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Supply and demand. Sorry to repeat myself.
Topic Started: 4 Aug 2013, 11:13 AM (17,709 Views)
Wisebear
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peter fraser
8 Aug 2013, 11:01 PM
What credit rationing does is hide the demand. There are still the same number of people wanting the same numbers of houses, but they can't have one.
Peter, you've made the same mistake.

Here's a definition of economic demand: "the want or desire to possess a good or service with the necessary goods, services, or financial instruments necessary to make a legal transaction for those goods or services."

I've underlined the important piece for you.

The bottom line is if you don't bid it's not demand. Wanting or needing something is not demand.

If you have no active funds you're out of the market as you're unable to demand.

Hidden demand or pent-up demand = No demand.
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peter fraser
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mel
8 Aug 2013, 11:09 PM
The physical demand for x amount of houses is determined buy the number of people that require housing. The speculators might bid up the price but the number stays fairly consistent with demand (at least it usually has in Australia - i dont recall any time we had a truly epic oversupply)
+1

We can get away with a gentle squeeze on credit to stall demand while supply builds, but withholding credit on a permanent basis is a terrible way to solve a problem in the short term but create a bigger problem in the long term.
Any expressed market opinion is my own and is not to be taken as financial advice
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Veritas
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Wisebear
8 Aug 2013, 11:19 PM
Peter, you've made the same mistake.

Here's a definition of economic demand: "the want or desire to possess a good or service with the necessary goods, services, or financial instruments necessary to make a legal transaction for those goods or services."

I've underlined the important piece for you.

The bottom line is if you don't bid it's not demand. Wanting or needing something is not demand.

If you have no active funds you're out of the market as you're unable to demand.

Hidden demand or pent-up demand = No demand.
Yup.


skamy
8 Aug 2013, 11:03 PM
So it is not all about credit or easy money hey?

You get so angry when you are shown to be wrong, someone was suggesting Yoga for that the other day.

My explanation is supply and demand, lots of folk with lots of borrowing capacity and not enough houses in the desirable places. In Perth at the moment it is the sub $800K market were everyone wants to buy right now,that is where all the price growth is coming from.
Skamy, why are you putting words in my mouth you clown?

Obviously, there are other factors.

Read my initial posts in this thread which set out my stall or go away annoying me.
Edited by Veritas, 8 Aug 2013, 11:26 PM.
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
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mel
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skamy
8 Aug 2013, 11:18 PM
Here I was thinking you loved me like a fat boy loves his cook :dry:
that would make a great crack if you ever feel like slapping me with it Skamy.. the cook could be my mrs for reference
APF - a place where serious people don't take themselves too seriously. There's nothing else like it.
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peter fraser
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Wisebear
8 Aug 2013, 11:19 PM
Peter, you've made the same mistake.

Here's a definition of economic demand: "the want or desire to possess a good or service with the necessary goods, services, or financial instruments necessary to make a legal transaction for those goods or services."

I've underlined the important piece for you.

The bottom line is if you don't bid it's not demand. Wanting or needing something is not demand.

If you have no active funds you're out of the market as you're unable to demand.

Hidden demand or pent-up demand = No demand.
we want a Ferrari, but we need a house to live in.

therein lies the difference.

Your definition doesn't hold water.
Any expressed market opinion is my own and is not to be taken as financial advice
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miw
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Wisebear
8 Aug 2013, 10:46 PM
I thought we already established that the reason you're struggling here is because you done understand what demand is.
Google "economic demand" and come back here if you still don't get it.

It appears you don't understand any of the basics. It's probably best if you just google "economics for beginners" and atart at page one.

One of the finer experiences of APF is that you get to be patronised by ignoramuses.

If you had bothered to google "economic demand" for yourself you might have turned up a few definitions like this:

Quote:
 
In economics, the demand curve is the graph depicting the relationship between the price of a certain commodity and the amount of it that consumers are willing and able to purchase at that given price. It is a graphic representation of a demand schedule.[1] The demand curve for all consumers together follows from the demand curve of every individual consumer: the individual demands at each price are added together.


You might notice that the measure of demand is the amount that people are willing to purchase. Not the amount that they are willing to spend on it. Hint: this would be "number of iphones" or "number of houses". Not "dollar value of iphones purchased". So if there is demand for 1000 iphones, the demand is the same whether those iphones sell for $400 or $4000. Demand is measured in units sold.

A credit squeeze would almost certainly result in a rise in rents. Why? Because the people most dependent on credit to purchase are FHBs, and they would not be able to buy. Even the drop in prices would not help them. They would be stuck in the rental market and rents would go up because there would be more people chasing the same number of rentals. If FHBs can't get credit, developers will be even less able to get credit so the aggregate housing stock will stagnate, exacerbating the problem. It is no coincidence that rents rose fairly hard in the 1990s, stagnated in the first half of the 2000s, rose sharply again just after the GFC, and are now pretty stable again as credit becomes easier to get.

Aggregate demand for housing is the sum of the rental demand and the demand from OOs. This demand can shift back and forth. If it is moving from OOs to renters, then - guess what - there will be a relatively high number of investment purchases to meet the rental demand. When it shifts the other way, you will see investors less active in the market. I think what we are seeing at the moment is a movement away from rentals towards OOs, as evidenced by both FHB credit and Refi credit handily outpacing investment credit in the last set of numbers. This should result in a drop in rental yields (but not necessarily rents) over the next year or two.
The truth will set you free. But first, it will piss you off.
--Gloria Steinem
AREPS™
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Wisebear
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peter fraser
8 Aug 2013, 11:38 PM
we want a Ferrari, but we need a house to live in.

therein lies the difference.

Irrelevant.

Both require funds and if you don't have the funds you can't have either.

Edited by Wisebear, 8 Aug 2013, 11:44 PM.
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Veritas
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peter fraser
8 Aug 2013, 11:38 PM
we want a Ferrari, but we need a house to live in.

therein lies the difference.

Your definition doesn't hold water.
No, peter.

Person A: Wants house, has deposit, has finance ( economic demand)
Person B: Wants house, has no deposit, has no finance (not economic demand)

Whats effectively happening is that person A ends up being person B's landlord but that doesnt mean that person B doesnt still want a house.

And, just a reminder, this is about house prices and how they are determined not how many people need a house based purely on demographics

The supply council made that mistake last year and overestimated household formation rates by close to 1 million.

They just looked at the population stats and said: oh look x number of households will form based on these leading to this number of new houses.

But it didnt work out like that when the census data came round. All the people who do not constitute "economic demand" and are hence not actors in the home purchase market just bunked up with each other,
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
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Wisebear
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Why do people here want to ignore the established definition of demand with one they just made up?
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Shadow
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Wisebear
8 Aug 2013, 11:43 PM
Irrelevant.

Both require funds and if you don't have the funds you can't have either.
No, you don't get it.

A Ferrari is a luxury good. If you can't afford a Ferrari then there are other alternatives... cheaper car, public transport, bicycle, walking etc.

Demand for Ferraris is very elastic.

But there are very few viable alternatives to living in a dwelling. Demand for dwellings is very inelastic.
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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