Housing bubble talk is alarmist says RBA, house prices have risen at similar rate to incomes; Reserve Bank assistant governor Malcolm Edey hoses down threat of house price bubble
As a non economist I have a question re macro prudential tools for “curbing” house price bubbles. I believe house prices are ridiculously high and if they are not a bubble it is only because you cant define something so over inflated as a “bubble”. The definition of bubble being “anything that lacks firmness, substance, or permanence” Looks like a bubble to me.
So my suggestion (not original) is to take away the “emotional and irrational” behaviour of the buyer and transfer the “logical and unemotional” decision to the professionals, ie Bankers and Valuers. How? You, as they do in some states of the US, make the only available security available to the lenders the property, i.e. if the borrower defaults they “hand the keys back and walk away”. Further if they have a deposit, it goes into an interest offset type account and they also get that back.
Whilst this did not stop the bubble in the States it does transfer the risk to the banks. Surely this is where the risk should sit. Also houses bought at auction should be subject to valuation and finance approval. If a persons wishes for emotional reason to pay above the valuation then that amount is a non refundable deposit, i.e. they we advised they were paying too much and they accepted the risk.
Clearly there are suggestions around LVRs etc but we know these just get manipulated and the banks walk away.
Ok, So why the need to drop interest rates??? Peter from Gnarabup :pop:
Facts!
19 Sep 2013, 03:35 PM
1. I've asked several times for a property spruiker to define a bubble. To date, none have.
2. Yesterday it was the RBA assistant governor claiming talk of bubbles is alarmist and now this article.
I'd like any of these people to define a bubble. If you can't define a bubble, you can't claim not to be in one.
3. Hyman Minsky defined a financial instability hypothesis which defines the three types of borrowers that contribute to the accumulation of insolvent debt: hedge borrowers, speculative borrowers, and Ponzi borrowers.
Even though Minsky's theory has little influence, it is the best theory I've read the explains peak debt, which is one of the causes of the GFC.
4. Every property spruiker claims the shortage of properties will underpin values but they ignore the financials, as a shortage of $ and the higher cost of them would be undermine the foundations of their claim. That is one of the reasons many central banks are printing money and why we have historically low interest rates.
5. Rates can't stay low forever. Anyone who boards the low rate express last or is highly leveraged will have a problem when interest rates rise. How low will rates go and for how long?
That's why the RBA are warning banks not to relax lending standards to chase credit growth.
6. The US Federal Reserve Bank and RBA didn't see the GFC coming.
7. The A$ is rising against the US$. A strong A$ will keep a lid on our stock market as it impacts foreign earnings, as it's done since the GFC hit. We didn't have a recession but our market is still way below peak. That claim can't be made for property.
I will attempt ti define a bubble (or at least give you one of the indecators" This is from Robert Shiller. The key point to look for to know you are in an investment bubble is. When you price something relative to something else. In other words John pays more for his house because Bill paid more for his. Because Mary knows Bill and John paid more for their house she is willing to pay more to secure her house because she knows prices are rising. Peter from Gnarabup :pop:
foxbat101
24 Sep 2013, 09:57 AM
Ok, So why the need to drop interest rates??? Peter from Gnarabup :pop: I will attempt ti define a bubble (or at least give you one of the indecators" This is from Robert Shiller. The key point to look for to know you are in an investment bubble is. When you price something relative to something else. In other words John pays more for his house because Bill paid more for his. Because Mary knows Bill and John paid more for their house she is willing to pay more to secure her house because she knows prices are rising. Peter from Gnarabup :pop:
Same happens on the way down, By the way. Peter From surfpoint.com.au
I can’t see the RBA raising rates anytime soon. We’ve still got borderline dovish statements in the text of their minutes. We haven’t yet got to the point where the RBA says “rates are appropriate for now”, much less the jawboning “rates could increase if prudence isn’t shown”. That whole cycle has 12 months to play out, surely.
After immorally coaxing thousands of people into debt at generationally low interest rates, they are hardly going to do an about face in a hurry. Despite immorally pushing rates so low, the RBA board members do have a conscience and the last thing they’d want to see is financially ignorant punters struggling because they simply drank the koolaid that the RBA put on the table.
I think the RBA will be very slow and cautious indeed when it comes to interest rate increases. It’s hard to see rates going even as high as 4% in the near term. And even then, that’s very low by historical standards. We’ve probably got very low interest rates for the long term.
With a toothless tiger RBA and softly spoken Baptist nothing will change.
It's too late for this new government to make any changes that would work, the horse has bolted, the damage is done,the RE snake is eating its own tail.
We need Gen Y and FHBs on the streets but that ain’t going to happen.
I have never in 34 years in this country seen a time in Sydney property markets like this one and I remember well the 83 downturn ,the 88 boom,the 91 downturn, the boom before the 2000 Olympics, the lull after the Olympics the pickup in around 2002 and you all know the last 10 years blow by blow.
Just another day in the fools paradise down under.
Why can’t we enjoy living in this country of peace and abundance of so many good things without our mental state being twisted and gouged by the demons of RE that haunt our very being... should I buy, should I rent, should I sell, where should I buy, I sold too early, the man said I can buy two, the bank said I can have 600K, Macquarie Fields is going up, now Blacktown is the new Chatswood.
Jeez no wonder Australia’s depression rate is so high.
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