddenly hit ZIRP. It then took a fair few years of rate rises necessitating ever more dubious lending practices before the whole edifice was so compromised that it collapsed. We still haven't quite gotten to ZIRP yet although we're getting pretty close now.

Once borrowing can't be made cheaper, watch the things I mentioned and others begin to balloon.

Edited by Lef-tee, 28 Oct 2014, 07:17 AM.
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Glenn Stevens
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My position on the level of housing prices, as readers will know, has been they are high.

I suggest when you put it fully into international perspective — that is, not just in comparison with the US but considered against a range of countries — it’s actually a lot more difficult to make the case that they’re grossly overpriced and due for a crash. After all, we’ve been around this level of house prices/income for over 10 years — it's taking a long time to burst, if indeed it is a bubble.

With that in mind, I'm not much concerned about a crash, but as I have said also before, it’s seems to me we would be flirting with danger were we to see a very big run-up from these present levels.

Now, we have seen some gain in house prices over the past two years or so but that’s beginning to moderate again and we are seeing, I think, a return to normalcy now.

I'm untroubled by that; I think that’s probably part of the cyclical transmission mechanism working.

But it would be, I think, a little troubling if we saw a return to the very strong 10-20 % per annum rates of growth of housing prices, persistently, especially if that was accompanied by a return of rising leverage.

I believe that would be a very dangerous thing to do and we would be imprudent in the extreme to preside over that.

I don’t think that’s what’s going to happen by the way. I don’t think that is what is happening and I don’t think it’s that likely to happen, because I think the household sector is showing signs of a moderating appetite for debt.
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Emmanuel
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Glenn Stevens
28 Oct 2014, 08:19 AM
My position on the level of housing prices, as readers will know, has been they are high.

I suggest when you put it fully into international perspective — that is, not just in comparison with the US but considered against a range of countries — it’s actually a lot more difficult to make the case that they’re grossly overpriced and due for a crash. After all, we’ve been around this level of house prices/income for over 10 years — it's taking a long time to burst, if indeed it is a bubble.

With that in mind, I'm not much concerned about a crash, but as I have said also before, it’s seems to me we would be flirting with danger were we to see a very big run-up from these present levels.

Now, we have seen some gain in house prices over the past two years or so but that’s beginning to moderate again and we are seeing, I think, a return to normalcy now.

I'm untroubled by that; I think that’s probably part of the cyclical transmission mechanism working.

But it would be, I think, a little troubling if we saw a return to the very strong 10-20 % per annum rates of growth of housing prices, persistently, especially if that was accompanied by a return of rising leverage.

I believe that would be a very dangerous thing to do and we would be imprudent in the extreme to preside over that.

I don’t think that’s what’s going to happen by the way. I don’t think that is what is happening and I don’t think it’s that likely to happen, because I think the household sector is showing signs of a moderating appetite for debt.
I'm loving your presence Glenn. I think that we can all learn much from looking through your prism. That being said, some of our own forum warriors will take aim at some of your observations. I will not, because I love the way that you are constantly considerate towards how we feel and your language is constructed accordingly.
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Bond
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Mr Burgess identifies a serious problem but he is quite wrong when he says that are permanently new plateau has been reached.

When it comes to private debt driven economies like the one ours became over the last 20 years they are unstable when the debts become so large that they drain demand as households divert income / resources to service them. Furthermore, inflating the cost of land undercuts the economies capacity to compete with economies that do not encourage driving up the cost of basic inputs.

The RBA is not cutting rates because it likes small numbers, it is cutting rates because it is the only way it can stop the demand for debt from collapsing and with it the asset prices supported by the expanding level of debt.

Looking the other way or encouraging offshore sales has a single purpose - keep asset prices inflated as long as possible. Treacherous behaviour by both parties to facilitate this activity but with short term greed driving policy it is to be expected.

Even with the current level of bait rates the market for debt is shrivelling to the speculators betting that they can time their exit just right.

Both parties have driven the economy into a debt addled corner the last thing we can expect is a relaxed and comfortable future.
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Blondie girl
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Yeah.

The principle is the same for smarty people that know investing..doesn't matter the generation.

Buy & hold over the long term to see the positive result.

I'll give the hubs experience.. 1eg.

.purchased a near city residence in 1994 for $160k, he rented the property out initially @$120 per week to a final total of $350 weekly in 2006. The repayments did not move materially in the 12yrs ..but the rental income tripled.
2007 the block was subdivided , sold the back half for $190k & built a new home for $136k. This debt free investment generates $810pw as a fully furnished leased income stream.

Me?
Well I built.a 4x2 that was a basic Ross North home in 1997 did a NG experience With a Joondanna prop flogged that off ;) & saw the light in 1999 ..& the rest is history.
Really shopped in Ocean Reef, Applecross,( missed out on MT Pleasant, )West Perth, North Perth..Dianella was fun. There was a lot of misses than hits with the buying when we thought that some props were too over the top in price..

The thing is.
If you can't afford to hold then don't.
Buy for the following:
.position
.long term
.dont overcommitt
.buy only when you can

Prices have changed but not the fundamentals.

City, river, ocean does not fail to entice people.
.
No regrets for us.
Newjerk? can you try harder than dig up another person's blog. My first promo was with Billabong and my name in English is modified with a T, am Perth born but also lived in Sydney to make my $$
It's Absolutely Fabulous if it includes brilliant locations, & high calibre tenants..what more does one want? Understand the power of the two "P"" or be financially challenged
Even better when there is family who are property mad and one is born in some entitlements.....Understand that beautiful women are the exhibitionists we crave attention, whilst hot blooded men are the voyeurs ... A stunning woman can command and takes pleasure in being noticed. Seems not too many understand what it means to hold and own props and get threatened by those who do.
Banks are considered to be law abiding and & rather boring places yeah not true . A bank balance sheet will show capital is dwarfed by their liabilities this means when a portions of loans is falling its problems for the bank.
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Lef-tee
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Blondie girl
28 Oct 2014, 02:29 PM
Yeah.

The principle is the same for smarty people that know investing..doesn't matter the generation.

Buy & hold over the long term to see the positive result.

I'll give the hubs experience.. 1eg.

.purchased a near city residence in 1994 for $160k, he rented the property out initially @$120 per week to a final total of $350 weekly in 2006. The repayments did not move materially in the 12yrs ..but the rental income tripled.
2007 the block was subdivided , sold the back half for $190k & built a new home for $136k. This debt free investment generates $810pw as a fully furnished leased income stream.

Me?
Well I built.a 4x2 that was a basic Ross North home in 1997 did a NG experience With a Joondanna prop flogged that off ;) & saw the light in 1999 ..& the rest is history.
Really shopped in Ocean Reef, Applecross,( missed out on MT Pleasant, )West Perth, North Perth..Dianella was fun. There was a lot of misses than hits with the buying when we thought that some props were too over the top in price..

The thing is.
If you can't afford to hold then don't.
Buy for the following:
.position
.long term
.dont overcommitt
.buy only when you can

Prices have changed but not the fundamentals.

City, river, ocean does not fail to entice people.
.
No regrets for us.
Not sure what that has to do with the title of this thread though Blondie.

I have no regrets either - I bought (built) around 15 years ago when housing was more affordable and have tiny debt to service by todays standards. On top of that, the push to endlessly inflate prices has ultimately necessitated the lowest rates in half a century (and equivalent to about the lowest ever), the benfits of which flow on to me as well.

So yes, things are pretty good from my personal perspective :)

But this is not about how self-satisfied you and I are.
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Blondie girl
Member Avatar


Left tee
Is politely telling me to get with the program.... ;)

Ok oooohh how do we help this really lost generation?

Let's see... Is it going to be realistic?

Lots of things could be done to lower housing prices:

.lose the assistance to FHOG
.rev up the IR
.make all females revert to pre feminist days so they are not able to bring home the bacon... That's really going to go well :to:

Maybe you might like this one ?
Do something about that naughty naughty NG ..
But it continues to be politically untouchable.

So, re investing seems to have this immoral, unproductive feel to it as opposed to other forms of investing...
Yeah
Get wth the program.
do what you can & make the most of it.
No
It's really too hard for some.


Oh another brain fart.

I'm sure the goody RBA is monitoring that naughty household debt. Glenny will be like superman... ;)


Yeah that debt:income ratio here like 20yrs ago was low by the stars of developed countries, but honey, they are going to be juggling those IR very very carefully.

Now I must check on naughty kids.

Edited by Blondie girl, 28 Oct 2014, 10:36 PM.
Newjerk? can you try harder than dig up another person's blog. My first promo was with Billabong and my name in English is modified with a T, am Perth born but also lived in Sydney to make my $$
It's Absolutely Fabulous if it includes brilliant locations, & high calibre tenants..what more does one want? Understand the power of the two "P"" or be financially challenged
Even better when there is family who are property mad and one is born in some entitlements.....Understand that beautiful women are the exhibitionists we crave attention, whilst hot blooded men are the voyeurs ... A stunning woman can command and takes pleasure in being noticed. Seems not too many understand what it means to hold and own props and get threatened by those who do.
Banks are considered to be law abiding and & rather boring places yeah not true . A bank balance sheet will show capital is dwarfed by their liabilities this means when a portions of loans is falling its problems for the bank.
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Lef-tee
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Quote:
 
Left tee
Is politely telling me to get with the program.... ;)


Just gently reminding you that this is about those who are increasingly likely to be unable to own the roof overhead, not about those who own more roofs than they can live under ;)

Quote:
 
Ok oooohh how do we help this really lost generation?

Let's see... Is it going to be realistic?


No - nothing will be done. See how the NSW state budget is suddenly back in the black thanks to the very same process that is crushing opportunities for those coming along? A lost generation is a small price to pay for stuff like that.

Apparently :)
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