Why would it be different for housing? Housing is illiquid, so the effect is not immediate (3-6 months), but leveraged investment is leveraged investment, regardless of the asset class.
Because most house buyers won't sell their house to cash out, as shareholders would.
Quote:
True in the old economy, but not in the new economy. In the new economy, wealth is printed at the central bank, and share prices rise and fall with the flow or not of the money.
You might be right. Some stocks will fare better than others. I've just checked one stock that I thought held up OK, but it too fell heavily before it recovered. It's the speed of the falls that catch investors in that environment. I wonder what the ratio of people who sold but would have been better off holding throughout compared to those who profited from selling out would be. A lot sold out but didn't buy back in for the upside.
Any expressed market opinion is my own and is not to be taken as financial advice
Terms of bet? Call ends 2 days after RBA decision 2nd Tuesday April 2014. Fixed rates go up prior to then.. I win They do not, you win.?
the wonderful thing here is we can pass pictures and videos without this type of thing (april sounds a bit far away though) 'will probably start to rise towards year end or into the new year'
Does febuary 2014 sound fair?
An independent member could quickly determine the 'vibe' of fixed rates in febuary - if it's too close to call with mixed signals from different providers it would mean nothing has really changed
Because most house buyers won't sell their house to cash out, as shareholders would.
It doesn't matter. 20% of Australian property is investor owned, which drives the price of most other properties (with some exceptions i.e. remote towns). But for capital cities, it is fair to say that investors drive the price. When interest rates drop, investors leverage up. This will hold true until investors hit debt saturation, which takes a long time, but it happens eventually, and when it does, the market goes bidless.
Quote:
You might be right. Some stocks will fare better than others. I've just checked one stock that I thought held up OK, but it too fell heavily before it recovered. It's the speed of the falls that catch investors in that environment. I wonder what the ratio of people who sold but would have been better off holding throughout compared to those who profited from selling out would be. A lot sold out but didn't buy back in for the upside.
When the price depends on bubble blowing by the central bank, it becomes very volatile. Everybody wants to ride the free-money train, but nobody wants to be left standing when the music stops, so any hint that the liquidity is going to stop will cause markets to drop off a cliff, even more so in today's environment where computers are programmed to sell at the slightest whiff of a change in direction. The problem the US has now is that some of the liquidity in the equities markets is starting to seep into the general economy, causing the bond vigilantes to stir. Credit spreads are widening in anticipation of inflation.
Jenna tells me asset swapping in a deflationary environment may encourage risk taking but not inflation of money supply
Who is Jenna?
Risk taking is just buying financial assets with the expectation of selling them at a higher price sometime in the future. Aside from banks, the great majority of people sell assets in order to spend the money they receive in return. When more people are selling assets to spend than there are saving money to produce, you get inflation. Somewhere.
Risk taking is just buying financial assets with the expectation of selling them at a higher price sometime in the future. Aside from banks, the great majority of people sell assets in order to spend the money they receive in return. When more people are selling assets to spend than there are saving money to produce, you get inflation. Somewhere.
Good point - risk taking is ultimately speculation, belief or hope Jennakudos to Peter for starting this thread. It touches on some very important things that often get overlooked imo
but it happens eventually, and when it does, the market goes bidless.
and no sales are made.
share will be dumped en masse, but not houses, the owners will ride out the storm whether they want to or not.
Sheepdog
5 Aug 2013, 09:50 PM
If the RBA does cut there are no guarantees the banks will pass it on, what with the cost of financing rising and all.
that isn't what is happening elsewhere. the cost of funding is falling, not rising. Even without a rate reduction a number of banks have looked to increase their rate discounts over recent weeks.
share will be dumped en masse, but not houses, the owners will ride out the storm whether they want to or not.
Yes, as long as they remain liquid, they can remain solvent. There tends to be a period of high unemployment while capital is reallocated however, which can force sales at any price above loan liquidation values. The big problem with misallocating capital is that it also misallocates labour, which needs to be reallocated. Labour mobility is not all that great. It takes time to re-skill or re-educate the portion of the workforce who are now surplus to the requirements of the contracting sector. 6 months to a year is a good rule of thumb, but really 2 years to complete the transition. The longer the RBA postpones this re-structure, the longer it will take to complete once it finally gets started.
It doesn't matter. 20% of Australian property is investor owned, which drives the price of most other properties (with some exceptions i.e. remote towns). But for capital cities, it is fair to say that investors drive the price. When interest rates drop, investors leverage up. This will hold true until investors hit debt saturation, which takes a long time, but it happens eventually, and when it does, the market goes bidless.
I don't think it is fair to say that investors drive the price. Rents through investors almost certainly set some kind of floor on the price for low-end properties, but the price of most property is driven by upgraders who represent most of the transactions and who get a direct buying power boost from both price rises and from interest rate cuts.
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