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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 (8,094 Views)
Elastic
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It would be very interesting look at the ratio of mortage debt to the total value of housing stock. I don't think I've ever seen that graph before. I guess it would be the overall leverage in the housing system. If anyone can provide a graph of this figure I'd be very interested..
Only a rat can win a rat race.

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Veritas
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b_b
26 Sep 2013, 09:48 PM
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.
Absolutely fuck all to do with the point I am making.

It is possible for banks and borrowers to get too heavily invested in a certain industry as part of an overarching economic model.

If that were not the case the Irish banks would not have gone under, or the Swedish banks in the 1990s.

Here in Australia, investor appetite for established property is directing capital away from more productive works. Banks are lending too much to property speculators, which is both their fault and the fault of the speculators.

Would it not be better for much of that lending to be invested in goods and service producing businesses? Of course it would.

Its got fuck all to do with how loans are created and everything to do with policy decisions and the decisions of individual investors.

If that were not the case why is this happening?

Posted Image

Posted Image
Edited by Veritas, 26 Sep 2013, 10:35 PM.
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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b_b
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Veritas
26 Sep 2013, 10:31 PM
Absolutely fuck all to do with the point I am making.

It is possible for banks and borrowers to get too heavily invested in a certain industry as part of an overarching economic model.

If that were not the case the Irish banks would not have gone under, or the Swedish banks in the 1990s.

Here in Australia, investor appetite for established property is directing capital away from more productive works. Banks are lending too much to property speculators, which is both their fault and the fault of the speculators.

Would it not be better for much of that lending to be invested in goods and service producing businesses? Of course it would.

Its got fuck all to do with how loans are created and everything to do with policy decisions and the decisions of individual investors.

If that were not the case why is this happening?

Posted Image

Posted Image
Loans create the funding (deposits). Therefore capital is not diverted away from anything. Capital is created via the lending process. Household debt could double from here, and a credit worthy business venture can still get the funding required.
(S – I) + (T - G) + (M - X) = 0
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Shadow
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Evil Mouzealot Specufestor

Veritas
26 Sep 2013, 10:31 PM
Here in Australia, investor appetite for established property is directing capital away from more productive works. Banks are lending too much to property speculators, which is both their fault and the fault of the speculators.

Would it not be better for much of that lending to be invested in goods and service producing businesses? Of course it would.
Australia has the highest median wealth and fifth highest GDP per capita in the world.

We are also ranked 2nd in the UN Human Development index.

People from all over the world want to migrate here.

Most developed countries are envious of our economy.

So it seems all these alleged 'problems' caused by the 'speculators' you allude to haven't done us much damage.

Which country do you believe is better than Australia?

Seriously, you don't know how good you have it.

I guess some people just feel compelled to whinge about something, anything.
Edited by Shadow, 26 Sep 2013, 10:44 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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Veritas
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Quote:
 
Loans create the funding (deposits). Therefore capital is not diverted away from anything. Capital is created via the lending process. Household debt could double from here, and a credit worthy business venture can still get the funding required.


So instead of addressing the point I am making ( which is lending and investment decisions are driven by policy as much as anything else) you repeat the same point regarding the checks and balances in the banking system?

Please tell me how much of the book would have to be made up of loans to people buying houses before you would get worried.
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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Pig Iron
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Bogan scum

Veritas
26 Sep 2013, 10:31 PM
It is possible for banks and borrowers to get too heavily invested in a certain industry as part of an overarching economic model.

Here in Australia, investor appetite for established property is directing capital away from more productive works.
these 2 points unrelated. i'm not sure how much simpler we can make it for you - yes banks can be stung when they make too many bad loans, NO it does not take away capital from other business ventures.

you are confused and like an angry neanderthal confusion will soon give way to rage and you'll begin lashing out and grunting.
Veritas
26 Sep 2013, 10:46 PM
Please tell me how much of the book would have to be made up of loans to people buying houses before you would get worried.
as long as they keep making their payments it can be 100% for all i care.
Edited by Pig Iron, 26 Sep 2013, 10:49 PM.
I am the love child of Tony Abbott and Pauline Hanson
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Veritas
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Shadow
26 Sep 2013, 10:42 PM
Australia has the highest median wealth and fifth highest GDP per capita in the world.

We are also ranked 2nd in the UN Human Development index.

People from all over the world want to migrate here.

Most developed countries are envious of our economy.

So it seems all these alleged 'problems' caused by the 'speculators' you allude to haven't done us much damage.

Which country do you believe is better than Australia?

Seriously, you don't know how good you have it.

I guess some people just feel compelled to whinge about something, anything.
What are you on about?

Are you suggesting that Australia, uniquely, has found the recipe for endless prosperity?

You know, its not that long ago that Ireland was "the envy of Europe".

Quote:
 
The Irish are as keen as their visitors to answer that question because they'd like to know what caused their boom - the better to sustain it. The bad news: Although Ireland has done many things worth copying, its success probably can't be duplicated and will be difficult to sustain. That's because it owes much of its roar to the power of demographics, a force that may already be working to mute the beast.

There is no consensus about the ingredients of Ireland's success. The more fanciful view is that it was the product of a shift in the nation's zeitgeist brought about by the visit of Pope John Paul II in 1979, or even the boost in national self-confidence engendered by the success of homegrown rock bands like U2.

The more prosaic argument is that, after decades of performing below its long-term potential, Ireland has simply enjoyed a telescoped process of catch-up - "belated convergence," as economists call it. [/quote

http://money.cnn.com/magazines/fortune/fortune_archive/2006/11/13/8393173/






Pig Iron
26 Sep 2013, 10:47 PM
these 2 points unrelated. i'm not sure how much simpler we can make it for you - yes banks can be stung when they make too many bad loans, NO it does not take away capital from other business ventures.

you are confused and like an angry neanderthal confusion will soon give way to rage and you'll begin lashing out and grunting.

as long as they keep making their payments it can be 100% for all i care.
Timmy,

It really isnt my fault if you are too thick to understand the point.

I cant make it any clearer.
Edited by Veritas, 26 Sep 2013, 11:00 PM.
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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b_b
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Veritas
26 Sep 2013, 10:46 PM


So instead of addressing the point I am making ( which is lending and investment decisions are driven by policy as much as anything else) you repeat the same point regarding the checks and balances in the banking system?

Please tell me how much of the book would have to be made up of loans to people buying houses before you would get worried.
When prices exceed replacement cost for a sustained period (2 years). Bank asset exposure is irrelevant. It always comes back to asset quality. I would prefer to have 70% of my loan book secured against houses at or below replacement cost, than 20% of my book secured against assets 3x replacement cost.
Edited by b_b, 26 Sep 2013, 11:07 PM.
(S – I) + (T - G) + (M - X) = 0
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Elastic
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You were discussing this "replacement cost" argument the other day and I have to ask exactly what you mean by that.
Are you referring to a house and land package built on the outskirts of town for $400000.
If that place was for sale on the same size block in the inner city it could be worth $1,000,000.
While I agree the replacement cost argument may hold some sway when referring to houses on the fringe it is not relevant to areas where the land cost makes up most of the house price.
When prices fall, the construction costs don't tend to change much but the land prices take the hit.
So can you elaborate a bit further on the "replacement cost" theory.

Only a rat can win a rat race.

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barns
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Veritas
26 Sep 2013, 10:46 PM


So instead of addressing the point I am making ( which is lending and investment decisions are driven by policy as much as anything else) you repeat the same point regarding the checks and balances in the banking system?

Please tell me how much of the book would have to be made up of loans to people buying houses before you would get worried.
You miss the point. The level of lending to home buyers doesn't affect the level of lending to business. The bank will lend to home buyers and businesses if they believe they will be repaid. Just because they lent to a home buyer doesn't mean they now can't lend to a business.
“You Keep Using That Word, I Do Not Think It Means What You Think It Means” - Inigo Montoya
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