I believe that easy access to credit and low interest rates resulted in people bidding more on property and pushing up prices. I believe that most of the time the average region will be in supply/demand equilibrium therefore any increase in credit will increase demand and therefore prices. There are, of course, many factors affecting both supply and demand and regions differ but I believe sustained pressure from easy credit and low interest rates has over, say, the past 15 years been the primary reason we have generally high house prices across most regions.
You believe (correct me if I am wrong) that demand must be greater than supply, which I agree with, but you don’t accept that easy cheap credit can provide that additional demand.
Lets test you theory. Interest rates increased from late 2002 all the way up to 2008. Rates increased by about 3% during this time.
So in a period of rising and more expensive credit why did Perth house prices double in value in 3 years. In 2006 alone Perth recorded price growth of 45% despite rates rising during the year.
I believe that easy access to credit and low interest rates resulted in people bidding more on property and pushing up prices. I believe that most of the time the average region will be in supply/demand equilibrium therefore any increase in credit will increase demand and therefore prices. There are, of course, many factors affecting both supply and demand and regions differ but I believe sustained pressure from easy credit and low interest rates has over, say, the past 15 years been the primary reason we have generally high house prices across most regions.
You believe (correct me if I am wrong) that demand must be greater than supply, which I agree with, but you don’t accept that easy cheap credit can provide that additional demand.
Lets test you theory. Interest rates increased from late 2002 all the way up to 2008. Rates increased by about 3% during this time.
So in a period of rising and more expensive credit why did Perth house prices double in value in 3 years. In 2006 alone Perth recorded price growth of 45% despite rates rising during the year.
Incomes were rising Mike, pushing up prices.
But I wonder how much money was travelling from over east to buy up housing in the last remaining untapped trough.
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
Yes she clearly explains how it was ALL demand driven
Quote:
The housing and credit boom of 2002/03 was clearly demand driven, but even it sparked concerns about constraints on housing supply. Those concerns only intensified afterwards, when the pressure really was for more dwellings to accommodate the population, rather than just nicer ones to absorb the extra borrowing capacity.
If you actually read this paper by Lucy Ellis instead of cherry picking quotes which you think agree with your bearish stance (oftentimes they don't even do this) you would understand the supply demand equation and the role of credit. It is a good paper and it justifies the recent decisions of the RBA to embark on a confidence building mission for housing in Australia. Even her predictions are spot on so far.
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.
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
You believe (correct me if I am wrong) that easy access to credit in itself forces up house prices and is the major issue, whilst we believe that if demand is greater than supply, that forces up prices and is the major issue, and in the absence of that higher demand prices would be largely unaffected by a greater supply of credit.
I believe that easy access to credit and low interest rates resulted in people bidding more on property and pushing up prices. I believe that most of the time the average region will be in supply/demand equilibrium therefore any increase in credit will increase demand and therefore prices. There are, of course, many factors affecting both supply and demand and regions differ but I believe sustained pressure from easy credit and low interest rates has over, say, the past 15 years been the primary reason we have generally high house prices across most regions.
You believe (correct me if I am wrong) that demand must be greater than supply, which I agree with, but you don’t accept that easy cheap credit can provide that additional demand.
If this were true - why aren't houses in Hobart nearly as expensive as houses in Sydney??? Credit availability is equal in both places. Incomes are not that different @ about 75% for Hobart vs Sydney ($1065 vs $1450) : (http://www.abs.gov.au/websitedbs/censushome.nsf/home/quickstats?opendocument&navpos=220), yet median house prices are about half in Hobart compared to Sydney?
Likewise for Brisbane - income is only slightly less than Sydney, yet average house prices are about 2/3rds of Sydney's values? Same credit availability once again?
The "credit is THE driver of demand" argument just does NOT hold up in light of any facts.
You're right, I did. I was trying to help you work out the answer rather than just spoon feed you.
Quote:
-- I asked you, do you think massive amounts of cheap credit always makes demand exceed supply??
If supply and demand are initially in equilibrium then nationally over time it must always add to demand if it's being used to bid on property. What do you think it will do pal?
You're right, I did. I was trying to help you work out the answer rather than just spoon feed you.
If supply and demand are initially in equilibrium then nationally over time it must always add to demand if it's being used to bid on property. What do you think it will do pal?
Coming into this thread late. Have I got the right impression, that the bears are saying easier credit has increased demand and the bulls are saying that easier credit does not affect demand?
My thoughts, since a Ferrari example was used. Most people would like a Ferrari, if everyone had limitless credit available most people would buy a Ferrari, and if everything else stayed constant the price of Ferraris would obviously increase as they could not increase supply quickly enough. So definitely easier credit plays a part in prices. As the most leveraged of all buys easy credit plays a bigger part in house prices than any other product.
Prices continued to increase from 2003-2008 even when interest rates increased partly because credit standards relaxed even further. In 2007-2008 some 105% loans had come onto the market.
The prices that underlying demand and supply would support could be determined if all credit was withdrawn. Obviously those prices would be much lower than todays prices. The Hobart vs Sydney example is an example of the difference in underlying demand vs supply, there is many more people wanting to live in Sydney vs supply of properties. Both markets are increased by a similar percentage compared to underlying equilibrium due to easy availability of credit.
That is my thoughts out there - I think it may be a middle ground between the two arguments being put forward.
Coming into this thread late. Have I got the right impression, that the bears are saying easier credit has increased demand and the bulls are saying that easier credit does not affect demand?
Really I thought they were saying that DEMAND affects demand
Quote:
My thoughts, since a Ferrari example was used. Most people would like a Ferrari, if everyone had limitless credit available most people would buy a Ferrari, and if everything else stayed constant the price of Ferraris would obviously increase as they could not increase supply quickly enough.
You really are quite idiotic if you really think that
Most people may like a ferrari but it doesnt matter how easy the credit is you still have to pay it off and most people would fuck it in 5 years anyway yet still be paying it off forever are people really that dumb?
Oh wait - this is what "want it now wankers" do now with their latest iPhones on plans - still paying them off long after the phone is dead
Ignore posts by The Whole Truth · View Post · End Ignoring The forum fuckwit goes RRRAAARRRGGHHhhh - But not a fuck was given..................by anyone.
Supply and demand. Prices increased by 45% in 2006 due to limited supply. Look at current listings compared to the mean and factor in high population growth and o have your answer. Listings have fallen further in recent weeks.
Now looking at the tight supply at present and we are about to enter the hottest buying months in spring and summer. Falling rates does help but it is supply of land and houses/units which is the key driver. Lack of supply is what leads to rapid price growth as buyers panic and bid up prices due to repeated failed attempts to secure previous properties. This is what happened in 2004 to 2006 and has started to happen again in 2013. If this present trend continues 2013 could look like 2005 right before prices really take off unless we see a large increase in supply.
Make no mistake Veritas prices will boom much higher unless the tight supply is addressed, perhaps a slower economy may help but I doubt it will.
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