Shareswatch Australia

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• 1 Scott Murray // Feb 2, 2010 at 5:19 am

  Anyone interested in housing costs internationally and
  particularly in Australia should look at
  http://www.demographia.com/dhi.pdf

  It is an excellent comparison of housing costs
  across the Anglo-sphere.

  Unsurprisingly Australia is the most expensive
  country out of New Zealand, Ireland, UK, USA and Canada
  on all measures.

• 2 Biker Pete // Feb 2, 2010 at 9:41 am

  Greg A: “But the question we need to ask ourselves now is: can Australian home prices really keep rising?”

  My wife’s parents in Vancouver recently sold a home for which they’d paid C$33,000.00, for C$1.8 million. We all laughed about it, because if anyone had suggested this might be the outcome, they’d have had them committed!

  House prices will continue to rise… here and in countries like Canada, where resources are immense. That’s not to say the young will be able to live in cities like Melbourne, Sydney, Vancouver or Victoria (BC)… unless they have a foot in the door, now. Not much new there. At 25 I could not afford to buy in Perth and had to move to a far-flung satellite town, where I _could_ afford to buy.

  We bought our current main property twenty years ago. It’s worth 7.7 times what we paid for it at last valuation. When we bought it, a colleague suggested it would soon be worth _twice_ what we paid for it. Despite both being optimists, we rejected the suggestion after the dinner party was over and everyone had left.

  The idea that house prices will crash offers hope to the impatient. Maybe a lotto ticket offers similar hope… .

• 3 Greg Atkinson // Feb 2, 2010 at 10:00 am

  Hi Biker, I am not a housing crash sort of guy but I do worry that everyone seems to think the commodities boom will go on forever. 20 years ago for example BHP was pretty much a dud stock and mining was not “sexy”. It is quite possible that once again supply will creep up again and that many commodities prices will stay subdued for many years.

  What we also appear to forget is that Canada and Australia are not the only nations with huge natural resources. As I have mentioned before the Chinese have been very active in Africa simply because they are trying to tap into the huge supply of minerals there. Russia now exports more oil than Saudia Arabia, Mongolia has potentially the largest untapped reserves of Uranium and even in Australia much of our natural resources are being sold off not by Australian companies, but foreign joint ventures.

  So is the future bright for Australia or are we just not seeing the warning signs? Have years of growth made us all a little complacent? Do we expect house prices to keep rising simply because they always have?

• 4 Biker Pete // Feb 2, 2010 at 10:36 am

  Your points are taken, Greg. I myself warned my wife to sell her Liberian Iron Ore stocks before Lang Hancock developed his mines in WA’s north. They fell from $18 to $2 within ten months. Her grandfather, one of the founders of the company, would have been rolling in his grave. Yes, resource sources shift… .

  If the global crash deepens, I know two people who might lose real money in the sharemarket… .
  My son, who has money in both shares and property, might learn a very important message about the continuity, safety and comfort of rental income. (Don’t wish that scenario on either of you, BTW!)

  We enjoy property. After three decades, we know more about it than any other form of investment. We’ve made a lot of money from it… and within eighteen months expect to fully retire… and expand our travel. If property falls, we’ll buy… .

• 5 Ralph // Feb 2, 2010 at 3:20 pm

  I think it could go either way at the moment. We see from recent reports that lending figures slumped 47% since September 2009.

  Mortgage Index

  And then there is the issue of first home owners grants subsiding. And then we have hysterical property investors wailing that increased rates are making them nervous. That says it all -- these guys are pleading for government intervention.

  The RBA is obviously worried because it left rates on hold this month. My feeling is that if the government doesn’t chime in with more ‘free money’, then it’s hard to see that there won’t be falls. On the other hand, the government must be sorely tempted to step in again. If they do, that seals the deal -- they signal that property is a protected asset class and the notion that Australian real estate really is different will be proven correct.

• 6 Ralph // Feb 2, 2010 at 3:21 pm

  oops. Bad use of links. Sorry.

• 7 Biker Pete // Feb 2, 2010 at 3:29 pm

  “The notion that Australian real estate really is different will be proven correct.”

  Again.

• 8 Greg Atkinson // Feb 2, 2010 at 4:28 pm

  Yes Ralph, I reckon the RBA is definitely worried. The best outcome now would be to let the housing market cool a little and thus avoid a bubble, but if the government steps in again then things could get very nasty. BTW Never mind the link problem, all fixed now.

• 9 Ralph // Feb 3, 2010 at 8:38 am

  Greg, thanks for fixing the link.

  Biker Pete -- are you saying your confidence in ever increasing property prices is at least partially based on the assumption that the government will continue to intervene to bail out the housing market if prices fall?

• 10 Biker Pete // Feb 3, 2010 at 8:42 am

  Ralph, are you suggesting that a ‘keensian’ event will cause property markets to crash across Australia, to the tune of 40%?

• 11 Ralph // Feb 3, 2010 at 10:53 am

  Not necessarily. And I never said anything about 40% either. Absent further government intervention, it’s likely that prices will cool a little this year.

  I just have my doubts that there is enough energy left in the housing market to sustain ongoing price increases. As much as I can see, increasing house prices is reliant on increasing credit. And mortgage finance now appears to be decreasing. As well as the AFG press release, the ABS housing finance figures also show a decrease in number of dwellings purchased and the purchase value of those dwellings, as at Nov 09.

  ABS housing finance figures

  As I see it, the appetite for purchasing houses has weakened. Unless there is a sudden reversal of that trend, this will, over time, flow through to lower house prices. How could it not?

  Of course, if the government pumps more cash into the housing market, the RBA keeps rates where they are and/or the banks opeain the credit taps again, perhaps house prices will continue to soar.

• 12 Greg Atkinson // Feb 3, 2010 at 11:21 am

  I tend to agree with Ralph. There is only so much money around and a lot of it was wiped out by margins call etc. back in 2008/2009. Of course new wealth should be created in the years ahead but I think (?) we all agree that the housing market was supported by lower interest rates and the FHBG/FHOG last year so isn’t the likely outcome in 2010 a flattish or slightly lower finish for house prices?

• 13 Biker Pete // Feb 3, 2010 at 11:37 am

  I realise you’ve sold your apartment, Greg. Hope you did well.

  Personally, I think there’s much more money about than most of us realise… . Heard a figure this morning which I very much doubt… 130,000 millionaires in Oz. It could easily be treble that. A million now has as much status as $100K used to have.

  Back in the eighties, realtors reeled when we sold off numerous properties at prices they could never have imagined when they sold them to us, a few years before. Older, wiser, wealthier men than us, they were incredulous when they realised how much we’d made. I’m not saying we’ll see that happening soon, but it will happen. Don’t need it to happen, but it would be fun… ! We’re happy to cover costs and make a good income!

• 14 Ralph // Feb 3, 2010 at 11:58 am

  I guess we’ll see, won’t we? All the numbers available at the moment point to house prices being on the edge of taking a turn downwards.

  The RBA is clearly worried, hence the lack of a rate rise. Unless the government comes in with more stimulus and/or the banks decide to return to crazy credit, there simply isn’t the credit growth to push house prices higher. And being an election year, I wouldn’t put it past Rudd trying some more stimulus -- but wouldn’t Abbott have a field day with him? Doesn’t mean K Rudd won’t get desperate and do it anyway. There may even be a sudden influx of migrants -- all of them ready to buy a house immediately.

  Now those things might well occur and I’ll have egg on my face. But at this stage, that’s all I can imagine could fuel this further. As to the size of the falls -- that’s anyone’s guess.

• 15 Biker Pete // Feb 3, 2010 at 12:14 pm

  “I guess we’ll see, won’t we?”

  With due respect, I’ve read that comment scores of times during the last two years, Ralph.

  In my view, the RBA saw the present slow in construction as extremely dangerous to:

  a. the construction industry

  b. employment

  c. the tax base

  d. increasing accommodation demand, as our population rises

  e. rents rising due to d.)

  I may be giving the RBA credit far too much wisdom here, but I doubt it. We’re enjoying having great leverage with building companies right now, due to the construction slowdown.

  If Labor picks up a recommendation of the KHR in regard to tax relief for _all_ mortgages, nothing Abbott could do, other than match that election promise, could prevent him being a passing blip on the radar. We live in interesting times!:)

• 16 Biker Pete // Feb 3, 2010 at 1:25 pm

  And further to the point made about the property market(s):
  (‘s’ underlined )

  http://www.watoday.com.au/business/the-gaps-big--and-its-getting-bigger-20100202-nazr.html

  Which state are you in, Ralph?

• 17 Ralph // Feb 3, 2010 at 2:43 pm

  That’s true, Pete, there are many markets, each with its own characteristics and movements. I’m in SA, but I don’t doubt that WA is rebounding again. In that case, if you’re property investments are doing well, I’m pleased for you.

  Nevertheless, property prices in general can’t continue to increase without a commensurate increase in credit. And we have credible data available to suggest that credit is more scarce. So I think a cooling off of property prices is inevitable.

  Of course, the government could try all manner of policy tweaks to keep house prices high. But given the current direction of lending figures, that’s what will be required -- government intervention.

• 18 Biker Pete // Feb 3, 2010 at 2:57 pm

  Credit may be scarce in SA, but banks approached by young couples on $200K per year (miners, tradies, etc) don’t seem to be knocking anyone back.

  At the same time, _investors_ here may have pulled back. Being counter-cyclical we’re building as many as we can… five last year, two this year.

  Perhaps you’re right, east coast markets may cool. If so, I think it will be a very temporary cooling, if projections for Australia’s population growth are even half true… .
  The current direction of lending figures can’t last, you know.
  Mortgages are a very large part of Australian bank business…
  as WestPac is now remembering, to its dismay.

• 19 Greg Atkinson // Feb 4, 2010 at 9:19 am

  Yes Biker I sold my apartment, but this has more to do with the fact that I am up here in Japan now as opposed to any attempt to try and time the housing market.

  As for the availability of money, I think we need to appreciate that the housing market in Australia is supported by the overseas borrowing of our banks. In other words, we do not have the funds in Australia to support our own mortgage market, it is in fact supported by money borrowed offshore.

  So in a simple sense, we actually don’t have the money to support the housing market at current levels, but we have borrowed against our future because we figure we can pay it all back (and the interest) based on what the nation should earn in the decades ahead.

  I am not trying to suggest that this may drive prices up or down, I simply wish to highlight that a lot of the money in the housing market is not “Australia’s” as such.

  A couple of years ago I would not have worried about this much, but the GFC has wiped out a lot of the funds available for borrowing across the globe, so I wonder how more money we can actually bring into Australia to keep fuelling or mortgage market at reasonable interest rates?

• 20 Biker Pete // Feb 4, 2010 at 9:31 am

  I accept that you’re correct about the borrowing overseas aspect, Greg. Certainly we have borrowed against our future, but not to the same extent as the Brits or Yanks…!

  It’s likely that we’ll continue to bring in money while our interest rates are so much higher than those in the UK, US, Canada and Europe. That _may_ slow after July.

  WAToday has a report 4/02/’10 claiming our state is “…leading the housing recovery…” based on recent block sales, up 67% in the area we’re investing in. That figure surprised us. It may be speculative; or it may suggest an awful lot of building is about to occur here. What is interesting too, is that prices of those lots are up 26% on what we paid a year ago for a couple of _outstanding blocks with water views._

  Hope the major building companies haven’t read this report. It may affect our negotiations for the next two projects… !

• 21 Biker Pete // Feb 4, 2010 at 9:36 am

  And further, from PerthNow, 10/02/’10:
  http://www.perthnow.com.au/business/boddington-gold-mine-to-eclipse-kalgoorlie-super-pit/story-e6frg2qc-1225826377222

  Hellzapoppin’!

• 22 Greg Atkinson // Feb 4, 2010 at 10:12 am

  Biker Pete I guess get back to the problem we have talked about a few times and that is there is no true Australian housing market as such. If people have the money and the local economy is doing well than house prices there are likely to do better than say in NSW where the economy is in a bad way. Conditions can vary so much from one location to another, hence the reason it is so hard for anyone to accurately predict where the market is going.

  I have not gone bearish regarding property as investment by the way, I would simply describe my mood a cautious. (and this goes for most Australian stocks as well by the way)

• 23 Biker Pete // Feb 4, 2010 at 11:23 am

  Greg: “I would simply describe my mood as cautious. (and this goes for most Australian stocks as well by the way)”

  You should have a talk with our son, Greg… !

• 24 Greg Atkinson // Feb 4, 2010 at 12:17 pm

  Maybe Biker I just worry that the economic mood in Australia is just a little too far away from the global economic reality. The BDI is now well below 3000 and that suggests to me that maybe China is easing up on it’s commodities buying and whatever stockpiling was going on is coming to an end.

  It seems most G20 nations are cautious about the economic outlook ahead expect Australia. Maybe Australia is a wonderfully lucky country and the GFC will hardly land a punch on our economy, or maybe we are wandering into an ambush totally unprepared?

• 25 Ralph // Feb 4, 2010 at 1:12 pm

  Hi again,
  I’m starting to think that we could be in for a rate CUT in the next month or two!

  I’ve already provided links to credible sources of information about decreasing housing finance. I think that alone was enough for Glenn Stevens to $hit his pants and keep rates on hold. Based on that alone, I think we can conclude that we’ll see a fall in house prices barring some other intervention.

  However, Greece is broke and looking for a bailout, we have a ‘surprise’ fall in Aus retail spending in December and there are reports that China is going to keep loose monetary policy and fiscal stimulus.

  In that context, I reckon Glenn ‘Brown Undies’ Stevens would be $hitting himself about possible falls in house prices and won’t be keen to raise rates any time soon. If anything, I reckon the chance of further stimulus and a cut in rates just becomes bigger. If so, you could be right Pete. The government & RBA together might just be able to pull this off with house prices continuing to go up.

• 26 Greg Atkinson // Feb 4, 2010 at 2:01 pm

  Ralph I think the data you provide shows that the housing market is cooling on the back of higher interest rates/removal the extra grant money.

  Last year as you might know I said the RBA would raise rates too far/too quickly just as they did in 2008. Now they are starting to look indecisive and a little lost, this has spooked the markets and it means I was probably right and they did jump too early.

  So what’s next? Well if Chinese demand for commodities comes back to what I would call normal levels then we might see some real pain in the Oz economy because we seem to be geared up for an endless boom. Australia appears for example, appears to be the only G20 nation that is expecting pre-GFC conditions to return quickly.

  I just don’t get where this idea or over-confidence is coming from? We seem to have factored into our thinking that the Chinese economy can never grow by less that 8-10& per year. Is this realistic and great long term planning or just foolish optimism?

• 27 Ralph // Feb 4, 2010 at 2:45 pm

  Good observation, the RBA is looking lost and uncertain. Those green shoots look like they’re starting to wilt!

  But you raise the big questions re China. There’s every reason to be doubtful of China and yet Australia has jumped 100% on the China bandwagon.

  These days Australia doesn’t even pretent to be a multi-faceted economy -- we mine resources and export them to China (and a few other places). And when we’re not doing that, we’re selling overpriced houses, which is tightly coupled with the China success story.

  I don’t think there is a plan B. Plan A looks so shiny and lustrous that there’s no need to even consider anything else. And the alternative to Plan A (China saves us) is so unpalatable that it’s easier just to concentrate on the riches that China will bring and worry about the rest later.

• 28 Biker Pete // Feb 4, 2010 at 4:48 pm

  Greg, it’s not just China. WA has immense deals going forward with Korea and Japan, too. And goldmines are going gangbusters.
  (Now _that_ smells like a bubble…! )

  Ralph: “…we’re selling overpriced houses… ” Well, YES and NO. Maybe on the east coast, particularly in the major cities. We can build a 4X2X2 in a good area for $420K. Cinema, A/C, etc.
  Selling it would fetch $450K max. Hardly overpriced in our view.
  Try to build a home like that for much under $430K. (You can’t.)
  WA is still dirt cheap… maybe ‘sand’ cheap, if you like… .

• 29 Ned S // Feb 4, 2010 at 5:31 pm

  It’s a bit hard to get too panicked about a country that’s reserves are now $2.4 trillion surely?

  http://www.bloomberg.com/apps/news?pid=20601089&sid=at7RtqkhdSaU

• 30 Biker Pete // Feb 4, 2010 at 5:59 pm

  Buys one helluva lot of stimulus, Ned! Y’know, with a population four times greater than that of the US, China’s domestic markets present as much future promise as her current export markets do. China is probably placed where the US was back in 1890, in terms of current vs future growth.

  And her interest rates are much higher than ours. Hardly looks like the malpractice which led to the GFC. The Chinese would probably shoot miscreants who caused a similar mess in China. And who could blame them?!!

  Greg’s point re China’s interest in African resources is worth consideration. The political and economic effects of China resourcing her metal, uranium and other fuel from Africa, might shake us about a little.

  (Aussies will still need shelter, he mused, happily… . )

• 31 Ned S // Feb 4, 2010 at 6:38 pm

  Greg has convinced me of the potential of the Asian region.

  Your point about China’s domestic markets is well taken. They’ve obviously figured out that what they’ve been doing to date has been helping others live beyond their means.

  So fully expect we’ll see them move away from that model and towards more internal consumption.

  Africa? Yes, seems there’s always risk of one sort or another out there.

• 32 Ned S // Feb 4, 2010 at 8:27 pm

  I found the following from the demographia link interesting:

  “The True Housing Crisis: Lack of Affordable Land:

  As has been noted above, the extraordinary increase in land costs has been the principal driver of higher house prices. The National Housing Council State of Supply Report indicates that Australia?s plandriven (more prescriptive regulation) urban development at the micro-scale level takes from 6.25 to 14.5 years for residential land to be designated for development to the completion of the first houses. By comparison, the same process could as little as one year on the fringe of urban areas with demand-driven processes (more responsive regulation), in the United States. Further, before prescriptive
  regulation policies (urban consolidation) were adopted in Australia, the process tended to take from 1 to 1.5 years in what was then a demand-driven process.

  The long process in a plan-driven market provides land sellers and buyers with reliable information
  on where development will occur and, as a result, tends to significantly raise the price of land. This virtually eliminates any supply of affordable land and makes housing affordability an unrealizable goal.

  State (and even federal) authorities may claim that there is sufficient “years of supply” of land for building new houses, in dismissing calls for additional land release. “Years of supply” is a meaningless measure. Plan-driven regulation skews land prices upward, making it impossible to
  produce housing that is affordable, regardless of the how many years of land supply is available.

  The only genuine measure of scarcity or abundance is price. The problem is that there is not a
  sufficient supply of affordable land, because of the market distortions created by urban
  consolidation.

  These land price increases have been avoided in more responsively regulated markets where the
  process of building new housing is driven by the preferences of consumers.”

  http://www.demographia.com/dhi.pdf (Given above by Scott Murray) -- page 26 -

  Wonder if the various levels of Oz government are likely to get their acts together on land supply anytime soon. It’s an interesting one politically. In that the commonwealth seems to be the ones that wear the fallout from it -- Due to people tying interest rates to them (rightly or wrongly). Whereas the real issues are way more at the state and local government levels.

• 33 Biker Pete // Feb 4, 2010 at 8:45 pm

  There’s also the issue of development costs, too, Ned. Twenty two years ago we considered the purchase of sixteen acres within 200m of a nice swimming beach. A gift, we thought. Knowing nothing about development costs, we approached a reputable financial advisor to seek specifics. Once we had the figures we didn’t just walk away, we ran. It was cheaper to buy blocks very much closer to the ocean than develop our own… .

  The two cheapies we picked up during the recent lull had been held by the developer for a year… one held solely on a $500.00 deposit. It was on hold for a 457, whose stay was declined.
  The other was an enigma, a great lot which just didn’t move. I doubt the developer made a cent on either block. His new stuff is now much further out, with no views… and far more expensive.

• 34 Ned S // Feb 5, 2010 at 12:17 am

  It’s quite clear that government understands the issue, when the likes of Tanya Plibersek says:

  “We are not building enough homes each year. We need to improve our systems, our planning and development systems.

  We need to make sure that we have got enough affordable land to build on, both in green fields areas and in fill sites over the next two decades, and we need to look, as they suggest, at expanding our regional centres.”

  http://www.abc.net.au/news/stories/2009/11/24/2752254.htm

  But considering that (as per my previous comment) “urban development at the micro-scale level takes from 6.25 to 14.5 years for residential land to be designated for development to the completion of the first houses”, the issue is entrenched -- As developers have already bought and presumably paid very high prices for land that won’t even come on line for 6 years and more (with very significant development costs also to be added as you say.) Plus the holding costs over such lengthy periods.

  I can see why governments aren’t rushing to change things -- Those are lengthy timeframes to be messing with. Make any radical changes to policies to get more land released quickly and I fully imagine they’d throw the whole land development industry into choas. With potentially unhappy consequences for the banks that are funding them. As well as seriously disturbing existing housing prices -- Either up or down, just depending on what the outcome of the chaos was.

  When I initially read Plibersek’s comment about needing to make sure we have got enough affordable land to build on over the next two decades, I passed over it as a being population growth related. But in hindsight, I’m wondering if the “next two decades” bit might be more an indication of the timeframe they reckon they’d like to see any major changes happen over.

  In that light, I recalled that Rudd had signaled the commonwealth would play a greater role in capital cities’ planning:

  http://www.theage.com.au/national/rudd-touts-plan-for-better-cities-20091027-hj22.html

  One of the 8 key points is that “Land release should be arranged to meet the housing needs of a growing population and keep homes affordable.”

  But he’s talking about population growth out to 2049. And says “With Australia facing rapid growth in the decades ahead, the time has now come for the Australian Government to take a much greater national responsibility for improving the long-term planning of our major cities”

  All something of a case of let’s hasten towards affordable housing slowly perhaps?

• 35 Biker Pete // Feb 5, 2010 at 7:09 am

  All salient points, Ned.

  The bears despise partnerships between state governments and developers, but in WA these tend to actually ‘work’. (Defining what ‘work’ actually means here is problematic. Some would contend it’s not working!)

  We watch these partnerships very carefully, since they impact on us as land buyers. For the last few years we’ve noticed that:

  * New subdivisions (say three) are planned and created by a developer who has 50/50 state government backing;

  * The three, D1, D2 and D3, are in different stages of completion, near regional centres;

  * D1 is ‘completed’ and put on the market. If it sells briskly, work is expedited on the second project. If it’s slow to sell (and we’ve experienced _that_ for a year) work seems to crawl to a halt on the other two developments…

  * Consider the logic here: nothing is selling. We are not making a profit. Subdivision D1 may be perceived as a failure.
  Wind back the other two until sales lift. There’s also a possibility that the ‘partners’ need profit from D1, before D2 and D3 proceed.

  * Meanwhile D4 and D5, developments in which large tracts which have already been purchased by the ‘partners’ are put on complete hold. State government agrees. The cost of holding developed land which isn’t selling is just too great. Media criticism of sales figures for D1 doesn’t help… !

  Now we know that governments, working alone, are not themselves ideal developers(!) A federal plan which proposed hugely-subsidised subdivisions might not only lose billions, but result in few sales, particularly during troughs like the one we’ve just experienced. And such developments are likely to be even more far-flung than the current ones. Once landowners see government as the potential buyer, the price skyrockets. Governments have very deep pockets, right?

  “All something of a case of let’s hasten towards affordable housing slowly perhaps?”

  Or, “Jeez, all this is just too bloody hard! Let’s fix the climate instead!!!”

• 36 Biker Pete // Feb 5, 2010 at 9:04 am

  http://www.watoday.com.au/business/markets/construction-strongest-in-two-years-20100205-ngw5.html

  Last rush of the FHBs?!

• 37 Ralph // Feb 5, 2010 at 9:16 am

  Interesting discussion, Ned & Pete. Of course the release of land is a very significant element in the house price issue. And as your comments have revealed, it’s riddled with red tape and government intervention.

  I have no doubt that governments of all persuation will continue to keep their fingers in the pie while talking out of the corners of their mouths and making it more efficient. The vested interest of governments in this arena is massive, so I don’t expect any real change, short of a revolt from the people.

  I note that the ACT government in its land release strategy documents (I’m looking to move from Adelaide to Canberra in late 2010) explicitly states that it endeavours to release new land to ‘meet the market’. It also talks of something like ‘the market being able to absorb future supply’ etc etc. So they are very much oriented to dribbling out land in small enough quantities to keep prices bubbling upwards. I haven’t read very widely on land release and/or development practices, but it’s pretty clear that release of land is a significant weapon in the armoury of governments in keeping house prices where they want them.

• 38 Biker Pete // Feb 5, 2010 at 10:01 am

  “…they are very much oriented to dribbling out land in small enough quantities to keep prices bubbling upwards…”

  That’s one perception, Ralph. Another is that government is reluctant to go it alone; and frankly, I don’t blame them. Our own investigation indicated that property development itself is very big bucks… very high risk… and the delayed pay-off for effort simply isn’t worth it unless you’re as immense as Mirvac, Satterley, Peet, or Stockland. Quite a few of the smaller players went bust in the last two years.

  Where would you rather put your investment dollar than in property, Ralph?

• 39 Greg Atkinson // Feb 5, 2010 at 10:05 am

  A while back I read that Alice Springs had problem with the lack of land available for housing..can you believe it? I can’t remember where the article was posted but the general thrust of the story was that there is of course plenty of land, but the process to get the land ready for housing was a nightmare. (which I think Ned & Biker Pete would agree with)

  As for resources, yes South Korea and Japan buy our stuff as well but as I have written about before these countries are also looking hard for other suppliers.

  Back during the height of the commodities boom I expressed the view that our big mining companies may have overplayed their hand when they were forcing massive price rises onto China, Japan, South Korea. All buyer/supplier cycles turn and we may just find the power shifting back towards the buyer in which case it may be payback time for the likes of BHP/RIO.

  Also remember the Gorgon Gas project is not ours as such, we will in fact be buying the gas back from a foreign joint venture even for use in Australia. See: http://www.shareswatch.com.au/blog/opinion/lng-billions-is-australia-getting-a-good-deal-gorgon-project/

  Finally China does have massive foreign reserves (as does Japan by the way) so I am not expecting them to go under anytime soon, but I do expect the Chinese economy to cool which won’t be so bad for China, but may knock around confidence in Australia quite a bit.

  As I write stocks are heading down again and this shows just how nervous everyone is about the global economy…how long will Australia be an island of economic confidence I wonder?

• 40 Greg Atkinson // Feb 5, 2010 at 10:10 am

  Well I wrote too soon, I just noticed an article on Bloomberg where the RBA Gov sounds as bullish as ever. http://www.bloomberg.com/apps/news?pid=20601087&sid=aMAf78Pviwlw&pos=1

  He seems to be a lone voice now amongst the G-20 nations. He is either really smart and has his finger on the pulse or he has lost the plot.

• 41 Anon // Feb 5, 2010 at 11:30 am

  I smell blood on the streets…my blood! lol
  Greg are you taking any nibbles yet or are you waiting for the dust to settle.
  I nibbled abit and my nibbler got nibbelated. Such is the way of dip buying in downtrends
  I think commodities and cyclicals might be in trouble.

  Remember above is not advice, only commentary -- seek financial freedom and bankruptcy from your local financial advisor

• 42 Greg Atkinson // Feb 5, 2010 at 12:22 pm

  Anon -- I have been pretty inactive for a while as I have been cautious about the commodities sector since late last year. There is simply too much news spinning around now from Toyota vehicle recalls to naughty Bank of America executives and this just makes everyone nervous. To make matters worse China and the U.S are at odds again over the value of the Chinese currency, the Dalai Lama & Taiwan so the geopolitical environment is not great either.

  Thank goodness the weekend is coming up!

• 43 Biker Pete // Feb 5, 2010 at 12:32 pm

  “Thank goodness the weekend is coming up!”

  -You think the punters will have any fingernails by Monday, Greg?

• 44 Ned S // Feb 5, 2010 at 1:42 pm

  Yes Anon, while I don’t think any of us would suggest that Aussie housing is risk free at the moment, I do find it of some comfort to only have to check the market twice a day rather than twice a minute.

• 45 Ned S // Feb 5, 2010 at 3:36 pm

  I read an article last night that reckons it’s all Glenn Stevens fault for not putting his crumby little interest rate up a measly 0.25% -- Seems the theory is that Oz is the canary in the coal mine and that the RBA knows what it’s doing!

  If so, the death threats from every other central banker in the world since might explain his recent happy face comments perhaps???

  Oz housing -- Well, while I reckon it’s pretty pricey, I at least suspect I’ve been slowly gaining an understanding of why that is so. And can continue to keep an eye out for some changes that might affect it.

  As to investing generally, it seems to be very much a matter of personal preference as to which pig wearing lipstick one reckons is cutest at the moment.

• 46 Biker Pete // Feb 5, 2010 at 3:54 pm

  Watching the missus reconfigure the next project each evening, I’m impressed with how much enjoyment she gets from the exercise, Ned. I really can’t think of any other asset class that provides as much excitement as watching the ‘tangible’ progress of something we’ve planned and negotiated from the ground up.

  Only ever made pocket money from shares, but I imagine there’s some excitement watching large amounts of money accumulate in stocks. My mother-in-law’s admonition to her daughter, being the grandchild of a major punter: “Don’t marry a broker… rags to riches… and back to rags again…!” may have reduced the field a little… .

• 47 Ned S // Feb 5, 2010 at 4:51 pm

  I derive pleasure from “improving” a property Biker. Or having taken a hand in seeing one where there once wasn’t.

  While I don’t trade stocks, because I know I’d be WAY out of my depth, I do take an interest in them. I followed the DJIA action this morning. And found it fascinating -- But must admit the thought did flick through my mind, Ned, you’re a dill -- A huge amount of what you’re watching is just computer programs trading against each other.

  That’s probably an unkind assessment made by the ill-informed though. And hey, even if it’s not, and one can beat the computers, then I’m all for it!

  Usually -- As I worked with a bloke in the dot com days, who got all stressed and threw in his job because it interfered with his ability to follow the markets and trade. I met him again after -- He’d dropped $400k if I recall correctly. But could inform me that things were still OK -- As a very close relative had died and left him $200k or somesuch.

  Suspect one has to have an appropriate “personality type” for the game -- And that maybe he didn’t? Although I certainly didn’t feel to suggest that to him!

  Each to their own …

• 48 Biker Pete // Feb 5, 2010 at 7:00 pm

  My son’s share trading technique bothers me. Here’s what he does:

  1.) Buys Indexed Funds;

  2.) Sells them (high) just before dividends are due to be paid(!)

  3.) Buys more IFs (more cheaply) after dividends have been paid.

  His reasoning is that he has insufficient tax claims to justify taking profits.

  To me, that seems a little crazy… .

  What do others here think? I realise that this is a property blog, but I’m troubled by what seems to me a pretty questionable strategy in such turbulent times… .

• 49 Anon // Feb 6, 2010 at 3:50 am

  Yeah Pete I dont understand that technique either.
  But I think everyone is different and you have to do what works for you. I prefer value investing. If I tried to do that share trading stuff your son is doing i’d be bankrupt in a few months lol. To be honest I think its basically gambling…statistically only a very few can make money and then even fewer can hold those gains over several years.

  Like Greg my timing is very bad, and most traders to get good gains use severe leverage. So bad timing and leverage would be a disaster. I read about many ppl who make a killing over many years and then blow up eventually. It seems to be a repeating pattern in that industry.
  The thing that works for me is sector rotation and concentration on big bets and going in with the intention of holding for a longtime or until it nolonger looks like a good longterm play (3-5 years).

• 50 Anon // Feb 6, 2010 at 8:37 am

  “There is simply too much news spinning around now from Toyota vehicle recalls to naughty Bank of America executives and this just makes everyone nervous.”

  Yes, but its bound to go the other way soon. You know the media -- as soon as the public get used to bad news, they want to sell newspapers -- so they print/spin the reverse .

  I would love to buy some Toyota. But I feel its still overpriced given uncertainties in the continuity of demand over the next 12 months. I’d assume alot of people would put off new car purchases given fear of peak oil/debts/economy/job security.
  I think Toyota might make a killing over the next decade or so from the pent up demand from electric cars. Problem is when will they be affordable enough. Took Plasma/lcd screens a good 5 years before people could really afford them and get the volumes through.

  Remember above not advice, only commentary — see a financial advisor for decision making/info.

• 51 Greg Atkinson // Feb 6, 2010 at 8:58 am

  Biker your son is following a strategy that some traders reckon is a way to beat the market but it is risky of course and relies on the stocks doing pretty much what you think they will, i.e come down after the ex-dividend date.

  The problem is that to make some decent returns (in dollar terms) you need to put quite a bit of money on the table (and some traders even borrow to do this) so as you can imagine, if the market moves against you things can get a bit nasty.

  Personally I am not a trading type of guy. But I did do the maths once regarding this type of trading and it just didn’t make much sense to me when you factor in tax, broker costs and risk. (especially is you are using a margin loan)

• 52 Greg Atkinson // Feb 6, 2010 at 9:04 am

  An interesting article today in the Sydney Morning Herald today about the problems Australian will face as the population expands.
  Australia 2050 is a future we can’t afford

  When you read articles like this it is hard to see how house prices could fall over the longer term? But maybe we are all missing something?

• 53 Biker Pete // Feb 6, 2010 at 10:09 am

  Thanks for the feedback on the Indexed Funds strategy, Anon & Greg. He’s using cash (his own) and his plan is very, very long term, buying during periods whenever the ASX falls significantly.

  As you’ve noted, Greg, banking on a fall directly after dividends are paid _is_ gambling, but unless the whole ASX _mostly_ climbs very rapidly immediately after dividend payment, he should be OK, over the long term doing this… (!?!)

  Who knows? I’ll watch and learn… !

• 54 Biker Pete // Feb 6, 2010 at 10:28 am

  “When you read articles like this it is hard to see how house prices could fall over the longer term? But maybe we are all missing something?”

  Consider that 2050 is four decades away, Greg. I know we’ll see some ‘plateaus’ in property values in that period. We’ve been through three in 32 years, counting last year’s. It’s a little early to know if the most recent flat period will be followed by a major surge, as has happened after the two other plateaus. “This time it’s different!” has been shouted sufficiently enough to make even the bulls a little cautious. Perhaps what’s different this time is we have a very active, concerted team of cheerleaders screaming for the death of property markets. It’s a new phenomonen, audible/visible on ABC radio, TV, the internet and newsprint. If that lobby is even 10% effective, it does undermine confidence in property, both as a home and an asset.

  My personal view is that if the cheerleaders actually walk the talk, their retirement will be no bed of roses, unless they’re regularly socking their after-rent cash into other successful assets, every fortnight… !

• 55 Ned S // Feb 6, 2010 at 11:28 am

  Re the Future we can’t afford: It just might give us a sufficient population base that some home grown industry will start to look attractive again? It may also make some reservations I’ve been harbouring in relation to QLD’s “North Coast” (the bit just north of Brisbane that is) becoming a retirement village for boomers that will go into decline as the boomers die off, look overblown. I’ve had reservations about regional areas for a long time now. But reviewing that in light of the report, Townsville was the immediate thought that popped into this Queenslander’s mind. I’ll think about that some more.

  Stocks -- Yep, I’ll keep watching also -- And appreciated the feedback on Biker’s question as well.

• 56 Ned S // Feb 6, 2010 at 12:14 pm

  The We wanna crash crowd have some frustrating ways. In particular their apparent inability to help themselves by making any attempt to come to grips with the fact that they just mightn’t get what they want.

  And it isn’t rocket science -- I mightn’t know much; But I have figured out that every investment strategy has risks. And they are damn good things to take into account.

• 57 Senator13 // Feb 6, 2010 at 12:35 pm

  Good points Ned.

  I think as long as Government drip release land, projected population figures are going up and not down and suburbs continue to have fixed boarders basic supply and demand suggests that land and housing will continue to be in demand so the price should go up (or at least not crash).

  I think a lot of people get hung up on the boosted first home owners grant. It has only been around a few years and people that utilised it will be in the minority of home owners. If people are selling today and have had their house for 10 years and they have to drop the price by 10% to get it sold then in most cases they would still be making a very healthy gain on what they paid for it.

  Credit card debt and other loans are at very high levels and is obviously a major risk and might tip people over the edge when mortgage rates go back up. But I don’t think that tipping point is just around the corner.

  I don’t think it is a bad thing if prices remain steady for a little while, I doubt they will overheat in the near term and I think it is unlikely they are going to “crash”. If it was going to “crash” I think it would have already happened…? Just because you want something to happen does not make it so.

• 58 Ned S // Feb 6, 2010 at 12:43 pm

  I mentioned elsewhere that I’ve been fiddling with some house plans. They each include 2 * 3 BR self contained areas plus a 1 BR “granny flat”.

  I that light I note the following:

  “Mr Simpson argues that Sydney’s housing shortage could be easily remedied by ensuring that every house or unit has two kitchens and two bathrooms so that it can be used by more than one family or individual.”

  http://www.smh.com.au/national/a-day-in-the-life-of-sydney-in-40-years-20100205-niqs.html

• 59 Biker Pete // Feb 6, 2010 at 12:45 pm

  “The We wanna crash crowd have some frustrating ways.”

  It’s the rage which is most interesting, Ned.

  * Guru promises ‘debt slaves’ half price houses;
  * Half price houses fail to fall from the sky;
  * Anger directed at FHBs, investors, gov’t… but not at…
  * Guru who promised half price houses.

  Amplifying that rage may be the recognition that the FHOGs may have been a really helpful step into a modest first home.

  Further amping it may be the possibility that rates _may_ have peaked this year! (Who can tell?!)

  I still think there are a lot of BB retirees with vast wealth, ready to commit to housing investment. Many of us plan to live at least three more decades, so we need something as tangible as property to supply an income. Many of us saw friends’ Super incinerate last year. Interest, taxed once past $48K per couple, isn’t going to cut it; decent annuities don’t exist; gold returns no fortnightly dividend… .
  Who ya gonna call?!

• 60 Biker Pete // Feb 6, 2010 at 1:09 pm

  They each include 2 * 3 BR self contained areas plus a 1 BR “granny flat”.

  Good thinking, Ned. It’s likely that the regulations will change, to accommodate this kind of thinking… .

  Five years ago the missus convinced me we should build one with a similar layout, but with four very self-contained bedrooms (each with phone, TV, internet, keyed doorlocks, etc.)

  A fifth ‘guest room’ became quite immense, when the grano worker poured too large a pad. The builder simply wore the cost of a larger home! A large home cinema also resulted… .

  Her thinking was that this would be an ideal ‘student accommodation’ project, in a regional centre with a uni closeby. Demand however has been so great for this ‘upspec’-ed house, that we’ve never needed to take up the student option.

  Those who scoff at property as an investment might be a little surprised at how this one rose in value despite the recent plateau: $270K total to build, including land; and valued at $580K recently.

• 61 Greg Atkinson // Feb 6, 2010 at 1:28 pm

  There is no doubt we have enough room to house more people in Australia. If they can squeeze around 50 million people into the greater Tokyo area then we can get 35 million into Australia

  But can we keep growing the economy in such a way that will allow us to keep squeezing in people while at the same time increasing individual wealth?

  Remember money is needed to keep pushing up house prices up, so my concern is that if the Australian economy was mismanaged, then we could get into a nasty situation where there was less wealth and more people. I am not questioning the need for housing or it’s desirability as an asset class, but rather trying to focus the home price debate on something that is rarely raised: i.e the supply and availability of money.

  So could our economy even been mis-managed? Well have a look at NSW for example…that is proof that state governments can mess up a state economy even during a period of national economic growth?

  Now at a national level we are seeing the government rack up debt and apparently they haven’t finished spending yet. Worse still I can’t see how most of this spending is going to help raise productivity at all.

  So I wonder what impact a carbon tax and a few revenue raising changes via the Henry tax review (needed to pat down the debt) would have on the average household?

  Just thinking out loud here..so please feel free to jump in and tell me I have nothing to worry about

• 62 Ned S // Feb 6, 2010 at 1:48 pm

  I’d positioned myself in expectation of a correction Senator. Nothing too radical. 15% to 20% maybe was my call. So had/have some cash on hand. And if we got a slightly belated little one I still wouldn’t be heartbroken.

  But irrespective, we get what market forces give us. With government pretty obviously being a bigger player in those market forces than I’d taken into account at the time. (Geez, I sound like Prof Keen explaining why he’s now “homeless”! )

  It doesn’t seem to be looking that great for getting tax breaks on money in savings accounts Biker. But who’s to really know eh? :

  http://www.smh.com.au/business/foreign-cash-needed-to-pay-for-roads-and-schools-20100205-nikv.html

  As to the multiple living area houses, the local council staff are very keen to let me know that a “granny flat” can’t be rented out. (I didn’t have the heart to break it to them that I was looking at 3 seperate living areas rather than just two. )

  But that’s fine, I figure things might change. And in the interim a bit of spare capacity in a dwelling doesn’t seem to be a particular burden to most Aussies. Heck, I even read somewhere that some tenants have been known to sublet part of their accommodation when the lease doesn’t specifically prohibit them from doing so?

• 63 Ned S // Feb 6, 2010 at 2:08 pm

  The longer term just could sound OK if one is already here and has/gets a head start on the game so to speak. Providing government goesn’t get too efficient at levelling us out with taxes.

  So like I said above, it’s pretty much a matter of pick which pig wearing lipstick looks cutest maybe? Given all sorts of things -- Including what asset class one figures they are most suited personally to dabble in. But Yep, there’s plenty of risks!

• 64 Biker Pete // Feb 6, 2010 at 2:17 pm

  Subletting happens all the time. We wrote a ‘no sublet’ clause into all our rental conditions, after we discovered one couple flying international students in from Europe and more-than- covering their fortnightly rental payments from short-stay accommodation in those self-contained rooms I mentioned…!

  Point is that the shire had no idea it was happening. We did wonder what was going on when we saw different young women there all the time. Maybe they weren’t _students!_

• 65 Ned S // Feb 6, 2010 at 2:41 pm

  That “risk” could be passing high if each bedroom had it’s own ensuite I imagine Biker.

  Just what sort of movies exactly did you say they were showing in that oversized cinema room again?

• 66 Ned S // Feb 6, 2010 at 2:57 pm

  When I was considerably younger and immensely more naive (about 18 months ago! ) I sent Tanya Plibersek an email telling her I reckoned it could be handy if the Oz government encouraged the construction of granny flats and suchlike in main residence type housing by making negative gearing and CGT optional for homeowners who built and then rented out spare capacity.

  She wrote back to assure me they’d think about it!

• 67 Biker Pete // Feb 6, 2010 at 4:32 pm

  Well, the house does have three bathrooms, Ned!

  (We bought just two blocks at the time. Should have bought the whole street, but that would have been overkill. I recall, with some mirth, that the locals thought $68K for a 650m2 block was paying just a little too much… . It makes me wonder if, in 2015, we’ll look back with regret for not picking up a dozen or so at $160K each… !)

  One of our tenants, who bought homes in the Pilbara is laughing. His two homes there are increasing in value $2,000 per week”*. He rents our beach house for a quarter of the rent per week he’s getting on one house up there.

  Gotta laugh!!~

  p. 16, The West Australian, Sat., 6th Feb., 2010.

• 68 Ned S // Feb 6, 2010 at 5:51 pm

  If I didn’t need the rent Biker, it probably make sense to just buy land and be done with it. Although in the Pilbara I’d want a house on it!

• 69 Biker Pete // Feb 6, 2010 at 6:26 pm

  Think he paid just under $800K for each of them a few years back. Much higher risk, but much better return, in my view.

  I also wrote to Tanya Plibersek, about two years ago, Ned, using a format taken directly from a property bear’s website (Brett of Geocities). Brett was a Keensian disciple, who faded after the Lost Bet debacle. I believe he may have removed his Form Letter shortly after I advocated, online, that those who opposed his Glorious Property Crash, use the format themselves, to promote a very different view!

  My suggestions to TP were promoting the Shared Equity Scheme, which actually works _against_ investors like us; but which represents far better value than the Homewest government housing system, with its huge maintenance and repair costs. (We’re in the next niche up, anyway… .)

  I too received a polite, personally-signed response, noting that my views were being considered.

  I’ve no doubt that we will see a raft of government-backed housing developments in W.A.’s regions. We don’t feel at all threatened by these projects. We can’t see how we’ll meet the rising housing demand _without_ such initiatives… .

• 70 Ned S // Feb 6, 2010 at 7:45 pm

  Good heavens -- The above may have been better posted over here? :

  http://www.shareswatch.com.au/blog/stockmarket/a-stock-market-correction-some-panic-and-nervous-investors/

  But I suspect it has relevance in both places. So please DEFINITELY DON’T trouble yourself with it Greg. I’ll duplicate the comment.

• 71 Ned S // Feb 6, 2010 at 8:41 pm

  I’m highly suspicious of astute stock market traders with a deflationary bent popping up out of the woodwork at the moment mate.
  As a pretty smelly one from elsewhere seemed quite keen to lure GA into a chat on Oz stocks quite recently. And any indication he’s a grub who’d rather chat behind a bloke’s back than to his face, does compound my suspicion.

  Let’s just say my European bulldust detector is turned on.

• 72 Greg Atkinson // Feb 6, 2010 at 10:19 pm

  BTW Biker do you think there are still some undiscovered real estate gems over in the West or are they getting tougher to find?

• 73 Biker Pete // Feb 6, 2010 at 10:53 pm

  I guess the short answer to that one is that we’re not currently buying, Greg. That’s partly because we’re holding two good blocks at present.. and because the only niche we can see that’s really a bargain is above our ‘rental’ limit of $450K. Around $700K there’s good buying still… but you won’t get as much rent as from two $350K homes. (Four of our homes are over the $450K limit. They’re really only making money because we paid far less than that for them.)

  Apartments within 1 km of the city centre still seem great buying, in our view. One suburb in that zone (Highgate) appreciated 40% last year. I’ve given up ‘pushing’ Son#1 to buy something around $400K to live in. He lives right on the water, in a unit for which there’d be no change from a $mil… and he’s happy, so I don’t push it. I suspect that unit is worth well over twice what the owners paid.

  Friends who bought two Perth units off-the-plan two years ago are laughing… getting $600.00 each per week, for a $400K (X2) investment. We should have picked up at least _one_ of those at the same time… . Sigh~

• 74 Ned S // Feb 7, 2010 at 6:53 pm

  Steve Keen doing a bit of navel gazing as to if his approach to economics should turn out to be somewhat less than complete/wrong, then just who might be right:

  http://www.switzer.com.au/the-experts/steve-keen-economy-expert/its-hard-being-a-bear-part-six-good-alternative-theory/

  It starts off: “If the economy does in fact recover from the Global Financial Crisis—without private debt levels once again rising relative to GDP—then my approach to economics will be proven wrong.”

• 75 Biker Pete // Feb 7, 2010 at 10:36 pm

  A kind of roundabout way of saying “Look I was wrong… but see how _smart_ I am?!” (Criminally invalid research… .)

  I preferred the debate between Lennon and McCartney, along the lines of “I am the Walras!” “No, I really am the Walras!!!”

  Keen will be remembered forever as the prophet of doom who got it terribly, terribly wrong. He put _one_ house up as surety. I’ll put up eleven… . (Nearly twelve…! )

• 76 Ned S // Feb 7, 2010 at 11:20 pm

  I thought you’d be impressed!

  Course he’s an academic -- So he gets paid regardless of whether he’s right or wrong. With the idea being that once enough of them have suggested all the wrong ideas, one of them just might figure out a right idea.

  Got to admit, I’m glad I was making some property decisions in early 2008 before I’d ever heard of Steve Keen -- Hey, I figured they were a bit toppy. But I did need one to live in and I’d finally got enough back in my super fund to buy one there as well after the dot com debacle -- And what the heck, the cheapies I was buying weren’t likely to drop more than 10%. Though I’d revised that to 15% to 20% by late 2008.

  And I’d kept some cash for the bit of a dip I was expecting anyway. But the bloody things went UP!!! Jeez -- Whatever happened to the idea of having normal boring old business cycles?

• 77 Greg Atkinson // Feb 8, 2010 at 10:15 am

  Goodness me, Steve Keen can really rattle on complete with diagrams! The problem I see with his approach is that he is an economist, but thinks he is something else.

  If he really believed 50% of what he says he would quit his safe day job and put his theories to the test with real money. But he doesn’t of course, he is just like the financial journalists who reckon they say the GFC coming but alas they never made any money from their great wisdom and still toil away behind a desk working for “the man”.

  Anyone who reckons they saw the GFC coming and is not on a yacht drinking cocktails with little umbrellas in them has a credibility issue in my opinion

• 78 Ned S // Feb 8, 2010 at 11:10 am

  I still feel sorry for the Yank hedge fund operator I’d been following who’d been squawking “subprime, disaster, short” for a few years before it hit. And then when it did, the guv said you aren’t allowed to be short our banks when their stock prices are going down mate! He gave up in disgust and sent his clients’ money back.

  But he’d been squawking bullion too, so got out of it with his shirt still on his back I guess. Plus he was obviously both versatile and mentally tough, as he flipped his whole strategy around and was in going long real hot on the heels of the March 2009 bottom -- He definitely wasn’t enjoying it -- And inclined to the view it was a bear market rally is my recollection; But either way he figured he needed to be in on it.

  At the moment he isn’t too confident of anything much -- And says so. But does still incline to the view that the Fed will eventually cook up inflation in the US.

  http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/confused-so-are-the-markets.aspx

• 79 CEC AUST // Feb 8, 2010 at 12:27 pm

  Citizens Electoral Council of Australia
  Media Release 2nd of February 2010
  Craig Isherwood‚ National Secretary
  PO Box 376‚ COBURG‚ VIC 3058
  Phone: 03 9354 0544 Fax: 03 9354 0166
  Email: cec@cecaust.com.au
  Website: http://www.cecaust.com.au

  Property hype signals next wave of crash
  Media hype about skyrocketing house prices is calculated to lead more lambs to the slaughter, when almost half of the 135,000 suckers conned by Kevin Rudd into taking out a mortgage last year are already struggling to make payments.

  The Rudd Government’s $21,000 first homebuyer’s grant, now expired, made housing more unaffordable, by driving the property market up to record highs; increased the average first homebuyer’s mortgage by more than double the amount of the grant; and exploded Australia’s household debt to equal the national GDP.

  Now, coinciding with the end of the first homebuyer’s grant, the media has started hyping the property market, playing up the 18.5 per cent jump in Melbourne’s median house price last year, and trumpeting forecasts of million dollar average house prices within ten years.

  Meanwhile, a Fujitsu Consulting survey has revealed 45 per cent of first homebuyers from the past 18 months are either in “mortgage stress”, and using credit cards to meet obligations, or in “severe mortgage stress” and are missing payments.

  Future interest rate rises, and job losses, will drive many more homeowners into crisis, which in turn will collapse the property bubble, wiping out millions of individuals, as well as Australia’s entire banking system.

  (All of Australia’s banks were technically bankrupt in October 2008, squeezed between $643 billion in foreign debt, and falling domestic property prices which raised the spectre of negative equity—properties worth less than the mortgages. However, the Rudd government didn’t reorganise the bankrupt system, but, at the banks’ request, covered it over, by guaranteeing their foreign debt, and extending the first homebuyer’s grant, to reinflate the property bubble.)

  Citizens Electoral Council leader Craig Isherwood today declared the only solution is the CEC’s Homeowners and Bank Protection Bill (HBPB).

  “We can’t keep creating more debt to save the bankrupt financial system,” Mr Isherwood said. “We must reorganise it, using the HBPB.

  “The Government’s responsibility is the common good of the people—not propping up housing bubbles and bankrupt banks.

  “Instead of protecting the people, the government—and the media—are shysters preying on suckers, to feed them to the banks.”

  The CEC National Secretary explained, “The HBPB will keep families in their homes, while putting the banks through bankruptcy reorganisation, which involves: sorting through their debts and cancelling the bad ones; writing off their unpayable derivatives obligations; and restructuring their mortgages.

  “Because this wasn’t done when we first proposed it in August 2007, we have created a lot more debt, and are now in an even bigger mess.

  “Any more debt will trigger a hyperinflationary meltdown, so now the HBPB is our only choice.”

  For more information go to http://www.cecaust.com.au/hbpa

• 80 Biker Pete // Feb 8, 2010 at 1:27 pm

  Greg: “I see with his approach is that he is an economist, but thinks he is something else.”

  Well, for a while there, at least when the cameras were running, he came across as though he thought himself a minor deity. What a fall to then become Australia’s most infamous tenant… .

• 81 Ned S // Feb 8, 2010 at 2:04 pm

  While I did enjoy his blind men and the elephant analogy, the thought did flick through my mind that he just could be being a bit charitable to himself in suggesting the bit he’s got hold of might be either the leg or the trunk.

• 82 Biker Pete // Feb 8, 2010 at 9:25 pm

  I see you’re scoring a lot higher in the DRA rating stakes these days, Ned. Something must have changed there. Maybe the flow is _away_ from the crazy bears… .

• 83 Ned S // Feb 8, 2010 at 10:31 pm

  Most of my DRA comments of late were seek and reveal type stuff on a London sewage impurity mate -- Didn’t pay much attention to who thought what. Hasn’t done a lot of good over there that I can see though? Just one more case of While you can lead a horse to water, you can’t make it drink I guess. So the poison is still there. With the little cartoon characters etc congratulating the real people over their great posts etc.

  But I fulfilled my moral responsibility to the adult financial bloggers of Oz -- So be the rest of it on their own heads …

  I did just see DD is trying his hand at a bit of revisionist stuff -- Sort of along the lines of Auschwitz never happened -- I’m naughty -- I couldn’t let that one pass!

• 84 Ned S // Feb 8, 2010 at 11:02 pm

  It’s one of the things that I LOVE about the old soviet type Russkies Biker -- They have fairly high tolerance levels for unpleasant truths. Backed up by an ability to laugh at themselves.

  Never struck a mob with such a similar sense of humour to what I grew up with here.

  Oz doesn’t have that same sense of humour any longer from what I can see. I suspect we’re the poorer for it. But I’m damn sure that those who don’t have it, disagree MOST vehemently!

• 85 Biker Pete // Feb 9, 2010 at 8:14 am

  “…a bit of revisionist stuff…”

  Well, if it’s good enough for Keen…!

• 86 Biker Pete // Feb 9, 2010 at 10:07 am

  For a glimpse of a dog’s breakfast (CEC):

  http://www.abc.net.au/pm/stories/s344262.htm

• 87 Ned S // Feb 9, 2010 at 10:49 am

  CEC media release -- Appears their homepage has a picture of Barack Obama on it wearing a Hitler moustache? :

  http://www.cecaust.com.au/

  So I can only assume all their media releases are totally unbiased and apolitical statements made without any hint of an underlying agenda.

  The phrase “lunatic asylum” comes to mind at the moment Greg. With one of the inmates quite possibly having a nasty streak.

  If Biker has no objections, would you be prepared to forward my email address to him -- Just as a one off favour to two blokes who I believe both hold you in high regard and have always dealt with you both openly and honestly?

  I could just publish my email address here of course. But under the circumstances I don’t actually feel to do that.

• 88 Ned S // Feb 9, 2010 at 11:34 am

  Righto -- Cheers mate.

  Gawd, Barack Obama with a Hitler moustache! It’s one of the many great beauties of free speech of course -- Let them say what they think so one knows what they are thinking!

• 89 Gary // Feb 9, 2010 at 8:47 pm

  It seems the public in general feel house prices can only ever go upwards. But actually this does not mean property is a good investmentfor the average owner-occupier since how can they really benefit unless they sell and live in a tent?

• 90 Biker Pete // Feb 9, 2010 at 8:59 pm

  Well, Gary… can you name another investment which meets a major human need… and which, at sale, incurs no Capital Gains Tax? Don’t get me wrong… I don’t mind you renting at all… you’re paying off our properties for us in return for shelter.

  Now a smart cookie… a _really_ quick fella (to paraphrase The GyroCaptain) could have taken the $21K FHOG, lived in the house for six months… then rented the house to someone else. There must be thousands of FHBs already providing this service to tenants by now.

  I realise the economic benefits of doing just that may escape you; as they do most bears. Not my job to convince you. Your choices are your own… and we depend on tenants for our comfortable retirement… .

• 91 Ned S // Feb 10, 2010 at 5:01 pm

  A mate of mine who has travelled very extensively once commented to me that lots of Europeans seemed happy enough to rent. He passed the comment that he thought it gave them more disposable income to spend on lifestyle related activities. A lot of it is very much a matter of personal preference and choice perhaps?

  But I wouldn’t want to be Aussie looking at going into retirement anytime soon without a debt free home!

  Though such things can change in time I imagine? If that’s the norm in another 30 years for example, then I guess the system will have changed/been changed to enable people to cope. Course if I had kids in that situation, I’m old fashioned and risk averse enough, that I’m real sure I’d still be singing some sort of “Hymn to home ownership” to them.

  Saw your post elsewhere on the good prof Biker -- Yes, basing one’s financial future on the assumption that any particular school of economic thought may be “right” seems like it’s an inherently risky strategy to me -- Given that the art still appears to have a few things to come to grips with … His haemmoroids are playing up again doc -- Do you reckon we should bleed him? Or feed him a some powdered toad toe nails? Or stick him with a pin?

  I thought “Judy Rodgers” comment was a bit of good fun -- She reckons what he did should be “punishable” … I figure it would be good to educate people that allowing free speech has its potential downsides as well as upsides!

• 92 Greg Atkinson // Feb 11, 2010 at 8:59 am

  I think Gary has a point but we need to separate home ownership for investing in property.

  If we are talking about investing then there are of course other assets which can match property in terms of performance. Mining is one area that quite obviously has made a lot of people wealthy and does meet our basic human needs. No mines, no houses.

  What is often missed when people compare property to shares is the cost of holding property. Yes you can get rent from property but you may need to cover strata fees, land taxes (in some cases), loan expenses, water rates and of course pay tax on the rent. With shares you can generally sit on them and they cost you nothing to hold.

  Then we have transaction costs like stamp duty and agents fees, although people can market their own home and keep costs down.

  Of course when you sell your family home there is no CGT and so there is potentially a lot of gain/profit but the what? If you buy another place to live in then the chances are that property has also been creeping up over the years? You don’t generally make money from selling your home and buying the identical home next door.

  So what Gary says does make sense in that an owner/occupier might see his home appreciate in value, but relative to the overall market it may actually not be rising much at all.

  So maybe home prices can keep rising, but in relative terms the average owner/occupier is no better off?

• 93 Biker Pete // Feb 11, 2010 at 9:18 am

  Greg: “Mining is one area that quite obviously has made a lot of people wealthy and does meet our basic human needs.”

  Well, I’ll have to add ‘mining’ to the pyramid of Maslow’s hierarchy of needs, Greg. Probably between ‘food’ and ‘shelter’, I would think(?)

  Your comment: “If you buy another place to live in then the chances are that property has also been _creeping up_ over the years?” answers the question: “Can Australian home prices keep rising?” The chances are _high._ In the past, Aussies sold and upgraded every five years. My own parents did so every two years, until they bought the farm. (Actually they ‘bought the farm’ well after they bought the farm.)

  You ask: “..in relative terms the average owner/occupier is no better off?” I’d argue that in upgrading, the owner may be far better off… better home, better area… if he/she buys and sells well. In financial terms, Ned’s comment: “I wouldn’t want to be an Aussie looking at going into retirement anytime soon without a debt free home!” is highly relevant. So is his remark in reference to Keen’s culpability…. .

• 94 Ned S // Feb 11, 2010 at 2:14 pm

  The downgrade option for an older owner occupier is certainly a handy one.

  I doubt one would have to look too hard to find examples where a prospective retiree who’d bought a place maybe 10 km from a major city centre to be as close as they could afford to be to work 20 years ago perhaps, couldn’t sell and move another 15 or 20 km further out (with being close to work not being an issue anymore), and get just as functionally servicable a home, if not better, and have a couple of hundred thousand in cash to show for the move.

• 95 Biker Pete // Feb 11, 2010 at 2:23 pm

  Excellent point, Ned.

  We have friends in Perth who bought into a highly desirable Perth suburb a little over twelve years ago. Their property is now worth five times what they paid. Retiring, they’re downsizing and will have around $700K more in the kitty after the switch… .

  No CGT, either!

• 96 Ned S // Feb 12, 2010 at 12:34 am

  The deeper one digs on some things, the more interesting they get. Keen says he sees himself as part of the “Circuitist” school in my previous link re same.

  Link to Wiki article on Circuitism follows:

  http://en.wikipedia.org/wiki/Monetary_circuit_theory

  I note the quote from same:

  “While the verbal description of circuitism has attracted interest, it has proven difficult to model mathematically. Initial efforts to model the monetary circuit proved problematic, with models exhibiting a number of unexpected and undesired properties – money disappearing immediately, for instance. These problem go by such names as:

  * Losses in Circuit
  * Destruction of Money
  * Dilemma of profit

  Australian economist Steve Keen ascribes these difficulties to inappropriate use of general equilibrium methods, hence implicitly static or steady state, while he considers circuitism essentially dynamic, and thus advocates instead the use of the dynamic methods of differential equations or difference equations, producing circuitist models that do not have the shortcomings of earlier attempts.[citation needed]”

  Yes, we ARE definitely dealing with a “science” that still appears to be a bit rubbery!

• 97 Biker Pete // Feb 12, 2010 at 7:59 am

  “…models exhibiting a number of unexpected and undesired properties – money disappearing immediately, for instance.”

  Probably into rent, Ned.

  Wasn’t Keen’s own home valued 7% higher a year after he sold it?

  Sounds like he modelled ‘destruction of money’ and the ‘dilemma of profit’ quite successfully.

• 98 George // Feb 12, 2010 at 11:22 am

  All well and good, the arguments made here sound quite plausible and sensible in light of recent history and trends -- maybe property prices will hold up ok, for a while longer. The problem is, in technical analysis terms, we are facing powerful economic cycles/waves whose magnitude (in time) measure up to 5 times the lifespan of the average reader here.
  The recent run on property, stock market and commodities (2009) was fuelled by stimulus money (debt) which in turn led to currency devaluations. This was a weak attempt at resurrecting inflation (growth), in a longer term deflationary cycle.
  On fundamentals, if you were a business (like Australia), could you afford to risk your entire future on one good client alone (China)? This is financial dependence, which is fine as long as the client is well and good and demand remains high for your product (resources). What happens when demand drops? What happens when the Chinese bubble bursts? What if unemployment rises? Interest rates rise? Any of these factors could hurt property prices in Australia significantly.
  In the last 10-15 years property gains in Australia have blown out higher (in real terms) than food, energy, wages or anything else measuring inflation/cost-of-living. The increase has been so great, so rapid, that most analysts would agree that it is due for a similarly severe correction/crash. The higher and faster the rise, the lower and faster the decline. Most other countries experienced property gains more slowly, over time, and are now going through a longer down wave. When Australian property prices drop, it will occur swiftly and severely -- likely 25-50% in a matter of months. High unemployment coupled with high interest rates would sound the death knell in the property market. Foreign investment too will wane as global deflation issues take hold, further dampening local property demand. I am out of property and shares, and would not even consider investing in either before 2012 at earliest.
  The only factors that could really push property prices higher now are:
  *Lower interest rates
  *Higher wages
  *Government intervention -- stimulus, rebates, etc.
  *Increased foreign property investment
  All these seem highly unlikely.

• 99 Biker Pete // Feb 12, 2010 at 12:01 pm

  More ‘if’s than we’re used to, even among bears…

  “…it will occur swiftly and severely -- likely 25-50% in a matter of months… “

• 100 Anon // Feb 12, 2010 at 12:11 pm

  Hey George, great comment. Nice rational arguments, but I dont agree with the 50% housing declines. I think if we have a 50% drop most people will be working at mcdonalds =) !
  Atm i’m bearish property but the media are in full force about a property bubble. That cant be good for the bears lol. If we followed what the media said in our investments we’d all be bankrupt.
  Perhaps there will be result somewhere in between what the bears and bulls say. But there does need to be a catalyst to cause a severe house price drop and statistically it is rare to have a black swan/and or recessionary environment so soon after “recovering” from a severe financial panic/economic crash.

  Remember above is not advice, just commentary, see a registered competent financial advisor for info/decisions

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