One of the most discussed economic topics at the moment in Australia is regarding whether real estate prices are about to plunge across the nation or if Australian residential property will generally be spared from the savage price falls seen in the U.S. and the U.K. Rather than take sides in this debate, I will merely outline some of the arguments being tossed around in newspapers, online forums and blogs etc. and see how well they hold up to scrutiny.
Firstly we need to appreciate that with a lot of investment related discussions that people or groups often skew data to suit their own arguments, or they conveniently forget to highlight the shortcomings of the data they present. Therefore rather than reproduce data that I cannot confirm is correct, I will merely refer to its existence without taking any particular stance. I will simply highlight the strengths and weakness of the various statistics being quoted and let readers draw their own conclusions.
So let’s look in Part 1 of this blog at some of the arguments being bandied around that suggest home prices may fall in Australia and then next in Part 2, we will look at other side of the debate . I would like to say at this point thanks to Pete and the other readers at the Daily Reckoning for many of the good pints they have raised there and I have borrowed some of these to put together my discussion regarding Australian home prices.
The case for why property prices will fall in Australia.
Australia is in the midst of a real estate bubble.
There are plenty of graphs and charts out there that seem to indicate that we are indeed in the middle of a property bubble in Australia. But of course you can always stretch out the time axis with these charts and flatten the bubble out, so the extent of the bubble is in the eye of the beholder. At the moment any mention of the word “bubble” grasps a reader’s attention and the term is thrown around like confetti at a wedding. But remember, not all periods of rising prices mean a bubble is forming, sometimes this simply indicates a shift up to a higher long term range or value.
Home prices are expensive by historical standards.
Over at the Daily Reckoning there is a lively forum debate regarding Australian house prices and to illustrate how high prices are in Australia, some research data is shown where Median Incomes vs Median Home Prices is used to determine if housing is affordable or not. Certainly if you look at the data prices in Australian do look expensive, however there are some problems with the data presented. For example the data set compares prices for a large city like Sydney to small towns like Launceston in Tasmania and this should raise alarm bells for anyone who understands how median values are calculated. Did they use for example the same sample size for calculating the values for both locations and how did they take into account that Sydney house prices vary significantly from suburbs where movie starts live to true battler areas out west? Also how was income calculated and isn’t it better to measure wealth instead? (many top earners keep their taxable income very low) Perhaps home prices are high by historical standards at the moment, but then again maybe we are simply being fed a lot of data based on flawed reasoning and assumptions?
If unemployment rises then homes prices will be driven down.
If a large number of people lose their jobs then this is of course unlikely to help the property market. However if the Australian economy can avoid shedding a massive amount of jobs then prices will not necessarily collapse. Home prices in Australian held up relatively well back in the recession of the early 1990’s (our last recession) so perhaps prices will hold up okay again? Also remember that not everyone that loses their job has a mortgage and many will be able to hang on for some time thanks to termination payments, savings, government welfare payments and some flexibility from the banks.
Home prices in Australia are very expensive compared to places like the U.S. and U.K.
I have seen this statement a number of times in various articles and it might be true, but I have no idea how this has any impact on prices in Australia? Prices for homes in rural Thailand are fairly cheap I hear, so what?
Property prices are tumbling in the U.S. and U.K…. Australia will be next.
It is true that property prices in the U.S. and the U.K. have been hit hard and this in ominous sign. However falling property prices is not a virus, so it is quite possible Australia will buck the trend.
Home prices cannot keep rising forever.
Well actually they can and have been in Australia over the long term (20+ years). Of course there is a rate at which prices rises can be sustained over the longer term and many people argue that at the moment prices in Australia have overshot this mark.
Home prices are being artificially supported by the first home buyers grant.
Up to a certain level this statement is true. I have read where experts say that first home buyers generally come into the market for homes up to $400k so I assume that the government grant probably gives new home prices up to this level a bit of a kick upwards. But the grant in some form is likely to be around for a long time so does it really matter if prices are being pushed a little higher?
For every house transaction there needs to be a buyer and a seller. With so much money having been wiped off the stock market surely there are less buyers now, thus prices will fall.
This is quite true and in some areas property prices have already fallen as owners need to downsize, or investment properties and holidays homes etc. are sold off. Also people who had a nest egg sitting in stocks and were waiting to buy a home will have had their purchasing power slashed, so this also means there is less money swirling around to support prices. On the flip side however, some people have probably been scared away from the stock market and may start looking at property as their investment class of choice.
Households have taken on too much debt and mortgages are too large, there needs to be a downwards adjustment.
Australian households have indeed taken on a lot of debt and much of this was used to fund stock market portfolios via margin loans etc. A lot of this wealth has been wiped out and thus there will be some sort of downward debt adjustment, but traditionally Australian’s tend to hang onto their homes as loans are non-recourse in nature. (unlike the U.S. for example where you can hand back the keys and walk away, the debt does not follow you) It would seem reasonable however to expect prices for luxury homes to see a correction as many high fliers come crashing back to earth, but how much this impacts overall residential home prices remains to be seen (it might push down the median home prices say in Sydney for example, but the pain may actually be very localized and focused in certain suburbs).
So there is the case for a fall in property prices in a nutshell. I have not included every possible factor that may drive Australian residential property prices lower but I hope you can get a good overview of the debate ongoing at the moment. Please feel free to let me know if I have missed anything or if you simply have a comment. In a few days I will post the arguments from the other side of the home prices debate.
Related posts:
- The Australian home prices debate Part 2: Why prices may not collapse.
- Australian home prices, spending trends and statistics.
- Can Australian home prices keep rising?
- Are we in a gold bubble? Could gold prices fall?
- Australian stocks, house prices & the economy in September 2010
334 responses so far ↓
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301 Ned S // Oct 21, 2009 at 6:50 pm
I doubt that Henry will discuss that one mate – Except to say why he didn’t recommend it if he is brave enough to broach the topic at all? Could be a different kettle of fish in the 2035 tax review perhaps … But that’s a bit long term for me right now. We’ll see though – Never say never!
302 Ralph // Oct 22, 2009 at 7:54 am
I agree with Ned. It would be a ‘courageous’ move to tax capital gains on the family home. And courage is something in short supply amongst our bureaucrats and politicians.
I do think there will be something for property investment in the tax review though. Real estate speculation is a key Australian industry that needs to be supported.
303 Ned S // Oct 22, 2009 at 2:04 pm
It will be an interesting one Ralph – The tradeoff with that sort of stuff has to be allowing people to claim a tax deduction on their mortage payments on their homes of course. So it is quite feasible that it could push house prices significantly higher again – Ouch! And I don’t get the feeling that is what they really want to encourage right now – We will see soon enough though. Cheers!
304 Greg Atkinson // Nov 3, 2009 at 8:49 pm
Well interest rates went up again this month and the first home buyers handout is being scaled back so next year will be interesting at least as house prices are concerned. I wonder if Australia has managed to create a mini-property bubble due to the meddling of the RBA and Government?
305 Pete // Nov 3, 2009 at 11:18 pm
Ha ha ha?
I don’t get it?
306 Ralph // Nov 4, 2009 at 12:23 pm
It certainly is going to be interesting.
The funny thing is that prices still seem to be booming despite the handout being wound back and interest rates being ramped up. If anecdotes about banks tightening credit are true, this suggests that credit overall should be getting tighter. But it doesn’t seem to be putting much downward pressure on house prices. Where is the extra money coming from to keep bidding up prices? Perhaps it’s just irrational exhuberance and a feeling that Aussie real estate really is the magic pudding. Maybe Biker Pete was right after all.
I reckon the clock must be ticking for the gov’t to announce their next housing-related stimulus. This bubble is so big that they can’t let it go now – they’ve gotta go ‘all in’. Their electoral fortunes depend on it.
307 Ned S // Nov 4, 2009 at 1:40 pm
What has really changed since a year ago when people were moaning about the costs of housing but still paying their mortgages regardless?
* Prices have gone up a bit.
* And people feel more confident buying in rising markets rather than falling ones.
* Interest rates have gone down a lot – And while that trend is now up, there is no guarantee at all that they’ll go back to 7% or more anytime soon. (The RBA said a while back they’d like to get them up to about the 5% [or 6% ?] level over a couple of years).
* Unemployment of 6.75% is forecast now rather than 8.5%
* People are pretty confident government will act to prevent a major property crash in Oz.
Presumably there has to be some sort of trigger for a crash? And at this point most people probably aren’t especially seeing one. Plus feel that government will protect them against any particularly big and particulary nasty surprise shock/s anyway.
308 Pete // Nov 4, 2009 at 1:54 pm
Ralph I am beginning to question Australia’s property data sources.
Think about who we get the info from and what they have to gain from property prices going up or down?
It’s all up.
That’s not to say that it is completely wrong – it may not be. But I don’t think we should accept their ’statistics’ as fact.
That said, with any luck house prices will double from here in the next 10 years, whilst wages will increase only 30%.
All that means is that (hypothetically):
- the median wage would be about $80K or so
- the average house price in Sydney would be over $1million
- the deposit requirement would be at least 10% or $100K
- the interest-only repayments alone would be 7% or $70K (an ultra conservative estimate)
Obviously that person won’t have enough money to pay for it by themselves (or even enough to pay their tax) so his partner (who takes home the same wage) will:
- remain childless because she cant afford child care, or have a child and no money at all
- pay for all of the household bills, including rates and home maintenance
- will have to pay the mortgage principle component (say $20K a year? Thats only about a 40 year mortgage)
- will have to pay for all the living costs of the family, including food, fuel, clothing, luxury items
And will have virtually nothing left over.
For the good part of 25 years of a 40 year mortgage.
That isn’t living. Not being able to afford children unless you are ‘rich’ is not living.
What then? The bogans living in Gov. housing will have huge tribes of children, the middle-class will have little or no children and poverty, and the upper-class will have whatever they like.
For some reason that reminds me of the past. The very distant past. Perhaps I should shine-up my armour for any upcoming jousting tournaments.
Now…let’s imagine that houses doubled yet again on top of those, whilst wages did not keep up. You’d need 4 adults per house just to live. But that isn’t exactly conducive to a housing shortage is it – more people per dwelling.
Okay, i’m almost at the end of my rant. I simply think that ludicrously and unjustifiably high property prices are not sustainable, and are even worse foundations for growth. This does not mean that growth won’t happen, however it does mean that any growth is a product of an irrational market. Irrational markets revert to the mean over time – however they can stay irrational for a lot longer than people like myself might suspect.
It is all too easy to join the mainstream consensus and because going against it doesn’t “feel right”. But the mainstream consensus is wrong more times than it is right. Individuals can be quite stupid, but groups take it to the next level.
309 Pete // Nov 4, 2009 at 2:03 pm
Almost sounds like you trust the Gov. there Ned.
Have things changed that much? Now we’re trusting what the Gov. says and forecasts?
They certainly don’t make me feel warm and fuzzy. Not when I read about them intentionally deceiving us over and over again.
Each to his own I guess.
310 Anon // Nov 4, 2009 at 2:05 pm
“Ralph I am beginning to question Australia’s property data sources.”
I’m starting to give up on any official data sources ! They should put warnings on all of them. **Maybe distorted to seem better than it is**
311 Anon // Nov 4, 2009 at 2:14 pm
The problem with the housing bubble is if prices go down how does this align with everyones theory of rampant inflation.
If inflation rockets real assets like houses will rocket too. Look at the basket case Zimbabwe and real estate prices.
Check to see how real estate has historically performed in high inflationary environments — it has done quite well in these environments (even outperforming equities).
Perhaps Greg maybe right and we only have a slight correction. But as Ralph mentioned if the government doesn’t prop up housing its basically an election death sentence.
This is why its difficult to invest when there is too much Government intervention — they are a rogue element !
Anyways just listing the bull cases for property prices. I personally would never buy a house at these levels and I suffer hyperventilation when I look at the sale price.
312 Ralph // Nov 4, 2009 at 2:20 pm
Pete – all good points.
You can’t escape the conclusion that if house prices and wages keep rising at current rates, there’ll be a massive divergence. I can definitely imagine the median house price cracking $1m before wages break the $100k barrier.
I can also see people devoting increasingly larger amounts of their net income to housing. It probably won’t be uncommon for people to spend 60-70% of their income on rent and/or mortgage repayments. It will just become the accepted thing to do. Prices might keep increasing to a point where home ownership is out of reach for the majority of the population.
It then genuinely becomes a social issue – we’ll have to see the development of shanty towns. Just like there is in Mumbai or Rio. Where else will the poor live? We’ll have to see if the government of the day is comfortable with that sort of situation. If they are, house prices to the moon!
Ned – unfortunately, I think you may be right. Pretty much everyone expects a government bailout when the $hit really hits the fan. The precedent has been set. The banks know it’s there. And the public will vote the government out if the cash handouts and subsidies don’t come. I’m just waiting for the day when the PM or treasurer comes out and says that the bailout is needed to stop house prices from falling.
313 Ned S // Nov 4, 2009 at 2:42 pm
Are you telling me that you don’t think Krudd would act to mitigate a crash Pete? (Which doesn’t have that much to with “trust” as such – More just a case of pigs do what pigs do and butterflies do what butterflies do.)
314 Greg Atkinson // Nov 4, 2009 at 2:55 pm
I have given up applying any logic to what is happening. I honestly did not expect the housing market to get a boost via the home buyers grant and if you had said to me in mid 2008 that the Government would respond to a financial crisis by encouraging people to take on debt (i.e. home loans) I would not have believed you!
So what could the Government do next year when faced with an election? Anything to get re-elected I would guess
315 Ned S // Nov 4, 2009 at 3:01 pm
Yes, there’s some “moral hazard” issues about at the moment Ralph. But I’m wondering to what extent government intervention should be factored in as part of the new normal in investing. Rudd certainly seems to reckon intervention has an essential place in it all.
316 Ralph // Nov 4, 2009 at 3:39 pm
Ned, that’s what’s so worrying about this. In choosing where to put your money, you have to try to second-guess government policy moves – probably more so than in the past. And lately, they’ve been cancelling handouts all over the place.
Take a look at solar panels and pink batts. Solar panel companies were given a day’s notice that the rebate would be culled. Similarly for the dodgy johnny-come-lately pink batts installers – given a day or so’s notice that the handout would be reduced from $1600 to $1200. Businesses had made decisions in the expectation that those programs would run to their conclusion. At the very least, the government had not given an indication that the rug was about to be pulled.
Now before any of you call me a socialist, I don’t for a second believe that businesses that rely on government handouts are sustainable. Nor should they expect subsidies to continue ad infinitum. But it just goes to show how arbitrary it all is.
Further, the fact that the first home buyers’ boost is still going strong speaks volumes for the government’s intentions. While other elements of the economy can be sacrificed, house prices are sacrosanct. Even the schools cash splash has been wound back a fraction. Perhaps they are making some room in the budget to put some more money into real estate? The FHOG would be probably the only stimulus that is immune from tweaking (unless you call an increase a tweak).
317 Pete // Nov 4, 2009 at 10:28 pm
Anon:
Yes indeed. The factor that makes this ‘different’ is debt. Simply, high inflation = high interest rates. In fact, ludicrously high interest rates. No-one will be able to afford the interest payments to keep the bubble afloat.
However, people who own their own home have a huge advantage.
Now just need to ask ourselves, is our property bubble fueled by debt or people who ‘own’ the houses? If you ask me, i’d say most of them don’t technically own their houses at all – the banks do.
318 Pete // Nov 4, 2009 at 10:40 pm
Ralph:
I think you might have missed my sarcasm in my previous post. The sarcastic bit was me suggesting house prices doubling from here (apologies for my low form of wit).
The median DINK (double income no kids) wage would not even be able to afford to live in the median house if they doubled.
Who is going to buy the houses in that case? No-one would want to. Plus you shouldn’t need to be a DINK household to afford a home – many people are not.
Ned:
Touche!
I don’t think Rudd can mitigage a decline in the ‘growth’ (in real terms) of the property bubble over time. Now, I am keen to emphasise “real terms” and “over time”, because he may be able to prolong the bubble. All he’d need to do is introduce the FHOG again, this time with 50K bonuses and people would be all over it.
But…the more he tries to keep them up, the more he is taking away from the rest of the economy to support a bubble. It is sustainable in the short-term. It is not sustainable in the long-term. All it would take is a significant shock to our economy to bring things to ‘crisis levels’ again. How about a global shock that significantly reduces global credit availability? How would he fund stimulus then?
Property bubble expects infinite growth – with finite (debt-fueled) capital.
Plus, I don’t think we should pretend that the Gov. really has a clue as to what they are doing at any given point. They have proven themselves to be economically illiterate and political deceptive.
319 Pete // Nov 4, 2009 at 10:48 pm
Ralph:
My ‘guess’ is that the Gov wants to be able to say that all their calculations or ‘forecasts’ in the budget were actually better than predicted.
That will be an avenue for them to say that the stimulus ‘worked’. Even though it is just less spending that intended.
They realise that the Liberal Party is continually going on about debt. So it wouldn’t surprise me if the Gov wanted to punish them for it a bit by reducing it (in the short-term).
Kinda makes an election easy if you can say that everything you did was good (“look at the figures”) and everything the Opposition said was wrong (“look at the figures”).
Even if it is horse crap.
Election may be coming soon if the ETS doesn’t pass in December? (double disolution)
And their strategy may be less of a “keep people happy” strategy than a “but we’re nowhere near as bad as those guys!” strategy.
Personally I hate that I voted for Rudd, but I hated Howard more. Lesser of two evils? I wouldn’t vote for Hockey, and voting for Turnbull seems a bit strange. But I won’t vote for Rudd again.
Sorry for the triple post guys!
320 Ned S // Nov 5, 2009 at 9:27 am
I guess when it boils right down to it, Rudd seems to reckon that Aussie house prices are fundamental to the health of the banks Ralph? So given that he has no desire to be bailing out banks, he’s stuck with ensuring house prices don’t crash. (Where “don’t crash” isn’t necessarily the same as being a “great investment” of course – But in these uncertain times, I can see the attraction in being crash protected.
)
So that is one point. But the other (and possibly more important one I was trying to make) is that housing would seem to me to be much more affordable than it was when interest rates were much higher. The market has been reset to something like 2004 levels of affordability perhaps?
Pete, you say it is not sustainable. Well all I can say to that is that Rudd seems to reckon it is his job to ensure it is sustained – He isn’t a big believer in letting “free markets” do their thing (unless that thing happens to be what he wants) as you’ve also obviously observed. And he would roll around on the floor laughing at any suggestion that Australia might be a “better place” if he didn’t do such things. As would the RBA and Treasury.
They exist to direct and control and to intervene and manipulate (and extract taxes) for the greater good as required, is their take on things. And the GFC has very strongly reinforced that view of their roles in their minds.
So that fundamental shift in emphasis and willingness to actively involve themselves in markets on the part of policy makers has to be factored into investment decisions very heavily nowadays – It was always extremely important of course. But now it is even more so. Which makes the outcomes of something like Henry’s review even more important nowadays than it may have been in the past. Rock on Chrissy – I can’t wait to see what pressies Uncle Ken has put in my stocking.
321 Ralph // Nov 5, 2009 at 11:21 am
Yeah, I’m not voting for Rudd either. He’s a major disappointment. If push comes to shove, I reckon Turnbull, Hockey & co would continue with real estate bailouts. They’re in this game up to their eyeballs as well. They’d just sacrifice other stimulus measures. So we’d have no new school halls and no pink batts, but we would have a booming real estate bubble.
I also think that Rudd will call an early election. I can’t see the ETS getting up (and rightly so in its current form). But of course the real risk for Rudd is that the economy starts to tank as the stimulus wears down, including house prices coming off the boil. I reckon he can’t credibly announce new stimulus at the moment because everyone thinks we’re back to boom times. He’d make Whitlam look like a miser and the coalition would have him for breakfast. And he knows he can’t survive a house price crash. What a bind to be in! So he has to call the election before the $hit hits the fan. This is what he’s really worried about – the ETS is just propoganda.
Poor Rudd – he showed such promise but will end up being seen as a very ineffectual PM with absolutely no courage.
322 Ralph // Nov 5, 2009 at 11:29 am
Ned – good thoughts. It certainly will be interesting to see if Rudd comes bearing gifts this Chrissy. Gee, I hope not. But I suspect that he might not be able to help himself.
Overall, I think Pete’s right in that the real estate bubble is unsustainable in its fundamentals. What we don’t know is Rudd’s level of desperation and/or stupidity. If he’s as desperate and stupid as I think he is, I think we’ll see him try to keep the bubble going until he can get re-elected. What other choice does he have?
At the moment, we could be looking at a slim Christmas for the retailers, based on underlying desire to deleverage, stimulus wearing off and higher interest rates. Alternatively, if Oz racks up the credit cards again for a big Christmas spend (please, yes please!), retail might fall in a heap right after Christmas. So Rudd could stimulate going into Christmas or he could save the world with a bailout in the new year.
Did anyone mention moral hazard? They should name a horse ‘moral hazard’ and enter it in the 2010 Melbourne Cup – would be an unbackable favourite. The TAB would have to suspend betting!
323 Ralph // Nov 5, 2009 at 11:32 am
By the way, check out the number of posts for this thread – currenly 322! I came late to it, but this is a cracker! And it’s been a great discussion too. You must be proud, Greg!
324 Ned S // Nov 5, 2009 at 12:56 pm
I think it goes deeper than simple politics and the desire to be re-elected Ralph. In that a significant correction in actual house prices (more than 20% maybe? – I don’t know the “magic number” but would certainly hope policy makers have been diligent enough to take some steps to find out by now???) would put the banks at risk and that cannot be allowed to happen.
Bank failures are very, very bad news of course. With the tax payer getting to bail out the banks aka the UK and US. Way better to not let the rot get into the banks in the first place. So keep housing ticking along.
With my second point being that so far they have done that successfully – A little too successfully for their own liking even? But bank failures simply could not be risked and at the time the RBA crashed interest rates and Rudd upped the FHOG and the States came on board with slashing stamp duties for FHBs they had no idea what they were facing except it looked like being VERY nasty.
Although if an individual’s major focus is the fact that house prices are way higher than they can or wish to pay, then it easy to lose sight of the fact policy makers are playing a way bigger game in which house prices are only one element (albeit a very important one.)
As to Chrissy pressies – I’m thinking in terms of suggestions “Uncle” Ken Henry might have for us. With Rudd OK’ing a few of them soon. And some of them being more the “trick” than “treat” variety just maybe as well! But it still helps give investors some direction. There is a super review being carried out as well. And that’s of significant interest to me too.
10 year plan hey Greg? Some of it could be way longer if the last one is anything to judge by. But my interest levels are high!
325 Ralph // Nov 5, 2009 at 1:36 pm
That’s true, Ned. No question that a true property crash would have been catastrophic. But I would argue that if people are prepared to take risks and profit in the boom times, they should also be prepared to take the hits in the downturns. But apparently that ain’t so anymore.
The consequence is that the government has now designated an asset class that is a rolled gold protected species because the entire economy has become so heavily dependent on lending for real estate purchases. Is that the fault of government? Partly, because they’ve encouraged real estate speculation through favourable tax treatment for real estate purchase and investment. It’s a factor of the free market, so we can’t quibble too much, but then again, the government has shaped the market such that this was the inevitable outcome.
That doesn’t mean that investors in real estate are guarranteed windfall profits. But it does seem to mean that they are guarranteed not to take anything more than a very minor loss. You could make more money investing in gold, shares, whatever. But uninformed mum & dad investors who are told and believe that property only ever goes up would be given a secure haven to store their ‘wealth’. Perhaps.
I accept the situation, but I think it’s a disgraceful situation. If this is the way it’s going to be, I just wish they would come out and publicly state the rules of the game rather than pretending to dance around it.
326 Ned S // Nov 5, 2009 at 2:44 pm
That is the other major question one has to ask themselves now Ralph – To what extent is the change in the way things are done, part of the new investment normal. And I think we’ve got our answer.
The stock markets aren’t reflecting it right now – Largely because the Americans are giving their banks every opportunity to trade themselves out of insolvency I think. (It’s really about the banks there too.) But the effects will be felt in those markets in time.
Might be time to stop focussing so much on supposed “free markets” and thinking more in terms of what governments want us investing in and why – Which again is what will make Ken Henry’s report so potentially informative. I hope?
327 Greg Atkinson // Nov 5, 2009 at 5:38 pm
By the way Steve Keen has written an article for http://www.businessspectator.com.au conceding his house price prediction was wrong and he will be walking to Kosciusko. But like all economists who seek the limelight he says it is not his fault.
Yes it is Steve..we live in the real world not one driven by spreadsheets alone.
328 Pete // Nov 5, 2009 at 6:32 pm
Guys:
For a Government so concerned about increasing payments to pensioners and retirees, you sure put a lot of faith in them being able to give tens of thousands of dollars worth of stimulus payments to mortgagees over the years.
You all sing the same tune – “the Gov. is all powerful and has guaranteed house prices”.
Do you think the USA wanted their house prices to fall? The UK? Anywhere? They tried. If it only costs a few dollars to support the bubble then i’d have much more faith. The reality is that it will cost the economy.
And the Libs will get some more use out of their debt truck.
Second-guessing the Government and the actions of Mr Rudd – in contrast to considering the fundamentals of economics – seems like a gamble to me. But each to their own.
And on that note I won’t be posting here for a little while. I said what I wanted to say, and tried to be helpful and provide an alternate view to the bullishness. Time for time to do its work.
329 Senator13 // Nov 5, 2009 at 6:46 pm
Greg: That is actually a pretty lame excuse when you read that Keen article.
He writes as if it is so obvious that the FHB’s were the reason. If it was so obvious he should have been able to predict it being the case.
Just throwing up some observations. Please let me know if I have misread something or am way off the point…
I don’t know if this figure is correct, but he states 171,000 people received the grant. Now in the grand scheme of things that number sounds pretty small to me. That is just a few suburbs worth of people… Out of an entire nation, for FHB’s to be the driving force behind the move I would have thought that number would need to be a lot larger? But I don’t know… It just seems on the low side to me…
Also, as stated in the article, an 8% increase in house prices is not all that much I don’t feel either. Even an 8% decrease I would still be saying that is not much of a decline (and I expected around negative 10% in the current environment). When comparing to the double figure returns on the sharemarket 8% seems pretty tame… I’m not saying that it is sustainable, just that it is not a super high increase. On that note, I would love 8% increase per year!
A few people have made some comments about the changing investing environment. These days, not only do we have to analyse any actual investment, we also seem to have to second guess what the Government is going to do and if it is going to pull the rug out from under us. Now to me this feels more dangerous then what we had before. Maybe it is just me… But it does feel like the Government thinks it is ok to change the rules and where the goal posts are with zero notice… Makes things harder that is for sure.
330 Ned S // Nov 5, 2009 at 7:03 pm
Pete – Do you you want to be correct? Or do you want to know what IS correct? Your call of course … ???
331 Greg Atkinson // Nov 5, 2009 at 7:05 pm
Senator his excuse was lame I agree. If you set yourself up as a self proclaimed economic expert then you look like a complete dill if you don’t take into account governments at all level influence the housing market. Time for Steve keen to get some real life experience on how the economy works because the answers don’t lie in spreadsheets alone.
I guess the people that purchased his inner city apartment are happy
332 Ned S // Nov 5, 2009 at 7:24 pm
Anyway Biker, given that I held my property (bit nerve jaggling back last November wasn’t it?) – Lots would say I was “lucky” – YES I WAS! But one has to invest in something and I kind of like stuff I can see and touch and jump up and down on – Plus renovate and improve and develop. Each to their own as it’s been said before.
333 Anthony // Nov 20, 2009 at 9:42 pm
Hey all, great debate. I enjoy reading both sides – I’ve learnt a lot reading these posts. It’s been a while for me (I made comments in post #20). As follow up FYI I made my decision and have since sold my unit. For me I am sleeping better!
334 Greg Atkinson // Jan 7, 2010 at 3:04 pm
Anthony I actually sold my apartment in November as well mainly because I am here in Japan now. I do wonder though how higher interest rates will affect the market in 2010. Can the housing market keep heading upwards?
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