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Forecasts of $20/t iron ore. The response? IO now $48/t.; Iron ore recovery offers budget boon hopes
Topic Started: 21 Feb 2016, 07:58 PM (42,866 Views)
Andrew Judd
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Rufus
5 Mar 2016, 08:40 PM
Crap, stricter MP doesn't lower demand, it limits the number of people who demand a home from accessing the credit they need to buy.

If regulations are relaxed it brings forward a number of buyers, and if they are tightened it holds back a number of buyers, but the aggregate number of people who want a home remains the same.

If a nation wants it's people to be able to buy a home, then stopping them from buying by withholding credit may not be the best way of achieving that.

It has to be a balance that allows the most number of people to buy whilst keeping the banking system rigid. Nat an easy balancing act, but certainly not impossible. At the same time the supply must meet demand, if it doesn't the price will rise.

Sorry you don't grasp that simple explanation.
Peter you are in effect agreeing with Veritas.

You both agree that the ability to buy a home is impacted by banks lending criteria.
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Rufus
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Veritas
5 Mar 2016, 08:44 PM
Frankly, I can believe we are even having this argument.

There is scarcely a single credible account of the American and Irish housing bubbles, for example, that do not make reference to the fact that much of what caused the inflation in house prices was banks changing their lending practices to allow more people to buy.
Explain to me why access to finance alone made buyers go out and bid up the price of houses.

If you have $20,000 available on your credit card do you feel compelled to spend it?
Take risks - if you win you will become wealthy, if you lose you will become wise
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Sydneyite
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Veritas
5 Mar 2016, 08:44 PM
There is scarcely a single credible account of the American and Irish housing bubbles, for example, that do not make reference to the fact that much of what caused the inflation in house prices was banks changing their lending practices to allow more people to buy.
You are missing an important bit - it wasn't allowing more people to buy due credit liberalization - that is actually a good thing, as your own thought experiment demonstrates (people who can afford to buy and who can afford the loan payments locked out of the market artificially due to government intervention). The problem was lending that occurred to people who could NOT afford to pay the loan. no income, no job, no problem! Gift a short term honeymoon rate and hope to f*** they can all refinance when it ends into another sweet deal with another NINJA loan provider. :re: Shit like that wasn't and isn't going on in Australia.
Edited by Sydneyite, 5 Mar 2016, 09:57 PM.
For Aussie property bears, "denial", is not just a long river in North Africa.....
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Rufus
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Andrew Judd
5 Mar 2016, 08:58 PM
Peter you are in effect agreeing with Veritas.

You both agree that the ability to buy a home is impacted by banks lending criteria.
We are discussing price Andrew.
Take risks - if you win you will become wealthy, if you lose you will become wise
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Andrew Judd
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Rufus
5 Mar 2016, 09:00 PM
We are discussing price Andrew.
It must be a no brainer that if banks eases credit restrictions when prices are strongly rising - which the banks tend to do - it will only fuel the price rises.
Edited by Andrew Judd, 5 Mar 2016, 09:02 PM.
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Rufus
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Sydneyite
5 Mar 2016, 08:58 PM
You are missing an important bit - it wasn't allowing more people to buy due credit liberalization - that is actually a good thing, as your own thought experiment demonstrates (people who can afford to buy and who can afford the loan payments locked out of the market artificially due to government intervention). The problem was lending that occurred to people who could NOT afford to pay the loan. no income, no job, no problem! Gift a short term honeymoon rate and hope to f*** they can all refinance when it ends into another sweet deal with a NINJA loan provider. :re: Shit like that wasn't and isn't going on in Australia.
Yes great point.
Take risks - if you win you will become wealthy, if you lose you will become wise
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Veritas
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Sydneyite
5 Mar 2016, 08:58 PM
You are missing an important bit - it wasn't allowing more people to buy due credit liberalization - that is actually a good thing, as your own thought experiment demonstrates (people who can afford to buy and who can afford the loan payments locked out of the market artificially due to government intervention). The problem was lending that occurred to people who could NOT afford to pay the loan. no income, no job, no problem! Gift a short term honeymoon rate and hope to f*** they can all refinance when it ends into another sweet deal with a NINJA loan provider. :re: Shit like that wasn't and isn't going on in Australia.
Eh...the government regulation is there in the first place to prevent banks writing loans to people who wont pay it back.

Before there was sub-prime lending there were government regulations saying banks couldnt engage in sub-prime lending.
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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Rufus
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Andrew Judd
5 Mar 2016, 09:01 PM
It must be a no brainer that if banks eases credit restrictions when prices are strongly rising - which the banks tend to do - it will only fuel the price rises.
They don't tend to ease credit restrictions when prices are rising.
You dreamed that bit up.

Prices rise when demand is greater then supply. Those who can bid more to gain a scarce resource. Price becomes the rationing method.
Veritas
5 Mar 2016, 09:10 PM
Eh...the government regulation is there in the first place to prevent banks writing loans to people who wont pay it back.

Before there was sub-prime lending there were government regulations saying banks couldnt engage in sub-prime lending.
Sub-prime isn't an issue, they are usually good loans if they are assessed correctly.

That was the problem in other markets, they didn't assess their loans correctly.
Edited by Rufus, 5 Mar 2016, 09:13 PM.
Take risks - if you win you will become wealthy, if you lose you will become wise
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Veritas
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Rufus
5 Mar 2016, 09:11 PM
They don't tend to ease credit restrictions when prices are rising.
You dreamed that bit up.

Prices rise when demand is greater then supply. Those who can bid more to gain a scarce resource. Price becomes the rationing method.
And the quantum of demand is a function of credit availability.

That is the bit you are missing.
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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Andrew Judd
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Rufus
5 Mar 2016, 09:07 PM
Yes great point.
Government intervention was what created the crisis in the first place. The banks knew they would be bailed out if it all went wrong. Without that support they would be far more conservative. Even the main mortgage provider for middle income people in the form of the housing agencies was going gang busters to enable wealth to be created by rising house prices and all supported by the idea that government intervention to support the housing market is a good thing.

The government saw the fruits of their works and said it was good. Bernanke said it was good. The central bankers saw the fruits of their work in turning around the tech crash and said it was good. Even after it was painfully obvious it was not good, Greenspan said it would all be good if only house prices were to rise again.

:D
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