A History of Australian House Prices by Philip Soos; Australia’s property market vastly overvalued, driven by debt-financed speculation and relative non-taxation of land
Tweet Topic Started: 13 Feb 2013, 12:37 PM (5,984 Views)
The overarching private debt bubble, which began in 1964, will likely come to an end once and for all when the government runs out of fuel to throw on the fire.
Right, so this is a special new type of 'bubble' that has been sustained for five decades already, and that won't end until the government 'runs out of fuel'?
When would that fuel run out? In another five decades from now? Soos will rent forever while waiting for the fuel to run out...
I look forward to hearing from masked crusaders, Sheldon and Foxytroll, so they can discredit ( or can attempt to discredit ) this upstart for what his worth
What statements are you expecting me to discredit? (there are a number of errors - that's Soos's way).
Is the presentation of the charts intended to imply that any metric rises in the charts will be reversed in a certain crash? Or what?
Tell me what you think Soos is trying to say and I'll consider responding. Looks like just a bunch of charts to me. What assertions is Soos making?
He is just using different metrics to support his hypothesis that Aussie real estate is in bubble territory. Examples:
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Another popular method of determining property valuation is comparing housing prices to rents. In a fairly efficient market, the costs of buying and renting should closely match each other, though due to factors such as taxes, risks, and interest rates, it is unlikely that costs will equal. Since the post-WW2 boom, the ratio has unevenly decreased. Upswings in the ratio suggest the presence of a bubble: the mid-70s, early 80s, late 80s, and today
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Perhaps the most telling of all data are investors’ ability to finance the debt and routine expenses on their residential properties. In the midst of the late 1980s commercial land bubble, an element of residential speculation caused real housing prices to increase, most notably in Sydney and Perth. Speculators suffered income losses from 1988/89 to 1991/92 while seeking capital gains. The market later stabilized before making the largest net income losses from 2000 onwards, signifying a zero net yield and massive residential bubble.
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
Another popular method of determining property valuation is comparing housing prices to rents. In a fairly efficient market, the costs of buying and renting should closely match each other, though due to factors such as taxes, risks, and interest rates, it is unlikely that costs will equal. Since the post-WW2 boom, the ratio has unevenly decreased.
What does this even mean. It is just babble. He is comparing the cost of the first year rent vs first year interest repayments. What about the cost over the lifetime of home ownership?
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Upswings in the ratio suggest the presence of a bubble
Why? No reasoning is given. He might as well say 'dancing monkeys suggest the presence of a bubble'.
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The market later stabilized before making the largest net income losses from 2000 onwards, signifying a zero net yield and massive residential bubble.
Again, why does 'zero net yield' signify a massive residential bubble? Gold always has zero net yield. Is gold always in a massive bubble?
I would be interested to understand the composition and sources of the pre 1970 real estate pricing data. Are you in a position to provide a split between capital cities at all? If not, do you know how the composition was determined changed overtime with regard to regional weightings?
Its just that the real estate data prior to 1970 can be very incomplete to say the least.
"No sympathy for the devil; keep that in mind. Buy the ticket, take the ride...and if it occasionally gets a little heavier than what you had in mind, well...maybe chalk it off to forced conscious expansion: Tune in, freak out, get beaten."My Webpage
I think that you should concentrate your studies on the are post 1952 as that is the start of the modern banking era where normal men and women have been able to buy houses on bank credit. Prior to then it wasn't so easy for Bob the office clerk to buy a house and land package.
The prior era is inconvenient for you, shall we pretend like it never happened?
That era of low prices and stability in house prices is the period to which we shall return when the government supply of bubble fuel is extinguished.
The prior era contained two major depressions (far worse than this) as well as two major world wars, and for a decade prior to that spike circa 1950 we had rent and house price controls in Australia. Australia also came into being as a nation, and has been growing ever since, especially since 1950.
Since the end of WW2 we have had 7 decades of relative peace, security, and prosperity.
That's not inconvenient to me at all, if you are happy to try to compare completely unlike circumstances stretching over generations then more fool you, but don't try to tell me the comparison is relevant.
When the troops returned after WW2 attitudes changed, banking changed, and since then large purchases such as cars and houses have been put on credit to spped things up, and that gave a stimulus to the economy that wasn't there in the pre WW2 era. Those attitudes and practices came to Australia from the USA - and lets face it we aren't going back to saving up to buy those purchases outright.
Your comparisons between the pre WW2 and post WW2 eras might be interesting, but relevant they are not.
Have you heard that women have the right to vote and have entered the workforce in number?
Probably just a rumour...
Further to my original point.
Prior to 1947 Australians owned less than 40% of their own housing, but by 1967 (in just 20 years) that percentage had increased to 70%.
I have the recollection that prior to 1910 home ownership rates were only about 10% but I cannot locate the data.
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Post-war prosperity After the war Australia entered a boom period. Millions of refugees and migrants arrived in Australia, many of them young people happy to embrace their new lives with energy and vigour. The number of Australians employed in the manufacturing industry had grown steadily since the beginning of the century. Many women who had taken over factory work while men were away at war were able to continue working in peacetime.
The economy developed strongly in the 1950s with major nation-building projects such as the Snowy Mountains Scheme, a hydro-electric power scheme located in Australia’s southern alps. Suburban Australia also prospered. The rate of home ownership rose dramatically from barely 40 per cent in 1947 to more than 70 per cent by 1960.
You may think that a comparison between two economies, one with 70% ownership and one with about half that, is relevant but you just are not comparing apples with apples even if both of those economies occupied the same land mass. They may as well have been different countries. We are still young country and a work in progress.
I would have thought that any serious masters student going for his PHD would make mention of that and offer explanations. If you don't your work will be not treated seriously.
The question is often asked why housing prices are so high. Instead, the real question is to ask why prices are so low. The banking and financial system is ready to lend absurd amounts of debt to the willing army of “greater fools,” and has constructed an elaborate chain from mortgage brokers’ offices through to the business development managers (BDMs) at the banks in order to commit extensive fraud by manipulating loan application forms. This is the “six degrees of separation” Denise Brailey has uncovered. Consequently, the only determinant that prevents the banks from lending more credit is debtors’ ability to finance repayments out of current income. Only when it becomes difficult to finance repayments will the housing and land markets finally capitulate.
Magnificent data set. Lays it out clear as day. (Another good chart would be average age of mortgagee to working population).
Odds on politicians/policymakers coming up with a credible plan to do anything about it in the upcoming election campaign?
Lets have some RE spruikers to restate why younger Australians should sign up for a lifetimes worth of debt, or why policy should be directed towards supporting/encouraging this.
By the way, who is Denise Brailey and what did she discover?
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