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RBA relying on moronic data, says Louis Christopher of SQM Research; House prices not stabilising. Auction results weaker than same time last year.
Topic Started: 18 Apr 2012, 03:15 PM (2,328 Views)
Aussiehouseprices
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b_b
18 Apr 2012, 04:49 PM
If APRA chnage the requirements for term, it will have no conseqences for Aussie banking except lower mortgage rates.
But if the RBA is happy with level of mortgage rates, presumably they'd just up the cash rate to get back to where they started?

Also, can you explain what you mean by:
Quote:
 
ARPA require the banks to secure a portion of their funding with term.
and why do you think they would do that if there is no practical reason?
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peter fraser
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Black_Dragon
18 Apr 2012, 05:40 PM
Shadow
18 Apr 2012, 05:14 PM
Quote:
 
In the minutes from its April board meeting, the Reserve Bank claimed house prices had showed signs of stabilising, while auction clearance rates in Sydney and Melbourne had picked up. SQM Research managing director Louis Christopher rubbished the claim, and said he was "deeply concerned" by the RBA's assertions.

"Let me tell you now, house prices have not stabilised. In many parts of the country, they are still falling. And auction clearance rates are weaker than recorded this time last year," he said.
The fact that clearance rates are lower than the same time last year doesn't contradict the fact that clearance rates have picked up.

The fact that in many parts of the country house prices are still falling doesn't contradict the fact that national house prices show signs of stabilising.

So I don't see really what is 'moronic' about the RBA statements. The RBA statements are accurate. Louis?
So, Melbourne house prices rose by 1.8%?

Did they?

Sir, that's your opinion if you think its all ok. And I guess, I have mine.
Black Dragon - the median price is the median that buyers are prepared to pay, but that includes houses that have been discounted, so the real strata levels have altered without a corresponding change in the index method of calculation.

Buyers work out what they can afford, and then buy the best house that they can find for their money. Once they have set an affordable limit people rarely spend less. If you could buy a BMW for the price of a Proton, wouldn't you buy the BMW instead of saving money on a cheaper Proton.

Median values can reflect borrowing capacity instead of house values in these market conditions.

Everyone that I deal with who is buying an existing property, is sure that they are buying at a discount to what they saw 12 months ago, and yet they are spending up to the same limit that they first considered. They are getting more for their money, but not reducing their spend.

Of course prices have fallen, and of course medians haven't.



Any expressed market opinion is my own and is not to be taken as financial advice
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Trojan
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peter fraser
18 Apr 2012, 08:37 PM
Black Dragon - the median price is the median that buyers are prepared to pay, but that includes houses that have been discounted, so the real strata levels have altered without a corresponding change in the index method of calculation.

Buyers work out what they can afford, and then buy the best house that they can find for their money. Once they have set an affordable limit people rarely spend less. If you could buy a BMW for the price of a Proton, wouldn't you buy the BMW instead of saving money on a cheaper Proton.

Median values can reflect borrowing capacity instead of house values in these market conditions.

Everyone that I deal with who is buying an existing property, is sure that they are buying at a discount to what they saw 12 months ago, and yet they are spending up to the same limit that they first considered. They are getting more for their money, but not reducing their spend.

Of course prices have fallen, and of course medians haven't.


Good point peter. Never thought of it that way before.
I put trolls and time wasters on my ignore list so if I don't respond to you, you are probably on it ....
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b_b
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Aussiehouseprices
18 Apr 2012, 07:12 PM
But if the RBA is happy with level of mortgage rates, presumably they'd just up the cash rate to get back to where they started?

Also, can you explain what you mean by:

and why do you think they would do that if there is no practical reason?
Yes - the RBA will target the mortgage rate and business lending rate. If margins come down from change in regulation, then all other things being equal they will lift the official cash rate.

re: APRA.

APRA under the direction of Basel III have required Banks structure their liabilities in such a manner so as to minimise "financial instability". They have done this by classifying deposits in terms of quality. For example, if you have an at call deposit with (say) ANZ, this is considered to be "high quality" funding. If you decide to start a new business, and transfer your ANZ deposit to your ANZ business account, APRA will classify this as "lower quality" funding (hence the competition for "deposits"). Further, a term deposit is higher quality than an at call deposit.

Totally absurd, I know.

Now Australia run a Current account deficit. As a result, Aussie Banks accumulate foreign owned AUD liabilities. Again APRA see this as a funding risk (low quality), even though the AUD can never leave the Aussie System. To improve their"financial stability" Banks are required to get Term funding for a significant potion of their liabilities (5-7 years) as part of their overall funding mix. This is very hard to get in the retail market, and almost has hard from the local in Aussie wholesale market. So they go to other markets and issue US / Euro bonds for 5-7 years.

Of course, all APRA is really doing is forcing up the cost of funds for the banks (foreigners require larger spreads on Bonds compared to locals). There is no improvement in financial stability from this policy since the Australian Banking system is closed - no AUD goes overseas - and no AUD comes from overseas. In fact this policy INCREASES financial instability because our Banks hedge this funding with unregulated counterparties.

Why does APRA do this? Because they are clueless. In fact there is a big disconnect between APRA and the RBA on this very point. The RBA knows Bank stability comes from asset quality and Tier capital NOT from funding. At some point in the future the RBA will have their way, and this policy will change.
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earthsta
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b_b
18 Apr 2012, 09:21 PM
At some point in the future the RBA will have their way, and this policy will change.
Absolutely

Once the RBA decides that household and personal (especially) and business (incidentally) debt is no longer a millstone around the economies neck, the policy will change.
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earthsta
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Shadow
18 Apr 2012, 05:48 PM

The RPData index seems to show Melbourne still trending down, but the national trend appears to be one of price stabilisation, after the declines of 2011.


The points I made were...


2. The fact that in many parts of the country house prices are still falling doesn't contradict the fact that national house prices show signs of stabilising.
OHHHHH....stabilisation now Shadow :lol :lol :lol

Two days ago you were claiming that prices had risen. Need me to point the relevant thread out? Or can you find it all by yourself (for a quick edit) :D :D
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Aussiehouseprices
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b_b
18 Apr 2012, 09:21 PM
Yes - the RBA will target the mortgage rate and business lending rate. If margins come down from change in regulation, then all other things being equal they will lift the official cash rate.

re: APRA.

APRA under the direction of Basel III have required Banks structure their liabilities in such a manner so as to minimise "financial instability". They have done this by classifying deposits in terms of quality. For example, if you have an at call deposit with (say) ANZ, this is considered to be "high quality" funding. If you decide to start a new business, and transfer your ANZ deposit to your ANZ business account, APRA will classify this as "lower quality" funding (hence the competition for "deposits"). Further, a term deposit is higher quality than an at call deposit.

Totally absurd, I know.

Now Australia run a Current account deficit. As a result, Aussie Banks accumulate foreign owned AUD liabilities. Again APRA see this as a funding risk (low quality), even though the AUD can never leave the Aussie System. To improve their"financial stability" Banks are required to get Term funding for a significant potion of their liabilities (5-7 years) as part of their overall funding mix. This is very hard to get in the retail market, and almost has hard from the local in Aussie wholesale market. So they go to other markets and issue US / Euro bonds for 5-7 years.

Of course, all APRA is really doing is forcing up the cost of funds for the banks (foreigners require larger spreads on Bonds compared to locals). There is no improvement in financial stability from this policy since the Australian Banking system is closed - no AUD goes overseas - and no AUD comes from overseas. In fact this policy INCREASES financial instability because our Banks hedge this funding with unregulated counterparties.

Why does APRA do this? Because they are clueless. In fact there is a big disconnect between APRA and the RBA on this very point. The RBA knows Bank stability comes from asset quality and Tier capital NOT from funding. At some point in the future the RBA will have their way, and this policy will change.
Thanks b_b - interesting stuff.
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Aussiehouseprices
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peter fraser
18 Apr 2012, 08:37 PM
Black Dragon - the median price is the median that buyers are prepared to pay, but that includes houses that have been discounted, so the real strata levels have altered without a corresponding change in the index method of calculation.

Buyers work out what they can afford, and then buy the best house that they can find for their money. Once they have set an affordable limit people rarely spend less. If you could buy a BMW for the price of a Proton, wouldn't you buy the BMW instead of saving money on a cheaper Proton.

Median values can reflect borrowing capacity instead of house values in these market conditions.

Everyone that I deal with who is buying an existing property, is sure that they are buying at a discount to what they saw 12 months ago, and yet they are spending up to the same limit that they first considered. They are getting more for their money, but not reducing their spend.

Of course prices have fallen, and of course medians haven't.
Very interesting point PF. But something doesn't sound quite right - and I can't work out exactly what it is.

I agree that if house prices fall, people can then afford nicer/bigger houses. But what happens to all those smaller/crappier houses that still make up the total housing stock? For example, the person you are talking about - who can now afford to buy that bigger/nicer house - must be selling their smaller/crappier house - and someone else must be buying it. So wouldn't that be reflected in the median?
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TED BULLPIT
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Shadow
18 Apr 2012, 05:14 PM
The fact that clearance rates are lower than the same time last year doesn't contradict the fact that clearance rates have picked up.

The fact that in many parts of the country house prices are still falling doesn't contradict the fact that national house prices show signs of stabilising.

So I don't see really what is 'moronic' about the RBA statements. The RBA statements are accurate. Louis?
Of course you dont see it as moronic , morons dont see moronic,
The only mistake here was where he said " genuine bottoming out",
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TED BULLPIT
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peter fraser
18 Apr 2012, 08:37 PM
Black Dragon - the median price is the median that buyers are prepared to pay, but that includes houses that have been discounted, so the real strata levels have altered without a corresponding change in the index method of calculation.

Buyers work out what they can afford, and then buy the best house that they can find for their money. Once they have set an affordable limit people rarely spend less. If you could buy a BMW for the price of a Proton, wouldn't you buy the BMW instead of saving money on a cheaper Proton.

Median values can reflect borrowing capacity instead of house values in these market conditions.

Everyone that I deal with who is buying an existing property, is sure that they are buying at a discount to what they saw 12 months ago, and yet they are spending up to the same limit that they first considered. They are getting more for their money, but not reducing their spend.

Of course prices have fallen, and of course medians haven't.


Why would I buy a BMW now for the price of a proton , when in a few years I will get a ROLLS ROYCE for the price of a proton. ;)
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