The great crash ahead?

[ColB]

Agree with most of what you are saying, the bit about our children paying for our greed, is a bit off!!!!

I know a lot of people in their late 50's, most are tradesmen, that haven't a lot of money.
You have to remember that most of these guys have less than $100k in super and don't own their house.
Just because house prices where pumped up by the real estate agents, doesn't mean all the baby boomers jumped into debt to buy houses and made a killing.
Most grew up in hard times and were risk averse and didn't capitalise on the opportunities that were available. Some did but would have been burnt in the G.F.C.
I guess what I am getting at is there is not a lot of "normal baby boomers " out there,that I know,that don't have a lot of money.
The baby boomers are constantly demonised for the rise in house prices, but I feel the problem was caused by the real estate agents cranking prices, to increase commissions.
Most sellers look to the agents to give them an indicative price, the agents worked out just slowly ratchet the prices and you get a ponzi scheme happening.
Well now the elastic band is streched as far as it can go, everyone wants to blame somebody for the problem.
Greed was the problem but it was the real estate agents that caused the problem.
Most of the baby boomers who made a "killing" on their house, borowed money to buy another house.

I guess what I am getting at is, the greed wasn't as wide spread as some would have us believe.

What a load of codswallop. Real Estate agents don't create the market, buyers and sellers do and market forces, primarily supply and demand will dictate price. Now as much as I would agree with you that real estate agents are pretty low down the food chain you can't blame them for the boom periods experienced in the housing sector.

The incidence of property investors whether they were baby boomers or not certainly influenced the upward trend in property prices as they soaked up supply.

 

[tech/a]

Wow some people have a very different view.

I see banana prices falling.
Those bloody Grocers have no empathy for the growers.

Have you seen the price of gold!!
Those mining companies how greedy are they!

 

[KIWIKARLOS]

IMO demographics is not the biggest factor influencing the world economy. Sure we have aging populations etc etc so what the biggest driver of economic growth is cheap reliable energy.

One barrel of oil contains chemical energy equivalent to 40000 man hours of work, people do not drive the ecomony and man power means nothing. Robots can build things more efficeintly and better quality than people. A car takes 10 hours to build on a assembly line.

Really think about all the actual productive activity in the ecomony most is not done by man power, the service sector employs the most people and its still the one main industry that requires humans becasue we haven't built machines capable of doing the tasks yet. Man provides the brains power provides the productivity.

In the age of cheap oil one barrel in iraq could be taken from the ground for the cost of $1 (before refinment, transport etc) and oil was $10-30 a barrel. imagine if oil was still $30 a barrel?

USA deficiets would be tiny if even deficiets, their economy would likely be powering on. household energy bills would be 25% of what they are today. Filling up the car would be $20 instread fo $70. Food would be cheaper as all fertiliser and treansport is based on energy.

Japan is in such a mess because they have no indigenous energy supply, australia should use its vast energy resources to remain competitive and just ditch the carbon tax idea. If you want to save the planet focus on spending the money on finding vast cheap power and energy efficiency

In the usa currently gas is what $4 a gallon ie about 80cents a litre and electricity is about 8-12 cents a kwh. In sydney its $1.40 and 20 cents. If usa was paying that price they would have been in a resession long ago.

Everyone is worried about China tanking but the only thing that will constrain them is lack of energy supplies.

 

[skc]

IMO demographics is not the biggest factor influencing the world economy. Sure we have aging populations etc etc so what the biggest driver of economic growth is cheap reliable energy.

Expensive energy would inhibit economic growth, while cheap energy would be inducive to drive economic growth. But cheap energy doesn't drive economic growth.

Ultimately the economy only exists because of people's wants and needs. And demographics is a key factor affecting those desires. It trumps cheap energy on first principle alone.

 

[Smurf1976]

Ultimately the economy only exists because of people's wants and needs. And demographics is a key factor affecting those desires. It trumps cheap energy on first principle alone.

True perhaps, but energy is effectively a "gate".

Everything we do requires energy. If the supply and use of energy isn't growing then that's really all you need to know - the economy won't be growing either (unless by means of speculation etc).

For the vast majority of people, there is NOTHING you did today that didn't consume coal, oil, gas and/or hydro-electricity in some form. Nothing.

 

[sptrawler]

What a load of codswallop. Real Estate agents don't create the market, buyers and sellers do and market forces, primarily supply and demand will dictate price. Now as much as I would agree with you that real estate agents are pretty low down the food chain you can't blame them for the boom periods experienced in the housing sector.

The incidence of property investors whether they were baby boomers or not certainly influenced the upward trend in property prices as they soaked up supply.

O.K then, by your reasoning the boom should keep going, as the supply is declining but the demand is increasing. Lets see how that pans out.
Real Estate agents don't create the market but the have a lot of say in the pricing of the product.
Maybe you have a short memory, but I remember in 2005, 2006, 2007, every time I picked up a paper, it was covered in real estate propoganda.
Buy now before you miss out crap, bordering on hysteria, well now prices are at 7 times the average wage, the proverbial will hit the fan.
By the way, I don't think the Real Estate agents are low on the food chain, they are only doing a job. If they can see that people are prepared to pay more it is their job to keep moving the bar up.
It's a bit like when I go to buy a car, I have a change over price I want to pay. It doesn't matter whether I get $1000 or $10,000 or $50,000 as long as the change over is the same.

 

[drsmith]

Ultimately the economy only exists because of people's wants and needs. And demographics is a key factor affecting those desires. It trumps cheap energy on first principle alone.

The chicken and the egg. What came first ?

Doesn't cheaper energy also affect those desires by driving competition to provide better (more cost effective) products and services ?

 

[young-gun]

O.K then, by your reasoning the boom should keep going, as the supply is declining but the demand is increasing. Lets see how that pans out.
Real Estate agents don't create the market but the have a lot of say in the pricing of the product.
Maybe you have a short memory, but I remember in 2005, 2006, 2007, every time I picked up a paper, it was covered in real estate propoganda.
Buy now before you miss out crap, bordering on hysteria, well now prices are at 7 times the average wage, the proverbial will hit the fan.
By the way, I don't think the Real Estate agents are low on the food chain, they are only doing a job. If they can see that people are prepared to pay more it is their job to keep moving the bar up.
It's a bit like when I go to buy a car, I have a change over price I want to pay. It doesn't matter whether I get $1000 or $10,000 or $50,000 as long as the change over is the same.

If increasing demand and diminishing supply were the case, we would find ourselves with increasing house prices. the fact that housing prices have stagnated and even retreated across australia(quite gradually mind you), would only and can only indicate that the demand just isn't there?

the funny thing is this propaganda you're referring to is exactly what has allowed the market to sustain the levels that it has already. in 2008/2009 with record low interest rates, and the media and real estate agents pumping first home buyers and investors with all the good news like the first home owners grant, people such as myself raced out and bought our first house. now when an entire generation such as the baby boomers has seen house prices do nothing but sky rocket, with the very occasional and short lived downturn, it is no wonder why the general thought amongst people is that "house prices ALWAYS go up".

so we went out on a limb and built our first house, within 18 months interest rates had soared back to their original values! with no kids we failed to see the point in paying more than 60-70% of my wage each week so we fortunately sold before the house had depreciated. we barely broke even! My point is that there are alot of gen y'ers that have done the same, and even those from generation x! thing is alot of others have just bought there first house for their family, and are unable to just cut their losses and get out.

once europe, america, and china all fall over, IMO it is the above situations that will lead to an even bigger drop in house prices than expected. all they have done is create another little bubble on top of a pre-existing bubble.

In EVERY other country, residents have stood up and said " Our house situation is unique and different, house prices will never fall here!" and they have and they will. Japan and the US are probably the two best examples of it, and in this upcoming crash Australia will most certainly not be immune.

 

[sptrawler]

If increasing demand and diminishing supply were the case, we would find ourselves with increasing house prices. the fact that housing prices have stagnated and even retreated across australia(quite gradually mind you), would only and can only indicate that the demand just isn't there?

the funny thing is this propaganda you're referring to is exactly what has allowed the market to sustain the levels that it has already. in 2008/2009 with record low interest rates, and the media and real estate agents pumping first home buyers and investors with all the good news like the first home owners grant, people such as myself raced out and bought our first house. now when an entire generation such as the baby boomers has seen house prices do nothing but sky rocket, with the very occasional and short lived downturn, it is no wonder why the general thought amongst people is that "house prices ALWAYS go up".

so we went out on a limb and built our first house, within 18 months interest rates had soared back to their original values! with no kids we failed to see the point in paying more than 60-70% of my wage each week so we fortunately sold before the house had depreciated. we barely broke even! My point is that there are alot of gen y'ers that have done the same, and even those from generation x! thing is alot of others have just bought there first house for their family, and are unable to just cut their losses and get out.

once europe, america, and china all fall over, IMO it is the above situations that will lead to an even bigger drop in house prices than expected. all they have done is create another little bubble on top of a pre-existing bubble.

In EVERY other country, residents have stood up and said " Our house situation is unique and different, house prices will never fall here!" and they have and they will. Japan and the US are probably the two best examples of it, and in this upcoming crash Australia will most certainly not be immune.

I agree with you completely, it is sad that the banks took so long to tighten lending criteria.
It is not only housing that has created the credit bubble, lending on the plastic is at stupid levels also.
The only hope we have of avoiding a catastrophic recession is if the U.S and Europe can somehow get their fiscal position in order.
Also it will require China to float their currency, to give the rest of the world's manufacturing a chance.

 

[KIWIKARLOS]

I don't agree firstly talking about supply and demand, demand is clearly driven by supply in our case if houses in Sydney were 200 k the demand would be huge. To say the entire housing market will crash is crazy and even in the us some places fair much worse than others. IMO house prices are supported by three main things firstly the cost to build a house , second the land value which is a function of the services provided to that land and thirdly employment . To build a house costs what min 150k as for landand services, roughly in a 400 unit development the service costs in inner Sydney to connect power is about 15k. Water gas and telephone about the same so about 50 to 60 k per dwelling which is build into the price. That doesn't include value / cost for services such as transport ie roads rail buses which is huge. When you buy a house these costs are basically included in the price of the house in most established areas the services are there but large new developments and places where there are no services you pay up front . I would value the services provided to a house next to a main train station / transport to be 50 to 100 k. So the last factor employment supports the house prices and IMO is the main factor that will drive prices in oz. There is a reason why house prices in syd have held up well it's because we have a diverse economy the high end of the market is really only seeing decreases. You just have to look at places like port headland etc to see how employment drives prices. If the mines went bust it would end up like las Vegas which has seen the market crash. All in all I believe house prices in most capital cities are supported up toward medium price range. Local employment will dictate price fluctuations prices in my inner west Sydney area have increased in the last 6 months by about 4%

 

[sptrawler]

IMO house prices are supported by three main things firstly the cost to build a house , second the land value which is a function of the services provided to that land and thirdly employment . To build a house costs what min 150k as for landand services, roughly in a 400 unit development the service costs in inner Sydney to connect power is about 15k. Water gas and telephone about the same so about 50 to 60 k per dwelling which is build into the price. That doesn't include value / cost for services such as transport ie roads rail buses which is huge. When you buy a house these costs are basically included in the price of the house in most established areas the services are there but large new developments and places where there are no services you pay up front . I would value the services provided to a house next to a main train station / transport to be 50 to 100 k. So the last factor employment supports the house prices and IMO is the main factor that will drive prices in oz.

The first one the cost of the house. This can vary considerably, in a boom brickies get upto $2/ brick in a low period they are down to 0.50c - $1, same goes for granos, plasterers, painters, roof carpenters, cabinet makers.
Also the price of bricks, timber etc drops. These factors bring down the cost of a house considerably.
The second one the cost of services, does add to the cost of a block but nowhere near as much as location. The cheapest land is still furthest away from the city, but the cost of providing services there are the highest.
Employment, is the key factor in the price of houses, nobody can support the average $400,000 mortgage when unemployed. The greater the recession the more the unemployment, which inturn causes more foreclosures. Less people can get loans so prices have to fall as banks try to minimise losses.
If the mines go "bust", the flow on will affect the prices in the capital cities, as the support services and flow on effect to general employment would be considerable. IMO

 

[young-gun]

The first one the cost of the house. This can vary considerably, in a boom brickies get upto $2/ brick in a low period they are down to 0.50c - $1, same goes for granos, plasterers, painters, roof carpenters, cabinet makers.
Also the price of bricks, timber etc drops. These factors bring down the cost of a house considerably.
The second one the cost of services, does add to the cost of a block but nowhere near as much as location. The cheapest land is still furthest away from the city, but the cost of providing services there are the highest.
Employment, is the key factor in the price of houses, nobody can support the average $400,000 mortgage when unemployed. The greater the recession the more the unemployment, which inturn causes more foreclosures. Less people can get loans so prices have to fall as banks try to minimise losses.
If the mines go "bust", the flow on will affect the prices in the capital cities, as the support services and flow on effect to general employment would be considerable. IMO

+1...in a deflationary environment the cost of these goods and services would come down considerably. and if builders/contractors weren't to reduce their prices DRASTICALLY in-line with existing houses(if they were to drop in price) they would simply find themselves out of the job also.