You can always show correlation, especially if you jiggle around with lags until you get a correlation. You can even change a negative correlation into a positive one that way. I don't see it is very informative to say that credit growth changes are correlated with house price changes. We have had house price rises associated with big falls in the credit growth rate. What causes the credit growth changes? A lot of things - interest rates, incomes, population, government policies etc. But interest rates are currently the main factor in Oz. I stated here, back in November when the RBA raised rates, that I expected National house price falls of 5-10%. So, I'm not surprised at the recent data and falls may continue. However, incomes are still rising quite strongly so I'm not expecting big falls. Falls of 5-10% are quite minor in the context of the 2009 boom.
i don't recall your predictions. was it across oz or in particular areas? perth and bris have achieved almost the midpoint of your drop perditions. do you expect them to fall further?
so it's clear, i'm not trying to prove anyone wrong or right here, just converse!
you said there's a correlation, but it's not useful. Does that mean you think all correlations are not useful? i think the correlation would be useful for estimating price movements in the near future. No?
Can you show me some stats if you have them when the credit impulse is positive (accelerating) when house prices are falling?
i don't recall your predictions. was it across oz or in particular areas? perth and bris have achieved almost the midpoint of your drop perditions. do you expect them to fall further?
mind you, in Brisbane they have been doing that for quite a while now apparently. (this is where I live and work)
Sydney also apparently hasn't boomed much of late, and seemingly being the real capital of Aus, and apparently higher average incomes there, mean that Sydney is probably not in for much of a crash, or even correction, at least in the areas that aren't hours away from the CBD.
I'd say Melbourne seems to be the city I'd be most bearish on, with its massive boom of late and quite bad fundamentals. they seemed to have benefited the most from immigration of late, and that seems to have slown.
at anyrate, as a general view. with the slow down of easing credit, and the amplification of the stimulus package that has seen the bubble end with a bang (a more stark contrast between boom and softening than would have happened, or was happening naturally in 2008).
I expect prices to stay at best pretty much flat for a fair few years. that being the case, I see no reason to buy as long as the gap between rental and owning (with mortgage) expenses remain so high. even as rents rise to close that gap, as long as renting is cheaper, and prices are flat, Its pretty basic maths (lifestyle wise I'd more favor renting atm anyway).
now, if prices begin to rise, and not due to artificial meddling such as in 09, then, will I buy? I suppose thats the real question posed by this thread.
I think that, it is difficult times right now, if prices begin to turn around, it could only be for genuine reasons. sure, the miners are a boom that could crash at any moment with China, but I don't really see the miners as underpinning the rest of the economy at the moment. if anything, they seem to be hindering it. as such I don't really see the biggest threat to our already pretty average position - a China caused mining slowdown, as being all that bigger deal... so yeah, if prices were to start rising now, I would have to assume that prices now are sustainable, and as I have said before, even relatively modest price rises matching inflation or wage growth (which you would logically assume as sustainable growth), buying becomes sensible financial choice.
also, as I have said before, it would depend on the amount of debt I would have to take on. as my savings increase the needle shifts slowly towards buying.
so yeah, its pretty simple for me. as I am not shorting the housing market, and the costs of ownership remain more than the costs of renting, I have no real reason to start trying to guess how much housing might crash, or fall, or correct, or soften. which is good, because I have no idea.
as long as they aren't rising, I won't buy...
and even if they started rising, it would depend on the (relative) amount and cost of debt I would have to take on.
one thing I have become more confident in of late though, is that the Market will show me the way. in conclusion to what I said above. if prices start rising, I'd be fairly confident in assuming that it would be a long term trend.
Its a rigged game. The sooner you realize this the better off you will be.
Many will be locked out of the market permanently when the imminent new up cycle starts.
My advice is to buy what you can afford RIGHT NOW.
Don't blame others for playing the game. They didn't start it.
And don't cry once the market has left you behind when you could buy now.
If you believe what you just wrote then you have no idea of how logarithms work. I mean you wrote enough to think you do, but you don't.
Essentially the price increase of houses can't outstrip wages forever. It's not that it is improbable, it's mathematically impossible (assuming you want some kind of rental return).
Boomers are (housing) asset rich and cash poor A superannuation balance of at least A$750k is needed to fund a couple’s comfortable retirement for 20 years (source: Colonial First State, Association of Superannuation Funds of Australia). However, the average superannuation balance in 2005-06 for households in the 55-65 age group was just A$160k. Although this would no doubt be higher now, superannuation balances still look thin for households in the 55-64 age group (refer to Chart 3). We therefore expect the baby boomers will seek to use their assets to fund the most comfortable retirement that they can afford. To this end, at an aggregate level, housing equity release can occur by: • borrowing against the equity in a home, using home equity loans or reverse mortgages; • selling an owner-occupied house and then renting or entering an aged-care home; • downsizing to a smaller primary residence; and • selling an investment property.
Investment housing demand under the most pressure There are two main ways that households in the 55-64 age group could sell their houses to realise cash for their retirement. Many new retirees will seek to trade down to a smaller, cheaper house. For the most part, new retirees who still have mortgages on their prime residence (10%) will have little choice but to downsize their main residence to pay off the remaining mortgage balance. The other step that baby boomers could take (aside from purchasing a dedicated equity-release product like a reverse mortgage) is to sell their investment property. For the older baby boomers, housing was a core asset class in the retirement investment portfolio. These households were net buyers of housing and will soon turn around and become net sellers to fund their retirement, in our view. The ATO estimates 70% of investment property holders are negatively geared. We see a couple of factors underpinning this change. Baby boomers’ superannuation balances are well below the amount that the Association of Superannuation Funds of Australia believes is needed to fund a good retirement, so they need to free up cash. We think these investors are unlikely to hold on to their investment properties given current low yields of 4-5% in the capital cities. Probably most importantly, retirees will usually not be earning enough income to use the full tax deductions from the losses on the properties. In other words, the rent payments alone will not cover the costs of mortgage servicing and property maintenance. All up then, we think demographics will be a drag on long-term housing demand. This should translate into a softer outlook for mortgage growth too.
Repeated for clarity. Only because I've been thinking exactly the same thoughts for about 2 or 3 years now. So perhaps I will be waiting another 10 years before I purchase. Of course if a large group of people all see the same low return and need to sell, then prices might fall to a floor (determined by rental yield). To me the real issue behind prices is always group psychology, and for the past 10 years there has been a significant distortion from boomers competing with each other to secure resources for their retirement.
If you believe what you just wrote then you have no idea of how logarithms work. I mean you wrote enough to think you do, but you don't.
Essentially the price increase of houses can't outstrip wages forever. It's not that it is improbable, it's mathematically impossible (assuming you want some kind of rental return).
Thatguy - actually, some time ago Stindberg showed how, mathematically, price increases could outstrip wage increases forever, so long as property ownership became more and more concentrated with the richer people. So mathematically it's possible. You may say societally it's undesirable but it is possible.
Edit - forever may be a bad choice of words, 'any meaningful time period' may be better, eg more than the lifetime of anyone alive today.
Thatguy - actually, some time ago Stindberg showed how, mathematically, price increases could outstrip wage increases forever, so long as property ownership became more and more concentrated with the richer people. So mathematically it's possible. You may say societally it's undesirable but it is possible.
Edit - forever may be a bad choice of words, 'any meaningful time period' may be better, eg more than the lifetime of anyone alive today.
No, it's not. Check the rental returns on his maths.
Thatguy - actually, some time ago Stindberg showed how, mathematically, price increases could outstrip wage increases forever, so long as property ownership became more and more concentrated with the richer people. So mathematically it's possible. You may say societally it's undesirable but it is possible.
Edit - forever may be a bad choice of words, 'any meaningful time period' may be better, eg more than the lifetime of anyone alive today.
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