For years, Sydney property prices have traded at or below replacement cost - mainly due to the RBA trying to manage the mining boom by allocating resources away from housing to business CAPEX with higher interest rates (2006-2007, and 2010-2011)
Well I have heard many excuses why sydney property has languished for a decade but that one takes the cake. The RBA's fault lol:
The RBA sets interest rates as high as the market can afford, that is their job, and when they seem to step outside of that job description, like after the GFC, they are still doing exactly the same thing. Lowering rates to a point where people will add more debt more debt more debt. They are the curtain behind which the banks pull their levers.
Sydney prices came to a screeching halt when they got too expensive and then people began to sell up and use their profits to move to other cities and buy outright, to move away from the mass of new immigrants that were pouring in. White Flight they call it in America, here we pretend it doesn't exist.
Shadow was hopelessly wrong about the Gold Bull Market. What else is he wrong about?
the wheeze is spot on here - if you read enough of this pompous popinjay you realise that he's carefully couching all of his predictions in such nebulous terms that no matter how the dice fall after a momentous economic event, he'll be able to write a big puff piece about it reminding everyone how clever he was to see it coming first.
The guy is so unashamedly vain and self interested I want to drive pins though his eyeballs every time I catch a glimpse of his fat greedy face.
This post should be pinned for all time.
peter fraser
13 Sep 2013, 02:45 PM
I don't believe that Soul. Chris can certainly talk his own book at times, we all can, but he also offers articles that show genuine concern for his country and I think that we have to distinguish between those moments.
Gawd, I nearly choked on my dinner reading that. Chris Joye, concerned for his country .... ha ha ha.... good one. Oh well, won't be long now before we see weathervanes like Chris Joye change their tune in a desperate attempt to stay relevant.
Well I have heard many excuses why sydney property has languished for a decade but that one takes the cake. The RBA's fault lol:
The RBA sets interest rates as high as the market can afford, that is their job, and when they seem to step outside of that job description, like after the GFC, they are still doing exactly the same thing. Lowering rates to a point where people will add more debt more debt more debt. They are the curtain behind which the banks pull their levers.
Sydney prices came to a screeching halt when they got too expensive and then people began to sell up and use their profits to move to other cities and buy outright, to move away from the mass of new immigrants that were pouring in. White Flight they call it in America, here we pretend it doesn't exist.
Is it that hard to understand. Sydney prices flatlined (real terms) and construction weakened. Rba tries to manage inflation. To have a housing cycle with a mining cycle would have been highly inflationary. Mining is slowing so now Rba happy to drop rates, encourage housing construction.
Pretty simple stuff. No need to backfill story with xenophobic nonsense.
Real estate group Raine & Horne is reporting that the property market is experiencing the best September seen in a number of years, and it may just be a result of infrastructure.
With auction clearance rates averaging 75% around Australia, Raine & Horne CEO Angus Raine said he is surprised at the pick up, but believes it will continue.
“This is surprising as federal election campaigns tend to slow real estate activity,” said Raine.
“However with clearance rates averaging around 75% in our major population centres, and as much as 85% in auction hotspots such as Sydney and Melbourne, we haven’t seen a Spring market like this since the global financial crisis half a decade ago."
The campaign to spend over $20 billion on infrastructure projects should underpin long-term property values, he said.
“I’m particularly heartened by the Federal Coalition’s commitment to improving our roads, and projects such as Queensland’s Bruce Highway, the Westconnex in Sydney and the Perth Gateway will prove a significant boost for long-term housing values".
The Bruce Highway, with $6.7 billion of improvements flagged, is expected to have a significant impact.
“The Bruce Highway impacts many regional centres in Queensland including Cairns, Townsville, Mackay, Rockhampton, Gladstone, Maryborough, Hervey Bay and the Sunshine Coast,” he said.
“Infrastructure improvements that reduce commuting times between – and within – our major population centres will be great news for economic growth, jobs and real estate values.”
This opportunity may be similar to that seen in Sydney's Hills District with the North West Rail Link, said Raine & Horne Bella Vista/Glenwood principal, Emmanuel Fardouly.
“The North West Rail Link is still six years from completion, yet it’s already having an impact, with property values up by 7% since December 2012,” Fardouly said.
“I’d expect growth consistent with this, and potentially more, as we move closer to the opening of the North West Rail Link in 2019.”
Australia’s banks are incentivised to maximise credit growth in order to maintain pre-GFC levels of profitability. Accordingly, Australia could face a “perfect storm” whereby the near record low interest rates combines with relaxed lending standards to generate “super strong house price growth that’s allowed to run too far”. Combined with near record levels of consumer leverage, when the RBA eventually responds with higher interest rates, Australia housing could experience a “significant correction”. There’s “an element of complacency in the community. We think policy makers have the ability to diversify away the business cycle – we haven’t had a recession in Australia for over 22 years – and my fear is that the constant call on policy makers will have unanticipated consequences down the track”. It is almost inevitable that Australia’s financial regulators will need to emulate New Zealand and implement macro-prudential curbs on mortgage lending. Australia is approving about one-third of home loans above 80% loan-to-value ratio (LVR) and about 15% of all property loans are above 90% LVR. So we are “arguably already starting to see a slight relaxation of lending standards. And if we want to maintain low interest rates, the only other choice the regulators have is to try and throw sand in the gears of credit creation through other means. So they can force the banks to hold more capital against these riskier loans to discourage them from undertaking these riskier activities”. There are some commonalities between Australia and the US in the lead-up to the GFC. The US Federal Reserve was lambasted by the RBA “for keeping rates too low for too long. And that was one of the key drivers of the boom that in turn lead to the deterioration of lending standards… We are seeing unprecedented levels of rates [in Australia] – we’ve never had rates this cheap before. We’ve got unprecedented levels of leverage. We’ve got very strong house price growth. And it’s not inconceivable that this could end in an ugly way”. Australia has “huge constraints on the supply side… so the development industry does need those price signals”. But Australia should look at other measures [presumably planning reform] rather than maintaining interest rates at “crisis levels”. The RBA has been “excessively insensitive to the risks of these GFC syle imbalances”, but they are “pretty cagey right now”.
Australia could face a “perfect storm” whereby the near record low interest rates combines with relaxed lending standards to generate “super strong house price growth
I see MB have turned off comments for this post.
I assume this is because CJ clarifies what the bulls already knew but David Llewellyn-Smith and the other MB bears missed last week - i.e. that CJ is warning of a huge boom followed by a crash, rather than a crash from current levels, which was how DLS misread it.
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