The future of Australian property prices

[young-gun]

If somebody could explain it to me I would be pleased to learn something.

Also, and this is just a guess, but when such a large scale operation is taken on I would imagine that you would have to pint-point the perfect time to start raising rates to curb inflation, and prevent stifling recovery. And what happens if inflation starts to take off before they have achieved the desired effects on the economy (eg 6% unemployment?). Higher rates with such a mountain of debt would cripple the US. I don't think they will ever be able to raise rates, or ever want to.

 

[craft]

If you print enough money then inflation follows no ifs no buts..

I‘m iffing and butting.

but inflation will absolutely be part of the picture.

Can you explain to me why this is so?

 

[FlyingFox]

If you print enough money then inflation follows no ifs no buts.

Agreed. Plus sentiment. You need people to "borrow/invest" this money and for it to flow through.

What is holding the show up at the moment is the amount of de-leveraging going on which causes a deflationary environment.

That and the fact that a lot of this newly printed money is paying for the GFC related bad debts that the US government has taken up.

What I think most people miss is the current shenanigans has never been attempted on this scale before.............ever, what the end game is I don't think anyone really knows but inflation will absolutely be part of the picture.

Agreed. Nor do they realize the true extent of the bad debts/bad investments and deflationary environment that was/is around so a bit skeptical on if/when inflation will hit.

 

[McLovin]

Agreed. Plus sentiment. You need people to "borrow/invest" this money and for it to flow through.

Which is craft's point. They're not printing money they're swapping longer dated debt for cash. They haven't increased the money base.

It's been running for four years now, if the hyperinflation thing was going to happen it would have. It's really just the perma-bears and goldbugs hanging onto the story.

 

[sinner]

I’m a bit thick – could somebody please explain this money printing concept discussed in this thread.

All I can see is sovereigns increasing their balance sheet to offset private balance sheet shrinkage but lack of velocity is making the job difficult even at near / actual negative real interest rates, a sign of deflation risk rather than inflation.

At no stage has any sovereign (Zimbabwe excluded) printed without a corresponding commitment to repay at some stage so I see no lack of tools for containing inflation if/when velocity does pick up.

The real money creation enabler occurred prior to the GFC and was a result of trade imbalances and manipulation of some currencies causing major run ups in those countries foreign reserves and in turn funding lower than appropriate interest rates in an optimistic period. – That all seems to be currently and continuing to unwind.

It’s not just my understanding of capital creation that is at odds with the printing press story; the actual statistics don’t compute either.

View attachment 50781

If somebody could explain it to me I would be pleased to learn something.

Hello,

This article is worth a read

http://fofoa.blogspot.com.au/2011/04/deflation-or-hyperinflation.html

and the followup

http://fofoa.blogspot.com.au/2012/05/inflation-or-hyperinflation.html

To vouch for the articles I'll include this quote from Rick Ackerman

I’ve concluded there is little to gain arguing on the one hand with a guy who turns rabid whenever someone contradicts him, even in a friendly way; and on the other, with a preening narcissist who comes to argumentation in the same state of sexual arousal that Jeffrey Dahmer must have experienced hovering over the fresh corpses of teenage boys. These guys are bad news, as lacking in civility and manners as buzzards in a scrum, and you’d do well to avoid them both. You might try tuning instead to the hyperinflation arguments of Steve Saville, Peter Schiff and a few others who seem less concerned with trouncing, slicing and dicing opponents than with presenting facts that might better prepare you for the financial crisis ahead. The very best of them, in my opinion, is FOFOA blogspot, where the essays are erudite, the discussion elevated and the arguments as knowledgeable as any you will find on the web.

 

[notting]

Which is craft's point. They're not printing money they're swapping longer dated debt for cash. They haven't increased the money base.

Love it again.

 

[sptrawler]

If you print enough money then inflation follows no ifs no buts.

What is holding the show up at the moment is the amount of de-leveraging going on which causes a deflationary environment.

What I think most people miss is the current shenanigans has never been attempted on this scale before.............ever, what the end game is I don't think anyone really knows but inflation will absolutely be part of the picture.

Funnily enough I agree 100% again with you.
The only thing we disagree on is which party should win the next election.LOL

As far as inflation goes, house prices rise so do interest rates.

If you had $1,000,000 would you buy a house or put it in the bank at say 12%? That's $120,000/pa

Long term average interest rates are around 8%.

Currently they are runing around 5%

 

[tinhat]

Just following on from the more general economic discussion and Craft's comments and the responses...


The amount of money/money creation isn't really an issue until there is inflation. At the moment the developed economies are fighting off deflation, and as Craft mentioned, due the lack of credit growth in the private sector and general lack of confidence and aversion to risk. A question...

Will central banks (namely the US Fed) take the necessary action to soak up the money when inflation risks rise? There is some risk here because "now" is never a good time to start contractionary policy. Why was Alan Greenspan so loved (despite the fact that he was an intellectual, simpleton admirer of Ann Rand)?

Regulation of the finance sector is just as important as the inevitably ill-timed, ill-conceived, bubble-forming, capital misallocating, interferences of central banks. The US Fed's role since 1974 has been to prop up a monumental social and economic dystopia, characterised by the Vietnam War, that has only grown more monstrous since then. The greater folly has been the abandonment of any morality let alone an environment for orderly market conduct in global financial markets.

The issue of public sector indebtedness for developed world countries (mixed with aging and in many cases, shrinking, population time-bombs) is something that is going to, over the long run, accelerate the transfer of economic growth and prosperity away from declining developed nations toward the developing nations. Something I take great heart in.

But for now, I just want to know what market the next bubble is going to manifest itself in so I can hitch a ride. It's been thirteen years since the US stock market has been in the money (in nominal terms) - maybe its due? Personally, I suspect the next big rally is another three or four years off.

 

[sptrawler]

Just following on from the more general economic discussion and Craft's comments and the responses...


The amount of money/money creation isn't really an issue until there is inflation. At the moment the developed economies are fighting off deflation, and as Craft mentioned, due the lack of credit growth in the private sector and general lack of confidence and aversion to risk. A question...

Will central banks (namely the US Fed) take the necessary action to soak up the money when inflation risks rise? There is some risk here because "now" is never a good time to start contractionary policy. Why was Alan Greenspan so loved (despite the fact that he was an intellectual, simpleton admirer of Ann Rand)?

Regulation of the finance sector is just as important as the inevitably ill-timed, ill-conceived, bubble-forming, capital misallocating, interferences of central banks. The US Fed's role since 1974 has been to prop up a monumental social and economic dystopia, characterised by the Vietnam War, that has only grown more monstrous since then. The greater folly has been the abandonment of any morality let alone an environment for orderly market conduct in global financial markets.

The issue of public sector indebtedness for developed world countries (mixed with aging and in many cases, shrinking, population time-bombs) is something that is going to, over the long run, accelerate the transfer of economic growth and prosperity away from declining developed nations toward the developing nations. Something I take great heart in.

But for now, I just want to know what market the next bubble is going to manifest itself in so I can hitch a ride. It's been thirteen years since the US stock market has been in the money (in nominal terms) - maybe its due? Personally, I suspect the next big rally is another three or four years off.

Did you think that all up, can I buy one of your hats?

 

[FlyingFox]

The amount of money/money creation isn't really an issue until there is inflation. At the moment the developed economies are fighting off deflation, and as Craft mentioned, due the lack of credit growth in the private sector and general lack of confidence and aversion to risk. A question...

Will central banks (namely the US Fed) take the necessary action to soak up the money when inflation risks rise? There is some risk here because "now" is never a good time to start contractionary policy. Why was Alan Greenspan so loved (despite the fact that he was an intellectual, simpleton admirer of Ann Rand)?

+1. Don't know if inflation will actually hit due to factors you mention latter on. However I don't think they can do much about it just like the RBA will have a very hard time devaluing the AUD.

Regulation of the finance sector is just as important as the inevitably ill-timed, ill-conceived, bubble-forming, capital misallocating, interferences of central banks. The US Fed's role since 1974 has been to prop up a monumental social and economic dystopia, characterised by the Vietnam War, that has only grown more monstrous since then. The greater folly has been the abandonment of any morality let alone an environment for orderly market conduct in global financial markets.

+1. It probably sounded like a great idea a long time ago.

The issue of public sector indebtedness for developed world countries (mixed with aging and in many cases, shrinking, population time-bombs) is something that is going to, over the long run, accelerate the transfer of economic growth and prosperity away from declining developed nations toward the developing nations. Something I take great heart in.

This is a very important issue. Something that has possibly never happened and something that many people still don't see coming. Remember most of the pozni schemed economic models are based on near exponential growth in population. What will happen when they actually start decreasing?

But for now, I just want to know what market the next bubble is going to manifest itself in so I can hitch a ride. It's been thirteen years since the US stock market has been in the money (in nominal terms) - maybe its due? Personally, I suspect the next big rally is another three or four years off.

Let me know when you figure it out :. Have a bunch of cash siting around doing nothing atm

 

[sptrawler]

Thanks for the translation, Flying Fox, after three or four reds I couldn't finish reading it, before I had to start again.
Firstly, I agree with it.
Secondly, like you, I have money on the side line looking for a place to put it.

 

[medicowallet]

http://www.theage.com.au/victoria/s...as-major-projects-wind-up-20130204-2dumg.html

That be lots of builders etc looking for work.

I wonder if they will work for less money to keep food on the table?

I can only hope that any possible decrease in wages growth pressure for blue collar workers will translate to lower construction costs.

I also note that decreased wages growth pressure for healthcare workers will likely result in lower pressure for residential real estate price growth...

And it is quite possible that this is representative in a small way of what is going to happen in the short to medium term.

MW

PS Where is Robots?

 

[Bill M]

I have read several posts now with comments like "have plenty of cash on the sidelines, waiting for investment". Not only are there a lot of individuals with cash waiting for deployment also the banks are flush with funds too. They have been dropping interest rates for investors dramatically and have no interest in looking after their customer base, you could say "if you don't like our rates there's the door".

It has to go somewhere. I mean why invest in cash for 4% or 3% in a super fund? Could real estate get a boost out of this surplus cash? KurwaJegoMac was on to something when he mentioned inflation, where is all this "cash on the sidelines" going to go? Saw an advert tonight from RAMS homeloans, I am pretty sure it said you can buy a home with a 5% deposit, I haven't seen ads like that for a while. (Just to cover my a**e, if that is incorrect I apologise.)

So where will it all end up?

 

[FlyingFox]

I have read several posts now with comments like "have plenty of cash on the sidelines, waiting for investment". Not only are there a lot of individuals with cash waiting for deployment also the banks are flush with funds too. They have been dropping interest rates for investors dramatically and have no interest in looking after their customer base, you could say "if you don't like our rates there's the door".

It has to go somewhere. I mean why invest in cash for 4% or 3% in a super fund? Could real estate get a boost out of this surplus cash? KurwaJegoMac was on to something when he mentioned inflation, where is all this "cash on the sidelines" going to go? Saw an advert tonight from RAMS homeloans, I am pretty sure it said you can buy a home with a 5% deposit, I haven't seen ads like that for a while. (Just to cover my a**e, if that is incorrect I apologise.)

So where will it all end up?

Firstly your statement about a lot of individuals is a sampling anomaly. A lot of people on ASF is not representative of the general population. A lot of people are actually paying of their rather large mortgages. Secondly, the banks aren't necessarily flushed with cash but there is definitely a lack of demand. Add to this that they get cheap overseas funding plus a lot of funding coming from secondary overseas sources (did you ever before see adds from car companies advertising 1% car loans before?) means a depressed deposit market.

Real estate could get a boost out of this but at a price point. If your getting a significant yield (CG + rent) difference (~1-2%) in real estate over deposits than yes, money will flow in. Also depends on sentiment. People need to believe that prices will not slide and interest rates will not increase in the short to medium term for highly leveraged investments. The last bit is the tricky situation for the RBA. If they drop interest to devalue the AUD , we will start importing inflation. Unfortunately we're at the mercy of others when it comes to AUD strength.

However this could be positive for commercial property due to it's much higher yield. Again don't know if the sentiment is strong enough given the recent spate of bad news for small business.

BTW anyone have any numbers on rent increases (inflation) in the past year or 2?

 

[psailagroup]

The future of Australian properties is going to be interesting but like I mentioned before each state will be different.
It’s fair to say that every state has its own “economy”, With the flood effects of Queensland / Brisbane plus the government is pretty broke, what will be the future of Brisbane / Queensland.

The property market will be hit in the coming months….

I am a Victorian and things are going to be pretty rough in Victoria for quite some time:
• Construction is at a all time low
• Unemployment figures are not that accurate in my opinion
• Allot of business are closing down
• Yes people are trying to pay down as much debt as possible

In the short term the winners will be:
• People who are renting
• People have small mortgagees

 

[Izabarack]

In the short term the winners will be:
• People who are renting
• People have small mortgagees

And anyone looking for an investment property?

Locality dependent again, but houses attracting 300 a week are going for under 250k in Brisbane's west. With the recent floods, 220 and 230 a week are being talked about for 12 month leases.

Iza

 

[FlyingFox]

And anyone looking for an investment property?

Locality dependent again, but houses attracting 300 a week are going for under 250k in Brisbane's west. With the recent floods, 220 and 230 a week are being talked about for 12 month leases.

Iza

Interesting. Might have to look into that. Where about's in Brisbane? There are parts that were developed but never took of e.g North Lakes.

 

[cordelia]

There needs to be bunch of people in competition with each other, all with loads of cash, wanting to buy property to drive prices higher.

Does this sound possible in today's financial climate.

 

[tech/a]

There needs to be bunch of people in competition with each other, all with loads of cash, wanting to buy property to drive prices higher.

Does this sound possible in today's financial climate.

I would argue there needs to be little supply.

Currently we have massive supply and where you get that you get decreasing prices and there are suburbs where that is happening.
Where supply is lacking you'll have prices holding or indeed rising and there are suburbs where that is happening.

Demand is being met buy supply simple as that.
The desperate (or smart) sell at lower prices.

 

[white_goodman]

They have been dropping interest rates for investors dramatically and have no interest in looking after their customer base, you could say "if you don't like our rates there's the door".

plainly wrong.. aus banks have been dropping their mortgage rates in line with the overnight cash rate set by the RBA, however not passing through all BP's. Savings rates are not slashed nearly as much and have been relative to mortgage rates been much stronger. Why? banks have been trying to reduce reliance on wholesale offshore funding and more on domestic savings ie attracting them with a relative higher rate.

EDIT: http://www.rba.gov.au/publications/fsr/2012/sep/pdf/aus-fin-sys.pdf pg21

"The risks Australian banks could face from their use
of wholesale funding are being mitigated through
the ongoing compositional change to the liabilities
side of their balance sheets (see ‘Box A: Funding
Composition of Banks in Australia’). Deposit growth
has remained strong, at around 9 per cent in
annualised terms over the past six months, reducing
banks’ wholesale funding needs. However, the
strong competition for deposits has widened their
spreads relative to benchmark rates, contributing
to an increase in banks’ funding costs relative to the
cash rate. Deposits now account for 53 per cent of
banks’ funding, up from about 40 per cent in 2008"