# The Great Aussie Housing Bubble - Reality or Fantasy?



## Bintang (10 April 2015)

The RBA’s failure to lower interest rates this week has put the spotlight back on the topic of whether Australia has a housing bubble or not.
After Steve Keen lost his bet on house prices and made his long march to Mt Kosciuszko the house bubble protagonists seemed to go quiet but they are creeping back now – very notably with a recent book authored by David Lindsay _‘Australia – Boom to Bust’_ and his associated blog 

But for every confident sounding bubble protagonist like David Lindsay there are always plenty of equally confident bubble deniers like John Mulcahy, chairman of Mirvac Group who says _“Australia has not seen a housing bubble, nor is it likely to”  _

The debate has been polarized for a long while but something I’ve noticed recently is a kind of halfway view that reluctantly admits that Sydney and perhaps Melbourne are heading into bubble territory but that the rest of Australia is not.

I think part of the problem is what actually makes a bubble. The noteworthy housing crashes in USA, Ireland and Spain are often cited as examples of where Australia is heading but there are differences in demographics, Government policies and banking regulations, which might not make this a sure thing. 

Maybe instead of a housing bubble we just have a debt bubble. Or is one just the manifestation of the other? 

So what do ASF members currently think about all this?

_However, before diving too hard into the serious stuff here is some humor to help sharpen the senses:_


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## sydboy007 (15 April 2015)

near 50% investor demand in NSW and VIC or really just SYD and MEL.  That's not a normal market.

First home buyers forced to become investors just to get a foot onto the property ladder..

the below graphs show just how massive the bubble in Sydney at least is

The cost of land bubble is really what's driving the market for first home buyers to the moon.

Interesting to see the price of vacant land really take off after 2000.  That halving of CGT really made over investing in housing so lucrative.


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## tech/a (15 April 2015)

Personally I think the real problem is Sydney.
With Melbourne expected to be Australia's biggest 
City by 2050 demand will continue to be high.

The rest of the country maybe over priced 
but only in pockets.

So my view is that the bubble is real but localised.
Smart buying and development will remain profitable.
Low interest rates and continued demand will also
continue to help.


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## satanoperca (15 April 2015)

I agree with you Tech, however, pop enough bubbles/balloons and the whole market will be in for a hard landing, especially so due to the elevated debt levels in this country and rising unemployment.


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## banco (15 April 2015)

tech/a said:


> Personally I think the real problem is Sydney.
> With Melbourne expected to be Australia's biggest
> City by 2050 demand will continue to be high.
> 
> ...




I think Bernanke etc. said prior to the GFC that they weren't overly concerned as frothy housing markets were relatively localised (ie California, Florida etc.).  The crash still ruined their economy and I'd guess that Sydney makes up at least a big a proportion of Australia's population as the frothy states in the US did prior to the GFC.


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## tech/a (15 April 2015)

banco said:


> I think Bernanke etc. said prior to the GFC that they weren't overly concerned as frothy housing markets were relatively localised (ie California, Florida etc.).  The crash still ruined their economy and I'd guess that Sydney makes up at least a big a proportion of Australia's population as the frothy states in the US did prior to the GFC.




Seriously do you want me to go through all the reasons the US of A 
Is so so different than here?


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## kid hustlr (15 April 2015)

To add context - the housing thread has had many calling a bubble for some time. 

This was completely wrong in Sydney and to a lesser extent Melbourne - a real opportunity missed for some, I personally wish I had been more aggressive.

Realistically the Sydney market looks to remain strong for some time however it's hard to argue purchasing is a good investment in this area now (always exceptions). Plenty of housing coming online over the next 18 months is also my understanding.

I echo tech's thoughts anyone good enough to buy one block and turn it into 4 will make money.

I think the short term key is inflation - important number next week, if its low they'll cut and house prices will not fall.

I think the over reaching key is unemployment - a continued rise and you would think it will have an effect prices longer term.

Anyone looking for anything near a USA style crash is being over the top in my view.


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## banco (15 April 2015)

tech/a said:


> Seriously do you want me to go through all the reasons the US of A
> Is so so different than here?




Please do. Let's roll out the cliches about non-recourse loans etc.


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## sptrawler (15 April 2015)

kid hustlr said:


> I echo tech's thoughts anyone good enough to buy one block and turn it into 4 will make money.
> 
> I think the short term key is inflation - important number next week, if its low they'll cut and house prices will not fall.
> 
> ...




You have pretty well summed up the issues.

If the RBA raise interest rates, housing falls over, and with it our economy.

The RBA are probably hoping, unemployment keeps rising, house prices sliding and also wages.

There is only a bubble in Sydney, Melbourne apparently.

Prices in Perth are definitely sliding.


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## wayneL (15 April 2015)

> buy one block and turn it into 4 will make money.




This is development, requiring active input, not investment.  Not really relevant to the debate.


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## kid hustlr (15 April 2015)

wayneL said:


> This is development, requiring active input, not investment.  Not really relevant to the debate.




Agreed - it adds value

They are still out there bidding against the mums and dads however

sptrawler:

What do you think are the possible drivers to cause an increase in interest rates? U/E on the slide, many sectors of the economy struggling and inflation at the lower end of the band what could lead to the RBA hiking rates?

The RBA would not be enjoying Sydney house prices rising but its collateral damage in trying to manage the economy as a whole. We are a great nation but I'm unsure where our economic strengths lie


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## sptrawler (15 April 2015)

kid hustlr said:


> Agreed - it adds value
> 
> They are still out there bidding against the mums and dads however
> 
> ...




Well you probably answered your own question.

Unless our economy deflates through natural process, the RBA will have to prick it.IMO

Sliding wages, a slow deflation of house prices and a general increase in working hours, will reduce the need to inflate the debt problem away.

If they don't do this, the pressure on the basic wage will increase, the dollar will keep droping and inflation will kick in.

We are still paying the same for cars, as we were when the $Aus1 was $US 1.10, obviously the manufacturers are carrying it.
Probably because consumers aren't spending, if wages ramp up, so will spending then prices will follow.

IMO It is much better to control the deflation of asset prices, than to devalue the currency to to support the asset prices.
Which leads us to, the recession, we have to have.lol

Just my thoughts.


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## Smurf1976 (15 April 2015)

sptrawler said:


> There is only a bubble in Sydney, Melbourne apparently.
> 
> Prices in Perth are definitely sliding.




One sign of a bubble (in anything) nearing its' end is that growth in the average becomes dependent on fewer and fewer "pillars" whilst the rest starts to fall away.

Go back a few years and Perth prices were booming, no doubt about that. For that matter so was Brisbane, Adelaide and even smaller places like Canberra, Hobart and Darwin all saw huge rises.


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## sydboy007 (15 April 2015)

https://gallery.mailchimp.com/1ecc839092fa0d63fc82e476b/files/March_2015.pdf

DFP Recruitment has released its mining and resources jobs index for March, which registered another large seasonally adjusted fall of 8.2% to 60.05, with vacancies down 31.20% nationally over the past year, by 15.1% in the last 6 months and 10.7% over the last quarter.

March saw a massive 10.9% fall in permanent vacancies and an 8.7% fall in temporary and contract job advertisements.

A sure sign of employer’s lack of confidence is demonstrated by the trend away from permanent hiring and continued movement towards temporary and contract staffing solutions. Permanent opportunities now represent 48% of all vacancies, down from 60% in November 2013.

The precipitous national fall was also felt across all states, with job vacancies falling by 10.2% in Western Australia in March, whereas in Queensland they fell 4.2%

Gladstone LNG construction finishes at the end of this year, so roughly 10K of direct jobs lost and a similar number of supporting jobs.

40K of car workers gone, with probably most in the component manufacturers too by the end of 2017.

Limited manufacturing capacity in the country to readily expand to take advantage of a lower currency.

Population growth will be well under the forecast 1.7%-1.8% over the next few years, the birth rate is at historical lows and deaths at historical highs Australia’s birth rate is declining at its fastest pace on record and the growth in deaths is at a cyclical high.

All those people buying within the last few years, likely still weighed down with 35+% of their income feeding the mortgage due to lackluster wages growth, I wouldn't want to be in their position.

We were a 2 trick pony, and now the income shock is coming from the I/O and coal price falls. The LNG saviour is gone too with prices collapsing.  Maybe we'll be the banana republic relying on tourism to keep us afloat.


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## sptrawler (15 April 2015)

Smurf1976 said:


> One sign of a bubble (in anything) nearing its' end is that growth in the average becomes dependent on fewer and fewer "pillars" whilst the rest starts to fall away.
> 
> Go back a few years and Perth prices were booming, no doubt about that. For that matter so was Brisbane, Adelaide and even smaller places like Canberra, Hobart and Darwin all saw huge rises.




Perth has overshot, completely,IMO, I suggested this may happen ages ago.

The housing developments, still in the construction phase is amazing, a lot of burnt fingers me thinks.


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## sptrawler (15 April 2015)

sydboy007 said:


> https://gallery.mailchimp.com/1ecc839092fa0d63fc82e476b/files/March_2015.pdf
> 
> DFP Recruitment has released its mining and resources jobs index for March, which registered another large seasonally adjusted fall of 8.2% to 60.05, with vacancies down 31.20% nationally over the past year, by 15.1% in the last 6 months and 10.7% over the last quarter.
> 
> ...




Great to see you back Syd.

I think the elastic band is stretched as far as it can go in W.A, watch your legs, is my call.

Tourism is a joke, I'm sure I read Australia gets 8 million tourists per year, Venice gets 21 million.

I don't know how many times larger, Australia is than Venice, but I'm guessing it is a few.lol

Australia is 7,692,000sq klm Venice is 414sq klm.

Australia population 23million, Venice 270,000.

Now if you said Venice will rely on tourism, I'd agree. I'm somewhat uncomfortable thinking Australia can support its lifestyle on those figures.


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## banco (15 April 2015)

Do we need interest rates to go up to prick the bubble?

_Paul Krugman wrote in July 2014: "The logic of a balance sheet recession is straightforward. Imagine that for whatever reason people have grown careless about both borrowing and lending, so that many families and/or firms have taken on high levels of debt. And suppose that at some point people more or less suddenly realize that these high debt levels are risky. At that point debtors will face strong pressures from their creditors to “deleverage,” slashing their spending in an effort to pay down debt. But when many people slash spending at the same time, the result will be a depressed economy. This can turn into a self-reinforcing spiral, as falling incomes make debt seem even less supportable, leading to deeper cuts; but in any case, the overhang of debt can keep the economy depressed for a long time."
_

Incidentally if you believe Krugman balance sheet recessions take a lot longer to recover from then recessions brought on by central banks raising interest rates.


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## sptrawler (15 April 2015)

Getting back to your original question, kid hustlr.

I don't think Aussie housing is in a bubble, at least not in W.A, house prices have gone stupid in response to wages and influx of population.

The exodus of people from W.A post boom, will cause a reversal of prices, until equilibrium is found.

With regard Sydney and Melbourne, I'm sure it is being driven by O/S investors, nothing else makes sense.


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## So_Cynical (15 April 2015)

sydboy007 said:


> the below graphs show just how massive the bubble in Sydney at least is




Interesting that Vancouver is also an investment hot spot for the Chinese, a lot of money from HK flowed there during and after the HK hand over.


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## Bintang (16 April 2015)

sptrawler said:


> With regard Sydney and Melbourne, I'm sure it is being driven by O/S investors, nothing else makes sense.




There must be rather more local investors surely. Aren't O/S investors restricted to buying new builds?
Also any O/S investor buying now must be taking on a currency risk unless they think the AUD cannot go down any further.


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## prawn_86 (16 April 2015)

Bintang said:


> There must be rather more local investors surely. Aren't O/S investors restricted to buying new builds?
> Also any O/S investor buying now must be taking on a currency risk unless they think the AUD cannot go down any further.




Technically yes, but there are dozens of ways to get around the new build law, and the FIIRB has never fined or punished anyone for breaking the rules (despite it happening on numerous occasions).

Investors are willing to wear the currency risk to diversify out of China, especially as most are buying all cash


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## Bill M (16 April 2015)

I don't think Aussie housing is in a bubble either. Prices as we all know depends on area, Sydney has a problem of very little supply and too many buyers. I sold a property in Sydney only 6 Months ago and the buying competition was fierce, why? Because when you got a well presented unit in Australia's largest city in a beach side suburb everybody wants it and they are willing to pay big bucks to get it. There is very little good stock in beach side suburbs.

That's Sydney, now I will move on to the Central Coast of NSW. People complain of foreign buyers but foreigners do not buy up in this area. How is it prices are going up here too? Again the Sydney flow over and retirees move up this way. Foreign buyers are not interested in this area but prices are steadily moving up. You can buy brand new 4 br homes with 2 bathrooms and double garage with all fences and turf supplied for under 500K and they all sell, no left overs. 

Look at all the inclusions here: http://www.realestate.com.au/property-house-nsw-hamlyn+terrace-119545055

Moving on to the Gold Coast. My family is selling a free standing house at a beach side suburb of the Gold Coast QLD. I am overseeing the sale of this property. I can tell you that there are no foreign buyers interested in this area, they are all Aussie buyers, most of them are under the age of 40 too. Competition up here is nothing like Sydney, it is a slow moving game but properties are still being sold for good prices. The majority of buyers up here want location first and anything else after that, this property will sell too but we will have to wait for the right buyers. The younger buyers up here seem astute, professional and know exactly what they want. Most want to buy an older house and renovate it and turn it into Million $ properties. 

Gold Coast housing is chugging along quite well and there are a lot of renovations going on up here, not to mention the massive redevelopment of the Pacific Fair Mall. When finished it will be the biggest mall in Queensland. There seems to be a lot of work going on in The Gold Coast and tradies are flat out. Gold Coast seems to be very alive and well and it is growing year after year.


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## kid hustlr (16 April 2015)

All the nay sayers have been saying the same years, yet prices go up. As I hear the smart people on this forum say all the time: "what has to happen for you to admit you are wrong"

I'm by no means a property bull but I can face the facts and can see what's going on in front my eyes. The short term direction for house prices is up.

Back of the envelope stuff but food for thought:

3 years ago you could buy a nice 2 bed apartment near the city of Sydney for say 600k. Rent 550 a week. Interest rates 6%

That's 27500 in rent a year, less property management and strata lets call it $22,500 for arguments sake. to have that 'flatly geared' (aka, washing its face) you would of needed about 200k deposit. the 400k in interest is covered by rent (give or take)

NOW:

Same 2 bed apartment lets call it 800k rents for 600 a week, interest rates 4%?.

That gives rent of 31200 less fees and strata lets call it 26,000 a year. to have this 'flatly geared' (aka washing its face) you would need a 200k deposit, the other 600k is covered by rent (give or take).

Once could argue relative pricing hasn't changed, in fact by numbers probably skew to the fact housing has got cheaper.


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## wayneL (16 April 2015)

By that argument any sharp rise in interest rates would see property waaaaaay overvalued.


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## tech/a (16 April 2015)

wayneL said:


> By that argument any sharp rise in interest rates would see property waaaaaay overvalued.




And what would see a sharp rise in interest rates?
I'm not seeing a sharp rise in inflation any time soon?
What do you see?


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## Bintang (16 April 2015)

tech/a said:


> And what would see a sharp rise in interest rates?
> I'm not seeing a sharp rise in inflation any time soon?
> What do you see?




Is there a scenario under which the banks would have to raise mortgage rates irrespective of what the RBA does with the cash rate?
Could such a scenario be caused by the cost of the banks offshore funding being increased?
I have no idea myself. 
I am just asking the question because I don’t understand how the banks offshore funding works and what kind of risk it poses, if any.


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## wayneL (16 April 2015)

I wasn't making a prediction.


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## kid hustlr (16 April 2015)

I think talking about banks offshore funding costs changing leading to a rise in mortgage rates is drawing a long bow.

No one knows the future, but I've not seen an economic crisis where everyone knew it was coming.


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## sydboy007 (16 April 2015)

Bintang said:


> Is there a scenario under which the banks would have to raise mortgage rates irrespective of what the RBA does with the cash rate?
> Could such a scenario be caused by the cost of the banks offshore funding being increased?
> I have no idea myself.
> I am just asking the question because I don’t understand how the banks offshore funding works and what kind of risk it poses, if any.




The AAA rating of the Federal Govt backstops the states and banks.

With $50B deficits looming large, we've been told the line in the sand for a downgrade is 30% Government debt to GDP.

The banks get a 2 notch rating increase due to borrowing the Fed's AAA rating.

No idea what each notch is worth in terms of basis points, but would assume irrespective of the interest rates the RBA has set the banks would be paying more as they would be considered higher risk.

We then get into the issue of will the banks still be able to convert their foreign borrowings converted in AUD on a reasonable cost basis.

As the GFC showed the cost of borrowing can jump dramatically in a very short period of time, and if we have a run on the currency similar to what the Russians have experienced, then we're faced with either rationing credit to keep rates lower, or increasing them to punishingly high levels.  being a serial CAD country, with not a lot going for us in terms of being competitive in the tradeables sector, it wont be pretty if sentient turns sour on Australia,

Below will help you understand how the financing works.  About 6 or 7 pages.

http://www.rba.gov.au/publications/bulletin/2015/mar/pdf/bu-0315-6.pdf

this chart illustrates just how expensive borrowing can get for the banks




Our banks are basically giant building societies these days


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## wayneL (16 April 2015)

tech/a said:


> And what would see a sharp rise in interest rates?
> I'm not seeing a sharp rise in inflation any time soon?
> What do you see?




FWIW

I see an economy where propping up RE values is very important to preserve the viability of said economy. So I *expect* to see a continuation of low interest rates.... interest rate increases will blow the economy the f**k up.


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## Bintang (16 April 2015)

sydboy007 said:


> We then get into the issue of will the banks still be able to convert their foreign borrowings converted in AUD on a reasonable cost basis.




Thanks. That was all very helpful.
The RBA paper certainly answers the question about funding costs but it doesn’t examine total offshore funding liabilities and the risks associated with this. So I remain curious.


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## kid hustlr (17 April 2015)

sydboy007 said:


> The AAA rating of the Federal Govt backstops the states and banks.
> 
> With $50B deficits looming large, we've been told the line in the sand for a downgrade is 30% Government debt to GDP.
> 
> ...




Bolded is the key factor. I think a currency crisis is the only thing that could fathomly cause a collapse in house prices.

So the question becomes - Do you think we will have a currency crisis?


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## McLovin (17 April 2015)

kid hustlr said:


> Bolded is the key factor. I think a currency crisis is the only thing that could fathomly cause a collapse in house prices.
> 
> So the question becomes - Do you think we will have a currency crisis?




It also assumes that the government won't provide funding to the banks _if_ there was a currency crisis. Short term debt is at 20% of bank funding these days, way down on where it was. No doubt a conscious decision to reduce that risk. More importantly, offshore short term funding is about 12% of total bank liabilities. The big rise in deposits share of the funding mix is a positive, IMO. Most bank funding is domestic, and given the entrenched oligopoly in the banking sector an increase in offshore borrowing rates will probably feed through to lower domestic deposit rates. Comparisons with Russia are a bit extreme.





FWIW, I sold all my bank shares over the last few months.


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## Bintang (17 April 2015)

McLovin said:


> It also assumes that the government won't provide funding to the banks _if_ there was a currency crisis. Short term debt is at 20% of bank funding these days, way down on where it was. No doubt a conscious decision to reduce that risk. More importantly, offshore short term funding is about 12% of total bank liabilities. The big rise in deposits share of the funding mix is a positive, IMO.



According to Macrobusiness the total bank foreign liabilities has gone from around $500 bln in 2008 to around $750 bln now. So while the funding mix has changed the exposure to offshore funding has increased in absolute terms.  And while the offshore short term funding percentage of total bank liabilities has gone down the total absolute amount remains about the same. So has risk really been reduced?


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## McLovin (17 April 2015)

Bintang said:


> According to Macrobusiness the total bank foreign liabilities has gone from around $500 bln in 2008 to around $750 bln now. So while the funding mix has changed the exposure to offshore funding has increased in absolute terms.  And while the offshore short term funding percentage of total bank liabilities has gone down the total absolute amount remains about the same. So has risk really been reduced?




On a net or gross basis?

Either way, the run up in foreign debt generally is a problem. In a low/no growth world we can't keep funding our consumption that way. We have a huge savings pool in super that could be partially used to reduce this reliance on overseas debt.


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## kid hustlr (17 April 2015)

Good chat Mclovin.

Your thoughts seem to echo mine. As extravagant as our house prices are (and they are) I can still see an investment case for them.

Trying to predict crashes leads to years of low returns for an investor.

I'd argue that huge amount of cash held in deposits is a positive sign for the share market fwiw.


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## craft (17 April 2015)

kid hustlr said:


> Bolded is the key factor. I think a currency crisis is the only thing that could fathomly cause a collapse in house prices.
> 
> So the question becomes - Do you think we will have a currency crisis?




No because we will do whatever is required to fund the Current Account Deficit. ie the cash rate will be set at the level required to attract capital even if that means it is set higher than what is otherwise ideal for the current domestic economy requirements.

This is the nub of the housing risk. 

Real estate for private consumption is not self liquidating - it requires income produced from the economy to service it. National income is falling and interest rates as an expense reduction shock absorber, whilst working at the moment (maybe working too well in the circumstances)  are ultimately limited because of the CAD.

Check out Aus/US govt bond spread to see how much dampening may be left in the shock absorber before it bottoms out - USA is thinking about raising as we are thinking about easing but can we fund the CAD with a negative spread?

If the RBA plays hard ball on rates to suit the domestic economy over attracting capital then one saving grace is the nature of our exports and the make-up of our external liabilities/assets naturally acts to reduce the current account as the dollar falls. If the RBA won't give creditors what they want and they in turn won't lend the resulting  currencies plunge would eventually see the CAD eliminated - but there would be plenty of destruction and the country as a whole would end up with a reduced GDP in purchasing power parity terms.

High valuations create high risk.
High leverage ratio's create high risk.
Non self liquidating structures for buying assets introduce the risk of requiring revenue form other sources.
Volatility in 'other' revenue adds to the risk.

Bubbles are identified after a 'range' of possible outcomes have gone 'one' particular way and produced a bad outcome ie a bust. Is it a bubble? depends on the future outcome - so you need to know the future to categorically say its a bubble, but you can tell in the present that there is *some big risks that aren't being rewarded with adequate internal return* - and more worrying point seems to be that most don't see the downside risk just the risk of missing out on short term capital growth. - that's the real warning sign that things could go very badly wrong.


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## McLovin (17 April 2015)

kid hustlr said:


> Good chat Mclovin.
> 
> Your thoughts seem to echo mine. As extravagant as our house prices are (and they are) I can still see an investment case for them.
> 
> ...




I'm not actually arguing an investment case for housing investment in Australia. I actually think it's pretty grim*, although a former colleague from London recently relocated to Melbourne "because we can actually afford to buy a home here". House prices seem pretty close to the envelope. It doesn't seem like much of a shock would prompt at least a correction. 

I was more addressing the point of how the banks would cope under such a scenario of being frozen out of international debt markets.

I'm completely befuddled by home prices. Not just in Australia I might add.

*Grim as in at best I reckon you'll get inflation back over the next 10 years, in Sydney at least.


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## kid hustlr (17 April 2015)

ALlways enjoy craft/mclovin posts and I should add my currency crisis comment was more of a rhetorical question to spark discussion rather than a view (and it worked!)

To put my cards on the table - I was iffy several years back about property but felt at my age and situation the 'safe' play was to buy a PPR - I had the deposit and I just wanted to 'life hedge' for lack of a better term whilst I developed a plan. It proved to be a good move to the extent the hedge worked, now I wish I'd taken on additional risk lol.

Craft,

I'll need to read your thoughts again but they seem far to intelligent for a housing price discussion 

'High valuations create high risk.
 High leverage ratio's create high risk.'

Completely agree.

I also agree with your notion that the RBA will look after the CAD above anything else, although I think managing house prices would be on the agenda as the implications of a collapse would be dire.

Mclovin - I didn't think housing would beat inflation over the next 10 years, and that was 3 years ago (wrong). I believe it to be true now though fwiw.

Quite scary to think about the possible loss of 'wealth' for the average Aussie on an internation scale when the AUD is falling heavily and house prices turn.


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## So_Cynical (17 April 2015)

Last night, ABC the Business had a little smart story on housing, interest rates, the RBA etc.

http://iview.abc.net.au/programs/business/NU1504H029S00#playing

Starts at 1.30 and runs to 6.18 - love the coconut thinking, there really has been a tsunami of shells over the last 6 years.


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## Bill M (17 April 2015)

So_Cynical said:


> Last night, ABC the Business had a little smart story on housing, interest rates, the RBA etc.
> 
> http://iview.abc.net.au/programs/business/NU1504H029S00#playing
> 
> Starts at 1.30 and runs to 6.18 - love the coconut thinking, there really has been a tsunami of shells over the last 6 years.




Interesting clip however the part after 6.18 really explains the problem. New Zealand house prices are higher than ours. Their interest rates are higher than ours and they have introduced measures to try and curb higher house prices but it hasn't worked. In Auckland it came down to the same problem as Sydney, not enough supply and no matter what the government throws at the problem only one thing will fix it, build more houses and units. This of course doesn't apply to everywhere in Australia but in the case of Sydney it certainly does. Watch the later part of the video, it's quite good.


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## sydboy007 (21 April 2015)

Some interesting reports

http://www.lfeconomics.com/reports.html



> Today, there are few, if any, examples in modern history to suggest that the cost per square metre of land in such a sparsely populated nation has ever reached so high. It is significantly cheaper to acquire land (per square metre) on the hills of Malibu, California, with a view of the Pacific Ocean, than it is to acquire land in the remote Australian desert town of Alice Springs. Malibu is an affluent suburb in Los Angeles and globally recognized, while Alice Springs is a small, dusty town surrounded by desert with little economic activity or global recognition.
> 
> Australia’s largest capital city, Sydney, has one of the most expensive real estate markets in the world but does not share common density or economic characteristics of other cities that are globally recognized for having expensive real estate markets. These include cities such as London, New York, Paris, Monaco and Hong Kong. If Sydney were as densely populated as London, the city would have a population of close to 64 million inhabitants.


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## Tyler Durden (21 April 2015)

Maybe this is the trigger for the domino effect?



> Kaisa Group Holdings Ltd. became China’s first real estate company to default on its U.S. currency debt, capping a month of distress in bond markets amid an anti-corruption probe and fueling concern that losses will spread.
> 
> The default coincides with the expiration of a 30-day grace period on $52 million of missed interest payments on two dollar-denominated bonds, according to a Hong Kong stock exchange statement Monday. Kaisa, based in the southern city of Shenzhen, is struggling to service 65 billion yuan ($10.5 billion) of debt owed to both onshore and offshore lenders while becoming embroiled in President Xi Jinping’s crackdown on graft.
> 
> The developer’s problems have rippled across the region’s debt market, where investors starved of yield elsewhere in the world have swooped in to boost returns. As the government’s anti-corruption probes widen, it’s raising concern that defaults will spread after overseas noteholders bought a record $21.3 billion of bonds issued by Chinese property companies.




http://www.bloomberg.com/news/artic...r-china-developer-says-can-t-pay-dollar-debts


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## sydboy007 (22 April 2015)

Tyler Durden said:


> Maybe this is the trigger for the domino effect?
> 
> 
> 
> http://www.bloomberg.com/news/artic...r-china-developer-says-can-t-pay-dollar-debts




http://investinginchinesestocks.blogspot.com.au/



> Behind the scenes is the troubled credit guarantee industry.
> 
> In Hebei, only about half of credit guarantee firms are still in operation as banks raise their standards for cooperation. The main reason companies are shutting their doors is due to bad economic conditions. These guarantee firms are the lifeblood of small and medium companies who would otherwise be forced into the extremely high interest private lending market, and their quiet contraction is a major deflationary force ripping through the Chinese economy.
> 
> ...



.

Definitely looks like China's peak steel is well behind them, especially as scrap metal becomes a significant source.  $20B income cuts to Australia, with many companies barely profitable doesn't bode well to the gearing up of the economy we've been doing for many years.


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## Joules MM1 (11 May 2016)

Callam Pickering ‏@CallamPickering 

Property investors account for 46 per cent of new mortgage lending. FHB account for 11 per cent #ausbiz #property


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## Joules MM1 (11 May 2016)

Pete Wargent ‏@PeteWargent 

ABS 5609.0 Housing finance - homebuyer/investor switcheroo #ausbiz


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## Joules MM1 (11 May 2016)

CHART: Lending to Australian first home buyers is tanking
David Scutt
May 11, 2016, 1:19 PM




excerpt


> Last week, a Moody’s analyst suggested that while housing affordability deteriorated over the past 12 months, the worst may now be over. He believes housing costs may have peaked due to a pullback in housing prices (something that subsequently reversed in April, according to Corelogic RP Data) along the RBA’s latest rate cut to 1.75%.




http://www.businessinsider.com.au/chart-lending-to-australian-first-home-buyers-is-tanking-2016-5


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## satanoperca (12 May 2016)

> Last week, a Moody’s analyst suggested that while housing affordability deteriorated over the past 12 months, the worst may now be over. He believes housing costs may have peaked due to a pullback in housing prices (something that subsequently reversed in April, according to Corelogic RP Data) along the RBA’s latest rate cut to 1.75%.




Housing Affordability deteriorated = higher house price
may have peaked due to a pullback in housing prices = emphasis "may" great analysis, pigs may fly as well
reversed in April = how much, one month down is not the start of a new trend
RBA’s latest rate cut to 1.75% = wow, people can take on even more debt, crap, we are already one of the most privately indebted nation in the world, wish the RBA would just get this over with and drop interest rates to 0 and then house prices to the moon, then finally we might see some change when the RBA realizes the low IR don't stimulate growth.

Until this nation stops being obsessed with house prices and junk food, can we see a real transition into growth again. Why would anyone put their money into starting or supporting a business, given the risks when the govnuts and the RBA are to focused on keep the property bubble going? 

Where have our leaders gone?

All that tied up debt in housing, really productive and sustainable way to growth again, FFS....

Maybe the RBA needs to a big wall mural in the office : the definition on insanity : keep doing the same thing over and over again and expecting a different outcome.


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## CanOz (12 May 2016)

One thing that you don't hear much of regarding the cost of housing, is the cost of the materials and labor. Generally the value is always in the land anyway. I'm curious as to what effect the exorbitant labor and materials cost in Australia has been responsible for house inflation. Thats not something that can be backed out of a bubble, its there for good.


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## satanoperca (12 May 2016)

CanOz said:


> One thing that you don't hear much of regarding the cost of housing, is the cost of the materials and labor. Generally the value is always in the land anyway. I'm curious as to what effect the exorbitant labor and materials cost in Australia has been responsible for house inflation. Thats not something that can be backed out of a bubble, its there for good.




Interesting thought. Construction methods can change with technology, to bring down prices, just have to look at how the Japanese and Germans build homes, in factories, greater efficiencies. Labor costs can decrease if we see unemployment kick up, just have to look at tradies wages in WA or demand drops for housing or the type of housing, who needs a 45 Sq home. A shift away from housing as an investment back to shelter could see some changes.

I would guess that the cost per square for housing has decreased over the last 20 years, taking into account inflation, it is just people want big **** housing, sacrificing design and quality.


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## So_Cynical (28 May 2016)

Interesting video...Australia's Secret Sub-Prime Crisis.
`


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## Mrmagoo (27 June 2016)

LMAO@ the denial ism in this thread. The Anglo sphere is more or less finished. We have crippling debt and a broke government. We are going to experience a Greek like financial crisis. Much of the anglo world will experience similar. 

I was shocked to learn that in Europe if you clear 500 euro a week, you're considered to be on a good wage. IS $750 a week in Australia considered a "good wage". We simply cannot keep up the earnings required to service our debt.


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## Ald123 (28 June 2016)

House prices in Australia are high because of the following reasons

1) cheap credit from overseas sourced from endless money printing
2) given to a mass of unintelligent people 
3) to support the building industry of year 10 graduates who can do little else now that mining and manufacturing has been decimated
4) to support the real estate agents
5) who charge about 10 -18% to sell a house thus also raising prices
6) raised prices also supported by unimaginative state governments who rely on stamp duty
8) and corrupt councils filled with property developers who artificially limit land supply and sell it their mates 
9) the developers who further limit supply and keep rentals out of the market to raise rental prices
10) which the federal Goverment helps with by flooding the country with immigrants whenever a economic downturn is experienced.
11) and then all the welfare to the rich like negative gearing and subsidies like the first home owners grant and other masturbations of the economy that govt orgasms with like fiddling with capital gains tax
12) plus add to all this the lack of grand aged care schemes of Goverment run aged old homes causing people to greedily screw one another over with housing and rental accommodation. 

These all result in high prices.

The end result of all this is finally that the housing prices will crash and the migrants won't come anymore because there will be no jobs for them and the salaries will drop. 

Usury economies always, always result in revolutions and collapse.

If you want to avoid this problem. 
Do this

1) sellers sell your house privately and stop feeding the real estate agent parasites make them go and do productive work

2) home owners rent your houses out yourselves and raise the rents

3) home buyers stop buying houses and moving house for 2 years

4) renters stop moving houses for 2 year and don't buy houses

5) home buyers don't buy houses, don't go to the home opens for two years. 

In two years time by doing this

Interest rates will be 2% and your home loan will have no penalties and no fees and will be fixed for 30 years
Property quality will be greatly improved
Block size will increase resulting in suburbs that are green and full of trees good for climate change
House will be cheap
Jobs will be plentiful
Childcare and medical cheap

But first 1 year of pain and a lot of useless parasites in banking and real estate will become cheap labour. 
Your bank manager will be mowing your lawn for $15 a hour. Your real estate agent will paint your house for $2000


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## tech/a (28 June 2016)

Ald123 said:


> House prices in Australia are high because of the following reasons
> 
> 1) cheap credit from overseas sourced from endless money printing
> 2) given to a mass of unintelligent people
> ...





Is that you Donald---T Taking the P---??


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## trainspotter (28 June 2016)

Ald123 said:


> Interest rates will be 2% and your home loan will have no penalties and no fees and will be fixed for 30 years
> Property quality will be greatly improved
> *Block size will increase resulting in suburbs that are green and full of trees good for climate change*
> House will be cheap
> ...




Not bloody likely Ald123. Why would a developer of land give up yield to make the blocks bigger? The land dollar  component would raise exponentially with the size of the block


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## satanoperca (28 June 2016)

Aussie Housing may be in a bubble, but the govnuts will keep it inflated until they have exhausted every avenue and then it may deflate.

Without doubt, they can keep it alive by allowing immigration to keep on flowing at high, unsustainable levels. There are 10 of millions of people who are willing to pay for the right to live in this country.

Lib's latest is allowing visas for foreigners to attend our schools at primary school level and buy established property, yes established. this bubble has a long way to go.


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## CanOz (28 June 2016)

satanoperca said:


> Aussie Housing may be in a bubble, but the govnuts will keep it inflated until they have exhausted every avenue and then it may deflate.
> 
> Without doubt, they can keep it alive by allowing immigration to keep on flowing at high, unsustainable levels. There are 10 of millions of people who are willing to pay for the right to live in this country.
> 
> Lib's latest is allowing visas for foreigners to attend our schools at primary school level and buy established property, yes established. this bubble has a long way to go.




Yeah, i agree, i think there is still demand. A global crisis might slow things down a bit tho. 

Immigration is good, productive consumers are good for the economy. They help pay for the real refugee's and dole bludgers alike. I'd like to think of myself as a productive immigrant. Very low burden on the system, good consumer


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## Ald123 (28 June 2016)

trainspotter said:


> Not bloody likely Ald123. Why would a developer of land give up yield to make the blocks bigger? The land dollar  component would raise exponentially with the size of the block




Because if nobodies buying he. Has to make the deal attractive. To make it attractive he will have to make a beautiful suburb for families to live in with big blocks and trees. Not this Disney land rubbish on small blocks. 

I am sick of hearing my neighbours screwing or arguing and swearing at each other by living on a small block. 
I can't even let the kids out to play.


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## poverty (29 June 2016)

All these dial-a-suburbs make me sick.  The houses are built so cheaply they won't even last 20 years and you can literally hear your neighbour taking a ****.


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## trainspotter (29 June 2016)

Ald123 said:


> Because if nobodies buying he. Has to make the deal attractive. To make it attractive he will have to make a beautiful suburb for families to live in with big blocks and trees. Not this Disney land rubbish on small blocks.
> 
> I am sick of hearing my neighbours screwing or arguing and swearing at each other by living on a small block.
> I can't even let the kids out to play.




Ermmm m righto 

ERGO the cost of the attractive, beautiful suburb for families with big blocks and trees IS the Disney model and Disney aint cheap !!


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## satanoperca (29 June 2016)

Aussies are not different to Americans.

Supersize me, f---k quality and design. Give me big, I need a five bedroom house with four bedrooms for me and me wife + 5 TV's and 3 Cars.

I will always take a well designed home/apartment that suits me needs and is considered small, than a supersized house with inferior design and building standards.

I don't live in my home, rather the suburb it is in, parks and facilities are more important than size of said home.

Seems the same logic applies to food and interesting that a German company has been able to show our local supermarkets that you can provide good quality for a fair price, who would have thought.


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## CanOz (29 June 2016)

satanoperca said:


> Aussies are not different to Americans.
> 
> Supersize me, f---k quality and design. Give me big, I need a five bedroom house with four bedrooms for me and me wife + 5 TV's and 3 Cars.
> 
> ...




Maybe its just QLD but when i lived in Victoria and SA, in the late 90's up to 2005, the building quality was pretty good. Since we've been looking at houses here in QLD, i've been surprised at the poorer quality in some of the newer homes...I guess its a symptom of a boom too, knock 'em out at any level of quality, just build them fast!


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## mullokintyre (11 December 2021)

CanOz said:


> Maybe its just QLD but when i lived in Victoria and SA, in the late 90's up to 2005, the building quality was pretty good. Since we've been looking at houses here in QLD, i've been surprised at the poorer quality in some of the newer homes...I guess its a symptom of a boom too, knock 'em out at any level of quality, just build them fast!



It seems problems in Queensland just keep popping up.
Another mid tier builder , BA Murphy has had its Q;d licence suspended by the  QBCC. It follows the recent demise of privium construction.
While researching , I came across the following from 2017. 
The Chinese part could well apply even today.
Business Insider


> *More than 30 construction companies in Queensland have collapsed this year.*
> *A new report into the risk of further failures puts another 444 building businesses at “high to severe” risk of failure in the next 12 months.*
> *An apartment glut and loss of Chinese investors are believed to be factors.*
> A Brisbane-based construction company linked to a massive Chinese building business is on the brink of collapse in another sign that Queensland’s building industry is struggling.
> ...



It also happened in 2020
FromTodays Headlines
Subcontractors were short-changed millions of dollars following the collapse of several major Queensland construction companies.

The state’s building sector sailed into uncertainty at the start of the year with building approvals at year-long lows.

Here are some of the state’s most costly and publicised collapses of 2020.


> MJM Projects Pty Ltd – trading as Vystal Construction and Development​*Collapsed January 29*
> Sub-contractors and workers were owed a staggering $4.1 million following the shock collapse of a major Queensland construction business.
> 
> At the time of its collapse the company owed 182 secured and unsecured creditors $3.99 million, a financial report authored by liquidator Steven Staatz revealed.
> ...



Must be a difficult place to build up there.
Mick


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## qldfrog (11 December 2021)

mullokintyre said:


> It seems problems in Queensland just keep popping up.
> Another mid tier builder , BA Murphy has had its Q;d licence suspended by the  QBCC. It follows the recent demise of privium construction.
> While researching , I came across the following from 2017.
> The Chinese part could well apply even today.
> ...



Just phoenix companies.just avoiding major drama with a pool builder 
Company get all these contract and down payments then stop paying contractors, suppliers and ato dues.alk moneys to owners or sucked another way.collapse then  reborn the next day and restart under new name.
Rince and repeat.maybe easier to do in qld?


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## mullokintyre (8 November 2022)

mullokintyre said:


> It seems problems in Queensland just keep popping up.
> Another mid tier builder , BA Murphy has had its Q;d licence suspended by the  QBCC. It follows the recent demise of privium construction.
> While researching , I came across the following from 2017.
> The Chinese part could well apply even today.
> ...



One of the owners of hte melbourne cuop winner, paul Kanskey, has finally run out of luck.
Lanskey constructions QLd has a list of creditors that total  $11.2 million, including the ATO.
From The evil murdoch empire


> A report lodged by liquidators FTI Consulting with the Australian Securities and Investments Commission (ASIC) Tuesday reveals Lanskey Constructions Qld Pty Ltd’s 282 unsecured creditors including the Australian Taxation Office, suppliers and subcontractors are owed $11.2m. FTI declined comment on the report.
> 
> Ben Campbell and John Park, of FTI Consulting, were appointed by directors to wind up the company last month but said the liquidation did not impact other entities in the Lanskey Construction Group.
> Lanskey, founded in 1986 by Paul Lanskey and Ross Williams, is involved in large commercial projects across Australasia with offices in Brisbane, Sydney, Melbourne, Perth and Auckland.
> ...




The article hints that there may be a few more joining Mr Lankys group.


> The liquidation of Lanskey Constructions Qld comes as one of Australia’s largest home builders and a major sponsor of the renovation television show The Block, the Simonds Group, is considering a capital injection as it faces a prolonged and challenging construction environment.
> 
> The Melbourne-based company, that started in 1949 and was ranked in seventh place in the Housing Industry Association largest home builders list this year, faces an uncertain future.
> 
> In September, Simonds said it would slash 9 per cent of its workforce after suffering a net loss of $9.7m in the 12 months to June 30 due to rising costs. It has been seeking to realign its cost base and strengthen core operations.



Interestingly, the Block Austions which took place were a bit of a dud result, and may indicate the  problems that are about to surface in the housing market.


> Three of the houses were passed in at auction, one sold in post-auction negotiations, and two remain on the market today. Of the three houses that did sell — all to serial buyer Danny Wallis, nonetheless — one broke The Block's record in terms of prize money. Sadly, another house incurred one of the smallest profits seen since the 2014 season.



A cynic might suggest that Danny Wallis's main job is to pay over the odds for the houses to ensure the success of the show, and keep the money rolling in for the main players.
Mick


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## divs4ever (8 November 2022)

qldfrog said:


> Just phoenix companies.just avoiding major drama with a pool builder
> Company get all these contract and down payments then stop paying contractors, suppliers and ato dues.alk moneys to owners or sucked another way.collapse then  reborn the next day and restart under new name.
> Rince and repeat.maybe easier to do in qld?



 not so sure it is easier in QLD , but it does convince the more mathematically skilled tradies to seek another career  ( or retire when they have a comfortable nest egg )

 and of course second rate subbies only compound the problems ( because all the better ones have left the industry )


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