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Will you wait 15-20 years for a crash?; As Steve Keen expects you to do...
Topic Started: 18 Nov 2010, 11:12 AM (8,850 Views)
Rastus2
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b_b
28 Jun 2011, 12:53 AM
Which part of my conditions were unrealistic - that goods and services rise in line with inflation? (lets assume I change"forever" to "substained")

I take it you retract the claim
"Your original comment was not about "forever". You added that later in the post"

I also take it you now want to discuss it further despite informing me I should start a theology thread if I wanted to continue the discussion a theology thread should be started..



Now, if you want me to comment on :
Quote:
 

You don't even need that condition for house prices to rise faster than wages for ever.

So long as you have broad real wage increases, then the excess income over daily needs can go to other things - like real estate.

For example. Imagine a person earns $100 per year, and that income is spent as follows

Food $20
Clothes $20
Entertainment $20
Utilities $10
Shelter (mortgage) $30

Now imagine inflation grows by 3% per annum, and real wages grow by 1.5% per annum (so nominal wages growing at 4.5% per annum). In ten years time, income is now $155.3. On average everything increases in line with inflation so that the following is required for expenditure
Food 26.9 (growing at 3% per annum)
Clothes 26.9 (ditto)
Entertainment $26.9 (ditto)
Utilities $13.4 (ditto)

Excluding mortgage, total expenditure = $94.1. This leaves $61.2 to be spent on a mortgage.

The amount available to be spent on a mortgage has increased by 7.4% per annum - significantly higher than wage growth, while still providing the same standard of living. Assuming interest rates stay the same, house prices can grow by 7.4% per annum on a sustainable basis without any need to concentrate ownership.
Edited by b_b, 24 Jun 2011, 11:13 PM.




Sure...

To name but one fundamental problem you have with your proposal is the assumption that any real wage rise would automatically be funneled towards an increase in house real prices... What on earth makes you assume this will continue forever ? Why not gold, shares, tulip bulbs, overseas property, etc etc.. or in fact assets which are not believed to appreciate in value, but which people sometimes want more than to save for the future... drugs, or, indeed, if there is a spike in any strongly desirable consumable that is not somehow covered with adequate weighting in the CPI, that particular consumable...


We can, in fact, have increased real wages, and along with that, reduced house prices...

All that is required is a change in the mindset that house prices will always rise...



Now if you want to include, along with your already stated set of required circumstances, one in which Australians continue to believe that real estate can only go up... then sure, throw it in the pile...


I will then repeat my statement that this set of circumstances can not continue forever...


I notice you now want to change the word from 'forever' to 'substained'... (did you mean sustained ? I will assume so).


Sustained... sure... that is fine... one can sustain almost anything ... that is hardly a claim on the level that was initially proposed.. in fact, it is a rather weak fall back position from that... but one, none the less, which can be substantiated.

Edited by Rastus2, 28 Jun 2011, 01:18 AM.
Shadow - Defrauded his Bank ? 2015 I have 9 different loans and my bank had no idea which ones were personal and which were investment. They had half of them classed incorrectly. When this change came in they asked me to tell them if any personal loans were incorrectly classed as investment, which I did, and they switched them to personal for the lower rate. They also had a couple of investment loans incorrectly classed as personal. They didn't ask me about those. So they stay on the lower rate too. Worked out pretty well. :)
Shadow - 2008 Sydney Median House Price 1.25M by 2014-2015

Shadow : I think this boom has already begun in several cities. My prediction :
Peak of boom: 2014-2015. Sydney Median Price: $1,250,000 Bottom of bust: 2017-2018. Sydney Median Price: $1,100,000

Shadow's Original 2010 House Boom and Crash prediction http://s836.photobucket.com/user/rastus22/media/shady-orig-2010-chart.png.html?sort=3&o=0

Shadow's attempt to edit his 2010 chart in 2015 and replace it with one that does not show a crash in 2013 http://s836.photobucket.com/user/rastus22/media/Screen%20Shot%202015-06-06%20at%207.12.52%20pm_1.png.html
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Thatguy
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Rastus2
28 Jun 2011, 01:14 AM

I take it you retract the claim
"Your original comment was not about "forever". You added that later in the post"

......................


I notice you now want to change the word from 'forever' to 'substained'... (did you mean sustained ? I will assume so).


Sustained... sure... that is fine... one can sustain almost anything ... that is hardly a claim on the level that was initially proposed.. in fact, it is a rather weak fall back position from that... but one, none the less, which can be substantiated.
Sustainability is an entirely new economic area which is very popular at the moment. I'm not sure if it's just a trend or is useful or even needed.

Anyway, my point is that those mathematical models do not take into account very real limitations to house price growth outstripping wage growth. BUT, I do admit that price growth can outstrip wage growth for practically forever. Then there is no need to insert limitations into rental prices such as the minimum square area to allow a functional median wage earner to dwell while remaining economically functional.

Edited by Thatguy, 28 Jun 2011, 01:24 AM.
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b_b
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Rastus2
28 Jun 2011, 01:14 AM
To name but one fundamental problem you have with your proposal is the assumption that any real wage rise would automatically be funneled towards an increase in house real prices... What on earth makes you assume this will continue forever ? Why not gold, shares, tulip bulbs, overseas property, etc etc.. or in fact assets which are not believed to appreciate in value, but which people sometimes want more than to save for the future... drugs, or, indeed, if there is a spike in any strongly desirable consumable that is not somehow covered with adequate weighting in the CPI, that particular consumable...
You seem angry. Is it because the notion that house prices can not continue to grow faster than wages was debunked using a very simple and realistic scenario. You seem totally obsessed with the semantics (forever / sustainable) rather than the debate (house prices and its relationship with income). Why is that?

As for your suggestions

Gold - Should not rise at all. Unlike housing, gold has almost no utility.
Shares / Investments - actually add to real incomes
Tulips - see gold
Overseas property - can only be bought via the FX market - the seller of AUD must Find buyer, the the purchasing power of real wage growth never leaves the country.

Quote:
 
We can, in fact, have increased real wages, and along with that, reduced house prices...


Agree - but that was not the debate. The debate was house prices mathematically can not grow faster than income. You suggested anything can be proven mathematically if you have unrealistic assumptions. I have shown my assumptions are not unrealistic.

Further more, we see the evidence of it today - house prices have increased faster than income.

But if you want to change the debate, I accept it is possible to have lower house prices and higher real wages. In fact, I would argue it is should be Government Policy.

Quote:
 
All that is required is a change in the mindset that house prices will always rise...

This comment in a complete nonsense and a typical Housing bear strawman. No-one in NSW could possible believe house prices always rise, because from 2003-2008 they didn't rise, and in most areas of Western Sydney, they fell.





(S – I) + (T - G) + (M - X) = 0
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Strindberg
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Thatguy
28 Jun 2011, 01:11 AM

Now again, this is possible. However it does mean that houses will hold more than 1 family, or that one full-time person will pay the rent (assuming only 17% effective tax at the median level) while the other income pays for other items.
That more than one family will in future occupy existing single household homes is a realistic possibility. It may be that rising construction costs coupled with income limitations will lead to this outcome.

We have masses of evidence from the UK where there are hundreds of thousands (perhaps millions) of pre-WWII large homes which have been converted to accommodate multiple households. It means that the original house has continued to increase in price - despite the real income of an individual new occupant household being less than the real income of the original pre-WWII household which occupied the house.

This could easily play out in Australia. If construction, and land, costs continue to rise then there will be a tendency, dictated by limited income, to build smaller houses/units/townhouses. This need not have any impact towards the lowering of prices of existing dwellings. Large dwellings will carry a premium because they will be attractive to richer families or they can be adapted for multiple household occupancy eg McMansions.

The result over the long term may be that the median price of a dwelling does not rise and may even fall. But this will be coupled with the size of the median dwelling falling. The price of today's existing dwellings may continue to rise. Such a scenario can happen with constant or even falling real incomes.

So,
- incomes may stay constant or fall
- the future median dwelling price may fall
- the price of today's existing dwellings may still rise.
Edited by Strindberg, 28 Jun 2011, 12:13 PM.
Housing costs to Income broadly unchanged since 1994 - re-ratified here
The People of Australia have the highest median wealth in the World
2002-2012 10 year house price growth the SLOWEST since 1952-1962
"There are two kinds of people in this world: ones that fiddle around wondering whether a thing's right or wrong and guys like us." (Hugo to Gagin in Ride the Pink Horse)
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Rastus2
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b_b
28 Jun 2011, 11:30 AM
You seem angry. Is it because the notion that house prices can not continue to grow faster than wages was debunked using a very simple and realistic scenario. You seem totally obsessed with the semantics (forever / sustainable) rather than the debate (house prices and its relationship with income). Why is that?

As for your suggestions

Gold - Should not rise at all. Unlike housing, gold has almost no utility.
Shares / Investments - actually add to real incomes
Tulips - see gold
Overseas property - can only be bought via the FX market - the seller of AUD must Find buyer, the the purchasing power of real wage growth never leaves the country.




Agree - but that was not the debate. The debate was house prices mathematically can not grow faster than income. You suggested anything can be proven mathematically if you have unrealistic assumptions. I have shown my assumptions are not unrealistic.

Further more, we see the evidence of it today - house prices have increased faster than income.

But if you want to change the debate, I accept it is possible to have lower house prices and higher real wages. In fact, I would argue it is should be Government Policy.



This comment in a complete nonsense and a typical Housing bear strawman. No-one in NSW could possible believe house prices always rise, because from 2003-2008 they didn't rise, and in most areas of Western Sydney, they fell.







not angry... not at all thanks.

I will agree your scenario was simple, but I can not agree it is realistic...

I'm not obsessed, I just wanted you to finally state exactly what you are now supporting... all your other posters ran away from forever (the initial claim) and tried variants of it... is it now 'sustainable' ? You did not use that word before... or is that what you were trying to say when you used the word 'substained' here ?

The claim was not that house prices can not continue to grow faster than wages.. it was that this could happen forever (read back again please) .. it was then changed to a far less impressive claim and I have far less issue with 'a while', or even 'quite a while'... I don't even know why you guys are thrashing the issue out now... those who initially made the claim have already run away from it. You seem to want 'forever' but run away from it and now try other variants of it...

As for my suggestions... they were not hard and fast examples... any asset class could be picked.. you did not need to spell out their faults.. I am well aware of them, just like I am well aware of housings faults.

As for overseas property... the purchasing power of real wage growth may not leave the country but the asset it is spent on by myself is not Australian real estate... do you understand ?

You seem to be under the delusion that any money not spent by Australians to cover the immediate cost of living will automatically be spent towards inflating the house prices... this is pure mania behavior and seems to be changing. Unless people are willing to follow a similar style of mania forever, house prices are not going to outgrow wages..


One could have said the same of the US market... did it last forever ? Nope.. why ? because that assumption is unrealistic.. your assumptions are equally unrealistic in 'forever' land.. in another time frame, naturally, they are possible... just keep away from that forever word eh ?


You point out that house prices have increased faster than income... well done. I did not say it could not ever happen... I said it could not happen forever.

I have not changed the debate one bit.. it is those who made the initial claim that have changed it.. read back yet again. :rolleyes:



I notice that you contradict yourself at the end.. while claiming that house prices have increased faster than income, you then point out that it did not happen in western sydney..

So now we are at a situation where you have demonstrated how this 'simple model' fails... do you not see that you are making the case both for and against ?



Shadow - Defrauded his Bank ? 2015 I have 9 different loans and my bank had no idea which ones were personal and which were investment. They had half of them classed incorrectly. When this change came in they asked me to tell them if any personal loans were incorrectly classed as investment, which I did, and they switched them to personal for the lower rate. They also had a couple of investment loans incorrectly classed as personal. They didn't ask me about those. So they stay on the lower rate too. Worked out pretty well. :)
Shadow - 2008 Sydney Median House Price 1.25M by 2014-2015

Shadow : I think this boom has already begun in several cities. My prediction :
Peak of boom: 2014-2015. Sydney Median Price: $1,250,000 Bottom of bust: 2017-2018. Sydney Median Price: $1,100,000

Shadow's Original 2010 House Boom and Crash prediction http://s836.photobucket.com/user/rastus22/media/shady-orig-2010-chart.png.html?sort=3&o=0

Shadow's attempt to edit his 2010 chart in 2015 and replace it with one that does not show a crash in 2013 http://s836.photobucket.com/user/rastus22/media/Screen%20Shot%202015-06-06%20at%207.12.52%20pm_1.png.html
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Deleted User
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Problem is, wages have not grown equally for all people. The rich have been getting richer, so it is important to say wages growth, for the rich mainly....
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woozle
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pauk
28 Jun 2011, 09:14 PM
Problem is, wages have not grown equally for all people. The rich have been getting richer, so it is important to say wages growth, for the rich mainly....
the rich always get richer, sad but true.............. the poor, take what they can get
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Shadow
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Evil Mouzealot Specufestor

PuntPal
23 Jun 2011, 02:28 PM
Do you understand the concept of a martyrdom....dont think Keen didnt see all of this coming....even the stupid intervention that you idiots believe proved him wrong.

He has set him up for the biggest I TOLD YOU SO...in the history of this nation. We will be telling our children about the man that showed everyone how economics actually works in real life and had the courage to take on a nation full of ignorant speculators and the powerful property cartel.
Just wondering if the bears here are still willing to wait 20 years before buying, in the hope that Steve Keen's prediction will come true?
1. Epic Fail! Steve Keen's Bad Calls and Predictions.
2. Residential property loans regulated by NCCP Act. Banks can't margin call unless borrower defaults.
3. Housing is second highest taxed sector of Australian Economy. Renters subsidised by highly taxed homeowners.
4. Ongoing improvement in housing affordability. Australian household formation faster than population growth since 1960s.
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dave
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Shadow
27 Oct 2013, 03:35 PM
Just wondering if the bears here are still willing to wait 20 years before buying, in the hope that Steve Keen's prediction will come true?
Not me.
I'm buying in the states. I can buy a positively geared property near a university outright there.
If the australian property market crashes, it crashes. I believe in Steve Keen's research and analysis but I also believe theres some truth to Peter Frasers predictions that the government will act to transfer private debt to the public. Who knows how long that will take or what it will do to the market.
Basically, in the long run, in order to keep the housing bubble inflated, the government will have to devalue the australian dollar.
As an australian with some australian dollars in the bank it seems like the best thing to do is avoid getting caught up in any of that.
Best cash out now while the FED taper or the china slowdown are still just potential hazards on the horizon.
I might not make giant capital gains with the american property I'm looking at, but it'll probably hold its value better than my australian dollars will.
The rental income I can expect definitely outpaces the interest I'd make in an australian bank, even after property management fees (which will be cheaper for me for personal reasons)
I'm not holding out for an australian property crash, but I've given up on the australian economy
(Its overburdened by that giant property bubble)
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mel
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on the surface buying in the US looks like a great idea. I'm a big fan of undervalued property but I do wonder why more people aren't doing it - there may be good reason. On a different note, Keen's predictions appear to become more and more detached from reality as time goes on. The fact Keen sold his Sydney home when he did makes things even more ironic.
Edited by mel, 27 Oct 2013, 04:40 PM.
APF - a place where serious people don't take themselves too seriously. There's nothing else like it.
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