House prices to keep falling for years

[Pommiegranite]

Only a small proportion of people are DIRECTLY effected by a rise in unemployment - for the 90-95% of people still with jobs the interest cuts mean a real ability to either draw down debt faster or take more on at a cheaper cost of they want.

Except that this time around, credit will be harder to secure for those with 'secure' jobs, and they will not neccessarily be willing to pay for a depreciating asset, no matter what the interest rate.

Sure, if I can borrow cash at 1%, then I would. However, a secured loan on a depreciating property is totally different kettle of fish.

 

[Mofra]

Sure, if I can borrow cash at 1%, then I would. However, a secured loan on a depreciating property is totally different kettle of fish.

You can co-secure a loan to cash as well - however cash is also a depreciating asset

 

[Beej]

Except that this time around, credit will be harder to secure for those with 'secure' jobs, and they will not neccessarily be willing to pay for a depreciating asset, no matter what the interest rate.

Sure, if I can borrow cash at 1%, then I would. However, a secured loan on a depreciating property is totally different kettle of fish.

You've made some big assumptions there, neither of which I agree with. Credit is no problem right now for good risks - in fact the banks here are falling over themselves to lend money. And as for a depreciating asset - yea right, well that's what this whole thread is about, and I still contend you will never go wrong owning property, at least as your PPOR. For pure investment that's another matter though, although if you buy well and focus on yields and potential yield growth, you can still do very well out of this current market.

Cheers,

Beej

 

[Pommiegranite]

You can co-secure a loan to cash as well - however cash is also a depreciating asset

True. Looks like we are caught between a rock and a hard place. Technically isn't this stagflation ?

http://business.theage.com.au/business/inflation-set-to-hit-5-20081020-54t1.html

Inflation set to hit 5%

• 
  Peter Martin

• October 21, 2008
• Page 1 of 2

ECONOMISTS have reaffirmed predictions for more cuts in interest rates despite signs that Australia's annual inflation rate is set to hit 5% - well beyond the Reserve Bank's target zone.
As the Commonwealth Bank yesterday joined the ANZ and the NAB in trimming its home mortgage rates, new figures showed that costs faced by businesses had soared beyond expectations.
The producer price index went up by 5.6% in the year to September - the biggest rise in the decade since the index was first calculated.
The surprise result prompted economists to lift forecasts for the annual consumer price inflation figure to 5%. But they said the release of the inflation figure tomorrow was unlikely to deter the Reserve Bank from delivering more rate relief as the threat of a global recession became clearer.
Commonwealth Securities economist Savanth Sebastian said the central bank believed tomorrow's inflation figures would mark the peak of the cycle, following the collapse of oil prices and the onset of a global slowdown.
Financial markets expect the Reserve Bank to remain focused on the risk of an economic downturn and are pricing in a 92% probability of a further rate cut of half a percentage point at the next board meeting on November 4. Such a cut would take standard variable home loan rates below 8%.

 

[xoa]

With CPI running at 5.6%, the vast majority of Australian workers are suffering a recession in their real earnings. Surely, the RBA must end this madness soon?

How much longer can they bail out money renters at the expense of people who live responsibly?

 

[kotim]

The vast vast majority of people do not need to sell their homes in a downtrend, only those who want to or need to have to sell, so whatever price reduction in house prices we see will only in effect impact upon a small percentage, as far as house prices are concerned. The real problem is inflation, Lots of people will still have lots of money and items in the inflation basket will go up in price, We are going to pay a lot more for water adn power in the coming years, if rent goes higher it impacts upon the inflation rate( I think rent is in the basket)

Share marekts on their but, house prices still high, Now where do you think the big players are going to put their money for the coming 3-5 years if they want growth, it aint going to be property.

 

[numbercruncher]

With CPI running at 5.6%, the vast majority of Australian workers are suffering a recession in their real earnings. Surely, the RBA must end this madness soon?

How much longer can they bail out money renters at the expense of people who live responsibly?

Yup seems they are going to shaft everybody, I dont think they have an alternative only way out of this quagmire is inflation or the deflationary death spiral option ......

I want to see heads roll though, blame can be assigned to many many players ...

 

[MrBurns]

With CPI running at 5.6%, the vast majority of Australian workers are suffering a recession in their real earnings. Surely, the RBA must end this madness soon?

How much longer can they bail out money renters at the expense of people who live responsibly?

I'm getting increasingly pissed off at the trouble the Govt is going to with OUR MONEY to save the big end of town.

There are thousands of homeless that could have done with a hand up too, this really stinks.

 

[gfresh]

The vast vast majority of people do not need to sell their homes in a downtrend, only those who want to or need to have to sell, so whatever price reduction in house prices we see will only in effect impact upon a small percentage, as far as house prices are concerned.

Just thinking on this. It would only take 1 in 10 families to be in serious debt of some kind (expensive car, large credit card outstanding, no savings), and only 1 of the 2 working partners to lose their job, and I think we'd have a pretty serious crisis on our hands. The Government knows this.

Last recession, debt levels were much less than they were now, how manageable are they these days if a recession were to occur? I don't know exactly, my feeling is they are not too good.

I honestly hope things don't pan out terribly, as I have friends who will be the ones really suffering. I can tell you many people (yes Gen-Y) whom I know with reasonable paying jobs, recent mortgage holders, of whom the concept of "savings" is some laughable concept. Yes, they'll joke about it!

 

[Mofra]

With CPI running at 5.6%, the vast majority of Australian workers are suffering a recession in their real earnings. Surely, the RBA must end this madness soon?

How much longer can they bail out money renters at the expense of people who live responsibly?

In response to your second question, it was a Howard adviser who noted "rising house prices makes for happy voters".

What is economically responsible, and what is popular with voters, are two seperate ideals. Given the history of politics, I'd say the gummint will lean towards the second ideal more often than not (ie Krudd securing 100% of deposits which goes against RBA advice).

 

[CamKawa]

I'm getting increasingly pissed off at the trouble the Govt is going to with OUR MONEY to save the big end of town.

There are thousands of homeless that could have done with a hand up too, this really stinks.

I agree with you. The government is morally bankrupt.

 

[gfresh]

NAB raised the 200,000 unemployment figure last few days. This seems close to reality, if we assume 4.5->6% unemployment which is actually quite modest return to longer-term average.

ABS figures show 10.7M working people out there. 1.5% x 10.7 = ~160,500 out of work. So that many people out of work effects 321,000 households (or 400,000 if you want to go on NAB figures). Now assuming my 1 in 10 struggle with debt as is, that's 32,000 - 40,000 households who could be in trouble with these sort of figures without finding work very quickly. Whether they own or rent, either way.

That is why there should be cause for concern.

 

[CamKawa]

NAB raised the 200,000 unemployment figure last few days.

And with that figure coming from a bank it's likely to be at the lower end of the scale. I think Keen said on 60 seconds last Sunday night that unemployment would rise to one million. The truth maybe somewhere in between.

 

[MrBurns]

From Crikey today -

Steve Keen: An invitation to Gerard Henderson

Gerard Henderson's diatribe in today's SMH argues that the media has done a "soft" job on my views, which have only gained notoriety because of the extreme predictions I have made about the forthcoming economic downturn qualifying as not merely a recession, but a Depression. It seems I've only got attention because of my extreme views, while the media has let the side down by doing a "tabloid" job only, and not subjecting my views to scrutiny.

In fact, as many in the media know, I have gained attention because of my Debtwatch Report, which will be two years old as of the next issue (No. 28, to be published in November the day before the RBA meeting). The journalists who have reported my views -- including of course Kerry O'Brien, who gets special attention from Gerard in his mockumentary -- have read my analysis for two years now. Yet I saw no sign of any attention to the analysis behind my predictions in Henderson's piece, apart from possibly a "just in case" concession towards the end where he noted that "[Keen's] predictions of a debt-induced decade-long depression ... may be correct."

In that case, the commentator who deserves the approbrium for "tabloid" journalism is Henderson himself, and not the ABC nor the Daily Telegraph, nor Sixty Minutes. They, after all, read my research, have quizzed me extensively about it, and made the decision based on investigative journalism that my views deserved coverage.

For this, I applaud them. I applaud them for standing up for the principles of the Fourth Estate. Standard economic commentary has been dominated by the cheerleaders for the policies which have led to this crisis, while the authorities themselves and the academic profession of economics itself have turned a blind eye to any arguments that questioned the mantra in favour of deregulated finance.

I know this from extensive experience. I have made five applications for ARC funding to investigate the dynamics of debt-deflations and Depressions in the last ten years; all have been unsuccessful (including one time when I topped UWS researchers on the ARC's then published referees' point scores, after which seven UWS researchers received funding -- but I was not one of them).

I made a submission to the Wallis Committee in July 1996, in which I warned that securitisation of loans could lead to a crisis exactly like the Subprime crisis that has now unfolded, and of course my comments were ignored.

I wrote to the RBA in June 1998 offering to hold a seminar on the "Financial Instability Hypothesis", which is the foundation of my argument that we are likely to experience a Great Depression. The offer was declined.

As has often been said, official channels are clogged to make sure information and criticism doesn't get listened to. So when I saw the debt that Australia's speculative bubble in real estate and belatedly shares had got us into, I turned to the journalistic profession to raise the alarm. To its credit, since I made a good case and the empirical evidence was compelling, journalists listened to me.

So Gerard, maybe you should do some investigative journalism now too. Go to my website www.debtdeflation.com, where you will find Debtwatch Reports going back to November 2006, and academic papers on debt deflation published as long ago as 1995 (maybe even read Debunking Economics; certainly check out its website).

And if you'd like to take a real risk and play the ball rather than the man, I'm more than willing to give a seminar on debt deflation at your Sydney Institute.

Over to you.

 

[Beej]

The Steven Keen Cheer-squad song: (all the members of the squad here please feel free to sing along and out loud!)


"Go! Go! Steves our man!"
"Selling his flat while he can!"
"He sees all the doom and gloom"
"and turns it into a personal boom!"
"Goodbye to good old UWS"
"Soon he'll be ivy league in the good old US!"
"Gooooooooo Steve!"


Beej

 

[robots]

hello,

here we go, government bashing, real estate owners bashing, mortgagee bashing

man get a life, oh everybody is ruining me i want a handout

Numbercruncher you still have trouble working out those numbers or accepting the reality of those numbers?

thankyou
robots

 

[Beej]

FYI for those that missed Gerard Hendersons SMH piece "Doomsayer Get's Instant Fame": http://www.smh.com.au/news/opinion/...ant-fame/2008/10/20/1224351149788.html?page=2

Cheers,

Beej

 

[akabj]

Another potential problem to housing prices is that the losses that people have made on the sharemarket would reduce the savings of many first home buyers, potential investors in second/third property and as a result there will be less ability to afford housing loans.

In addition, as I saw on the news the other night from one investor who had significant share losses but required further capital for margin call risks said that you would be silly to sell shares in this market but he was selling his house.

The full flow on effects from the sharemarket losses are yet to be fully felt. With Sub-prime set to be ongoing for at least the next 2 years due to loan interest rates moving from teaser cheap interest into really high interest rates we have not seen the worst to come.

I just don't know why we think we are immune from falling house prices when they have fallen in pretty much every country where we have seen massive increases in prices over the last few decades.

 

[tasmart]

I just don't know why we think we are immune from falling house prices when they have fallen in pretty much every country where we have seen massive increases in prices over the last few decades.

Some good reading about global house prices in the IMF report released last week. Ireland, UK and Australia quoted as the worst in house prices being out of kilter with fundamentals (and they went back to 1970). (page 16 of the first chapter).

http://www.imf.org/external/pubs/ft/weo/2008/02/index.htm

This has been an interesting thread to read - with lots of varied input. Hard to see any up for property for a while, even if interest rates get down to 1%

 

[robots]

hello,

thats why its so good, you plod along with a P & I loan, just living life

knocking the principal down year on year,

thankyou
robots