Just because more is available does not mean more is used.
You are not understanding the basic role credit has. It can only facilitate lending if a person is a borderline lending case. People just do not go and buy a house that noone else wants for the maximum they can borrow.
Many people pushing up prices in Sydney will be borrowing nothing.
Restricting credit can slow a market but no amount of additional available credit will force a person to pay more that they need to for a property.
What you are saying equates to saying a hungry person accepts food to eat therefore everyone will always eat everything that is put in front of them.
Veritas you should know by now that if I was wrong this would be over ages ago. However, as usual it is you who is wrong so we all have to put up with pages of denial.
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.
no amount of additional available credit will force a person to pay more that they need to for a property.
That statement is just nuts. In a rising market, or in a market that is perceived to be about to rise, people are under tremendous personal emotional pressure to 'buy now or be priced out for ever', Price rises happen at the margin, which means in this case that if a significant number of people can only buy because they have easy access to credit then these price rises can only have happened because credit was easy to get.
Everybody here agrees that access to credit causes prices to be higher when there is demand for houses.
no amount of additional available credit will force a person to pay more that they need to for a property
That statement is just nuts.
Why is it nuts?
Let's say the bank will lend me $10 million, and I want to buy a house with a market value around $8 million. The guy I'm bidding against pulls out of the race at $8.1m. Why would I then choose to pay $10 million, just because I have that much credit available? I'd only offer $8.105 million!
Can you describe a situation whereby a person choose to pay more than they NEED to, just because they have access to the credit?
Surely they will still only ever pay slightly above what the next bidder is able to pay.
Demand for houses - household formation. A new household needs either a house to buy or a house to rent, assuming they don't move in with family.
Have a look at recent arrival numbers, although they are dropping off now. Most of the immigrants moved to Sydney and Melbourne, which is where jobs were being created, especially in Sydney. That's what has caused such high demand in those two cities.
Household formation. A new household needs either a house to buy or a house to rent, assuming they don't move in with family.
Have a look at recent arrival numbers, although they are dropping off now. Most of the immigrants moved to Sydney and Melbourne, which is where jobs were being created, especially in Sydney. That's what has caused such high demand in those two cities.
So household formation controls consumer sentiment?
That statement is just nuts. In a rising market, or in a market that is perceived to be about to rise, people are under tremendous personal emotional pressure to 'buy now or be priced out for ever', Price rises happen at the margin, which means in this case that if a significant number of people can only buy because they have easy access to credit then these price rises can only have happened because credit was easy to get.
Everybody here agrees that access to credit causes prices to be higher when there is demand for houses.
WHY DOES THE MARKET RISE?
Demand Andrew.
The demand comes first and foremost.
We are all acknowledging that reduced credit can reduce demand, but once a market has reached its maximum demand no amout of throwing credit at it will increase prices.
Veritas thinks that people just borrow everything possible - you know this is not true Andrew, it is really only FHBs that max out debt and they are a very small part of the market.
Most people in Australia do not max out their credit cards never mind their home loans.
There is a time when people may engage in excessive risk taking eg in Ireland or Dubai precrash as people had been seeing price growth for so long they thought it would never end and even then the numbers of such borrowers were small. The major problem with both those economies was stupid bank lending to developers not to home buyers.
People in Perth can borrow as much as their Eastern state peers relative to wages - so why are Perth median prices so low when our wages and borrowing capacity is just as high if not higher?
The reason is that confidence is lacking in Perth and this reduces demand as people are spooked by doomsayers.
When people in Perth feel confident to buy again they will borrow again - no amount of reduced interest rates or looser lending will move the market until confidence improves.
I think you actually agree with me on this one Andrew - you are just late to the debate.
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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