House prices to stagnate for 'years'

[lakemac]

Very good explanation there.. I probably haven't looked at it this way, and it does make some good sense as to what is/may happen in future.

Ask anyone in Japan after 1990...

There is a simple proxy you can use to determine the rate of credit creation/destruction - apply for a house or margin loan.

If you have a standard credit rating and normal job and thus fairly normal loan servicibility ie. ability to repay the loan; from a bank's perspective then the ease or difficulty with which they lend you the money will give you a guide as to where credit is currently being created.

If you get fobbed off for a house loan then you know that credit is being restricted, if margin loans or car loans are easy to get then you know credit is awash there - probably a sign that a growth market is in play.

Similarly the news about corporate take overs, mergers and buyouts - the big end of town is being given credit. Get out of the stock market when hear big companies complaining they are cutting back and takeovers are just not in the news.

Governments awash with deficits - credit being given by the central banks. Watch when the government is told no more by the central banks. I point you to the record of the Whitlam government here in Australia. Their credit was pulled. End of that government... Who controls who?

Best quote I heard recently which was the Medici family motto:

"Money to get power, and power to guard the money."

Mayer Amschel Rothschild knew that all too well when he said:

"Give me control of a nation's money and I care not who makes her laws."

John Howard please take note...

 

[robots]

hello,

most people aren't really interested in monetary policy or what may or may not happen in the future when buying their first house, and even many multiple property owners dont care what happens

most look at their own income and what they can buy, and go from there

whether it be rent or loan you have to live somewhere

whats happening is no aberration

looking forward to the 2yr anniversary of the thread, might have a bottle of bubbly (will pour one for you WayneL)

regards

robots

 

[Kimosabi]

hello,

most people aren't really interested in monetary policy or what may or may not happen in the future when buying their first house, and even many multiple property owners dont care what happens

most look at their own income and what they can buy, and go from there

whether it be rent or loan you have to live somewhere

whats happening is no aberration

looking forward to the 2yr anniversary of the thread, might have a bottle of bubbly (will pour one for you WayneL)

regards

robots

Robots, you have absolutely no idea what you are talking about.

Until you understand the monetary system and who controls money supply, you are living in a fools paradise.

The only truly rich people in our current society are those without debt, because they aren't enslaved to the banks who lend you money they create out of thin air.

The primary reason housing prices and shares have gone up so much in the last few years, is because the US, UK and Australian central banks have been printing money like there is no tomorrow and this money has to flow somewhere, ie Housing Prices and Shares. At the same time they have lowered lending standards and flooded main stream media that Real Estate is a 100% guaranteed, never goes down, Rock Solid investment.

Robots along with the rest of Australia needs to wake up. Our current monetary system is a scam and a farce.

It is the method of a few to enslave us all.

Robots, you need to go and educate yourself.

For starters I would recommend you watch Money Masters ==> http://video.google.com.au/videoplay?docid=-515319560256183936 and learn some history about Money and the Monetary System...

 

[lakemac]

one suggestion Kimosabi when explaining this stuff,
be very particular about the definition of your terms as most people are not aware of subtle distinctions.

To most people money is just money. They don't understand.
Terms like "printing money" are rather misleading as the average person thinks that refers to the stuff in their wallets.

I came up with the following definitions which I use to clarify my explaination to people:

CASH - this represents the coins and paper/plastic notes you have in your wallet, piggy bank or under your matress. It is manufactured by the mint. It represents a very very small part of the overall economy. It is sometimes referred to as "currency" or "money in circulation".

MONEY or DEPOSITS - this is the number the bank keeps in its computer systems and you see on your bank statements. It is just a number nothing more. It represents about 10% of an economy.

CREDIT - this is the "goodwill" created out of thin air by the banking system. It does not initially represent money - it really is just one bank writing to other banks saying "please accept our goodwill and we will continue to accept yours". Banks create credit by just entering a number into their computer system. The creation of credit does not require a corresponding amount in the form of deposits. It literally is thin air.

"You think that's air your breathing..." - Morpheus from The Matrix.

To prove the last point, grab a copy of any bank's year end report. Look at the asset figures then the liability figures. Assets for a bank are the loans (credit) they create. Liabilities are the deposits you have in the bank (ie the bank has to pay deposits back to you hence it is a liability for a bank). How is it that loans (assets) are larger than deposits (liabilities)? Thin air. Thin air.

"There is no spoon..." - Neo also from the Matrix.

 

[lakemac]

Another way to explain the scale of each:

Most people might have about $100 cash in their wallet.

Similarly they might have a savings account with $1000 in it.

Then they may have a mortgage for $100,000 to $300,000.

Ratios:
cash : money : credit = 1 : 10 : 100 - 300

You can see how credit swamps everything else.

There is another more complicated effect with credit caused by a thing called fractional reserve banking - but that is better explained by the Money As Debt videos.

 

[wayneL]

Consternation in the US CONgress.

 

[Temjin]

Our current monetary system is a scam and a farce.

It is the method of a few to enslave us all.

Too true, even though it's off topic.

There is a reason why only less than 1% of the world populations control more than 90% of the world's wealth. The middle class is amoung the 99% of the population.

 

[wayneL]

An economist talks about the housing bubble

 

[Kimosabi]

Consternation in the US CONgress.

It'll never happen here...

 

[Kimosabi]

Home prices set to surge again, fuelling debt crisis

HOME prices are about to surge again and fuel a phenomenon that a leading property analyst has dubbed "peak debt", where mortgage repayments outstrip the spending capacity of home owners.

Australian Property Monitors predicts that in the next decade many in the mortgage belt of "average Australia" will reach a point where they are unable to put food on the table because loan repayments swallow their incomes.

Yesterday the Labor leader, Kevin Rudd, confirmed housing affordability as an election issue by calling a summit to address it. Housing, finance and community groups will discuss more than 30 proposals put forward by Labor aimed at boosting home ownership.

Australian Property Monitors, a property analysis group owned by the publisher of the Herald, Fairfax Media, upgraded its forecast of home prices over the next year from stable to rising by 5 per cent.

The political stoush intensified with the Prime Minister blaming the states and the NSW Treasurer blaming higher interest rates for keeping home ownership out of the reach of many people.

The general manager of Australian Property Monitors, Michael McNamara, said he coined the term "peak debt" to echo the "peak oil" theory, which suggests the production of oil has peaked and is running out. Likewise the capacity to borrow will simply run out, he claims.

"Australians want more affordable houses for children but not at the expense of their own house price growth," Mr McNamara said.
Census figures published last week show national home loan repayments soak up 31.6 per cent of average household income, up from 27.7 per cent in 2001.

Independent economists agreed that a crunch time was on its way in which Australians would reach their capacity for borrowing. At that point they could put a dent in economic growth as their spending power was removed.

Mr McNamara predicted that if average house prices continued to outstrip rises in incomes at the current rate, by 2016 there would be no money left after paying a mortgage.

Steve Keen, associate professor at the school of economics and finance at the University of Western Sydney, agreed, saying household debt was roughly 25 per cent of disposable income in 1990, and that proportion had risen to 150 per cent. "We can't keep on doing that forever," he said.
But "peak debt" was not a theory shared by interest rate analysts in the financial markets. A Macquarie Bank interest rate strategist, Rory Robertson, said the census figures showed one-third of home owners did not have a mortgage.


He said those vulnerable to high debt had bought into the market in the past three years and only comprised about 10 per cent of the market.
"The Reserve Bank of Australia will manage interest rates in a way that protects Australian borrowers," Mr Robertson said.
The Reserve Bank meets in Sydney today to discuss rates. No move is expected this month, but a strong economy is expected to fuel two more rises over the next 12 months.

Mr Rudd said housing affordability was a crisis facing many working families, "and we don't want the Federal Government just to play the blame game with this and blame somebody else".

He sought to cast affordable housing as a central plank of good economic management.

But the Prime Minister, John Howard, reiterated the Government's claim that the lack of home affordability was a result of state governments not releasing enough new land.

A spokesman for the NSW Treasurer, Michael Costa, denied land supply was a problem. He said there was already enough land available in NSW to accommodate 33,000 new homes. "The biggest threat to home affordability remains the current interest rate environment," he said.
Among Labor's proposals is allowing first-home buyers to divert pre-tax income into an account to build a deposit. The money might be treated the same way as salary sacrifice contributions to super.

Figures in Labor's housing proposals show the last four interest rate rises have added $91,677 to interest repayments over the life of a loan for the median-priced Sydney home. The figures also show the annual income needed to buy a median-priced home in Sydney has risen from $62,800 in 1996 to $145,412 this year.

Housing groups welcomed Labor's proposal for a national summit and for a superannuation-style savings scheme for first home buyers.
The Housing Industry Association said Labor had thrown down the gauntlet to the Federal Government, which "has been mute on policy measures necessary to deal with the housing affordability crisis".


http://www.smh.com.au/news/national...1183351125207.html?page=fullpage#contentSwap1

Aussie housing is so heading for a massive crash...

I predict we'll go back to 2001 prices.

 

[robots]

hello,

looks like the complete opposite is happening though kimo

money is getting poured into the existing home/unit market, some of the info out today indicates Aus is around 30k homes short a year

companies want mega profits for their building materials

thankyou

robots

 

[Flying Fish]

hello,

looks like the complete opposite is happening though kimo

money is getting poured into the existing home/unit market, some of the info out today indicates Aus is around 30k homes short a year

companies want mega profits for their building materials

thankyou

robots

this so great
I will sell all my crappy land loving property and buy a boat

 

[robots]

hello,

go for it

thankyou
robots

 

[gfresh]

Aussie housing is so heading for a massive crash...
I predict we'll go back to 2001 prices.

I don't believe so.. That sort of drop (20-30%+) has never been seen EVER in the history of housing here in Australia, and won't ever be.. you may get (and we probably will see) some negative trends for a year or two in some areas, but usually that picks up. There may be a correction, but not to that extent.

You have to remember that owner/occupiers control the majority of the market, and they just don't jump out when things get tough. Investors make a portion, but it's not a huge majority. If a massive number were forced to sell out, where would they go? Nowhere, as there wouldn't be sufficient investors to make up rentals to house them. There's definitely a certain amount of self-sustainability in the housing market, which is not matched by other forms of investment.

The current problem is with new dwelling construction not meeting supply due to higher costs posed by materials and labour.. That will be where the problem is - quite soon I can see a crash in many property investment firms (already another one today - just the start of the iceberg), which invest heavily in exactly that. This will have a large flow-on effect to the economy, jobs, etc.. however, my bet is that established property will continue to go up (in smaller extent true), rather than down..

Established houses make up the majority of housing obviously, which prevents things falling too far.

Any move to help people get into the housing market, such as the Labor Government is proposing may actually have the opposite effect, making affordability easier (debt easier as lakemac explained), and therefore prices higher.. i.e. everybody can now afford a home that was once unaffordable = more demand = prices rise.

Government really wants to make housing affordable? they slash incentives for investments, negative gearing breaks.. make it attractive to only own one home, *and* do the above. They don't want to do that, tread on too many upperclass toes, make the rich get poorer.

Here is a good article actually.. from 2005, but still relevent

http://www.rics.org/NR/rdonlyres/89...E0626301F/0/RICSAusHousingmarket_June2005.pdf

Note the following ..

For every new dollar lent for house purchases in
2003, around 40 cents went to investors,
compared with only 25 cents in 1994.
According to the RBA this is higher than in
comparable developed countries. In 2002 and
2003, the stock of outstanding credit for
investors rose around 30 per cent per year
compared with 20 per cent for owner occupiers.

and..

...In fact, there are no specific aspects of the current
Australian tax system that are designed to
encourage investment in property over other
assets.

 

[WaySolid]

Just had a bank valuation returned on a house in north Brisbane

273k Base cost for house (Purchase + reno's/repairs) in January 2007
310k Bank valuation in July 2007

13.6% increase in 6 months

Fairly basic renovations done inside the house, mostly just to make it a liveable PPOR.

Have another house with a similar cost base and CG in the area bought this year. Yields are still 5% gross on both. Options exist to bump up the yield to 7-8% with more active management.

 

[WaySolid]

hello,

top effort waysolid, got to be in it to win it

for many people even one property would be helpful, your home, an extremely passive investment

replacement cost of a house is having a huge impact, material companies want massive profits, contractors want massive profits

thankyou

robots

I'm not sure what 'should' happen with my own patch of dirt.

The only fundamental thing I can reliably pin down is that there is an indeed a robust supply/demand imbalance in my area and I think the whole of Brisbane actually. There are some very good reasons for this, you can start with policy makers who talk about housing affordability problems and suggest demand side stimulation policy measures, and local councils that are continuing to pile costs on developers as a beginning. Also I note the continued population growth, strong economy and sentiment measures amongst people buying homes to live in.

I have capital growth in my suburb going back 80 years that shows 10-11% on the dirt plus the yield added for sweetener for vanilla 16 perch residential blocks. At times it can be very lumpy growth, and I'm sure I will see further lumps in the future, I'm interested in finding an ideal investment if it exists.

Presently I'm looking into fixing a % of my loans and selling what I consider my worst property as risk control ideas. Make hay while the sun shines and think winter while it's summer and all that!

 

[gfresh]

I think Brisbane is very well placed.. Just as a small straw poll, next year I plan on buying in Brisbane (first owner), and also my good friends are going to be buying a place up there. They own on the goldcoast presently, I'm just renting.

When I think when things slow down, a lot of people will be off to Brisbane, or Melbourne or Sydney, for better job prospects (most here seem to be in construction and building), putting further increase on house prices. This won't be good for goldcoast prices, nor does it have any established industry to keep it propped up IMO. There will be strong effects here I think.

They say holiday areas are the first to boom when the going is good in the economy, the first to suffer when it goes bad.

 

[Uncle Festivus]

It is good to see some primordial financial thought processes being applied to the real estate market, instead of the 'house prices always go up' mantra. The reserve bank has it's interest rate setting hands mostly super glued to their backsides for fear of further reducing exporters competitiveness by a rising $AUS as well as the detrimental effect to the current account deficit & local real estate industry.

So what does it have at it's disposal to devalue the currency without using interest rates - money supply, currently estimated to be increasing by approx 14% per annum. This initially had the effect of creating a real estate boom, but it then ran into the affordability conundrum; so now we see it progressing along the chain to the stock market.

So along with every other 'asset', I would think that to find out if real estate is actually appreciating that this monetary inflation/asset deflation should be taken into account. If your house isn't appreciating by more than 14% then you are going backwards, let alone stagnating.

Wages certainly aren't keeping up with this either, so we have affordability at record lows. Doesn't leave much room for further appreciation (except maybe at the upper price levels, but this is slowly being squeezed ever higher too). Specific examples and hot spots excluded to an extent, but eventually they all succumb to the invisible laws of silent monetary devaluation, unless you get a better return than monetary expansion eg the share market @ 20%.

 

[tech/a]

Uncle
So basically most Superannuation is a joke!
Currently 99% of people have no hope in hell of making time let alone getting ahead!

 

[lakemac]

Funny how wages have not kept up.
Wages are not paid by credit creation, they are productivity based.
You work harder, faster, smarter then and only then can your income go up in the non-inflationary adjusted sense.

Also remember wages represent a *real* output from an economy (unlike credit) so that is why banks like to lock in your future wages as the interest stream on the thin air they lend you. They know that the loan represents thin air and your wages represent *real* output.

Be careful Uncle about using any of the "M" (M1 - M...) measures of money supply. They measure *money* not credit. See my definition of cash, money and credit in the other thread about the economy.

Super is not a joke as long as you are getting a return above inflation.
However you have to realise that at 9% savings rate it is designed to perform one function - save the government from paying you a pension. If you calculate your super forward you will find the ultimate return in retirement is typically equal to that of what a pension would pay.

On another note - also consider the current baby bonus is also a way of the government being able to find a way to fund baby boomers (currently 45-60 yo) retirement. In 20 years time these new babies are entering the workforce just as baby boomers are in need of medical assistance (65-80 yo at that point). Guess what, I would hate to be a baby right now.