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The Economist - Global Housing Markets, Trend Chart; Shows us once again, a property affordability bubble between 2002 and today
Topic Started: 21 Aug 2013, 01:16 AM (8,255 Views)
skamy
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Dr Kinetoscope
21 Aug 2013, 09:00 AM
Peter from Perth
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I am going to save this for your next whiney baby tantrum that you throw when someone dares have a go back at you
Dr Kinetoscope
21 Aug 2013, 10:51 AM
This doesn't add up, and it's due to how sudden the rise was in the affordability index. The rise in the index was near vertical for about 2 or 3 years (2002 - 2004) and has since danced about well over the long term average. This is best viewed through looking at the 'Prices Against Income' tab, and looking at Australia alone between 1975 and today.

No doubt, lending standards for housing became very loose at the turn of the new millenium, but if it was really due to dual incomes we would see a much more gradual increase corresponding closer to female participation rates in the workforce.




I understand the point you are making, but once again I bring it back to FHB's whom are meant to be the main growth engine for the purchase of boomer property. We have seen Government policy intervention in this area again and again through FHB grants, and this is because the amount required for a deposit is simply out of reach. It's not affordable.
In addition to your other point, relying on interest rates staying at the level they are at now for any length of time is a very dangerous tactic for a first home buyer, especially when lack of affordability is where it is and underemployment is on the increase.
Just thought folk might like to see the affordability index that we are discussing. Looks to me as if affordability is great at the moment. The drop in affordability in 2002 is well behind us.

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Edited by skamy, 21 Aug 2013, 11:42 AM.
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.
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Veritas
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Yep, the " its the wimmin entering the workforce that did it" argument doesn't wash.

It explains and increase, but it doesn't explain the rate of increase.

and as for FTB affordability, well...

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Quote:
 
Just thought folk might like to see the affordability index that we are discussing. Looks to me as if affordability is great at the moment. The drop in affordability in 2002 is well behind us.



Once again, you are confusing the size of a loan with the cost of servicing that loan in determining affordability.

INTEREST RATES RISE AS WELL AS FALL!!!

And a mortgage is a 30 year deal.

Edited by Veritas, 21 Aug 2013, 12:11 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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Shadow
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Veritas
21 Aug 2013, 12:08 PM
its the wimmin entering the workforce that did it
I think it was more the banks eventual willingness to lend to those women (they had been entering the workforce for a while by then) that did it.

That, and the move to a new lower interest rate environment than was prevalent around the 1980s high inflation era.
Edited by Shadow, 21 Aug 2013, 12:17 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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Dr Kinetoscope
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Quote:
 
You can tell using Numbeo, which shows the USA has the lowest price/income ratio in the whole world (out of 103 countries analysed).

Australia is in the middle of the pack globally...

Shadow, back on to the topic raised on the last page - are you suggesting the Numbeo data is more accurate than ABS data? Because that sure looks like what you are implying.

Quote:
 
It was in the late 90s and early 2000s that lenders finally started treating women equally and lending based on dual incomes.
Any sources for this/evidence?

Strindberg, the ABS data as presented by the Economist shows conclusively that housing affordability decreased significantly in 2002 and has not improved to any great degree since. It is one of the clearest bubbles I have ever seen on such a chart. To deny this is to deny the ABS statistics.
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ShadBerg's torrid Macrobusiness love affair
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Shadow
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Dr Kinetoscope
21 Aug 2013, 12:19 PM
Shadow, back on to the topic raised on the last page - are you suggesting the Numbeo data is more accurate than ABS data?
No... there is no conflict between ABS data and the Numbeo data.

Quote:
 
Because that sure looks like what you are implying.
How so?
Edited by Shadow, 21 Aug 2013, 12:23 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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Sober
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Shadow
21 Aug 2013, 09:07 AM
You can tell using Numbeo...
ROTFLMAO

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Veritas
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Shadow
21 Aug 2013, 12:17 PM
Veritas
21 Aug 2013, 12:08 PM
its the wimmin entering the workforce that did it
I think it was more the banks eventual willingness to lend to those women (they had been entering the workforce for a while by then) that did it.

That, and the move to a new lower interest rate environment than was prevalent around the 1980s high inflation era.
Yeah, that fine.

Financial deregulation + lower interest rate environment + improving fundamentals = inflation.

However, what is the appropriate level of inflation one can expect under these conditions?

and where is the role of the investor/speculator in all of this?

Surely, OOs and investors massively increasing demand in the face of a supply side response ( which all the data shows was not coming close to matching demand) impact on price?

And how sustainable is that? These are the questions.

If anything, the most significant development in the last 30 years is the emergence of the investor as a major demand side player ( 30% of the market).

And as two AHURI reports that I posted here demonstrate, most are chasing capital growth rather than yield.

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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
Profile "REPLY WITH QUOTE" Go to top
 
Shadow
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Evil Mouzealot Specufestor

Dr Kinetoscope
21 Aug 2013, 12:19 PM
Strindberg, the ABS data as presented by the Economist shows conclusively that housing affordability decreased significantly in 2002 and has not improved to any great degree since. It is one of the clearest bubbles I have ever seen on such a chart. To deny this is to deny the ABS statistics.
The Economist's charts don't show this. Affordability is a function of prices, income, interest rates and bank lending conditions.

The Economist charts omit half of these factors - interest rates and bank lending.

But on the price/income measure, here's an RBA chart which is broadly supportive of the Numbeo data, with the USA having the lowest price/income ratio in the world, and Australia in the middle of the pack with a host of other countries. You can also see that Australia's price/income ratio today is still where it was in 2002, over a decade ago. It has moved closely with that range for 11 years now.

Posted Image
Edited by Shadow, 21 Aug 2013, 12:44 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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Veritas
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Shadow
21 Aug 2013, 12:40 PM
Dr Kinetoscope
21 Aug 2013, 12:19 PM
Strindberg, the ABS data as presented by the Economist shows conclusively that housing affordability decreased significantly in 2002 and has not improved to any great degree since. It is one of the clearest bubbles I have ever seen on such a chart. To deny this is to deny the ABS statistics.
The Economist's charts don't show this. Affordability is a function of prices, income, interest rates and bank lending conditions.

The Economist charts omit half of these factors - interest rates and bank lending.

But on the price/income measure, here's an RBA chart which is broadly supportive of the Numbeo data, with the USA having the lowest price/income ratio in the world, and Australia in the middle of the pack with a host of other countries. You can also see that Australia's price/income ratio today is still where it was in 2002, over a decade ago. It has moved closely with that range for 11 years now.

Posted Image
Question: Does that income measure include or exclude our mandatory super payments in income?

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
Profile "REPLY WITH QUOTE" Go to top
 
Shadow
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Evil Mouzealot Specufestor

Veritas
21 Aug 2013, 12:40 PM
And how sustainable is that?
Well, so far for a decade... that's how long price/income ratios have been sustained around current levels.

I don't see any reason why house prices can't continue to track income growth for another decade or two.

Technically, house prices could keep tracking income growth indefinitely.

Veritas
21 Aug 2013, 12:48 PM
Question: Does that income measure include or exclude our mandatory super payments in income?
Here's the RBA report the chart is taken from...
Quote:
 
http://www.rba.gov.au/publications/bulletin/2012/dec/2.html

...to compare price-to-income ratios across different countries, it is important to use internationally comparable measures of prices and incomes. The best internationally comparable measure of income is average household income from the national accounts (discussed in more detail below), which has the added advantage that it provides a longer time series than alternatives...

..the national accounts capture income from sources other than wages and salaries, and again allow us to look at household income, not just individual income. Dwellings are typically purchased by households, rather than individuals within households, so it makes sense to consider household income rather than individual income. Nonetheless, price-to-income ratios based on these alternative income measures show broadly similar dynamics to those we concentrate on...

...Graph 5 shows price-to-income ratios for a range of advanced economies, based on average household disposable income from national accounts data, together with average dwelling prices (Appendix A describes the construction of the ratios in more detail). Based on these data, the price-to-income ratio for Australia is now broadly in line with other comparable countries, having risen relative to other countries since 1980 when it was at the lower end of the distribution.[8] The increase in most countries' price-to-income ratio over the period shown reflects the international nature of many of the factors discussed in relation to Australia, including financial sector deregulation and innovation, falling inflation and nominal interest rates, and rising real incomes...
Edited by Shadow, 21 Aug 2013, 01:01 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.
Profile "REPLY WITH QUOTE" Go to top
 
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