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Sydney's Recent Housing Price Boom Is Really Just Making Up For A Slow Decade
Topic Started: 3 Oct 2013, 09:27 PM (4,789 Views)
Shadow
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Evil Mouzealot Specufestor

Veritas
4 Oct 2013, 02:44 PM
Perhaps the most interesting feature of the period was the correction that you allude to. Why was there a correction? The simple answer seems to be that there was a temporary loss of confidence on the demand side albeit tempered massively by low IR and the Federal Government's frantic attempts to do something- anything- to prevent a housing bust.
No... there was a correction in 2008 because mortgage rates approached double digits. House prices had been rising for several years up to 2007, but by 2008 the RBA had raised the cash rate to 7.25% (in a futile attempt to counter imported inflation) meaning mortgage rates were in the high 9% range. At that time, the talk in the media was of even more rates hikes to come. With such high interest rates, and more hikes expected, the housing market started to fall.

But then the GFC arrived, interest rates were cut, and house prices resumed their climb. Ironically it was the GFC that prevented bigger house price falls in 2008. The GFC was good for the Australian property market, because it forced the RBA to reverse its excessive interest rate hikes.
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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Shadow
4 Oct 2013, 02:55 PM
Veritas
4 Oct 2013, 02:44 PM
Perhaps the most interesting feature of the period was the correction that you allude to. Why was there a correction? The simple answer seems to be that there was a temporary loss of confidence on the demand side albeit tempered massively by low IR and the Federal Government's frantic attempts to do something- anything- to prevent a housing bust.
No... there was a correction in 2008 because mortgage rates approached double digits. House prices had been rising for several years up to 2007, but by 2008 the RBA had raised the cash rate to 7.25% (in a futile attempt to counter imported inflation) meaning mortgage rates were in the high 9% range. At that time, the talk in the media was of even more rates hikes to come. With such high interest rates, and more hikes expected, the housing market started to fall.

But then the GFC arrived, interest rates were cut, and house prices resumed their climb. Ironically it was the GFC that prevented bigger house price falls in 2008. The GFC was good for the Australian property market, because it forced the RBA to reverse its excessive interest rate hikes.
Why do you argue the rate hikes were excessive if

a) Their purpose was to control imported inflation and
b) they were successfully moderating undesirable levels of house price inflation.

Sounds like they were on to a winner to me!

Although, it does depend.

There are a lot of people who are against vehemently in favour of controlling inflation for almost everything. Except for housing of course.

High rates of house price inflation is a good thing. Obviously.

And Shadow, don't tell me that house prices have merely tracked wages for ten years unless you are willing to talk about what happened in the previous ten.

Or what happened in WA from 2003 to 2007.

Edited by Veritas, 4 Oct 2013, 03:03 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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Dr Watson
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Shadow
4 Oct 2013, 02:55 PM
No... there was a correction in 2008 because mortgage rates approached double digits. House prices had been rising for several years up to 2007, but by 2008 the RBA had raised the cash rate to 7.25% (in a futile attempt to counter imported inflation) meaning mortgage rates were in the high 9% range. At that time, the talk in the media was of even more rates hikes to come. With such high interest rates, and more hikes expected, the housing market started to fall.

But then the GFC arrived, interest rates were cut, and house prices resumed their climb. Ironically it was the GFC that prevented bigger house price falls in 2008. The GFC was good for the Australian property market, because it forced the RBA to reverse its excessive interest rate hikes.
All true and correct and you've nicely supported a point I made on this forum some time ago. Property prices in Australia, having reached the limits of affordability in recent years, are now a lot more sensitive to movements in the cash rate. If we get any rate hikes from Glenn Robert Stevens in the near future, the rally will be killed off in short order. If your $1 million prediction is to become reality, you had better pray for more cuts.
The trouble with the world is that the stupid are cocksure and the intelligent are full of doubt — Bertrand Russell
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Veritas
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Dr Watson
4 Oct 2013, 03:05 PM
Shadow
4 Oct 2013, 02:55 PM
No... there was a correction in 2008 because mortgage rates approached double digits. House prices had been rising for several years up to 2007, but by 2008 the RBA had raised the cash rate to 7.25% (in a futile attempt to counter imported inflation) meaning mortgage rates were in the high 9% range. At that time, the talk in the media was of even more rates hikes to come. With such high interest rates, and more hikes expected, the housing market started to fall.

But then the GFC arrived, interest rates were cut, and house prices resumed their climb. Ironically it was the GFC that prevented bigger house price falls in 2008. The GFC was good for the Australian property market, because it forced the RBA to reverse its excessive interest rate hikes.
All true and correct and you've nicely supported a point I made on this forum some time ago. Property prices in Australia, having reached the limits of affordability in recent years, are now a lot more sensitive to movements in the cash rate. If we get any rate hikes from Glenn Robert Stevens in the near future, the rally will be killed off in short order. If your $1 million prediction is to become reality, you had better pray for more cuts.
For that to be true, the bulls would have to concede that cheap money is fuelling the recent rally.

Not sure they are going to conceded that point.

Also, worth pointing out that the post GFC "correction" took place in spite of IRs that were still low compared to the pre GFC highs.
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

Dr Watson
4 Oct 2013, 03:05 PM
If we get any rate hikes from Glenn Robert Stevens in the near future, the rally will be killed off in short order. If your $1 million prediction is to become reality, you had better pray for more cuts.
I already said this a few posts back. I said my prediction is based on the assumption that rates won't rise by more than 1% by 2015.
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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Dr Watson
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Veritas
4 Oct 2013, 03:09 PM
For that to be true, the bulls would have to concede that cheap money is fuelling the recent rally.

Not sure they are going to conceded that point.

Also, worth pointing out that the post GFC "correction" took place in spite of IRs that were still low compared to the pre GFC highs.
Whilst one wouldn't dispute other forces are at work such as foreign investors and high immigration, surely it's clear by now that — in recent years — property prices are moving in tandem with the cash rate. It's also true, I suppose, that the post-GFC correction involved the simultaneous withdrawal of other stimulus measures but as sure as the sun comes up, when Glenn Robert Stevens decides to change direction, the property market will correct.




Shadow
4 Oct 2013, 03:15 PM
I already said this a few posts back. I said my prediction is based on the assumption that rates won't rise by more than 1% by 2015.
That's fine if your assumption was included with your prediction when you originally made it. I can recall a time on this forum when the bulls argued with gusto that there was no link between the cash rate and dwelling prices and they would rise regardless of the RBA.
Edited by Dr Watson, 4 Oct 2013, 03:19 PM.
The trouble with the world is that the stupid are cocksure and the intelligent are full of doubt — Bertrand Russell
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Shadow
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Evil Mouzealot Specufestor

Veritas
4 Oct 2013, 03:01 PM
Why do you argue the rate hikes were excessive if

a) Their purpose was to control imported inflation and
Because they didn't control imported inflation - CPI hit 5% in 2008. The rate hikes couldn't tame the imported inflation (the GFC tamed it).

Quote:
 
b) they were successfully moderating undesirable levels of house price inflation.
House prices aren't counted in CPI.

Quote:
 
don't tell me that house prices have merely tracked wages for ten years unless you are willing to talk about what happened in the previous ten
We've already discussed the previous ten years many times. There was a one-time rise in price/income ratios during the late 90s and early 2000s as banks started treating women equally to men and lending based on dual income, along with a generally lower interest rate environment after the high-inflation 1980s.
Dr Watson
4 Oct 2013, 03:17 PM
I can recall a time on this forum when the bulls argued with gusto that there was no link between the cash rate and dwelling prices and they would rise regardless of the RBA.
You just made that up.

If you believe it, then you should have no difficulty linking to a few such comments by myself and other bulls?
Edited by Shadow, 4 Oct 2013, 03:22 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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Sydneyite
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Dr Watson
4 Oct 2013, 03:17 PM
That's fine if your assumption was included with your prediction when you originally made it. I can recall a time on this forum when the bulls argued with gusto that there was no link between the cash rate and dwelling prices and they would rise regardless of the RBA.
Agree with Shadow! I don't recall any "bulls" ever making this argument. The correlation between house price rises and interest rates is well accepted. And of course the market is more sensitive to interest rate rises now than in the distant past due to the higher aggregrate debt levels (which are in turn a consequence of the "locking in" of a low inflation / low interest rate economy).

PS: If anyone has tried discount the impact of interest rates on the market in the past, it was the like of Steve Keen etc, who simultaneously expected ZIRP and an accross the board 40%+ property market crash! :dry: And then complained about "government stimulus" averting the crash..... :re:
Edited by Sydneyite, 4 Oct 2013, 03:28 PM.
For Aussie property bears, "denial", is not just a long river in North Africa.....
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Don't Buy Now!
Unregistered

My bearishness is unshaken.

This is the worst time in Australia’s history to acquire land – residential, commercial or rural.

It makes the 1888-90 land boom look like a pimple.

Find something else to do!

Don’t Buy Now!
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Sydneyite
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Don't Buy Now!
4 Oct 2013, 04:17 PM
My bearishness is unshaken.

This is the worst time in Australia’s history to acquire land – residential, commercial or rural.

It makes the 1888-90 land boom look like a pimple.

Find something else to do!

Don’t Buy Now!
Is it worse now than 1 year ago when you were giving everyone the same advice? Turns out 1 year ago was a pretty good time to buy hey? Especially in Sydney! :dry:
Edited by Sydneyite, 4 Oct 2013, 04:30 PM.
For Aussie property bears, "denial", is not just a long river in North Africa.....
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