"Not so much about the fundamentals, which are solid, or current performance, which is robust without raising alarm."
you're wrong in the head boy!
Plunge that head of your own deeper into the sand and it will all be ok. Loser.
After a bubble has burst, no one denies that it existed. But before it does, the popular refrain is that though bubbles existed elsewhere in the world, “there’s no bubble here”. So housing bubbles are admitted to have existed in Japan, the USA, Spain and Ireland – because they’ve already burst.
Well he did say that there were potential problems in the very near future, months - not years. I doubt there is time to build a bubble from scratch in a few months.
Catweasel say mouse not know if bubble the exist or the not.
That a constant.
Mouse tend to think because it can witness the pop-pop,
that it understand all the about bubble.
But if mouse really the understand,
it would know,
if it exist,
in the now.
Unfortunately it not know bubble from arse end of wombat.
By Jonathan Chancellor Thursday, 12 September 2013
The housing bubble debate has seen two close allies now take separate corners of the boxing ring.
This morning on twitter its been economist Chris Joye versus mortgage broking entreprenuer Mark Bouris.
"Be careful of reading a beat up story about a housing bubble ! We have only started to recover why can't they give us a break," Bouris tweeted in response to Australian Financial Review columnist Chris Joye's article headed, "Why we should be worried about Australia’s housing market".
"Good confidence readings and low interest rates do not equal bubble . They show recovery and the RBA program is working," Bouris added.
Joye had argued he was "worried about Australia’s housing market."
"Very worried. Not so much about the fundamentals, which are solid. Or current performance, which is robust without raising alarm."
But he said he had concerns about what lied around the corner.
Joye has regularly demonstrated that domestic housing costs have tracked, or slightly under-clubbed, disposable household income growth since 2003.
He noted amid forecasts of catastrophic gloom in 2008 and again in 2011, he attracted criticism for publishing reassuring views.
"But I no longer think the situation is so benign.
"The RBA’s rate cuts have gone too far.
"And if they stay this low for too long, there is a real chance Australia could, belatedly, have an acute housing crash with real consequences for the economy."
He says this is not his current central case, but several factors have given him pause.
"The first is that households have not really deleveraged despite much spruiking about our cautious consumers.
"Australia’s elevated household debt-to-income ratio, which looks set to climb further, is not far off the all-time, pre-GFC peak.
"This highly leveraged consumer is an artefact of Australia’s even more leveraged banking system.
"The major banks are leveraged about 80 times across their $1 trillion home loan books.
"Put differently, they are only holding about $1.25 of true loss-absorbing capital against every $100 – as opposed to the “risk-weighted” value – of their assets.While banks do not “mark to market” their mortgage books with current prices because they account for them on a “hold to maturity” basis, with such extreme leverage you only need a small drop in asset values to make the banking system theoretically insolvent (assuming market prices)."
He noted a third issue was that the banking system was under tremendous pressure to maintain its internationally lofty returns on equity.
Joye also pointed to "a stunning" 33% of new home loans are being advanced with LVRs greater than 80%.
"In some countries they don’t even allow banks to lend at these levels, period.
"Of course, since the RBA has taken the easy option of slashing borrowing costs to their cheapest levels in history, consumers are being given every incentive to gear back up.
"My fear is that the longer rates remain at all-time lows, the greater the likelihood borrowers will believe that this is some sort of 'new normal'.
"That they will extrapolate out from the recent past to the future.
"The complacency is compounded by the fact that Australians have not experienced a recession in 22 years.
"Most have never endured a bona fide housing rout either," Joye said.
By Glenn Dyer and Bernard Keane Thursday, 12 September 2013
A surging Australian dollar to near three-month highs overnight will help to bring a big dose of realism to all this talk of expectations and confidence driving a weak Australian economy higher. As US economist Paul Krugman said, the "fairies of confidence" and the "imps of expectations" are nothing but ephemera in the greater scheme of things, there to wave their wands when all else fails. We saw this yesterday when the sharp rise in business confidence in the National Australia Bank's August business survey, but little or no impact on weak trading conditions.
Today it was a big rise, to a three-year high, in the Westpac/Melbourne Institute Consumer Sentiment survey for September, the highest level since late 2010 (when which government was in power? Why the Gillard government).
All agree the economy is waiting for the confidence fairy to emerge and convince consumers to spend, business to invest and jobs to be created. Just a sprinkle of confidence dust and the economy will be surging. If you were in the UK in 1992 after John Major unexpectedly won, you would have seen Rupert's papers pushing this line -- "Cash Happy Shoppers Celebrate Tory Win" was one Sun headline. Before, of course, Black Wednesday arrived in September that year. Before the bad times.
Much of this "confidence" stuff is economic gobbledygook -- like Tony Abbott's line that Australia is now "open for business". Improving expectations and confidence among business and consumers is imprecise and hard to formalise, and has minimal correlation with real-world outcomes.
And since the poll there has been a surge in the value of the Australian dollar -- not because of the Coalition win, but because of more evidence that the Chinese economy has stopped weakening and is now probably just starting to grow again. It underlines what Abbott, new treasurer Joe Hockey and Andrew Robb (temporary finance minister until Arthur Sinodinos has his Senate spot confirmed) ignored for the past two years: the fact that offshore investors view Australia and the dollar as proxies for the Chinese economy.
Australia is now the most exposed of all major economies to the health of the Chinese economy and, with the fifth most traded currency in the world, it's been easy for investors offshore to bet against China (go short) or go long and believe the China story. There's been a battle between the shorts and the longs, and from May onwards the shorts won. The combination of both, plus the August interest rate cut from the Reserve Bank, saw the Aussie dollar hit a low of 88.48 US.
But with Chinese economic data for July and economic better than expected, there is now a growing belief that China is recovering. Demand for the dollar is up and the currency is over 93 US cents, the highest since late June. Should China continue to recover, the Aussie dollar will rise, even if the Fed reveals next week a timetable to end its $US85 billion a month in spending.
If that happens, Abbott and Hockey will only be able to sit and watch with the same sense of frustration as Julia Gillard and Wayne Swan as a strengthening Aussie dollar starts to put a stranglehold on the economy and the budget's revenue base. Helping this is the virtuous circle of good economic management by successive governments and the RBA; we have low inflation, reasonable growth, rising labour productivity and low interest rates that have resulted from the high dollar/ high credit rating and good economic management by the federal government, and especially the Reserve Bank.
"This could very well emerge as a flash point between the new government and the regulators. House-price booms always end in tears in Australia."
This is a positive feedback loop. Like the Gillard government, Abbott will be an unwilling bystander to the fallout from years of solid, successful management of the economy and creative policy measures during the GFC.
One thing that is more within the control of policymakers is housing. The picture on housing construction has been mixed -- it looked like the sector was recovering from its post-GFC lull this calendar year, until growth tapered off. But Australian Bureau of Statistics data released on Monday showed a 2.4% rise in loan approvals (for both existing and new housing) to 52,204 in July, compared to 50,983 in June. The number of loans approved for the purchase of existing homes was 43,809 in July, the highest since 2009.
There's also solid demand for new homes, with the number of loans to finance new home construction 5265 in July. But the number of loans to buy a just-built new home was 3131 in July, the highest since March 1979. July's rise means the number of home loans approved has risen for seven months in a row, thanks to solid demand from investors (many self-managed super funds) for existing homes or off-the-plan units or apartments.
Growth in demand for new homes is what the RBA has been aiming for as part of its goal of an economy transitioning from a mining investment boom. But demand for existing homes is more problematic. House prices are now up 10% in some markets in the past year. The last thing the economy needs is a housing boom which distorts the economy and brings higher interest rates. Already APRA has signalled concerns about the rising number of home loans where the loan-to-valuation ratio is 90% or more, and has told banks to start being tough on these high LVR loans. APRA and the RBA could very well start trying to "lean against" the surge in the prices of established houses.
The RBA believes in confidence and expectations that flow from consumers feeling more wealthy as asset prices rise, but members also know that contains the seeds of the next, unwanted crisis if left alone for too long. This could very well emerge as a flash point between the new government and the regulators. House-price booms always end in tears in Australia.
Revenue-pressed states want the boom (for higher stamp duty revenues) and News Corp Australia and Fairfax media want the house price boom to continue because their online real estate businesses are the only area of growth for their troubled empires -- that's why newspapers have been talking up house price movements, auction results and other fluff for the past six months. As the ABS data shows, there's a recovery underway, but it is not doing as much to stimulate demand for new house construction as it is for existing homes and apartments.
If anything this home-price - rather than new-home - boom may become the most pressing problem for the economy, rather than the value of the dollar.
Home lending caution and job uncertainty will hose down an overheating housing market, reducing the changes of a price bubble, economists said.
AMP Capital chief economist Shane Oliver said while there was a greater risk of a housing bubble, chances were still slim, as both borrowers and lenders were cautious of over-gearing.
“The GFC reminded everyone that prices can fall as well as rise, Australians had blind confidence in the past that house prices could only rise, then everyone became aware of what happened to prices in the UK, US, Spain and Ireland,” he said.
Mr Oliver did not think ongoing price growth in the double-digits was likely, instead, he expected the RBA to increase interest rates by mid-2014, which will put a lid on runaway growth.
He also argued that credit growth rates simply would not allow for the growth needed to fuel a bubble.
Fund manager and Australian Financial Review columnist Christopher Joye warns the banks have every commercial incentive to provoke credit rise.
“They are a very powerful lobby,” he said.
“I do not believe that the market characteristics are currently bubble-like, but they could quickly become so.”
Mr Joye said that unless there was pre-emptive action to mitigate a bubble with macro prudential tools and higher rates, there could be a massive housing downturn.
He expected robust house appreciation to continue as long as rates remain low, and said it was concerning Sydney’s price growth had reached a double-digit pace.
“Very strong capital gains would start to put the Australian housing market into serious bubble territory,” he said.
If the market was allowed to run into those conditions, Mr Joye said it would prompt the most serious housing crash in 75 years.
There is probably little doubt the property market, goosed as it is, is going to fly a bit here.
The key to all this is that politicians and the bureaucrats are locked in – the lobbyists have them by the short and curlies.
The is also little doubt many are going to be left holding a highly illiquid, poor yielding, impaired asset as the inevitable crunch comes.
The most important thing to get some perspective on is that the institutions that make up the the banks and finance industry do not care about all this, they don’t even really care about the yield on the loan margin – that’s the shit the shareholder can carry (along with the leverage risk).
What the finance executives want is to convert peoples balance sheets into debt because that is where they can take a risk free piece of the balance sheet and turn it into a big bonus.
People and the politicians they elect are morons and they deserve what they get. This isn’t even a puppetry moment – the banks actually have their hand up the politicians arses.
And now he can publish a 'clarification' article in a few days, getting even more airtime.
As expected...
'Mr Joye said ... He expected robust house appreciation to continue as long as rates remain low, and said it was concerning Sydney’s price growth had reached a double-digit pace. “Very strong capital gains would start to put the Australian housing market into serious bubble territory,” he said. If the market was allowed to run into those conditions, Mr Joye said it would prompt the most serious housing crash in 75 years'
So... how bad was the housing crash 75 years ago? That would have been Great Depression era...
'Mr Joye said ... He expected robust house appreciation to continue as long as rates remain low, and said it was concerning Sydney’s price growth had reached a double-digit pace. “Very strong capital gains would start to put the Australian housing market into serious bubble territory,” he said. If the market was allowed to run into those conditions, Mr Joye said it would prompt the most serious housing crash in 75 years'
So... how bad was the housing crash 75 years ago? That would have been Great Depression era...
OK, lets assume Joye is right here.
If so, there are three important questions.
1: How long can this boom or bubble run for before it peaks out (how many years)?
2: How much can prices rise by during that time?
3: How much are they likely to fall by when the crash comes?
Anyone like to hazard a guesstimate/opinion/stabinthedark?
I sure as hell don’t want to put my life on hold for another three years!
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