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Will rising house prices lead to a booming economy?
Topic Started: 24 Sep 2013, 11:06 PM (853 Views)
Elastic
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I'd just like to know people's thoughts on whether the mini boom in house prices will lead to stronger economic growth.
Clearly the RBA is trying to produce a housing led recovery but at the moment we are still seeing rising unemployment and lacklustre credit growth.
It seems that credit growth is a necessity for economic growth if the government chooses to keep the budget under control. Will we eventually see a rebound in people's appetites for debt, using equity mate or will we see a continuation of people choosing to pay down their loans while IRs remain low?
Only a rat can win a rat race.

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Simon
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Makes sense that it would

Roy Morgan consumer confidence nearly back to 2009 boom level, house prices bound to be the big driver

http://www.roymorgan.com/findings/5205-consumer-confidence-september-24-2013-201309240408

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The weekly Roy Morgan Consumer Confidence Rating has risen to 124.1 (up 1.2pts in a week since September 14/15, 2013 – the highest since January 8/9, 2011). The rise in Consumer Confidence is driven by an increase in confidence about Australians’ personal financial situations compared to 12 months ago.

Australians are far more confident about their personal finances compared to this time last year with 34% (up 5%) saying they are ‘better off’ financially than this time last year and 23% (down 3%) saying they are ‘worse off’ financially (the lowest since December 2007).

Also a rising majority of Australians (55%, up 2%) say now is a ‘good time to buy’ major household items while just 15% (down 1%) of Australians say now is a ‘bad time to buy’.

Now 38% (unchanged) of Australians expect ‘good times’ economically over the next twelve months compared to 24% (up 1%) that expect ‘bad times’ for the Australian economy.

In addition 41% (unchanged) of Australians expect the Australian economy to have ‘good times’ over the next five years compared to 17% (up 1%) that expect ‘bad times’ for the Australian economy.

Now 44% (down 3%) of Australians expect to be ‘better off’ financially this time next year compared to just 13% (unchanged) that expect their family to be ‘worse off’ financially.
Edited by Simon, 24 Sep 2013, 11:20 PM.
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peter fraser
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Elastic
24 Sep 2013, 11:06 PM
I'd just like to know people's thoughts on whether the mini boom in house prices will lead to stronger economic growth.
Clearly the RBA is trying to produce a housing led recovery but at the moment we are still seeing rising unemployment and lacklustre credit growth.
It seems that credit growth is a necessity for economic growth if the government chooses to keep the budget under control. Will we eventually see a rebound in people's appetites for debt, using equity mate or will we see a continuation of people choosing to pay down their loans while IRs remain low?
Well falling house prices certainly leads to negative economic growth, but I'm not sure that rising prices makes as much difference to the money supply as it once did.

We are seeing only modest lending growth of about 5% here, but have a look at net lending growth in the UK where house prices are also rising. You wouldn't think so from this chart.

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Which should put to bed the idea that easy or cheap credit is the driver of house prices.

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Edited by peter fraser, 24 Sep 2013, 11:31 PM.
Any expressed market opinion is my own and is not to be taken as financial advice
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Elastic
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I tend to think that mortgages for new homes have a much greater effect on overall credit growth and economic growth than sales of existing property.
Investors selling to each other would have little effect on credit growth but their use of equity and leverage would enable significant price rises.
As prices go up, they use their greater equity to leverage into higher and higher prices. I'm not sure how sustainable that model is.
I don't really know anything about the UK market in terms of investor participation but I'm amazed that they are trying to pump their housing market by inflating demand. Probably figured that QE didn't work so they'd give something else a go.
Only a rat can win a rat race.

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miw
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Elastic
24 Sep 2013, 11:35 PM
I tend to think that mortgages for new homes have a much greater effect on overall credit growth and economic growth than sales of existing property.
Investors selling to each other would have little effect on credit growth but their use of equity and leverage would enable significant price rises.
As prices go up, they use their greater equity to leverage into higher and higher prices. I'm not sure how sustainable that model is.
I don't really know anything about the UK market in terms of investor participation but I'm amazed that they are trying to pump their housing market by inflating demand. Probably figured that QE didn't work so they'd give something else a go.
It's construction that adds to GDP because it represents actual investment. Rising house prices without construction has some wealth effect stimulus on consumption, but otherwise has little effect on the real economy.

Of course if existing house prices approach or exceed replacement value in an area with rising population, they will drive construction....
The truth will set you free. But first, it will piss you off.
--Gloria Steinem
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