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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 (42,865 Views)
Veritas
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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.


Thats not the point.

the point is that subprime loans were written to increase demand and they did increase demand.
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, 09:11 PM
They don't tend to ease credit restrictions when prices are rising.<br />You dreamed that bit up.
Baloney.
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Rufus
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Veritas
5 Mar 2016, 09:13 PM
And the quantum of demand is a function of credit availability.

That is the bit you are missing.
really - people race out and overpay for a house just because they can access credit.
Andrew Judd
5 Mar 2016, 09:15 PM
Baloney.
You have proof that banks ease credit restrictions when markets are moving upward?
Edited by Rufus, 5 Mar 2016, 09:18 PM.
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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Veritas
5 Mar 2016, 09:15 PM
subprime loans were written to increase demand
Subprime loans are written to give poorer people and people with credit imperfections a chance to own a home.
Rufus
5 Mar 2016, 09:16 PM
really - people race out and overpay for a house just because they can access credit.

You have proof that banks ease credit restrictions when markets are moving upward?
I cant believe you would dispute that. You know that banks have increased restrictions for the mining towns. You know about 120% finance in the Uk and 95% in Australia.

No way are you going to tell me these practices would be normal/commonplace/typical in a market that was not strongly rising
Edited by Andrew Judd, 5 Mar 2016, 09:26 PM.
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Veritas
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Rufus
5 Mar 2016, 09:16 PM
really - people race out and overpay for a house just because they can access credit.

You have proof that banks ease credit restrictions when markets are moving upward?
They did when they see prices escalating out of their reach or when they see a great investment opportunity.

the bit that comes first, however, is a mass stimulus of the demand side caused by looser lending and cheaper credit in the face of a supply side that hasnt a hope of keeping up.

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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Loki
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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.
It doesn't matter. There is only two ways to pay back a secured loan. The first is servicing it with your income and the second is selling the security. If unemployment rises significantly, the first method is gone, so that leaves the second method, and if unemployment is high, there will be few buyers because there will be few borrowers. The wealthy will then purchase homes at a discount from distressed buyers, and assets will flow upwards.

So what? Unemployment is low. The problem is, for blue collar workers there are only two well paid jobs, manufacturing and construction. Since manufacturing is almost completely hollowed out, that leaves construction, and if you aim monetary and fiscal policy at employing blue collar workers in construction, you will end up with a supply glut like you have never seen before. And if you don't, you will see >9% unemployment and a backlash against immigration. You can't have it both ways.

As for the effect of low interest rates, a reduction in outgoings is no different from an increase in income. An interest rate cut is a pay rise, and incomes determine serviceability.


“Talk sense to a fool and he calls you foolish.” - Euripides
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Rufus
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Andrew Judd
5 Mar 2016, 09:22 PM
I cant believe you would dispute that. You know that banks have increased restrictions for the mining towns.
That's not an example of banks loosening credit in response to a rising market. It's an example of banks tightening credit in an area that they see problems in.

Quote:
 
You know about 120% finance in the Uk and 95% in Australia.

That was in response to financial deregulation. It was a once off event. Loans of 95% LVR are still available now.

Quote:
 
No way are you going to tell me these practices would be normal/commonplace/typical in a market that was not strongly rising

I just did.
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, 09:31 PM
Loans of 95% LVR are still available now.

And they will not be if Australia faces an external shock.

95% LVR is a product of government policy enabling the banking system to feel more comfortable expanding credit to create house price rises
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Jimbo
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Rufus
5 Mar 2016, 08:58 PM
If you have $20,000 available on your credit card do you feel compelled to spend it?
If two people want the same house and one can access 600k and the other 700k, the house will sell for north of 600k to the person with access to 700k.

If a third person joins the battle with access to 800k, the house will sell for north of 700k.

And so on.

Do you not agree?



Matthew, 30 Jan 2016, 09:21 AM Your simplistic view is so flawed it is not worth debating. The current oversupply will be swallowed in 12 months. By the time dumb shits like you realise this prices will already be :?: rising.
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skamy
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Loki
5 Mar 2016, 07:03 PM
Is that your final answer?
There is no such thing as a clear indicator. People thought Dubai was peaking 6 years and 1/2 peak value before it finally crashed.

At all times in every market someone is doing a chicken little, most people buy to hold and with transaction costs so high in this country it is only a few crazy people who gamble with their property eg Mr Keen and Crazy Ted and Jimbo.

Property is always good over the long term always so most people hold.

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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