House prices to keep rising for years

[Uncle Festivus]

I just love the way you guys keep going on about the US market...where they have in excess of a million surplus houses...and NINJA loans....
in fact I would love for you to go over there and buy some of those cheap houses...you know the ones for $1000, and then pay the govt about $8000 in taxes a year...where the neighbours have ripped out all the copper and anything else thats worth 2 cents...
or the mansions...for 100k's....and loving the neighbourhood's they are in...

As much as you would like to think that Aus is somehow economically divorced from the USA, and the rest of the world for that matter, there is no such thing as a free lunch. The global competition for stimulis debt is going to force rates up eventually. Australians have never had it so good; just a pity that KRudd has 'sold us forward' in order to achieve this?

 

[Buckeroo]

As much as you would like to think that Aus is somehow economically divorced from the USA, and the rest of the world for that matter, there is no such thing as a free lunch. The global competition for stimulis debt is going to force rates up eventually. Australians have never had it so good; just a pity that KRudd has 'sold us forward' in order to achieve this?

I'd be interested to see this chart continued for 2008 - any chance?

Cheers

 

[kincella]

New development plan for Qld southeastJuly 28, 2009 - 11:59AM

Australia's fastest growing region, Queensland's southeast corner, will need an extra 754,000 homes to cater for population growth, a new report shows.

Planning Minister Stirling Hinchliffe on Tuesday released the updated South East Queensland Regional Plan in Brisbane, which will govern how the region is managed from this year to 2031.

Mr Hinchliffe told reporters the region's population would grow from 2.8 million to 4.4 million by 2031 and require 754,000 extra dwellings.

He said the regional plan would encourage development away from the coast and towards a corridor west of Brisbane

http://news.theage.com.au/breaking-...ent-plan-for-qld-southeast-20090728-dzgr.html

 

[Beej]

I'd be interested to see this chart continued for 2008 - any chance?

Cheers

Yes that would be interesting! Another interesting chart would be the % of household income required to SERVICE the debt. At the end of the day it is serviceability that matters in these things, despite all the alarming graphs that the likes of UF like to post around that ignore this most important part of the "debt statistics".

For example - since the end of 2007 (the end of UFs chart), the cost of servicing debt for households in AU has REDUCED by 40+%! So if the 160% debt/income level didn't precipitate a massive crisis back then, it's hardly going to precipitate one now is it? Of course in the future interest rates may rise again, but they would now have to rise 80% to increase the debt serviceability cost back to where it was at the end of 2007 - a level which in a healthy economy (which we would have if interest rates rise that high again), was shown to be essentially sustainable - certainly not so bad that it crashed our property market or anything....

So as usual the absolute debt number focused gold bug/Austrian school types just miss the point (ie serviceability) and that's why they are turning out to be wrong in just about everything at the moment.

PS: I'm expecting a bunch of responses citing unemployment now.... as has been covered before, for unemployment on it's own to trigger a "debt serviceability crisis" and therefore a wave of forced property selling pushing prices down, it would need to rise very quickly to levels not seen since the 30s. That is looking like a very remote possibility at this juncture. Slowly rising unemployment peaking somewhere below 10% is just not going to provide the catalyst required - especially as we know the government/banks etc will pull out all stops to minimise the level of mortgage defaults if they start to rise too much beyond their current infinitesimal levels!

PS: One final question; UF in your chart how is "Household Disposable Income" defined? Does that have living expenses + taxation taken out or just tax? Given that mortgage payments are such a large portion of living expenses, I hope it is simply after tax household income, otherwise it's a pretty useless stat really?

Cheers,

Beej

 

[Uncle Festivus]

PS: One final question; UF in your chart how is "Household Disposable Income" defined? Does that have living expenses + taxation taken out or just tax? Given that mortgage payments are such a large portion of living expenses, I hope it is simply after tax household income, otherwise it's a pretty useless stat really?

Cheers,

Beej

You would have to ask the RBA & the US Fed for that? The point being the relative levels of the 2 indicators. Whereas the unsustainable bubble has well and truly popped in the US, the bubble has only just started to grow even bigger for Australian homebuyers, due solely to the government subsidy and continuing influx of unproductive migrants competing with the incumbents and forcing up prices? Things are so good, all those retirees who were going to rely on their share based super are now having to stay in the workforce indefinitely now, competing with school leavers and migrants.

With interest rates at record lows it's obvious that people have a lot more money not going into paying off a mortgage and can be spent on 'other' things, hence apparently no recession? They are at record lows for a reason, and when/if those reasons are removed they will go back up, only this time only after sucking in a whole new demographic loaded with mortage debt. How do I know this - Kevin told me

The seeds of Australia's recession are being sown right now?

 

[Beej]

Oh look here is a graph of the serviceability:



(Looks like that's where UFs chart came from as well - http://www.whocrashedtheeconomy.com/?page_id=3). Of course they stop this chart at the end of 2007 as well. Given that interest rates have dropped by 40%, and it is unlikely that total household debt has increased since then (it's probably gone down a bit), that means the cost of serviceability would now be at about 8% of household disposable income - a level it has comfortably been at several times in the recent past.

Additionally, disposable income has been rising in real terms for the past 20 years, and the past 10 years in particular, so relative to the cost of the basics of living - people have more, and therefore can actually AFFORD to spend more of it as a proportion of the total income if they want, without it being a problem. Right now they aren't doing this anyway, in fact it has been reported that most households have not adjusted mortgage payments as interest rates fell - choosing instead to pay down the debt faster - or as UF posted above, perhaps spending some of the difference to boot and helping to keep the economy up.

So really - where's the big problem here?

Cheers,

Beej

 

[Uncle Festivus]

Oh look here is a graph of the serviceability:

(Looks like that's where UFs chart came from as well - http://www.whocrashedtheeconomy.com/?page_id=3). Of course they stop this chart at the end of 2007 as well. Given that interest rates have dropped by 40%, and it is unlikely that total household debt has increased since then (it's probably gone down a bit), that means the cost of serviceability would now be at about 8% of household disposable income - a level it has comfortably been at several times in the recent past.

Additionally, disposable income has been rising in real terms for the past 20 years, and the past 10 years in particular, so relative to the cost of the basics of living - people have more, and therefore can actually AFFORD to spend more of it as a proportion of the total income if they want, without it being a problem. Right now they aren't doing this anyway, in fact it has been reported that most households have not adjusted mortgage payments as interest rates fell - choosing instead to pay down the debt faster - or as UF posted above, perhaps spending some of the difference to boot and helping to keep the economy up.

So really - where's the big problem here?

Cheers,

Beej

No problem really, debt is debt.

 

[Beej]

I'd be interested to see this chart continued for 2008 - any chance?

Cheers

Here's one that goes to Sep-08:

(From: http://www.treasury.gov.au/documents/1451/HTML/docshell.asp?URL=06 Household saving in Australia.htm which is a good read actually!)

Cheers,

Beej

 

[prgudula]

http://business.theage.com.au/business/rba-warns-of-housing-price-bubble-risk-20090728-dzjy.html

any comments

 

[MrBurns]

http://business.theage.com.au/business/rba-warns-of-housing-price-bubble-risk-20090728-dzjy.html

any comments

and further to that -

http://www.abc.net.au/news/stories/2009/07/28/2638728.htm

 

[kincella]

Stevens is the mole who increased the rates every month for 18 months.....he is absolutley hopeless in his role....not only screwing the home owner, but all the small business employers....who are the biggest employers in this country.....
I cannot use the words to best describe his actions on a public forum ...

 

[Uncle Festivus]

Stevens is the mole who increased the rates every month for 18 months.....he is absolutley hopeless in his role....not only screwing the home owner, but all the small business employers....who are the biggest employers in this country.....
I cannot use the words to best describe his actions on a public forum ...

End of the free ride for the property leeches eh? As usual, all those who have been living within their means will have to pay for those who don't.

 

[Uncle Festivus]

Mr Stevens said today -

"It is becoming more common for Australians to see the glass as half full than as half empty,'' he said.
"Put another way, we can much more easily imagine upside risks to the outlook, to balance out the downside ones, than was the case six months ago,'' he said, citing improving consumer confidence, a slower pace of unemployment rises, and stronger-than-expected economic growth.

He's beginning to sound a lot like the permabulls in here - a kindred spirit perhaps

Just don't take away the punch bowl just yet, the party is just getting started

 

[Beej]

Mr Stevens said today -


He's beginning to sound a lot like the permabulls in here - a kindred spirit perhaps

Just don't take away the punch bowl just yet, the party is just getting started

Well that's good - as he is in a position to influence what actually happens to a far greater extent than any of us here!

Beej

 

[MACCA350]

Well that's good - as he is in a position to influence what actually happens to a far greater extent than any of us here!

Beej

Good for some, not so good for those hard working average aussies just trying to get the good old aussie dream of owning their own home

Sometimes bull property mentality really really annoys me.
I have no problem with property being "safe as houses" since the whole point of a house is to live in, but if the bulls had their way houses would be out of reach for everyone but the top 1% of the income earners.............and that once attainable "aussie dream" would be just that........a dream

<rant over>

cheers

 

[Mofra]

Wow, alot has changed here in the past few months

Only change for me personally is an increase in rental return. All figures in the world don't matter if your reality/portfolio/situation is performing well.

Still renting the place I live in FWIW.

 

[Dowdy]

I just love the way you guys keep going on about the US market...where they have in excess of a million surplus houses...and NINJA loans....

You're forgetting what OUR version of the NINJA loan is - the government grant

 

[wayneL]

You're forgetting what OUR version of the NINJA loan is - Working Australians having their hard earned taken for somebody else's deposit.

Corrected for accuracy.

 

[Julia]

Stevens is the mole who increased the rates every month for 18 months.....he is absolutley hopeless in his role....not only screwing the home owner, but all the small business employers....who are the biggest employers in this country.....
I cannot use the words to best describe his actions on a public forum ...

In an interview with Mr Stevens on ABC Radio's "PM" this evening, he even admitted the downturn had not been nearly as severe as the bank had anticipated. (Obviously implied here is that - had they known armageddon was not going to occur - they'd not have been so aggressive in reducing interest rates.)

It hardly gives us much faith in their predictions for the future.

Good for some, not so good for those hard working average aussies just trying to get the good old aussie dream of owning their own home

Sometimes bull property mentality really really annoys me.
I have no problem with property being "safe as houses" since the whole point of a house is to live in, but if the bulls had their way houses would be out of reach for everyone but the top 1% of the income earners.............and that once attainable "aussie dream" would be just that........a dream

<rant over>

cheers

Macca, I'm not sure that's fair. I can remember paying 22% on IP mortgage.
And yes, it was very tough going.

 

[Buckeroo]

and further to that -

http://www.abc.net.au/news/stories/2009/07/28/2638728.htm

Quote from the above article reads:

Real estate risks

Mr Stevens particularly singled-out housing as an area where debt had been used to fuel unsustainable house-price growth, rather than addressing the housing shortage by building more dwellings.

Good one Burnsey, I wonder why he didn't warn KRudd about the dangers of encouraging this?

Thanks for the chart Beej - I've always wondered at what point the debt ration becomes unsustainable.

I suppose if it maxes out, the banks can always bring out new products such as generational loans - you get your kids to pay off the family home after your gone.

Cheers