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Supply and demand. Sorry to repeat myself.
Topic Started: 4 Aug 2013, 11:13 AM (17,696 Views)
herbie
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Seems to me this one's all just a bit more complex than supply and demand like one might be tempted to think they'd get with something like 'widgets' perhaps? We're talking about an asset class that is typically bought using credit. And one in which the mindset that it basically only ever goes up (in real terms as well as nominal ones) has become pretty entrenched - Providing one waits long enough. We now have a (comparatively) deregulated banking industry. And a highly regulated/constrained (and not even always artificially constrained) land development and building industry. Higher demand (for whatever mix of numerous reasons) leads to higher credit availability. And higher credit availability leads to higher prices - With all those potentially becoming a bit self reinforcing. (Change the order of them 'round a bit if you wish - Makes no huge diff to the overall story perhaps?) Though 'smart' banks are supposed to ensure they consider borrowers' abilities to repay - So that none of this gets especially out of control. But they don't always do so. Or even if they try to, they don't necessarily get it right. Somewhere in amongst all of that, higher asset prices are supposed to kick in to stimulate more supply. Thus satisfying demand. And reducing demand for credit - With that also potentially becoming self reinforcing on the way down - I think? Though on the adding to supply thing at least, we don't seem to be doing a very great job in Oz???

'Course as always, I'm sure I'm totally wrong. 'N the bulls will be crawling all over the board telling me precisely why in no time flat ... :re:
Edited by herbie, 9 Aug 2013, 08:44 PM.
A Professional Demographer to an amateur demographer: "negative natural increase will never outweigh the positive net migration"
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Wisebear
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Sherlock
9 Aug 2013, 08:08 PM
Here's what you said -- "But when you create massive amounts of cheap credit demand does exceed supply"
Here's what I said:


Quote:
 
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.
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Shadow
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Evil Mouzealot Specufestor

Sober
9 Aug 2013, 08:40 PM
Now, assuming that you can provide any such list at all, please also highlight those which come with pre-existing loan and/or tax liabilities...?

Do tell.
OK, but first state your own position so I know where you stand.

Do you, or do you not, believe there is easy money available in Detroit?
Edited by Shadow, 9 Aug 2013, 09:28 PM.
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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Wisebear
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Sober
9 Aug 2013, 08:00 PM
he's got nuthin.

Again, where is the Detroit-specific evidence that there is "easy credit" available to purchase Detroit housing, Shadow?
Agreed. Shadow has no position here.

I didn’t address this point initially because it’s weak and simply Shadow’s attempt at obfuscation. He knows it’s nothing to do with the point in question which is the cause of the demand and subsequent price rises during the creation of the Australian property bubble.

Detroit is so far away from my original claim it's laughable.
He chooses the US when I'm referring to Australia.
He chooses a single region where I'm talking nationally.
He chooses a post bubble city where I'm talking a pre-bubble country.

Now he's even mixing credit availability in the whole USA and applying it to a region. He's got no evidence at all that easy, cheap credit is being extended in Detroit and is being used to bid on property.

Unless Shadow can show specific evidence that in Detroit easy credit being extended and used and that there has been no price rises then there is no case to answer.
Edited by Wisebear, 9 Aug 2013, 09:12 PM.
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Shadow
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Wisebear
9 Aug 2013, 09:10 PM
Agreed. Shadow has no position here.
My position has always been that easy credit will not necessarily lead to demand exceeding supply, nor will it necessarily lead to prices rising.

I gave a few examples of places where easy credit is not leading to demand exceeding supply, nor to higher prices.

The examples I gave were Japan and Detroit, but I can think of plenty of others.

You conceded to Sherlock that this is your position now too, so I don't think there's anything else to argue about.

We are in agreement.
Edited by Shadow, 9 Aug 2013, 09:18 PM.
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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Wisebear
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Shadow
9 Aug 2013, 09:16 PM
My position has always been that easy credit will not necessarily lead to demand exceeding supply, nor will it necessarily lead to prices rising.

I gave a few examples of places where easy credit is not leading to demand exceeding supply, nor to higher prices.

The examples I gave were Japan and Detroit, but I can think of plenty of others.
Can you show specific evidence that in Detroit easy credit being extended and used and that there has been no price rises?





Shadow
9 Aug 2013, 09:16 PM
You conceded to Sherlock that this is your position now too, so I don't think there's anything else to argue about.

We are in agreement.
Sherlock was just trying it on and as usual he was wrong.
You need to catch up with some reading on this thread mate.
Edited by Wisebear, 9 Aug 2013, 09:24 PM.
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herbie
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Shadow
9 Aug 2013, 09:16 PM
My position has always been that easy credit will not necessarily lead to demand exceeding supply, nor will it necessarily lead to prices rising.

I gave a few examples of places where easy credit is not leading to demand exceeding supply, nor to higher prices.

The examples I gave were Japan and Detroit, but I can think of plenty of others.

You conceded to Sherlock that this is your position now too, so I don't think there's anything else to argue about.

We are in agreement.
If one isn't holding out any particularly high hopes of property appreciation in Japan 'n thinks they'd actually need to be paid a very big bucket of loot up front by the lender to buy in much of Detroit, then credit availability isn't too relevant I guess?
A Professional Demographer to an amateur demographer: "negative natural increase will never outweigh the positive net migration"
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Shadow
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Wisebear
9 Aug 2013, 09:23 PM
Can you show specific evidence that in Detroit easy credit being extended and used and that there has been no price rises
Why?

We are now in agreement. You have conceded that easy credit does not necessarily lead to demand exceeding supply, nor to higher prices.

There seems little point bickering over tangential side points, unless you're just trying to score points or save face?

But if you really want to go down that path, I'll be happy to review your specific evidence that easy credit is not available in Detroit.
Edited by Shadow, 9 Aug 2013, 09:29 PM.
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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Mike
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Wisebear
9 Aug 2013, 09:10 PM
Agreed. Shadow has no position here.

I didn’t address this point initially because it’s weak and simply Shadow’s attempt at obfuscation. He knows it’s nothing to do with the point in question which is the cause of the demand and subsequent price rises during the creation of the Australian property bubble.

Detroit is so far away from my original claim it's laughable.
He chooses the US when I'm referring to Australia.
He chooses a single region where I'm talking nationally.
He chooses a post bubble city where I'm talking a pre-bubble country.

Now he's even mixing credit availability in the whole USA and applying it to a region. He's got no evidence at all that easy, cheap credit is being extended in Detroit and is being used to bid on property.

Unless Shadow can show specific evidence that in Detroit easy credit being extended and used and that there has been no price rises then there is no case to answer.
Please show me how Perth prices almost doubled in value from 2004 to 2006 when interest rates were rising, credit was becoming more and more expensive yet prices increased by 45% in 2006 when credit was more expensive then in 2004 when credit was cheaper yet only increased by 10%.

The key factor was supply and demand, low supply led to prices being bid higher and higher.

You only need to look at regional centres when a new resource project is approved, demand sky rockets forcing massive price growth in prices and rents. Demand exceeds supply. This happens regardless if credit is cheap or expensive.

Cheaper credit only helps to increase demand. Look at Perth now, we have interest rates a levels 2 to 3% lower then in 2006 yet prices now have only increased by 11% vs 45% in 2006 despite Perth now having a much larger population. Supply in 2006 was even lower then a present. For each 1000 houses the market loses it multiples the effect of a shortage of housing.

The answer is cheaper credit plays a role but it is a distant second to the forces of supply and demand.
http://mike-globaleconomy.blogspot.com.au/
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Wisebear
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Shadow
9 Aug 2013, 09:27 PM
Why?

Because you're in danger of losing yet another debate.
Shadow
9 Aug 2013, 09:27 PM
You have conceded that easy credit does not necessarily lead to demand exceeding supply, nor to higher prices.
I haven't and you know I haven't.
You are now wriggling like the the wriggliest of wiggly worms.
Edited by Wisebear, 9 Aug 2013, 09:30 PM.
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