The future of Australian property prices

[satanoperca]

Sinner,

No need to bang you head you might heart yourself.

I no longer get deeply involved in the debate on our property prices.

A wise man once said to me, do argue, just look to how you can profit from it.

I cannot short property per say but I can short those companies who are largely involved in the supply of huge amounts of credit/debt to the sector, our banks until KRUDD & Co place a ban on these golden angels once more.

Thank-you for your write up. It was clear and concise.

Cheers

 

[robots]

hello,

how is that guy from GMO, crikey give it up man

usual tactics to get people to divert their $ into his funds, amazing, people will follow like sheep

Satanoperca, so you shorting with CFD's, would be the ultimate bet, put 500k on it, they will take the bet

great day

thankyou
professor robots

 

[satanoperca]

hello,


Satanoperca, so you shorting with CFD's, would be the ultimate bet, put 500k on it, they will take the bet

Sorry Robots I will leave those size bets to PI's.

I do fail to understand what you problem is with financial instruments to trade, you use them, they are called banks.

Cheers

 

[robots]

Sinner,

I cannot short property per say but I can short those companies who are largely involved in the supply of huge amounts of credit/debt to the sector, our banks until KRUDD & Co place a ban on these golden angels once more.

Cheers

hello,

just relating to this statement, you can short the banks without carrying stock and i understand now you arent doing that (but would like to?)

no problem with financial instruments (financial betting) i was doing it with IG Markets (spread betting) on the SPI and also with Tricom Futures (no longer) with futures

fascinating stuff, like a whole "gambling sector" in itself like TAB or Sportsbet

thankyou
professor robots

 

[satanoperca]

Incorrect, but keep on assuming.

Gee, put down 10% deposit and buy and IP, that seems like betting to me.

Everything is a gamble it just depends on how much risk you can tolerate.

Cheers

 

[robots]

hello,

which part am i incorrect on?

thankyou
professor robots

 

[sinner]

Incorrect, but keep on assuming.

Gee, put down 10% deposit and buy and IP, that seems like betting to me.

Everything is a gamble it just depends on how much risk you can tolerate.

Cheers

Hi satano,

You give a good example of leverage on the retail side of the market, i.e. those taking out loans.

I put it to you and all others on this forum that the question we as Australian citizens - who through the Treasury have guaranteed the huuuuuuuge amounts of debt of the Big 4 banks (especially all the new foreign currency denominated debt they have issued for huge profits since 2008 guarantee came in place) - should be asking is what about the leverage of our banks?

Especially CBA and WBC who hold as more than half the "assets" on their books as mortgage debt. Banks are fully leveraged into the real estate trade - which has traditionally been "buy short sell long" or buy short term debt and sell long term debt. They have sold a lot of this debt into foreign currency denominated bonds and the like.

What will the market cap/asset book of CBA or WBC look like if house prices decline by say, 5% (so I am not accused of picking a sensational number) in a contracting credit environment where they cannot find bidders for new debt? Please ask yourself if the global market for debt is contracting or increasing.

We have already allowed these banks to take bad/nonperforming assets off their balance sheets, otherwise they would already be insolvent. So let's ignore those assets just like they do, and pretend all is rosy for a second then ask the hypothetical two part question:

1. What is the actual leverage of our big 4 banks in the residential Aus RE and Aus CRE market? Domestic demand for Aus government debt is not especially high compared to say US Treasuries, Japanese Government Bonds or German Bunds. So our banks did, do and will continue to fund our RE appetite on international debt markets. Is this leverage and method of obtaining funding sustainable from a macro perspective and ethical from our citizens perspective as debt guarantors to these banks?
2. Assuming this is not a bubble, but rather a healthy bull market, we can also assume house prices make a healthy correction of 5% at some future point before making new highs. What will happen to the balance sheets of our big 4 banks in such a correction scenario? What would be the trigger for such a correction? Are the banks or even Australian society prepared for such a trigger event?

 

[robots]

hello,

what percentage do the banks get from overseas sinner? isnt the race on for deposits from the local community

man some spruiking goes on

thankyou
professor robots

 

[sinner]

hello,

what percentage do the banks get from overseas sinner? isnt the race on for deposits from the local community

man some spruiking goes on

thankyou
professor robots

Sorry robots, I think you have misunderstood the situation. Our banks sell debt on the markets to be purchased by investors. You "get a percentage" by buying debt. Banks traditionally buy short term debt and sell long term debt. Obviously in the case of our banks, a large portion remains on their balance sheet.

The race might very well be on for domestic deposits, those savers demand a rate of yield from the bank, where does the bank get that rate from? By selling your deposit as leveraged debt.

There isn't inherently wrong with that process, it has simply gotten way out of hand. To my mind, overleveraged would be an understatement.

 

[So_Cynical]

While we are on the subject of debt, there was something on the ABC news the other nite that caught my attention...apparently about 75% of Australians personal debt is held by people earning over 75K per annum...so it would seem that the vast majority of personal debt is reasonably well serviced by our high income earners and thus low risk.

 

[satanoperca]

While we are on the subject of debt, there was something on the ABC news the other nite that caught my attention...apparently about 75% of Australians personal debt is held by people earning over 75K per annum...so it would seem that the vast majority of personal debt is reasonably well serviced by our high income earners and thus low risk.

Sorry but this makes no sense as you have not enough facts to make this assumption - "Low Risk". When the GFC kicked in, it was the high income earners that I knew who were overleverage that got burnt badly, no the average Joe.

It depends on how much debt each individual carries that is important. Someone on $75K with $1M is in trouble.

I to heard the same thing but seemed to be in contrast to a report I had read that stated most of the mortgage debt for IP's was held by people earning between $50K and $80K, but i could be wrong.

Cheers

 

[satanoperca]

Hi satano,

You give a good example of leverage on the retail side of the market, i.e. those taking out loans.

I put it to you and all others on this forum that the question we as Australian citizens - who through the Treasury have guaranteed the huuuuuuuge amounts of debt of the Big 4 banks (especially all the new foreign currency denominated debt they have issued for huge profits since 2008 guarantee came in place) - should be asking is what about the leverage of our banks?

Especially CBA and WBC who hold as more than half the "assets" on their books as mortgage debt. Banks are fully leveraged into the real estate trade - which has traditionally been "buy short sell long" or buy short term debt and sell long term debt. They have sold a lot of this debt into foreign currency denominated bonds and the like.

What will the market cap/asset book of CBA or WBC look like if house prices decline by say, 5% (so I am not accused of picking a sensational number) in a contracting credit environment where they cannot find bidders for new debt? Please ask yourself if the global market for debt is contracting or increasing.

We have already allowed these banks to take bad/nonperforming assets off their balance sheets, otherwise they would already be insolvent. So let's ignore those assets just like they do, and pretend all is rosy for a second then ask the hypothetical two part question:

1. What is the actual leverage of our big 4 banks in the residential Aus RE and Aus CRE market? Domestic demand for Aus government debt is not especially high compared to say US Treasuries, Japanese Government Bonds or German Bunds. So our banks did, do and will continue to fund our RE appetite on international debt markets. Is this leverage and method of obtaining funding sustainable from a macro perspective and ethical from our citizens perspective as debt guarantors to these banks?
2. Assuming this is not a bubble, but rather a healthy bull market, we can also assume house prices make a healthy correction of 5% at some future point before making new highs. What will happen to the balance sheets of our big 4 banks in such a correction scenario? What would be the trigger for such a correction? Are the banks or even Australian society prepared for such a trigger event?

I feel that it will take more than 5% for the banks to start to feel real pain, but that is not to say that their share price cannot drop with a 5% correction.

Yes our govnuts used $8B of your future tax dollars to by RMBS's. Why they continue to play market puppet is beyond me.

What I am full aware of is the Govnuts will step in with my 4 years olds future tax dollars to sure up the banks when GFC comes back from lunch.

Like your choice of banks, the main two I'm shorting in a long term hold approach, WBC and CPA as I believe their business model is overweighted in the RE sector. Given loans are falling, IR's have increased, like to see how they are going to pull the rabbit out the hat with huge profits come the next few reporting seasons.

Cheers

 

[lioness]

For all you property bulls living in a fools paradise, click on this link and pay attention to slides 21-22.

http://www.debtdeflation.com/blogs/...presentation-on-scribd-on-australian-housing/

Enjoy while it lasts.

CBA and WBC have >50% in residential mortgage debt on their books, USA and UK banks were in a healthier state before their collapse. Lookout below.

 

[Beej]

For all you property bulls living in a fools paradise, click on this link and pay attention to slides 21-22.

http://www.debtdeflation.com/blogs/...presentation-on-scribd-on-australian-housing/

Enjoy while it lasts.

CBA and WBC have >50% in residential mortgage debt on their books, USA and UK banks were in a healthier state before their collapse. Lookout below.

What's wrong with banks carrying mortgage debt? That's the safest/lowest risk (in terms of default risk) loans banks can have on their books! If mortgage debt was only 20% of their book, what do you think would constitute the other 80%? And how risky do you think those other types of loans might be?? I think you are looking at the risks back to front!

Also you have to remember that in countries like the US most housing loans are securitised anyway (Freddie/Fanny etc), and so don't tend to be carried as assets on the banks books like they do here, whereas in AU securitisation only occurs for a small proportion of the market.

PS: That presentation has been floating around for years now, much of it's information is out of date and even wrong. But it certainly gets housing bears blood rushing!

 

[satanoperca]

Beej,

I do see the banks falling over as they are heavily exposed to the RE sector, just cannot see them writing huge amounts of loans like they did last year without govnuts assistance.

Cheers

 

[schnootle]

This debate annoys me for the same reason the climate change debate annoys me. You are either a believer or a denier, its all one or the other, why can't the people in control hedge our bets.

My attitude to the house price "bubble" is the same as for climate change , even the most passionate property fans will probably agree that there is a small possibility of a keen style meltdown, in the same way climate deniers will probably agree to a small possibility of man made destruction.

If in the future climate change bites, people will look back on us as negligent. If the housing market crashes and takes a bank with it we will be seen as negligent.

I wish a government would look forward more than 3 months.

 

[Aussiejeff]

Beej,

I do see the banks falling over as they are heavily exposed to the RE sector, just cannot see them writing huge amounts of loans like they did last year without govnuts assistance.

Cheers

Since a significant part of our economy is entirely dependent on RE & mortgage-based financial instruments, it is hard to see govnuts of any colour or persuasion NOT continuing to use substantial amounts of taxpayer's funds to support the RE financing industry.

For example, even without the federal govnuts FHOB (Boost), NSW alone still forked out $780 Million in $7,000 FHOG's (Grant) in the 12 mths between start Jun 2009 & end May 2010. http://www.osr.nsw.gov.au/lib/doc/stats/fhb_top20.pdf

With all the other states as well as NSW still running that $7,000 FHOG scheme into the foreseeable future, that is a substantial whack ($Billions) of govnut support Australia-wide being continually pumped each year in to the RE sector.

Catch-22. How can they possibly stop offering that huge cash splash without burning their own electoral fingers?

 

[singlefished]

Catch-22. How can they possibly stop offering that huge cash splash without burning their own electoral fingers?

One word.... "Referendum"

Now that would be an interesting proposition

 

[Beej]

For example, even without the federal govnuts FHOB (Boost), NSW alone still forked out $780 Million in $7,000 FHOG's (Grant) in the 12 mths between start Jun 2009 & end May 2010. http://www.osr.nsw.gov.au/lib/doc/stats/fhb_top20.pdf

With all the other states as well as NSW still running that $7,000 FHOG scheme into the foreseeable future, that is a substantial whack ($Billions) of govnut support Australia-wide being continually pumped each year in to the RE sector.

Catch-22. How can they possibly stop offering that huge cash splash without burning their own electoral fingers?

And how many $$billions$$ in REVENUE was reaped by the NSW government (and other states ) in property stamp duty charges?? The FHO grant is simply re-distributing a small portion of that massive stamp duty rip off from established home owners trading up and investors to people just starting out in life and buying their first home. Seems like a perfectly fair and reasonable thing to do to me???

FHOGs do not cost you as a tax-payer anything in reality, because if you think they prop up house prices, and were removed, "thus" resulting in big property price correction, then stamp duty revenues would plummet over-all and you would end up paying more taxes in other ways anyway as the state governments found other ways to tax you and maintain their revenue.

One word.... "Referendum"

Now that would be an interesting proposition

Really? Which part of the constitution exactly would you propose to be amended by your referendum???

 

[Bigukraine]

One word.... "Referendum"

Now that would be an interesting proposition

Only problems with "referendums" is that govt,s word the usual 2 choice's in a way that pushes you to one side or the other....(the side they want you to go) eg;

have a look at what they did when they asked Australia if it wanted to become a republic !!!! the choice"s were heavily weighed to keeping the stat quo .