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RBA enormously worried about Australian house price surge, but won't admit it; House prices are popping, Sydney is going berserk
Topic Started: 26 Sep 2013, 05:04 PM (8,095 Views)
Veritas
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Trojan
26 Sep 2013, 08:20 PM
Yawn .....

And the age old bear myth gets dusted up and trotted out again.
Guess the countries with the highest GDPs must be those which lives in caves as they have no capital locked up in housing ....
its not a myth!

Surplus capital directed towards speculating on established housing carries with it the opportunity cost of not being invested in far more productive parts of the economy.

Do you disagree with this statement of the bleeding obvious?

If so, are you cool with all surplus capital being used to buy houses built 30 years ago? :re:
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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Evil Mouzealot Specufestor

Veritas
26 Sep 2013, 07:42 PM
First year mortgage costs bla fucking bla.

If you borrow 400k you will pay back about 1 million. Its a lot of loot, even taking inflation into account.
If you rent over the same period you will pay even more. That's even more loot, even taking inflation into account.

The renter is wasting the money unproductively, but at least the landlord he pays it to might do something productive with it.
Edited by Shadow, 26 Sep 2013, 09:17 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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Pig Iron
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Bogan scum

Veritas
26 Sep 2013, 07:42 PM
First year mortgage costs bla fucking bla.
so you know what i'm talking about but still refuse to be honest in your comparison. thanks for confirming how right i was.
Veritas
26 Sep 2013, 07:42 PM
Do you accept that there is an opportunity cost to surplus capital rushing into established housing instead of productive sectors of the economy? That includes new builds btw.
no i don't accept that at all. can you show me an example of a time when a loan wasn't written in australia due to the bank not having the money because it was already loaned out?


Massive
26 Sep 2013, 07:51 PM
In a stumbling economy one would think you want new construction and investment - stock market etc - providing necessary capital to companies to employ staff and create business and avoid as much speculation as possible to keep inflation low.

Money spent speculating values on existing properties is dead money in terms of stemming the loss of jobs and stimulating business. For example the dumb money rushing into IP's with SMSF etc is money that would have been spent on capital raising ventures in days gone by..

I reckon Australia is far from a point of no return - train just pulled out of the station really - but if things dont change and mining employment continues to ease, can see where concern is coming from..
i understand what you are trying to say, but it sounds like your understanding of just how loans are funded is wrong.


Veritas
26 Sep 2013, 09:05 PM
its not a myth!
it is a myth, and you've had your bum thoroughly spanked on the issue before.
Edited by Pig Iron, 26 Sep 2013, 09:29 PM.
I am the love child of Tony Abbott and Pauline Hanson
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Massive
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Pig Iron
26 Sep 2013, 09:18 PM

i understand what you are trying to say, but it sounds like your understanding of just how loans are funded is wrong.
I'm not talking about funding loans but business ..
Where australia is at now it should be pushing money into new productive industries to ensure continued employment for residents ..

However instead its catchup time ... Australia should have been dealing with housing supply in creating new desirable ceneters with infrastructure from 15 years ago to end of boom now. . instead , , huge sums of money ( in Perth ) were spent beautifying and upgrading central city area and investors all went nuts speculating property values in already established areas ..

So now its catch up time , but less of that cash dug up from the ground is available to do so now as huge chunks of it went into existing properties..and its staying there , speculating .. .

We will push employment through construction of houses and centers that should already be in place and hope it will be enough in time to get other avenues of employment up . . Hence opening up to Chinese makes sense ... We need the dollars
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Pig Iron
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Bogan scum

Massive
26 Sep 2013, 09:41 PM
I'm not talking about funding loans but business ..
what you are trying to say is that loans for existing houses take away from capital available for other purposes, and this is incorrect.
I am the love child of Tony Abbott and Pauline Hanson
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b_b
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Veritas
26 Sep 2013, 09:05 PM
its not a myth!

Surplus capital directed towards speculating on established housing carries with it the opportunity cost of not being invested in far more productive parts of the economy.

Do you disagree with this statement of the bleeding obvious?

If so, are you cool with all surplus capital being used to buy houses built 30 years ago? :re:
The statement is not obvious. In fact it is wrong (pig iron is right).

Loans create deposits. Any credit worthy project or customer can get a loan. From a banks perspective it us not a funding decision, but a credit decision.

And yes this has been debunked. Macro business did not think house prices could sustain growth because banks will not be able to fund credit growth. The evidence is now showing this is utter nonsense.

Rule 1 in banking - balance sheets alway balance
Rule 2 - for this to hold true before and after the loan, the loan must create the deposit.

If you can't get your head around this, you have no chance.

(S – I) + (T - G) + (M - X) = 0
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Elastic
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Strindberg
26 Sep 2013, 08:10 PM
Money used in transactions (eg the exchange of houses and shares) simply changes ownership. It doesn't die. It remains just as available after a transaction as it was before a transaction.

Even the money paid as interest on a loan simply changes ownership. Money only dies when loans are repaid, and grows when loans are created. As pointed out, we've been through this at length.
That is true what you've said but I think the bigger problem is that as a larger proportion of the population enters retirement age and requires savings to survive, the working age population gets lumped with larger debts in order to fund the retirement group.
Only a rat can win a rat race.

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b_b
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Elastic
26 Sep 2013, 09:48 PM
That is true what you've said but I think the bigger problem is that as a larger proportion of the population enters retirement age and requires savings to survive, the working age population gets lumped with larger debts in order to fund the retirement group.
We already have this system. It is called superannuation. There is no coincidence the growth is super has matched the growth in household debt.
(S – I) + (T - G) + (M - X) = 0
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Elastic
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b_b
26 Sep 2013, 09:57 PM
We already have this system. It is called superannuation. There is no coincidence the growth is super has matched the growth in household debt.
Given that super can be made up of shares, property as well as cash the correlation isn't completely direct. We could have a collapse of the sharemarket and people's super could halve but the level of household debt would remain unchanged.
Retirees do need to spend cash in order to live though, so they will eventually need to convert their assets into cash.
While on this topic, I'm curious as to why there is considered to be a limit to the household debt to gdp ratio. Given that someone's debt is somebody else's cash, what are the factors that limnit this. Is it that only a certain proportion of the working age population are able to take on debt?
Only a rat can win a rat race.

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b_b
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Elastic
26 Sep 2013, 10:13 PM
Given that super can be made up of shares, property as well as cash the correlation isn't completely direct. We could have a collapse of the sharemarket and people's super could halve but the level of household debt would remain unchanged.
Retirees do need to spend cash in order to live though, so they will eventually need to convert their assets into cash.
While on this topic, I'm curious as to why there is considered to be a limit to the household debt to gdp ratio. Given that someone's debt is somebody else's cash, what are the factors that limnit this. Is it that only a certain proportion of the working age population are able to take on debt?
When someone buys shares or a house, someone sells. So the cash /deposits accumulate in the banking system at the same rare as the debt growth. I agree it is not perfect, but it is a relationship. More super means more debt (private or govt).

And yes there is a limit fir private debt. Bad assets wipe out bank equity and, well, you know the rest
(S – I) + (T - G) + (M - X) = 0
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