House prices to keep rising for years

[MR.]

beej, about 10 Dec 08 I called cba about their home loans....10 mins later they had approved me for refinancing (my current lender was not passing on the rate cuts), just got the paperwork in the mail....6 weeks.....kidding they are not inundated with work....I was told by another on another site early Dec that the banks were so busy it was taking them 4 weeks min to process,,,and big back logs...
so they have offered me 5.14% and more rate cuts to come...only months ago I was paying almost 10%...

So CBA is taking in term deposits of (5% 3mths) or another (5.5% 3 years) and loaning it back out at 5.14%

Term deposits holders would be glad the citizens of Australia via the Gov' are backing term deposits with CBA! ????

 

[aleckara]

So in real terms housing does go down, because our dollar is headed for banana republic status, so your average 400000$ home will be worth as much as the aussie dollar which could be anything from 40 to 50 Us cents. lol

Meanwhile fuel rises, food rises every rises.

Good luck

Well for one I don't think they would do print money. They would shift spending towards housing in the first instance, inflating housing compared to everything else (which has been happening for years anyway in the private sector - most money is dedicated to housing so housing inflation > normal inflation). Or you could say a scarcity of housing relative to the money induced demand. The demand has dried up but the government is trying to stimulate it.

I'm just saying that the nominal value of housing is not likely to fall. Real value - it's been doing that for a while. It's the one asset that you can invest in where the taxpayer will take some slack on the downsides. No wonder everyone thinks it is risk free. Depends on how powerful the government is to stop the other forces.

 

[gfresh]

The simple truth is that governments have vested interests in property being unaffordable, and the financial system is tied to the value of housing. Most credit in circulation is backed by a secured mortgage on land, so land is the weak point. The truth of the matter is that all the money we have borrowed is in housing so if it goes down our country leans towards insolvency.

...

Governments will do anything to stop it from falling. I was bearish on housing but now I'm starting to realise that the Government would probably even print money to stop the fall if it had to. With our government housing can't really go down in the long term.

Ain't that the truth! Australian economy is much too tied to housing, housing taxes, and construction to let it fall any significant extent. With only a few banks here (and shrinking), wouldn't take too many falls, and it would quickly bring down the entire banking system, and probably the rest of the economy (very quickly) at the same time. I guess having 12 months lead time in observations on the US and the UK has allowed them to see the cycle play out if left to itself.

It's now becoming pretty obvious the Government will do absolutely everything it can to keep the market propped up. I think we'll see a lot more over the coming 12 months, many of which will anger a lot of people. But in the end, as has been discussed, they don't care about them, 70% own their own property.. it's about keeping them happy.

Even if people begin to go into negative equity, with the bank guarantee, Rudd has really got the banks by the balls now to apply pressure there as well. There will be extended payment periods, probably specific home-owner tax breaks, all sorts of crazy things might come to keep people in their homes during a recession. Gillard was hinting as much last night on the 7:30 report.

RBA already printing lots of money and other support ..More than likely exactly the same result as the early 2000's.. too much stimulus leading to rapid inflation and the market overshooting itself in later years.

As a result, in the long-run we'll have a country in which owning a home anywhere centrally located is nigh impossible, and wealthy generational landlords will lease to lifetime tenants.

It's don't think it's right, but probably the way Australia will head, if not already getting there.

 

[kincella]

MR...neighbour fixed 500,000 at 8.5% for 5 years Oct 08 on deposits with cba and wbc....had it all with wbc....friends suggested she split it....she is more than happy...had a mill...she lives off the interest

and inherited an investment prop in sth yarra, tenant been there for 30 years...neighbour suggests she will sell it when tenant dies or moves .....could not handle the stress of doing anything with it....
agent been looking after it all these years...all she has to do is wait for the cheque each month
btw...thought the banks were borrowing overseas, 30 days or less at 2% etc

 

[prawn_86]

btw...thought the banks were borrowing overseas, 30 days or less at 2% etc

this is a common misconception about how the banking system works. Generally banks borrow from the RBA.

If they do borrow from overseas, at a lower % than here, then foreign exchange risk comes into it. Forex rates take into account the interest differentials between currencies, so therefore there is no use of the banks borrowing from overseas (not from a lending perspective at least).

 

[MR.]

MR...neighbour fixed 500,000 at 8.5% for 5 years Oct 08 on deposits with cba and wbc

In Oct08 the CBA would have still been lending funds out at 5 year fixed rates with the books balancing! The rates I posted are the terms and rates quoted to me Friday just gone. So whats happening here? You have an existing loan and they are offering you 5.14% to come over to the CBA but will accept deposits at 3 years 5.5%.

If they are short of deposits (from AUS) they sure still aren't going to lose any market share!

Later we will be saying "didn't you see the writting on the wall"

Prawn thanks for your imput on the forex.

 

[kincella]

so the current theme of this thread is...the govt will do anything for housing !
lets look outside the square, and consider other motives in this recession period.....
instead of all that money going into the banks coffers each month on loan repayments....a rate cuts gives money back to the consumers....to spend as they wish....ie consuming...retail therapy.....keeps everyone in a job....
and when people have jobs...they are usually happy.....
after 18 months of rate rises...each month, never waiting to guage the result...people had no money left to spend...discretionary spending....
now finally...hello...anyone home....they wake up....no money left to spend ...
its not about the housing per se.....its about the high interest rates....and no money left in the kitty for ordinary families....
a rate cut of 2% is needed now...and then people can afford to spend....and that will save a lot of jobs.........same goes for china...
money sitting in the banks is lazy money....and only good for the heads at the banks...huge pay checks and bonuses for a select few

we need fast trains, roads and freeways,...hospitals and a heap of other infrastructure for now and the future.....thats where money should be going...
cheers

 

[Trevor_S]

money sitting in the banks is lazy money....and only good for the heads at the banks...huge pay checks and bonuses for a select few

What ? Money sitting in the bank is able to be used to loan out for ... housing... along with a plethora of other things. Deposits are a saught after source of finance.

we need fast trains, roads and freeways,...hospitals and a heap of other infrastructure for now and the future.....thats where money should be going...

If you think that will happen, buy LEI

 

[MR.]

In Oct08 the CBA would have still been lending funds out at 5 year fixed rates with the books balancing! The rates I posted are the terms and rates quoted to me Friday just gone. So whats happening here? You have an existing loan and they are offering you 5.14% to come over to the CBA but will accept deposits at 3 years 5.5%.

Loan fixed rates from the CBA:

http://www.commbank.com.au/personal/apply-online/download-printed-forms/home-loan-update-002842.pdf

Is there any money left over?

-----------------

I believe rates shouldn't drop below 3%. What's the point. Look where it got the USA. NO MORE DEBT.....

 

[jet328]

this is a common misconception about how the banking system works. Generally banks borrow from the RBA.

If they do borrow from overseas, at a lower % than here, then foreign exchange risk comes into it. Forex rates take into account the interest differentials between currencies, so therefore there is no use of the banks borrowing from overseas (not from a lending perspective at least).

I think you've got this the wrong way round.
Generally central banks discourage banks from borrowing from the central bank. eg last year you would have kept hearing 'the fed has lowered the discount window' at the height of the liquidity issues. The discount rate is higher than the reserve/cash rate so that banks borrow from each other and not the fed. It is only normally used in emergencies

The RBA/fed sets the cash rate by intervening in the overnight money markets to push up or down the cash rate

The reason the banks borrow from overseas is that Australians demand significantly more credit that there is supply. Therefore they have to get the funds from overseas eg. all the major banks have been selling bonds in the US lately
In regards to the exchange rate, its the lender who takes the forex risk not the banks. This was one of the advantages of floating the AUD. Think Japanese carry trade

 

[numbercruncher]

......some of them are in all black suburbs,,,

Are Yellow, brown , white suburbs better investments ?

 

[prawn_86]

I think you've got this the wrong way round.
Generally central banks discourage banks from borrowing from the central bank. eg last year you would have kept hearing 'the fed has lowered the discount window' at the height of the liquidity issues. The discount rate is higher than the reserve/cash rate so that banks borrow from each other and not the fed. It is only normally used in emergencies

The RBA/fed sets the cash rate by intervening in the overnight money markets to push up or down the cash rate

The reason the banks borrow from overseas is that Australians demand significantly more credit that there is supply. Therefore they have to get the funds from overseas eg. all the major banks have been selling bonds in the US lately
In regards to the exchange rate, its the lender who takes the forex risk not the banks. This was one of the advantages of floating the AUD. Think Japanese carry trade

Yes sorry perhaps i wasnt as clear as i should have been. The way i understand it is the banks borrow from each other, through their clearance/dealer accounts with the RBA. But i am by no means an expert on the matter.

And then banks do borrow from overseas, but not in the way which was implied by kincella. IE - banks dont borrow from Japan @ 2% and lend here at 5%, because you can only borrow Yen at 2% (or whatever) and then you need to convert it to AUD to lend, so there is FX risk present. And the FX rate takes into account the interest difference between 2 countries (if it doesnt, arb bots step in quickly )

 

[numbercruncher]

so the current theme of this thread is...the govt will do anything for housing !

The Gov is out of money and rapidly going down the gurgler .....

 

[kincella]

no they dont run out of money....they just print a whole lot more...which in turn devalues your existing dollars.....
no need to borrow it and have to pay interest...just print it...

 

[numbercruncher]

no they dont run out of money....they just print a whole lot more...which in turn devalues your existing dollars.....
no need to borrow it and have to pay interest...just print it...

Hello,


linklinklinklink ....

The Australian Government prints money ? and then they just spend as much as they want on whatever they want ?

House prices to rise forever ?

 

[knocker]

Hello,


linklinklinklink ....

The Australian Government prints money ? and then they just spend as much as they want on whatever they want ?

House prices to rise forever ?

I can not believe how much **** polies are talking on tv tonight.lol
Oh no China is going down and low and behold the mining industry is sinking. lol
Anyone with half a brain cell could have told you this was going to happen two years ago. No pity for the dumbass public that believe the krudd about property going up, Australia is insulated from recession bla bla blah.

Some guy on the 7:30 report telling how he spent all his money during the good times while working in the mines and now he is unemployed blah blah blah

What a crock Australian society has become.

 

[aleckara]

The reason the banks borrow from overseas is that Australians demand significantly more credit that there is supply. Therefore they have to get the funds from overseas eg. all the major banks have been selling bonds in the US lately
In regards to the exchange rate, its the lender who takes the forex risk not the banks. This was one of the advantages of floating the AUD. Think Japanese carry trade

People don't realise that every little bit of money (both dollars and credit) is circulating around our economic system even if we have already given that dollar to an overseas investor. Why? Because the $AU is only really useful in Australia. The best way to think about it generally is that the money never really leaves Australia, just the owner may not be Australian.

So all credit therefore must come from the RBA. Our financial system encourages you to invest in anything, whether it be the money market securities (i.e indirectly the interest you get in your savings account), or assets. The only difference here is how much of the money supply circulating is owned by foreigners. The financial system does a good job of allowing us to use other people's money (via debt) by giving people large incentives to never really pull their "cash" out (i.e the "risk free rate"). It's why a country can for a short period of time keep importing without producing anything.

The one part I found interesting in this quote though is that it made me think that despite our "so-called" high interest rates recently they were in fact too low. The fact that there is more demand for money than for saving it probably meant that the housing bubble is a credit driven government led pheonoma rather than a real demand for housing. The best way for housing to be sustainable would be non-government controlled interest rates (market forces) that balance saving with investment. It would lower the debt that people would have on their house (as they can't borrow as much) while giving them an incentive to actually save and not borrow for a house (i.e the interest rate is higher). Each generation would be forced to save for their investment stopping the robbing of future generations via debt. After all saving represents work in the past, and if instead of throwing money into the problem at the same level of housing stock, we throw work into it instead.

But no the government really does believe that the long term is really just lots of 3-4 year election short term cycles.

Edit: Prawn the interest rate hedging setups dont' really factor in the FX rate per se. What they factor in is the converging force over time. i.e if the AUD was 90c and its interest rate is higher than the US by 3% this tells you that the market expects the aud will depreciate by 3% in a year to the US according to interest rate parity theory.

 

[robots]

The one part I found interesting in this quote though is that it made me think that despite our "so-called" high interest rates recently they were in fact too low. The fact that there is more demand for money than for saving it probably meant that the housing bubble is a credit driven government led pheonoma rather than a real demand for housing. The best way for housing to be sustainable would be non-government controlled interest rates (market forces) that balance saving with investment. It would lower the debt that people would have on their house (as they can't borrow as much) while giving them an incentive to actually save and not borrow for a house (i.e the interest rate is higher). Each generation would be forced to save for their investment stopping the robbing of future generations via debt. After all saving represents work in the past, and if instead of throwing money into the problem at the same level of housing stock, we throw work into it instead.

But no the government really does believe that the long term is really just lots of 3-4 year election short term cycles.

Edit: Prawn the interest rate hedging setups dont' really factor in the FX rate per se. What they factor in is the converging force over time. i.e if the AUD was 90c and its interest rate is higher than the US by 3% this tells you that the market expects the aud will depreciate by 3% in a year to the US according to interest rate parity theory.

hello,

whats the problem with housing at the moment?

plenty out there to buy we are told as realestate.com.au is busting at the seams, plenty out there to rent Louis Christopher informs us

any problem then?

what a day, mid thirties, hit work early this morning keeping the country going

thankyou
robots

 

[knocker]

hello,

whats the problem with housing at the moment?

plenty out there to buy we are told as realestate.com.au is busting at the seams, plenty out there to rent Louis Christopher informs us

any problem then?

what a day, mid thirties, hit work early this morning keeping the country going

thankyou
robots

hello

Well robots

I guess if you are on ice then 43 would come down to mid thirties.lol

thankyou

 

[robots]

hello,

yeah that bag of arctic sure changed the day

thankyou
robots