Normal
This is true to a point, however perhaps the way to look at it is to think about what is our national "LVR" if you like. As long as the LVR is low/conservative, then asset price movements are not a problem - same way you might assess the risk of a margin loan for shares right? In Australia's case, it looks to me from the figures I posted earlier that our national LVR would be in the order of 25-35%, which is low risk. So as long as serviceability is OK (which can be measured by looking at debt/GDP ratio), then really there is no great problem. I would suggest that only if debt/GDP rations went past say 300% would start to be looking at general serviceability problems.That is true, but again no one holds a gun to anyone's head and forces them to borrow money to buy a house (they can rent, move to a cheaper location etc), or invest in the stock market via margin loan, or take out a car loan to buy a new car (instead of saving for a second hand one) etc etc etc. Therefore the growth in credit is primarily a reflection of the demand from private individuals, + of course the fact that a low inflation/low interest rate environment globally has made the money/credit easier to come by for more people perhaps than in past times. This could be seen a sign of increased prosperity, household income and job security etc, which are all positive things.In terms of the credit growth driving ASSET price inflation, I think that is also true, however the difference between this and general CPI type inflation is that people can choose whether to buy land/property etc as an asset, but they don't have to as they can rent, but CPI forces cost of living increases on all through non discretionary items - you can't opt out of a CPI increase. I would also use Sydney during the 98-03 property boom as an example (when prices rocketed but rents were static) that shows that even when monetary inflation might be driving a rise in asset prices, the utility aspect (ie rent and therefore CPI) does not get pushed up to the same extent. Rents did subsequently rise, but that had more to do with increased disposable income + high demand/low supply for rentals in that market through that period as opposed to pure monetary inflation effects IMO.Cheers,Beej
This is true to a point, however perhaps the way to look at it is to think about what is our national "LVR" if you like. As long as the LVR is low/conservative, then asset price movements are not a problem - same way you might assess the risk of a margin loan for shares right? In Australia's case, it looks to me from the figures I posted earlier that our national LVR would be in the order of 25-35%, which is low risk. So as long as serviceability is OK (which can be measured by looking at debt/GDP ratio), then really there is no great problem. I would suggest that only if debt/GDP rations went past say 300% would start to be looking at general serviceability problems.
That is true, but again no one holds a gun to anyone's head and forces them to borrow money to buy a house (they can rent, move to a cheaper location etc), or invest in the stock market via margin loan, or take out a car loan to buy a new car (instead of saving for a second hand one) etc etc etc. Therefore the growth in credit is primarily a reflection of the demand from private individuals, + of course the fact that a low inflation/low interest rate environment globally has made the money/credit easier to come by for more people perhaps than in past times. This could be seen a sign of increased prosperity, household income and job security etc, which are all positive things.
In terms of the credit growth driving ASSET price inflation, I think that is also true, however the difference between this and general CPI type inflation is that people can choose whether to buy land/property etc as an asset, but they don't have to as they can rent, but CPI forces cost of living increases on all through non discretionary items - you can't opt out of a CPI increase.
I would also use Sydney during the 98-03 property boom as an example (when prices rocketed but rents were static) that shows that even when monetary inflation might be driving a rise in asset prices, the utility aspect (ie rent and therefore CPI) does not get pushed up to the same extent. Rents did subsequently rise, but that had more to do with increased disposable income + high demand/low supply for rentals in that market through that period as opposed to pure monetary inflation effects IMO.
Cheers,
Beej
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