# Keen warns Australia headed for sub-prime crisis



## metric (22 March 2009)

Australian housing market holds sub-prime danger
By Glenn Milne and Nick Gardner
The Sunday Telegraph
March 22, 2009 12:01am
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+ - Print Email Share Add to MySpace Add to Digg Add to del.icio.us Add to Fark Post to Facebook Add to Kwoff What are these? Australia copying US mistakes 
Bankruptcy risk driven by stimulus 
"First homebuyers most vulnerable" 
AUSTRALIA is facing its own version of the US sub-prime housing crisis, with thousands of young homeowners risking bankruptcy as a result of Kevin Rudd's economic stimulus package. 

That is the grim warning from the economic expert who first called the debt crisis that is driving the global financial meltdown. 

Dubbing the looming crisis "Sub-Prime Lite," Professor Steve Keen told The Sunday Telegraph Australia was making the same mistakes as the US. 

Professor Keen said in trying to avoid an economic crisis caused by too much borrowing, Australia was in effect encouraging the poorest in the community to take on even more debt. 

"Yet these low-paid first homebuyers are the people who are most vulnerable to the economic downturn," he said. 

The top end of  capital cities housing market has been suffering for some time as mass redundancies within the financial sector have forced homeowners to sell. 


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Reader's Comments: First-time buyers storm market
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How property will stand up
The Australian, 5 Nov 2008 
House of cards tumbles down
The Australian, 18 Oct 2008 
Meanwhile, the first-home buyer end of the market has been booming. 

But economists fear this flurry of activity at the lower end has inflated prices to unsustainable levels. 

In Sydney, the average property already costs nine times the average household income, while the UK and US reached a peak of only seven times average income before their markets crashed. 

According to Professor Keen, the First Home Owner Grant has cost the government about $200million, but has inflated property prices by close to $3billion. 

"This is all illusionary wealth that could disappear very quickly," he said. 

"The additional $2.8billion or so has come from increased mortgage debt taken on by those most vulnerable to a serious economic downturn at a time when we can see very clearly that the global recession is coming our way." 

The Government may well extend the first-homebuyer grant beyond its planned end-date of June 30, which Professor Keen says will end up pumping the market to even higher levels. 

The University of Western Sydney professor said he had sold his Sydney house because he feared a property crash, but his gloomy view on the market has been backed by other experts. 

Gerard Minack, chief economist at Morgan Stanley, said property prices were likely to fall by 20 per cent in some cities, while the value of houses on coastal strips such as the NSW mid-north coast and the Gold Coast could halve. 

"People paid Hamptons prices for properties up there but it is not the Hamptons," he said. 

"Traditionally what has hurt people has not been rising interest rates but rising unemployment. I don't care what rate you're paying, if you have a mortgage five times your income and you lose your job, you're toast." 

Mr Minack said while he understood the motivation behind the grants, encouraging marginal buyers to enter the market at this stage of the cycle (just ahead of a sharp rise in unemployment and with interest rates so low), Australia risked "creating a sub-prime underbelly in our own housing market". 

With unemployment currently at just over 5 per cent, many economists are forecasting it will peak at 8-9 per cent in 2010, which will lead to a "bloodbath" in the property market as thousands of mortgagors default on their loans. 

Most buyers were also taking out low, variable-rate mortgages, which left them exposed to rapidly rising rates when the economy began to recover and this would also spell trouble for many buyers. 
http://www.news.com.au/business/money/story/0,28323,25223797-5013951,00.html


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## robots (22 March 2009)

hello,

still waiting on my properties to go down 50%, based on an auction a few weeks ago Keen hasnt even got -0.1%

you cant have it both ways, for years you telling people interest rates are going like Japan and now you telling people interest rates are going up agian,

get over it, find a solution for the jealousy

thankyou
robots


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## Beej (22 March 2009)

That is a very long draw on the the bow! But it keeps your name in the paper I suppose. Keen is just upset because it is looking like all his doom and gloom predictions were just hot air.



> Yet these low-paid first homebuyers are the people who are most vulnerable to the economic downturn




PS: Who says that just because someone is a FHB that they are "low paid" anyway? That's the whole basis of his opinion in that article. The reality is that Australia has nothing like sub-prime, the banks are prudent in how they assess peoples capacity to repay when they make loans - even more so now than in the past few years, so therefore there is NOTHING like US sub-prime going on in AU. As discussed elsewhere, the potential impact of rising unemployment on the PRICES of houses in Australia is being over-played - we've had rising prices and rising unemployment on several occasions in the past.

All we are seeing now is some of the massive pent up demand for PPOR property kicking in, especially in Sydney, being encouraged by primarily low interest rates, and to a lesser extent by the FHB grant boost.

Cheers,

Beej


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## kincella (22 March 2009)

keen needs publicity to sell his books and papers....how to get cheap free publicity ????
easy ...just say something really outrageous....gets into the news, and its free...sales a bit slow...well keep just keep hammering away

unless of course its an ...aditorial...(editorial not, but an advertisement yes)he pays the advertising fee...and the papers makes it look like its actually news
if he was so smart....why wait until you are 50, to buy your first home, at the top of the market, then have to sell it at the worst possible time...when the market has bottomed ???
so he is back to renting....
and still only an associate professor....


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## Absolutely (22 March 2009)

This is really pissing me off.

I want to buy a house. But I listen to Keen and hear about all the doom and gloom for house prices in coming months. So keep thinking I will hold off.

Every weekend I find something I like. But the price is right up there, a bit of a stretch. So I think to myself, I'll be able to get this place in a few months time for $50,000+ less. But two weeks later the place has sold for about the original asking price. Happening again and again right now.

I think house prices should come down. They are definitely too high. But the thing is, I am beginning to think they are just not going to.

If Keen is wrong, and I miss the boat, I will feel like suing !


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## Prospector (22 March 2009)

As kincella said, Keen needs publicity to fuel his tenureship at University.  The more media exposure, the better his package.  And the more his book sells.  He is at the University of Western Sydney, hardly the font of Economic knowledge. As they say, those who are good, do; those who are not, teach!  yeah, I see he is only an Associate too - that means so little in Academic circles.  Usually given to people who have just 'been there' for a long period of time.

The main risk I see at the moment is buying a house, getting a mortgage then becoming unemployed.  If you can manage that risk somehow, then it seems an ideal time to buy a house.  Expect house prices may fall around 10% but hey, that is really not a big deal in the overall scheme of things.


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## robots (22 March 2009)

Absolutely said:


> This is really pissing me off.
> 
> *I want to buy a house. But I listen to Keen and hear about all the doom and gloom for house prices in coming months. So keep thinking I will hold off.*
> 
> ...




hello,

you should me listening to the kings of ASF man (robots, beej, kincella, techno, kathmandu, BillM etc)

these posters are out there putting in the hard yards and posting honestly on what the situation is, 

keep an eye on "house prices to keep rising for years" for informative posts

thankyou
robots


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## tech/a (22 March 2009)

> The main risk I see at the moment is buying a house, getting a mortgage then becoming unemployed. If you can manage that risk somehow, then it seems an ideal time to buy a house. Expect house prices may fall around 10% but hey, that is really not a big deal in the overall scheme of things.




Blond and Brains.
My sorta gal.


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## Prospector (22 March 2009)

tech/a said:


> Blond and Brains.
> My sorta gal.




hey thanks tech/a - coming from you means a lot! :


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## nomore4s (22 March 2009)

Absolutely said:


> If Keen is wrong, and I miss the boat, I will feel like suing !




Is that a joke?

You're basing your property buying on one mans opinion?

While I think property is overpriced I'm unsure of what the catalyst might be to set off a massive deline in prices. The only thing I can think of is massive unemployment of over 15% but if that happens our economy will be in deep dodo and be approaching a depression. But to be honest I really can't see that happening atm, due to our economy so far standing up really well compared to overseas countries. What we could see is a long period of stagnation.

The extreme bearish views by some (which has now become fairly mainstream) will have to be rethought shortly unless we see a massive deterioration of our economy very soon because so far at worst we have only seen a mild recession. While I think the economy is going to contract some more I don't think we will see these extreme bearish views playing out. 

I also find it amusing that our economy has stood up really well so far due in part to our banks, this must really hurt some of the bears.


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## cwamit (22 March 2009)

if house prices wont go down and its all hunky dory, why is the government spending your and mine tax money to help a first home buyer?

1. perhaps housing is unfordable for a first home buyer ? that was the political  impetuous for the first home buyers grant to begin with. now the impetuous is to keep the housing sector employed  more so than the grant being used to keep housing affordable  for first time buyers. with interest rates lower than when the first home owners grant came out you cant argue its about affordability anymore but propping up the housing industry and house prices. the first home buyers grant was ok when interest rates where maxed out and where going to go down.. but now we are almost at the bottom of the interest rate cycle its eventually going to be an uptrend and will bite new home owners that have borrowed too much..


2. if they are not  ALL low wages. (as someone pointed out). then why need the first home owners grant? oh because they are buying something more to match their earnings, but against what, a low interest rate? so when  interest rates go up... what then?

3. government funding will always distort a market if the prices fall by the amount of the grant then isn't that the same, financially speaking for the buyer to commit to for their earning power. (supply and demand point made later)


4. the grant does nothing to distinguish  a good creditor from a poor creditor in regards to home loans for banks..   saving a deposit shows good money management skills, something a bank cant attain until the fact the creditor is in debt  when the deposit is from a government grant.  the bank can only attain the borrowers assets, liabilities and paycheck all which have the ability to change...as rapidly as the economy has in the past 6 months.

5. supply and demand dynamics,  everyone knows in demand prices go up  and with over supply prices go down.  by propping up the housing market with the grant its creating a fake demand regarding property price.. there is demand without a doubt but that demand is only there when houses are affordable to the purchaser... pull away the first home owners grant and see how that demand diminishes to an affordable value for a first home buyer. 

6.the last point of which gets thrown about  .. no one will sell their home for 50k less than what it was valued at 12 months ago... (investors wont unless forced too) but the average jo looking for a sea or suburb change can and will if they are also buying a house that was 50k cheaper than 12 months ago. point is you sell high you buy high.. you sell low you buy low.  unfortunately its those that bought high that have to sell low that get burnt but they eventually bring the market values down. 



i wouldn't think  our housing market is like the american or British.. but the first home buyers grant has its similarities to the subprime crises in distorting a market, mixing up good borrowers from bad borrowers and combined with low interest rates that will go up its all going to end in tears for many over leveraged, and eventual negative equity home buyers..


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## kincella (22 March 2009)

reply to absolutley....you have choices....if you are serious about buying a home...than look in a lower price bracket...something you can afford now....and while interest rates are low
or if you are  wanting prices to go lower, than you may have to wait quite awhile...how long to wait I have no idea
there are plenty of affordable houses out there...those homes are not close to the cbd...ie inner city
or look at a unit...they are cheaper...
this GFC is lingering...because all the money that is said to be thrown at the banks,,,has not freed up capital  for lending...which seems to be the crux of the problem

I have questions in my mind....if I were in your shoes, would I opt for the affordable house now and then lock in the low interest rates....or would I wait for the prices to come down....and if I wait...what if the banks tighten lending even further down the track, and demand say 20% deposit and proof of the savings...say at least 6-12 months history...are you in a position to meet those hurdles ? 
then if the whole thing turns around next year....will they start jacking interest rates back up to 7% fairly quickly ???? could you still afford to buy

there are a lot of pro's and cons...so you need to list them and decide
a big dilemna for a first home buyer....

sometimes when I cannot decide what to do....I do nothing at all...never force myself into a quick decision....miss an opportunity now...so what, really there should be opportunites available to you all your life....you just need to recognise them

read some ridiculous things about banks here in OZ foreclosing on a late payment of 13.56...in the news today


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## psychic (22 March 2009)

Why buy a house right now, believe me there is no urgency to buy?  This assest class needs to be popped just like every assest class is popping around us. A recession = job losses = reduced incomes = defaults on loans = bad debt = collapse in house prices = collapse in bank share prices.


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## Prospector (22 March 2009)

cwamit said:


> if house prices wont go down and its all hunky dory, why is the government spending your and mine tax money to help a first home buyer?



The first home owners grant has been happening for as long as I can remember, so any issues are to do with getting into the market as a FHO and nothing to do with the Global crisis.  It is only just in the last few months that it has been increased. Given that for a property worth around $300,000 (entry level in SA) you pay $11,000 stamp duty   - almost the same as the FHOG then all it does is pay state taxes! The global crisis is just another part of the jigsaw and not the driving reason.


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## kincella (22 March 2009)

prospector...I thought stamp duty was abolished in most states for fhb's up to a certain level...its not something that affects me, so am not sure


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## Prospector (22 March 2009)

kincella said:


> prospector...I thought stamp duty was abolished in most states for fhb's up to a certain level...its not something that affects me, so am not sure



Not in SA, I checked the SA Revenue website before I posted; houses at $300,000 are excluded from any concessions because of their value.  Bloody Government!


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## Dowdy (22 March 2009)

kincella said:


> if he was so smart....why wait until you are 50, to buy your first home, at the top of the market, then have to sell it at the worst possible time...when the market has bottomed ???
> so he is back to renting....




did you read the article. He sold his house because he reckons the property market will crash. He never told us when he bought it so he most likely bought low and sold high. 

And what made you come to the conclusion that the market has bottomed?


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## cwamit (22 March 2009)

Prospector said:


> The first home owners grant has been happening for as long as I can remember, so any issues are to do with getting into the market as a FHO and nothing to do with the Global crisis.  It is only just in the last few months that it has been increased. Given that for a property worth around $300,000 (entry level in SA) you pay $11,000 stamp duty   - almost the same as the FHOG then all it does is pay state taxes! The global crisis is just another part of the jigsaw and not the driving reason.




"The First Home Owner Grant (FHOG) scheme was introduced on 1 July 2000 to offset the effect of the GST on home ownership. It is a national scheme funded by the states and territories and administered under their own legislation."


so do you think its still being done because of the gst, it was originally  because the introduction of the tax was going to cause a downturn in the house building industry due to many building cost going up by 10 percent that didn't have a tax pre gst, it then went from that reasoning to a booming economy and increase in house prices combined eventually with the uptrend cycle of higher interest rates that made it difficult for first home owners to buy into a first home, now interest rates have declined due to the credit crises and lack of growth the first home owners grant has been continued to prop up the house building industry.

interesting article in the Sunday times states 40 percent of  house sales are from first home owners. investors are not looking at buying until end of june (i think) to see if the first home owners grant will continue (in other words most people are waiting for a house price decline if/when the grant is discontinued) , of course its a no brainer for the housing industry to come out and say it should be kept going  and it probably will so it continues keeping tradies in work, but ultimately it gets back to the sub prime similarities.


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## Knobby22 (22 March 2009)

I don't think everyone should be so quick to write off Professor Keen.

If unemployment stays within a reasonable zone, say 7% then he may well be proven wrong, however, if this recession lasts 4 years, as some economists expect it will be known as the "Great Recession" and once house prices start collapsing, then he may be right.

Have a look at his website. It is quite interesting.


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## So_Cynical (22 March 2009)

Absolutely said:


> This is really pissing me off.
> 
> I want to buy a house.




And there's the problem...u want something, its personal and emotional.

Your looking at it as a house not an asset.


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## It's Snake Pliskin (22 March 2009)

Absolutely said:


> This is really pissing me off.
> 
> I want to buy a house. But I listen to Keen and hear about all the doom and gloom for house prices in coming months. So keep thinking I will hold off.
> 
> ...




If you miss the boat it will be your own doing not Keens! We are all responsible for our own decisions.


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## It's Snake Pliskin (22 March 2009)

So_Cynical said:


> And there's the problem...u want something, its personal and emotional.
> 
> Your looking at it as a house not an asset.



It's a liability not an asset. If you don't own something outright it is a liablity.


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## gav (22 March 2009)

kincella said:


> prospector...I thought stamp duty was abolished in most states for fhb's up to a certain level...its not something that affects me, so am not sure




FHB's in Vic still have to pay stamp duty 

We get a SLIGHT concession, but not much.


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## MrBurns (22 March 2009)

Absolutely said:


> This is really pissing me off.
> 
> I want to buy a house. But I listen to Keen and hear about all the doom and gloom for house prices in coming months. So keep thinking I will hold off.
> 
> ...




The only boat you'll miss is the SS RuddTanic

Buying a house is an emotional thing so if you see someting you cant live without go ahead *but only if you can lock your interest rate in for 5 years and are sure you wont lose your job.*

Apart from that wait and see it all happen, it will start in a few months.


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## Dowdy (22 March 2009)

It's Snake Pliskin said:


> It's a liability not an asset. If you don't own something outright it is a liablity.




one reason why the housing market will collapse. No one owns their home but they all act and spend like they do, epically the speculators. They all say they have 3-4 houses. All they have is 3-4 30year fixed mortgages hoping to earn big based on the assumption they can *only* increase in value.

 Same problem that occurred in the states - since house prices never fell since the great depression everyone was speculating they would never fall and they can only go up so they also bought 3-4 houses with 30 year mortgages. While never actually owning their home they all spent and acted like they did.


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## robots (22 March 2009)

hello,

more assumptions and jealousy about what "other" people are doing, people should focus on their own well being 

thankyou
associate professor robots


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## nunthewiser (22 March 2009)

robots said:


> hello,
> 
> more assumptions and jealousy about what "other" people are doing, people should focus on their own well being
> 
> ...




amen! 

have a great day professor


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## Wysiwyg (22 March 2009)

robots said:


> hello,
> 
> more assumptions and jealousy about what "other" people are doing, people should focus on their own well being
> 
> ...




I want house prices to come down further.Along with the exorbitant rents charged by the fat greedy owners.


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## sinner (22 March 2009)

Where are these magic properties where it is cheaper to buy next door than rent your current spot?

In our area (Marsfield, Sydney) the rent is approx $500-600 cheaper a month than buying the spot next door, and our particular street happens to be one of the most liquid in the whole area thanks to a combination of uni students and lots of yuppies.


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## Prospector (22 March 2009)

Wysiwyg said:


> I want house prices to come down further.Along with the exorbitant rents charged by the fat greedy owners.




Whoa, nice assumptions there.  Our IP costs us far more than we could ever charge in rent, thanks to Land Tax, Body Corporate, Council rates etc.


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## nunthewiser (22 March 2009)

Assumptions all over the joint !

1 assumin g we all have mortgages 

another assuming all us investment property owners are fat !

i assume both these posters bitter they got left behind on the property wheel and missed out in the first place when things were a bit cheaper?


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## Lucky_Country (22 March 2009)

The banks are the key to the property market.

Will they foreclose on people who fall behind knowing its will affect their profits or help the unfortunate out and keep the house prices stable ?

Unemployment will rise fast and is set to top 8% within the next 6 months.

Anyone who thinks AUS can escape a downturn in house prices when the rest of the world already has is dreaming.

Maybe a buy in 12 months !


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## kincella (22 March 2009)

hmmmm the fat greedy owners bit....

that is a bit rich....its a market place just like any other market....if you dont have the money, or dont want to pay the price, that is your choice...stay away from that market

you should check the rules before playing any game....

like some posters on another forum ...
...if you think the place is worth a lot less, just roll up and make an offer anyway....its worth a try
what would you call the people who made offers of half the market value for the hampton houses involved in the methane gas problem....or the people who lost their houses to the fires....

I guess Boral and all the other companies that make building products will have to import basically slave labour...in order to bring the prices of materials down...or worse...send their operations overseas.....and create even more unemployment
be careful what you wish for....or it may come true


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## Dowdy (22 March 2009)

robots said:


> hello,
> 
> more assumptions and jealousy about what "other" people are doing, people should focus on their own well being
> 
> ...




so your a professor now AND you have followers! Talk abut an ego


You know there's something wrong with the market when people are actually listening to Robots.

One story from the Great Depression was when a stockbrokers' shoe shine boy was giving him stock tips, he then knew it was a time to get out of the market


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## MrBurns (22 March 2009)

Lucky_Country said:


> Maybe a buy in 12 months !




More like 2 years.


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## robots (22 March 2009)

Dowdy said:


> so your a professor now AND you have followers! Talk abut an ego
> 
> 
> You know there's something wrong with the market when people are actually listening to Robots.
> ...




hello,

yes associate professor robots, 

bought the certificate for $3.95 next to the 2-pack NoDoz at 7-eleven, i hope TheAge or Herald-Sun get in contact with me for some headlines

could turn around Fairfax

thankyou
associate professor robots


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## sinner (22 March 2009)

I can see the headlines now

HELLO, ST. KILDA +14.08%, THANKYOU


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## Mickyd (22 March 2009)

If Australian housing is rightly priced, why do federal and state governments need first home grants and various incentives from different states?

If first home buyers can't afford housing, doesn't that tell us it's over priced? Why is the need to manipulate the price? Why not let the market decide? 

What would happen to the economy when house prices slide? 

Yes, so many rhetorical questions and yet such simple answers.

On a side note, why doesn't the government start a first car buyers grant? A$5000 payment to any  secondhand car that you buy or $10000 for a new one. That way we keep old car prices artificially high. Your old $500 Datsun 120Y is now worth at least $5500. 

I'm joking by the way.


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## beerwm (22 March 2009)

Mickyd said:


> If Australian housing is rightly priced, why do federal and state governments need first home grants and various incentives from different states?
> 
> If first home buyers can't afford housing, doesn't that tell us it's over priced? Why is the need to manipulate the price? Why not let the market decide?
> 
> ...




havent you heard, regulated markets are all the rage,

free markets are so last year.


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## MrBurns (22 March 2009)

beerwm said:


> havent you heard, regulated markets are all the rage,
> free markets are so last year.




They think they can regulate it but markets have a habit of hittng back, wait for it


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## Prospector (22 March 2009)

Mickyd said:


> If Australian housing is rightly priced, why do federal and state governments need first home grants and various incentives from different states?
> 
> If first home buyers can't afford housing, doesn't that tell us it's over priced? Why is the need to manipulate the price? Why not let the market decide? .




No, its because the States continue to charge outrageous fees that were supposed to be dropped when the GST came in.  Like stamp duties on mortgages and purchases.  So not only do FHB have to afford the cost of the house, for a property of $300,000 with a mortgage of around $270,000 they have to afford another $13,000 - for bureacratic nonsense!


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## Lucky_Country (22 March 2009)

MrBurns said:


> More like 2 years.




2 Years based on what theory ?

I say 12 months due to being the height of the recession intrest rates at there lows and property prices bottoming out.

No exact science but just my theory.


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## Wysiwyg (22 March 2009)

Prospector said:


> Whoa, nice assumptions there.  Our IP costs us far more than we could ever charge in rent, thanks to Land Tax, Body Corporate, Council rates etc.




Hi there, do tax deductions for rental properties mean anything to your i.p.


> Expenses for which you may be entitled to an immediate deduction include the costs of advertising for tenants, council rates, water charges, land tax, insurance, agent’s fees, repairs and maintenance and any other immediate expenses you incur while the property is being rented or available for rent.




Buy a property and get the tenants to pay it off is easy money isn`t it?


*apologies from before to any landlord fatties.


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## MrBurns (22 March 2009)

Lucky_Country said:


> 2 Years based on what theory ?
> 
> I say 12 months due to being the height of the recession intrest rates at there lows and property prices bottoming out.
> 
> No exact science but just my theory.




It takes while to really kick in, been there .....seen it before.


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## Lucky_Country (22 March 2009)

MrBurns said:


> It takes while to really kick in, been there .....seen it before.




We have yet to see the real downward pressure kick in yet so will it really be that bad ?


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## Smurf1976 (22 March 2009)

Beej said:


> PS: Who says that just because someone is a FHB that they are "low paid" anyway? That's the whole basis of his opinion in that article.



1. FHB's are by nature predominantly younger people. 

2. I have never worked anywhere that did not, on average, pay 20 year olds less than 50 y.o. workers. The reason for that simply being the types of jobs normally occupied by younger workers are the lower paying ones - 20 year old senior managers are rare, for example, as are 50 year old office juniors. No doubt there are exceptions, but that is the norm in society.


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## MrBurns (22 March 2009)

Lucky_Country said:


> We have yet to see the real downward pressure kick in yet so will it really be that bad ?




I think so, there's too many downward pressures for it to resist for too much longer.

The banks have decided not to allow the FHBG to be included in the calculations for eligibility for loans so that will make a big difference fairly soon.

The mid range is being propped up by the FHBG which will be reduced in June and that also will have an effect.

The upper end is already badly effected.


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## Smurf1976 (22 March 2009)

Prospector said:


> No, its because the States continue to charge outrageous fees that were supposed to be dropped when the GST came in.  Like stamp duties on mortgages and purchases.  So not only do FHB have to afford the cost of the house, for a property of $300,000 with a mortgage of around $270,000 they have to afford another $13,000 - for bureacratic nonsense!



But if the stamp duties were dropped, wouldn't house sellers just increase prices to compensate?

Don't forget that FHB's aren't thinking in terms of "how much will I have to pay for this house". They're thinking in terms of "how much house can I get for the amount the bank will lend me?".

Simple inflation here. The size of the bank loan is whatever they will lend and that's not going to change if stamp duties are cut. Reduce one expense and that frees up more money to go toward the rest. Increasing money supply, static supply of properties = classic inflationary situation.

It would be different if the reduction in stamp duties resulted in smaller mortgages. But try telling the average FHB to do anything other than borrow the maximum the bank will lend and they'll think you're from another planet. Been there, tried that - even bank staff think you're wierd if you aren't asking "what's the maximum I can borrow" and basing your purchase on that amount. Changing that is a fundamental culture change - something that will happen someday but not without a lot of pain along the way. And when it does happen, well that's probably the market bottom...


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## Lucky_Country (22 March 2009)

MrBurns said:


> I think so, there's too many downward pressures for it to resist for too much longer.
> 
> The banks have decided not to allow the FHBG to be included in the calculations for eligibility for loans so that will make a big difference fairly soon.
> 
> ...




OK well what about the lack of housing supply its been tight for years ?
If it does drop by how much will it really be a US style 30% drop?


----------



## MrBurns (22 March 2009)

Lucky_Country said:


> OK well what about the lack of housing supply its been tight for years ?
> If it does drop by how much will it really be a US style 30% drop?




The demand might be there but the ability will be seriously impaired.

Dropped 30% in 1990, happened to me, that wasn't the bubble this is either.

Might be different this time but I cant think why.


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## Glen48 (22 March 2009)

We need suckers to buy homes and others to be in debt so the banks can charge interest and survive so the myth of doubling every 10 yrs keeps sucking other victims in to the Ponzi scheme any thing else like this would be banned for false advertising and a fraud.


----------



## MrBurns (22 March 2009)

Glen48 said:


> We need suckers to buy homes and others to be in debt so the banks can charge interest and survive so the myth of doubling every 10 yrs keeps sucking other victims in to the Ponzi scheme any thing else like this would be banned for false advertising and a fraud.




This is the bubble of all bubbles, when it pops it will be ugly.


----------



## nunthewiser (22 March 2009)

MrBurns said:


> Might be different this time but I cant think why.




 Its always "different this time"

pretty sure i heard a few spruiking that in regards to the stock market too 

time tells all

p.s a quick look at japans property and stock market long term charts are rather intresting

i think it was "different " there too


----------



## Lucky_Country (22 March 2009)

A few commentators have been saying house prices are going to tumble for some time now yet Im still waiting !!

I see intrest rates so low and think now is the time to get in but on the other hand unemployment still has to kick into the economey.

Ill wait and see I dont think I will need to race in thats for sure.

30% fall that would be nice for buyers but some will be ruined !!


----------



## Wysiwyg (22 March 2009)

MrBurns said:


> The demand might be there but the ability will be seriously impaired.
> 
> Dropped 30% in 1990, happened to me, that wasn't the bubble this is either.
> 
> Might be different this time but I cant think why.





It`s a bit like the approaching stock market drop off from last year.We could see the correction coming and the reasons behind it but the severity was always the unknown factor for us 95% ers.


----------



## MrBurns (22 March 2009)

Lucky_Country said:


> A few commentators have been saying house prices are going to tumble for some time now yet Im still waiting !!
> 
> I see intrest rates so low and think now is the time to get in but on the other hand unemployment still has to kick into the economey.
> 
> ...




Well I cant see prices going up so I would wait til this plays itself out a bit more.

You've got nothing to lose.


----------



## Wysiwyg (22 March 2009)

Lucky_Country said:


> 30% fall that would be nice for buyers but some will be ruined !!




The main course is humble pie and a lesson for all involved.


----------



## MrBurns (22 March 2009)

When I bought my house in 1988, I spoke with the agent and we both agreed the market was due for a fall and it did, the circumstances of this bubble make the last one look like a pup.

I bought because I'd already sold elsewhere so had to go somewhere and 2 small kids etc, was touch and go for the next 5 years though I can tell you that, refinanced the Merc a few times to keep going, the bank at one stage knocked back a cheque for $50 to the post office because I just went over my OD limit, real bastards, I went to a different financier and everything was ok from then on but at the time it was a nail biter  thats why I see this looming and worry for others that may be vulnerable.


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## Beej (22 March 2009)

MrBurns said:


> The demand might be there but the ability will be seriously impaired.
> 
> Dropped 30% in 1990, happened to me, that wasn't the bubble this is either.
> 
> Might be different this time but I cant think why.




The late 80s "bubble" makes the current situation pale into insignificance! Between 1986 and 1989 house price more than doubled - 105% increase in median prices in fact in Sydney. The price falls through 1990 were a direct response to that massive and rapid price inflation followed by recessionary factors. In Sydney the median price in fact fell in 1990 by 15% which meant prices were still 75% higher than in 1986 - only 4 years earlier. (See attached article for proof of this data).

Right now - especially in Sydney which is the largest, broadest, and most important market for residential property in AU, prices have been essentially flat since 2004. The conditions simply do not exist for magical price falls of the magnitude you are predicting. There has to be a reason for price falls, we just don't have enough reasons for that happen here right now and the down pressure that does exist is balanced by the pent up demand that we see coming through right now.

I think the property price doom and gloomers only hope was if we had a genuine full blown credit squeeze here last year, where borrowers, no matter how keen, how employed, and how many FHOG $$$ they had, just could not borrow funds from the banks. If you added to this an inability of the RBA to get interest rates reduced to retail borrowers you would have had the perfect storm - ie what we saw in the UK and the US. So the problem is that this scenario DID NOT HAPPEN HERE. That part of the crisis, that risk, is now gone from our local economy, so unless you can come up with a new "black swan" trigger that will crash the market, it won't happen. Rising unemployment won't cut it by the way - we have been there many times before and often price RISE as unemployment goes up - as they did through 1992/93. Go figure!

I'm not saying prices are going to dramatically rise this year - in many area's they will continue to fall. In some area's they will rise though (some already have this year). Many other area's will remain pretty stable, but I expect price growth to continue come 2010/11 and onwards. It will take off again quite hard and catch all the bears by complete surprise when it does (as usual). 

Beej


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## MrBurns (22 March 2009)

Beej said:


> The late 80s "bubble" makes the current situation pale into insignificance! Between 1986 and 1989 house price more than doubled - 105% increase in median prices in fact in Sydney. The price falls through 1990 were a direct response to that massive and rapid price inflation followed by recessionary factors.




Prices have gone through the roof because interest rates have been at historic lows for the last 10 years, what you say above is exactly whats happened now only worse.

Doom and gloomers ? Get real you're locked into a mindset of perpetual growth for property and cant see the wood for the trees.

I know of a number of ex property developers who thought just as you do now and went spectacularly bust.


----------



## gav (22 March 2009)

Smurf1976 said:


> But if the stamp duties were dropped, wouldn't house sellers just increase prices to compensate?
> 
> *Don't forget that FHB's aren't thinking in terms of "how much will I have to pay for this house". They're thinking in terms of "how much house can I get for the amount the bank will lend me?"*.
> 
> ...




WTF?! I do not know of any first home buyers with that attitude.  Personally, I could have afforded a loan amount or almost DOUBLE what I borrowed.  However the majority of us DO consider things like "what happens if I lose my job?" and "can I still afford this if interest rates increase".  Besides, even in the best case scenario where none of that happens, I don't know anyone who would be happy barely being able to meet the minimum payments, and take 30yrs to pay off the PPOR


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## grace (22 March 2009)

MrBurns said:


> The demand might be there but the ability will be seriously impaired.
> 
> Dropped 30% in 1990, happened to me, that wasn't the bubble this is either.
> 
> Might be different this time but I cant think why.




Yes, I agree with you Mr Burns.  I first entered the property market in the 90's.  I saved up a 25% deposit for my first house.  I even felt that I was still borrowing too much.  I could easily service the debt though, and I was in a safe profession. 

These days, as I see just a few posts ago, people seem to borrow right up to what the Bank will lend them, not allowing any margin for error.  That is where we have problems, let me say it again, no margin for error.  I think property will go sideways for 10 years.  It needs to take a breather from here.  It has been a spectaculor rise based on climbing excessive household debt.  It will fall as the Banks continue to have stricter lending criteria.   

It will be the lack of capital, and rising unemployment which will be your black swan event.  That is all you need.


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## Lucky_Country (22 March 2009)

So if they extend the first home owners grant and intrest rates drop again that will save the property market right ?

Rudd seems determinded to prop up the market dont know why he would be more popular if it was all alot cheaper imo.


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## Glen48 (22 March 2009)

Mr. B you forgot to mention Gold going up as well in 88 I ordered some Sov's from England but Gold kept rising so the Pom on the other end decide to keep my Coins...my luck has been down hill since.
Paid $ 27.500 with 10 k deposit for a house in Garbutt.


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## singlefished (23 March 2009)

I find this "pent up demand" argument that gets touted every so often quite humorous when it's used to support an opinion.

A spurious statement that can neither be quantified, documented nor justified yet it is perceived to exist and is apparently one of the fundamentals that will go a long way towards providing a floor under current market prices as we move forwards into this current downturn.

What I find amazing however is the *"pent up supply"* that's come out of the woodwork and onto the market over the last 6 months... currently just sitting out there in limbo... waiting to be snapped up... by a frenzied buyer... who's frothing at the mouth... with cheap credit burning a hole in their pocket... because apparently there's never been a better time to buy... and they'll miss the boat if they don't get in quick...

There's certainly no argument that the lower rungs of the property ladder are seeing some action of late due to the Government stimulus and the historically low interest rates but that seems to be where the "pent up demand" stops dead in it's tracks.

Nothing is moving further up the ladder where there is bucket loads of supply because in this current economic climate there is no "pent up demand" outwith FHB's and people looking to reduce their debt by downgrading. 

What is happening now and what will continue to happen into the near future (aside from the direct effects of the deteriorating economic conditions - job losses, etc) is that the over supply that currently exists in this sector is what will influence vendors in lowering their price expectations if they want to make a sale at the end of the day.

Prices certainly aren't going to be "driven" down 40% like Keen declares, but as has been seen by market watchers who have been keeping an eye on the proceedings for the last year or so, the gradual decline in prices has certainly been apparent for properties that have been sitting on the market for 2 months or more.... and this continued gradual decline in prices is what will eventually add up to what could be considered as a significant drop in prices.

No dramatic black swan event required, just the natural atrophy of an economy in decline.


----------



## MrBurns (23 March 2009)

Lucky_Country said:


> So if they extend the first home owners grant and intrest rates drop again that will save the property market right ?
> 
> Rudd seems determinded to prop up the market dont know why he would be more popular if it was all alot cheaper imo.




I dont think he will extend the grant, even the banks can see the danger in that now.

Interest rates will drop again so it will be interesting to see where it all goes.

The property bulls wil be taught a very hard lesson *again* as they are every generation and will be researching ways to erase statements made in this thread, can you get broadband in a caravan ?


----------



## metric (23 March 2009)

depends whom one listens to....



> Housing shortfall, prices 'to skyrocket'Susanna Dunkerley
> March 11, 2009
> There's plenty of land to build upon but that's unlikely to stop housing shortfalls and prices from skyrocketing in the next 20 years, a new report shows.
> 
> ...




http://news.theage.com.au/breaking-...rtfall-prices-to-skyrocket-20090311-8uz1.html


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## MrBurns (23 March 2009)

The eight members of the National Housing Supply Council will be:

Mr Brendan Crotty, former Managing Director of Australand. (property bull tosser)
Mr Saul Eslake, ANZ Chief Economist. (fence sitter)
Ms Sue Holliday, former Director General of Planning NSW.(???)
Mr Chris Lamont, HIA Chief Executive - Policy.(Housing industry boor and tosser)
Mr Marcus Spiller, Director SGS Economics. (???)
Ms Marion Thompson, WA Urban Development Coordinator.(public servant ignoramus)
Mr Stuart Wilson, Managing Director of Wilson Homes.(ROFL)
Ms Judy Yates, one of Australia's pre-eminent housing researchers.(academic high on latte's and committee meetings)


----------



## Aussiejeff (23 March 2009)

MrBurns said:


> This is the bubble of all bubbles, when it pops it will be ugly.




It will also *stink* to hi-heaven.

I suspect an awful lot of b-a-a-a-d news & rattling skeletons are being hidden away under mountains of panic driven, creative company accounting - only to be unleashed in a veritable tidal wave of gloom onto the poor, unsuspecting, cheering, partying, Oz hoi-poloi when the full, un-expurgated end-of-financial-year accounts are finally laid to rest in the flaming bonfire of failed businesses.    

Party on, dudes....


----------



## Lucky_Country (23 March 2009)

Well the next 12 months will be interesting to say the least.

Unemployment will be the key doesnt matter how cheap house are if you havent got a job to pay the mortgage you cant buy or retain that property.


----------



## aleckara (23 March 2009)

No ones knows the future. I do agree with the previous comment that MOST home buyers do ask "what is the maximum I can borrow" simply because the maximum normally is about $300,000 give or take (especially for young people - it takes a very long time to save up 20% nowdays on an average job with living expenses compared to even 10 years ago).

Most people think that housing is overvalued, and the people that look at it objectively see that the young have a higher burden to pay off a house than previous generations did. I have a lot of older people disagreeing with this comment that young people have it harder - typically they own one house and one invetment property and they have average wages or slightly lower. All I say to them is this - if all your assets were stripped away and you had to start over do you think you would ever to repay your first house before the 25 years or at least as quickly as you did before? Most of them go silent at this point. It takes a lot more education and/or a lot more work to be comparable to previous generations of home owners.

In Sydney where I live I would say that this is due to the good land being used already and the buildup of population growth over the years. Housing is overvalued but owners collectively have pricing power if they act in unison - the Australian dream keeps supply down when prices fall even the slightest amount. It's almost cartel behaviour, and it keeps price high.

With the aging population in a few years the young will be the main ones working and paying taxes. I don't think it is fair on them in the long run for their taxes to prop up the housing market at their expense. Almost like their money is taken off them by the Government and used against them.

I think people should look at their circumstances. A home is more than an asset. If you can afford it great. But if you think prices are not rising for awhile isn't it better to save and get interest rather than paying the bank interest?

Growth above inflation means that in real terms the burden is rising. The real price for houses has risen - lowering interest rates just makes it more affordable in the short term but after a lag prices rise again to adjust. Almost like a dog chasing its tail. The only difference is of course is that newer people borrow more, and get less return on their savings to save for a deposit the lower interest rates go making it harder to start off.


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## metric (23 March 2009)

MrBurns said:


> The eight members of the National Housing Supply Council will be:
> 
> Mr Brendan Crotty, former Managing Director of Australand. (property bull tosser)
> Mr Saul Eslake, ANZ Chief Economist. (fence sitter)
> ...




dont you love the ease of research on the net burnsie..? lol . i bet government doesnt. wonder why they havent attempted to scensor the internet yet...? (he says facetiously)

.


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## Glen48 (23 March 2009)

Those renting will be the winners over the next few years because they won't be paying Rates/Insurance/repairs on some thing which is depreciating or going no where.
The renters could be $20-30K ahead.


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## MrBurns (23 March 2009)

metric said:


> dont you love the ease of research on the net burnsie..? lol . i bet government doesnt. wonder why they havent attempted to scensor the internet yet...? (he says facetiously)
> 
> .




Yes it all sounds so important till you see who's behind it.......


----------



## Beej (23 March 2009)

aleckara said:


> Most people think that housing is overvalued




Overvalued or expensive? If just over-valued easy, don't buy it! If expensive but you still want/need it, well then that's just called a reality check.....



> In Sydney where I live I would say that this is due to the good land being used already and the buildup of population growth over the years. Housing is overvalued but owners collectively have pricing power if they act in unison - the Australian dream keeps supply down when prices fall even the slightest amount. It's almost cartel behaviour, and it keeps price high.




Or that could just be described as a "market". In markets, supply and demand rules. Prices go up and down in line with buying/selling pressure. You are basically just enunciating the fact about the R/E market that so many deny here and that is that there is more demand than there is supply and that's why prices stay high - especially the case in Sydney.



> I think people should look at their circumstances. A home is more than an asset. If you can afford it great. But if you think prices are not rising for awhile isn't it better to save and get interest rather than paying the bank interest?




It might be, it might not be. Personal choice and to each their own! Don't forget to factor in the rent you otherwise pay and the costs of having to move all the time, especially if you have a family. And don't forget that the rent you pay only goes up while over time the interest yo pay on a mortgage goes down as you (hopefully aggressively) pay off the principle.



			
				Mr Burns said:
			
		

> The eight members of the National Housing Supply Council will be:
> 
> Mr Brendan Crotty, former Managing Director of Australand. (property bull tosser)
> Mr Saul Eslake, ANZ Chief Economist. (fence sitter)
> ...




LOL - love it. So who else would you put on a National Housing Supply Council?? FOREX traders? Taxi drivers? I know you say they are "biased" but others might argue they are actually experts in their fields and might know a few things that you don't....

Cheers,

Beej


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## MrBurns (23 March 2009)

Beej said:


> LOL - love it. So who else would you put on a National Housing Supply Council?? FOREX traders? Taxi drivers? I know you say they are "biased" but others might argue they are actually experts in their fields and might know a few things that you don't....




A trumped up committee of boors and weasels trying to either enhace their CV or line their own pockets by creating from their own dull minds the concept that housing is in short supply to encourage people to buy, I see plenty out there for sale dont you ?

Never heard anyone say they didnt buy because there was nothing for sale.

And no they dont know more than I do.


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## Windza (23 March 2009)

FWIW, there seems to be a whole lot of anxiety surrounding the continuance of the increased FBH (particularly from RE agencies)... this to me signifies the housing industry is on shaky ground and I'm not willing to bet either way.

I'm eligible for the FBH but in the current environment I'm more inclined to wait and see what happens and 'miss out' on the additional 7K... somehow I think I'll be better off.

I'm open to critique on this view...  I'd genuinely like to know how increasing my debt in the midst of the GFC is a smart move.


----------



## aleckara (23 March 2009)

Beej said:


> Or that could just be described as a "market". In markets, supply and demand rules. Prices go up and down in line with buying/selling pressure. You are basically just enunciating the fact about the R/E market that so many deny here and that is that there is more demand than there is supply and that's why prices stay high - especially the case in Sydney.
> 
> It might be, it might not be. Personal choice and to each their own! Don't forget to factor in the rent you otherwise pay and the costs of having to move all the time, especially if you have a family. And don't forget that the rent you pay only goes up while over time the interest yo pay on a mortgage goes down as you (hopefully aggressively) pay off the principle.




If prices don't go up renting is cheaper than buying most of the time. Capital appreciation and inflation is the main reason why what you are saying above is correct.

And in a sense you are right about it being a "market". Australia's market however is very different to other markets. We do not panic sell when it comes to property. We all act in unison and hold on. Most markets do not follow this pattern; only cartel markets. It's makes it hard to prices to go down - all that occurs is that volumes fall hard as sellers are not willing to match buyers. The sellers know that housing is a need and eventually people have no choice but to capitulate. Almost similar to what happened with Voltswagen shares in Germany, where Porsche made a motza because even though the company was overvalued they knew that the short sellers would need the supply eventually. Price does not equal value and the market only dictates price. My point is that there will always be more demand than supply if their is almost cartel like system - supply goes down almost instantly when demand drops shown in volume indicators. Their is pent up supply as well as demand however the investors have time on their side as long as they can keep their mortgages. The businesses in this situation that need the volume, not just the price (construction, r/e agents and so on) are most affected by this behaviour. The price isn't allowed to adjust to competitive market forces.

Housing is more expensive - glad you agree. Overvalued, well your right there too in that it depends on how you look at it. I just think that it's more of a sacrifice to buy a house for the young FHB that has no assets yet than it was for previous generations, and so they will get less value for what they are paying. I would hate to see that trend continue where future generations are getting less value for the debt they take on. I would like the average wage to be able to afford the most basic home. Same amount of work for the same amount of value - fair I think.


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## kincella (23 March 2009)

whats with all this frenzied discussion....not all houses are priced at 300k or 500k...
sounds more like the game of follow the leader....but who is your leader ???
careful he does not lead you all over the cliff...
if you need mentoring...you need a mentor who can show you how...and has a track record of success...to back up his claims...
keen at 55 years old...and still renting.....thats some record


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## TradeDaily (23 March 2009)

I wanted to share with you some advice that a very successful friend of mine gave me is (incidentally he did make his money from property but that is not the point). 

He said that if he had listened to all of the people who gave him financial advice he would be broke right now - 'why should I take advice from someone whos net worth is 500K or even a million? Show me the guy who is worth 10mil because thats the guy I want to be speaking to and seeking advice from!'

I wonder how much Keen is worth...


----------



## nunthewiser (23 March 2009)

TradeDaily said:


> I wanted to share with you some advice that a very successful friend of mine gave me is (incidentally he did make his money from property but that is not the point).
> 
> He said that if he had listened to all of the people who gave him financial advice he would be broke right now - 'why should I take advice from someone whos net worth is 500K or even a million? Show me the guy who is worth 10mil because thats the guy I want to be speaking to and seeking advice from!'
> 
> I wonder how much Keen is worth...




LOL so you would take financial advice from elton john i take it


----------



## Knobby22 (23 March 2009)

kincella said:


> whats with all this frenzied discussion....not all houses are priced at 300k or 500k...
> sounds more like the game of follow the leader....but who is your leader ???
> careful he does not lead you all over the cliff...
> if you need mentoring...you need a mentor who can show you how...and has a track record of success...to back up his claims...
> keen at 55 years old...and still renting.....thats some record




He sold his house and has the cash to buy back in.
You are distorting the facts to achive your argument.


----------



## Prospector (23 March 2009)

Knobby22 said:


> He sold his house and has the cash to buy back in.
> You are distorting the facts to achive your argument.




Just prior to selling his apartment, he went to the media saying he was selling it now, because 'he knew' that its value would fall in the next twelve months and he didnt think he would be able to sell it then.  Guess the new buyer didnt believe him then!  But what sort of a twat would say that in the midst of selling his own house!


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## kincella (23 March 2009)

pretty certain he borrowed most of the money to buy it...so after paying all the buying and then selling costs..he may have come out with a small loss
wonder if he was a fhb ?


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## Beej (23 March 2009)

kincella said:


> pretty certain he borrowed most of the money to buy it...so after paying all the buying and then selling costs..he may have come out with a small loss
> wonder if he was a fhb ?




It was a unit in Surry Hills wasn't it? Pretty dumb to sell in that area I would have said as that is an area with lot's of potential price growth (even in a generally flat/falling market), due to it being an "original" Sydney inner city burb that is now about 2/3rds gentrified and walking distance to Sydney CBD. 

Also when did he sell? Last year? According to APM the median price of houses and units in Surry Hills have INCREASED by 4% and 2% respectively over the past 6 months (see http://www.homepriceguide.com.au/snapshot/price/index.cfm?action=view&source=apm).

PS: Here is a good piece by Gerard Henderson on Ass. Prof. Keen and his well publicised views: 
http://www.smh.com.au/news/opinion/...ts-instant-fame/2008/10/20/1224351149788.html

Cheers,

Beej


----------



## gfresh (23 March 2009)

Hey look, another house price thread, we already have two already. Funny to see Keen being dug out again, didn't hear much from him for a couple of months, but he's back obviously  

One thing to be aware of is there is a *lot* of pressure and feeding of the media the continued price rise story. If you read the news articles somewhat objectively it's quite obvious the sort of angles, and the sources they use to spin it one way or the other. Press releases are put out, and then stories written from these. Anyhow, the best is to do your own research, and at least go beyond the media either side of the fence.


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## Taltan (23 March 2009)

Mr Burns, I think my current position is not far removed from yours in the late 1980's. Difference is I think I will keep renting. 

Option A: Keep paying 26k a year in rent for a place in Inner Melb - 26k housing cost.

Option B: Similar place to buy is currently 600k (minimum) so assuming I got a 5.3% mortgage thats 31.8k a year interest. I would also have to pay outgoings myself which is approx 4.2k coming to a total of 36k for housing. 

Thats a 10k difference which means the property needs to be worth 610k in 12 months for my investment to be worthwhile. A modest 1.67% rise. 

I have not accounted for FHOG or Stamp duty because essentially they cancel each other out, and if anything the stamp duty is more than FHOG.

With that in mind it is then a question of where prices will go? Personally I believe there will be a fall in the 0-10% region so I am better off renting. If I believed in a 5-10% rise the decision would be difficult, beneficial in 12 months but need to factor for the inflexability of locking in now and the added risk of ownership. If I thought the rise would be over 10% I would buy. 

So I will continue to rent because with the GFC a rise of over 10% seems unlikely.


----------



## It's Snake Pliskin (23 March 2009)

Taltan said:


> Mr Burns, I think my current position is not far removed from yours in the late 1980's. Difference is I think I will keep renting.
> 
> Option A: Keep paying 26k a year in rent for a place in Inner Melb - 26k housing cost.
> 
> ...



Yes, you have touched on an important aspect here. The cost of renting vs the cost of buying. the opportunity cost of not buying is you miss out on capital growth, but by buying you miss out on cash growth which you can do serious stuff with. And imagine buying where gang wars are. What a nightmare.


----------



## It's Snake Pliskin (23 March 2009)

TradeDaily said:


> I wanted to share with you some advice that a very successful friend of mine gave me is (incidentally he did make his money from property but that is not the point).
> 
> He said that if he had listened to all of the people who gave him financial advice he would be broke right now - 'why should I take advice from someone whos net worth is 500K or even a million? Show me the guy who is worth 10mil because thats the guy I want to be speaking to and seeking advice from!'
> 
> I wonder how much Keen is worth...




So if I had bought many properties at some time in the past before stellar growth and now I have a lot of money, would that make me a better judge than the author of the article in question? Even if I had just listened to anyone and took a gamble?


----------



## robots (23 March 2009)

Beej said:


> It was a unit in Surry Hills wasn't it? Pretty dumb to sell in that area I would have said as that is an area with lot's of potential price growth (even in a generally flat/falling market), due to it being an "original" Sydney inner city burb that is now about 2/3rds gentrified and walking distance to Sydney CBD.
> 
> Also when did he sell? Last year? According to APM the median price of *houses and units in Surry Hills have INCREASED by 4% and 2% respectively over the past 6 months *(see http://www.homepriceguide.com.au/snapshot/price/index.cfm?action=view&source=apm).
> 
> ...




hello,

hahaha, classic Beej, the king of doom done over

please please read the posts from the ASF kings who are out there putting in

thankyou
associate professor robots


----------



## Conza88 (23 March 2009)

*RENT.
*

Is all I can say.


----------



## dhukka (23 March 2009)

I am sympathetic to Steve Keen's criticism of conventional economists and his affection for the Austrian School of economics. I also think Australian house prices are too high and will fall further but I just can't see a US type scenario playing out as one key ingredient is missing. The US has a huge inventory of unsold homes, supply far outstrips demand and even though home builders are building the least they've built for decades it is going to take by some estimates until 2011-12 at current building rates to work off that unsold inventory. 

Whilst I don't buy the 'shortage' argument that the RE industry in Australia likes to push, we certainly don't have a huge oversupply. That said, I wouldn't be surprised to see peak to trough declines in Perth of -20%   but it is hard to see Sydney prices falling more than -10% unless we have an economic catastrophe with unemployment at 12% plus.


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## Aurum (24 March 2009)

The reason that there is no housing shortage is because people feel exuberant. I know a few single people that live in 3-4 bedroom houses simply because they can. When money starts to tighten then a few thing happen that fill the housing shortage,

Kids stay at home longer,
Single people move to units,
Single people rent out rooms,
Families rent out rooms,
Singles share,
Couples share,
Families move to smaller homes and kids share.
Etc.

It only takes a very small shift in the number of people per dwelling to dramatically change availability.

For anyone that hasn't seen Keens site it's here. I found his arguments quite compelling.

Aurum.


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