Shareswatch Australia

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• 101 Pete // Sep 9, 2009 at 6:10 pm

  Ned:

  My post #91 covers my thoughts on this pretty well.

  Even so, let’s think about some Gov costs:

  - $20B p/a for cutting stamp duty
  - who knows how much for more stimulus
  - decreasing taxation revenues if companies go under or unemployment rises
  - increasing welfare payments

  How much budget does the Gov. have left? Oh sure it can borrow, but it needs to justify borrowings.

  It cannot go on indefinitely, (unless it receives some sort of extra funding, such as huge profits). Something has to give.

  - New buyers have to come to the market constantly in order to prop up prices.
  - Prices cannot grow forever, unless wages do (proportionately).
  - If prices stagnate, will that not send a signal to buyers? Especially those expecting capital gains?
  - If parents are required to go guarantor, would they be quite as willing if they know they are risking their home? FHOG is one thing, risking the family home is another.

  I do agree with comments that if there was a 10% drop the Gov. would probably try and intervene. However, how much will that cost? More debt! The Gov is already paying interest on the debt it has now. Every year the interest will be more and more. Every year the cost to prop up the bubble will be more and more.

  There are only three ends that I can see to Government borrowing on this scale:
  1) Resurgent, sustainable boom(s) provide Australia with very significant taxable revenue. We are talking Gorgon x 20 (v. unlikely IMO)
  2) Using a combination of inflation and profits, Australia manages to bungle its way through to a state whereby inflation eats away at the real (not nominal) capital gains of property and essentially raises the prices of everything. Therefore in nominal terms, house prices don’t crash, but lots of money is lost in real (inflationary) terms (possible, but very hard to manage).
  3) Bubble cannot be maintained, Government runs out of support options. Banks nationalised, quantitative easing (money printing) is needed, international investors exit, interest rates skyrocket, economy suffers greatly (unfortunately more likely than #1 IMO)

  Basically, my question to anyone who thinks that the Government will always step in and save the day is: Where will the money come from?

  It just seems to me that we can be pretty vague and suggest that the Government being the controlling, rule-making entity it is, is somewhat more powerful than it is. Even the US government could not stop it’s real estate slide, and they are far more corrupt than ours. It is worth considering the actual value of bailouts rather than just expecting them. If you were the Government, how would things look from your perspective?
  Governments still have budgets, but they can get revenue from alternate sources. Those sources are not limitless, and the cost to use them is future prosperity.

  Also don’t forget that at the same time, they need to manage bailouts for the retail sector (more stimulus?) and create jobs* through building infrastructure.

  *The Gov should not be in the business of creating jobs, IMO.

• 102 Ned S // Sep 9, 2009 at 7:38 pm

  Pete -- I’ll comment on each question you raise:

  “How much budget does the Gov. have left?” A real lot given its ability to borrow against the future and the resources we have in the ground plus collect tax here and now -- The more pertinent question (to me) is “How much political payoff does government perceive it will obtain from its spending?”

  “If prices stagnate, will that not send a signal to buyers? Especially those expecting capital gains?” Yes it will. No different to prices going up and/or prices going down send messages to people. And to the housing industry and to the banks and to government and to the RBA. But that does not allow us to predict with any particular certainty what will happen to Oz house prices when these varying parties get these messages (and other currently unknown ones) at some future and unknown time.

  “If parents are required to go guarantor, would they be quite as willing if they know they are risking their home?” Across the board, I suspect not. But providing there are no large declines in house prices, I expect the practice to increase regardless.

  “Where will the money come from?” As stated above -- The future and the resources we have in the ground plus collecting tax here and now.

  “If you were the Government, how would things look from your perspective?” If I was a democratically elected government in a country where the citizens have a huge proportion of their wealth tied up in housing and all of my most learned and esteemed economists were advising me that bailouts were necessary to prevent the economy crashing catastrophically, I fully imagine I’d do bailouts.

  I suspect one major difference between us is that while you say “It cannot go on indefinitely”, I say “I don’t know how long it can go on for.” And that you quite reasonably look to achieve a higher return on your assets than me perhaps?

  Cheers!

• 103 Pete // Sep 9, 2009 at 11:11 pm

  Ned:

  “How much budget does the Gov. have left?”

  (I know I am quoting myself there )

  I mean, we can say borrowing locally and internationally, and borrowing against resources…but how much?

  For instance, lets play with some very vague figures.
  Total Australian budget ~$335B ($55B over budget)

  Let’s break down how that is spent:
  - social security/welfare $110B
  (expect this to increase)
  - government services $80B
  (expect this to decrease slightly)
  - health $50B
  (expect this to remain at similar levels, possibly increasing)
  - community services and culture $12B
  (expect this to decrease due to recession)
  - education $35B
  (expect this to increase)
  - defence $20B
  (expect this to increase slightly)
  - industry and workforce $13B
  (expect this to decrease)
  - infrastructure, transport and energy $14B
  (expect this to increase)

  This year there was an overspend of ~$55B

  Where does the Gov get it’s money from?
  - individuals taxation $122B
  (expect this to decrease)
  - company and petroleum resource rent taxation $56B
  (expect this to increase in the short-term at least)
  - sales taxes $44b
  (expect increase or decrease depending on exports. So far looks like decrease)

  Okay so now we have a decent picture of the budget. We can expect fluctuations in income (taxation), but we can still assume the budget figures might hover around $290B.

  Let’s have a look at the expenses and things the Government might cut:
  - social security/welfare
  very unlikely
  - government services
  they are cutting this already, but don’t expect major changes. Typically this means jobs, and high unemployment is not what the Gov wants.
  - health
  possible, but very unlikely. In fact there may be even more spending put towards this.
  - community services and culture
  cuts are likely, this is usually the first thing to be cut in a recession. However savings will be minimal.
  - education
  expect more spending here thanks to Gillard, etc.
  - defence
  more spending likely as the Gov. has already committed to this from my understanding.
  - industry and workforce
  expect more spending to keep people in jobs. Change would be marginal anyway.
  - infrastructure, transport and energy
  expect more spending, thanks to stimulus plans.

  Overall, my summary is that there will be more spending. Probably in the order of $10B-$50B, depending on how conservative they are with it. We already had a $55B overspend this budget. Expect similar for next budget too.

  So by the end of this financial year the Government will have borrowed: $135B
  Next year they predict to add $60B to that making it ~$195B in the red.

  You can see the stats for yourself anyway.

  So, how do bailouts affect us? Let’s have a guess at some values and see how they may affect our borrowing:
  (note that some may be partly accounted for in future deficits)

  - ~$20B p/a for cutting stamp duty, permanently added to budget deficit.
  - ~$10B if we had a 10% increase in people claiming social security (note that this does not imply 10% unemployment of course)
  - ~$30B (or much more) to keep the retail sector stimulated if Australia doesn’t bounce back quickly
  - ~$20B for infrastructure stimulus, probably include commercial property incentives?

  Guesstimate total: $80B
  So even if some of that was accounted for, lets say it is $50B.

  So if things don’t turn around quick-smart in Australia, this is how things could look -- a potential $50B increase in debt each year.

  Now, in regards to property, what happens after the stamp duty incentive wears off? They need to add more to the bubble to prop it up. Lets just guess that something of similar value is then required to prop up the bubble, so another $20B, permanently added to the deficit.

  That is, over the next 3 years (I dare not go further), if the Australian Government was persistent with stimulus and bailouts as they have been, without a recovery to the expected levels of 2007, the deficit would be growing by between $50B-$70B more than expected.

  Let’s be conservative and see where that puts us in 3 years (also being very conservative and using treasury predictions, even though I think they are way off the mark).

  In 3 years, treasury predicts a deficit of $268B

  Add $50B for the first year, $60B for the second year, $70B for the third year.
  That puts the projected deficit at $448B.

  At that rate, expect each year to cost an additional $100B. In 5 years time it could be nearly $700B.

  I very much doubt that any of that factors in the interest required to service that debt. $500B of debt at say 5% interest (special rates?) is $25B.

  The printing press could do wonders here. It would also destroy our credit rating, push up rates hugely and stop people lending to us.

  The more debt the Gov gets into, the higher risk it becomes. If the Gov chooses to guarantee the states loans this will also increase interest rates (higher risk). Guaranteeing the banks, especially if it is showing it has to keep propping up the housing bubble, will also make it a higher risk.

  If a bank requires nationalisation or a bailout for some reason, the Government would also need to fork out money for that.

  So a conservative estimate is that propping up the bubble(s) in Australia will cost us ~$50B a year once stamp duty is removed. A less conservative estimate could put this much higher, over $100B a year.

  Without dragging on too much longer, how can Governments get money?
  - taxation
  - bonds, selling them locally and internationally (loan)
  - direct borrowing (loan)
  - money printing
  - stimulus from IMF? (an unknown)
  - selling hard assets to China (eg, buy this mountain range from us)*

  Without something nifty like IMF stimulus or money printing, we are left with borrowing.

  But borrowing is a slow killer if a recovery is not just around the corner. The money accrues interest. It has to be paid back. If it gets significantly big, it is an economy killer.

  Money printing is a very fast killer, especially if you already have debt. Lenders will not be kind if you print money. The rates of return they expect will greatly increase. Credit will dry up.

  From my understanding so far, those people banking on the Government bailing them out need to hope that a significant economic recovery is right around the corner.

  * Selling hard assets to China will get us revenue in the short-term. Which can be helpful, but won’t be particularly good for Australia later on. ‘Support a deflating housing bubble by selling your mineral assets’ doesn’t sound too intelligent to me.

  Can someone please let me know if they think my calculations were messed up, I hope I didn’t make a glaring error.

• 104 Senator13 // Sep 10, 2009 at 9:25 am

  Hi Pete, I just had a quick glance at your figure and I remember doing some quick calcs my self a few months back that painted a similar picture. Even if you are off by a few billion or missing something -- the conclusion I can come to from your calcs and the ones I did a little while ago is that this debt problem (what ever the exact bottom line is) is one that is going to linger for decades, not years.

  We are also not going to be getting 300bn (or what ever the peak number is going to be) worth of value. As you said, our interest bill is going to be a massive drain on every single budget for years and years to come.

  At the time, I actually thought if a big fall of the RE market, if ever it was going to occur, would have been around late last year. This did not really happen and it has plodded along ever since. Now I know that interest rates are going to rise and unemployment go up and it is going to make things very very tight for a lot of people. But is it enough to tip things over -- I don’t know, but I don’t think so -- mainly, because as I think we have picked up from what everyone has said above the government will pretty much do anything to prevent this from happening. The result would be very much one that they want to avoid. There would be intervention that would take form in many ways. A few have been listed above.

  What do people do at the present time? It comes down to the individual. From an investment point of view, I think we have to distinguish between people that are buying because they want somewhere to live and people that are buying for investment purposes. How the market plays out to affect these two groups differently. How these two groups react could be very different too. But as has been said on this blog before, there are some very determined special interest groups that have a massive vested interest in seeing that the RE market does not fall in a heap.

  If ever there was a time to let the market fall it would have been back late last year I feel. Mainly because it probably needed to and it would have also been politically justifiably (just blame the GFC like they have with everything else). But now, they may have left it too late and backed them self into a corner. They have also set a precedent of intervention. Very hard to back away from those things now I think.

  As with most things, the macro and micro economics of these things are both different as well. Knowing all of this, I still feel personally that if I bought in the near future I think it is manageable. But everybody has a unique situation and their still could be a lot of pain for a lot of people. I would rather be in real estate then small business at the moment that is for sure. Lots of new legislation coming in that is going to really hurt those poor guys. They are going to be doing it really tough.

• 105 Ralph // Sep 10, 2009 at 9:46 am

  Pete -- you lay it all out pretty logically. You would think that there has to be limits to how much debt the government will rack up. As bad as Kevvie and Goose are, surely they aren’t going to send us broke. But I just don’t know.

  We have a situation of the government wanting to (and feeling the need to) support property prices at whatever cost. But then we have the flipside of that where it comes down to how much money the government can or will throw at it.

  As we know, confidence is everything and seems to be mainly a product of government stimulus filling everyone’s pockets. When the stimulus runs out, confidence will probably go with it, unless the fundamentals shore up between now and then (unlikely?).

  Part of me thinks that the government is very worried about the amount of debt it is running up. The Libs are on their case and I suspect a large minority (perhaps 40%??) of people are against going into more debt. As the debt grows, I think that minority will grow with it. To that extent, I think that the government has to be a little bit nervous about going over the top with public borrowing to save things like house prices. If sentiment turns enough, it could cost them the election -- that’s what they really care about.

  Then I think of the money printing side of things. I agree, printing money will be insane. Technically, there is nothing stopping them from printing as much cash as they need to smooth things over. It’s technically not borrowing, but it will lead to chronic inflation if done in a big enough dose. The government has to think about whether the public will accept that and still vote them back in. I reckon we’ll see a moderate amount of money printing if things get dire and the public will just have to cop it.

  Finally, there is the case of the US. They have a stupendous deficit and even that couldn’t stop the rout. So perhaps it is trying to hold back a wall of water. They’ve done well so far.

  All this assumes that the fundamentals don’t return anytime soon. And given that the world economy is built on excess credit propped up with more credit, I don’t have much confidence that the fundamentals will come good anytime soon.

• 106 Ned S // Sep 10, 2009 at 9:47 am

  Pete -- I guess the big picture you are presenting is similar to something I’m pretty sure I recall Glenn Stevens indicating about the next cycle not being based as heavily on debt.

  Maybe? But that sounds suspiciously like him saying “Trust me, I won’t destroy the value of your money through inflation anywhere nearly as quickly as I have in the past.” And I’m afraid I don’t trust him at all in that regard. It’s simply a matter of whether he and the rest of the world’s mainstream economists do it really quickly or less quickly. IMO?

  With each of us having different opinions and preferences about different asset classes in such a scenario.

• 107 Ralph // Sep 10, 2009 at 10:07 am

  Senator -- I’m pretty much in your position as well. I have a good deposit sitting in the bank ready for a house, with a bit in shares as well. I’m also thinking about gold but haven’t gone there yet. But I don’t think now is a good time to buy a house. I just don’t feel like it’s good value for money. Then again, if it’s a place of residence and not an investment, the capital gain shouldn’t be the key. But once more, I don’t particularly want to pay an overinflated amount for some shelter -- a basic need.

  Personally, I’m going to hold off until early 2010, when the FHOG boost has come off (assuming the gov’t doesn’t extend it yet again). I’ll reasses if the government keeps the boost going. I would expect to see at least modest falls once the boost drops off. If prices don’t look like falling once the boost wears off, then I’ll have to rethink again.

• 108 Greg Atkinson // Sep 10, 2009 at 2:07 pm

  Pete have you factored in the $43 billion for the NBN?

• 109 Pete // Sep 11, 2009 at 8:20 pm

  Good comments everyone. Here’s some replies:

  Senator13:
  The market didn’t fall because it was propped up by:
  - price rise expectation
  - FHOG
  - very low interest rates
  - availability of credit (that same old reason)

  Look for changes in those, particularly credit availability (which is already changing) and interest rates (which are next on the agenda).

  Ralph:
  You can’t have high debt and money printing without disaster, unless you have a real special deal going on. The US is doing it now, but has been avoiding disaster thanks to its influence over its lenders (China, etc) and their persistence in staying with the “export stuff to the USA so they can buy it with credit” model.

  Britain is well and truly (profanity) because of money printing. They have already started, but they have nothing particularly useful to offer lenders. This means that their interest rates will rise (depending on level of global borrowing) and the debt will get worse. Britain is a weird one though because the entire EU is in trouble, therefore it is not alone, and may not look so bad just yet (although it is headed into a big hole).

  Australia on the other hand only has resources. If we start money printing, our lenders will charge a lot more to lend to us. The dollars value will drop a lot. Bond rates will skyrocket. The Gov would have a lot of trouble getting new debt, and importantly, the banks would have even more trouble. This means mortgage rates would rocket up due to increased rates and lower AUD value.

  Ned:
  I don’t trust Glenn Stevens either. Everyone at the RBA speaks some strange kind of language that is neither true, nor false. Smoke and mirrors really. I trust the RBA even less than the ABS.

  Greg:
  It’s a good point, no I didn’t factor in lots of stuff. The numbers I tried to come up with were very conservative. And my point in doing that was to try and stay somewhat credible (can’t make too much up) but to also draw a picture of what seems like the best case scenario.

  The reality is that if the Government persists in bailing things out, a much worse debt problem could exist within the next few years.
  And high Gov debt means high interest rates for all.

  If the Gov / RBA (let’s not pretend they are independent) decide to venture into money printing/inflation to bring down consumer debt, this will not be a good thing. Inflation is a terrible thing. I think there are some common misconceptions about inflation, such as:
  - wages do not necessarily increase at the rate of inflation (this often depends on demand for skills/employment and any competition for wages)
  - debt is not necessarily reduced effectively by inflation (unless you have a fixed rate, banks will charge more interest to factor the inflation rate into their mortgage)
  - assets do not necessarily increase at the rate of inflation (even though they may increase, they may not match the rate of inflation, therefore making a net ‘real’ loss).

  I think inflation makes everyone lose. Higher costs of living, higher costs of credit, higher import prices…there are a lot of reasons that inflation is really bad.

  Or there is deflation. Which is also bad in our current environment, as the house prices will deflate, retail prices (and profits) deflate, jobs get lost, credit dries up (by nature of a credit deflation).

  Overall I just can’t see how the Gov will balance all of this, regardless of whether it continues with bailouts or not.

  …

  On a slightly different topic though, here are some interesting articles in Wikipedia, about resources:

  - Resource curse
  - Dutch disease

  I started to think about Dubai. It has resources, it also has (well had) a crazy property boom. Are we doomed to a similar future?

  (Yes I know we aren’t a desert country with oil, I am looking for a comparison)

• 110 Greg Atkinson // Sep 12, 2009 at 6:30 pm

  Pete, fair enough not to add the NBN and keep the estimates conservative.

  Interesting links thanks. I think Australia certainly suffers from the “Resource curse”. The Gorgon Project for example is a joint venture between a swag of non-Australian companies. Australia will provide the bulk of the workers and local services but the ships that transport the LNG will not be Australian, most of the technology used will not be Australian and much of the equipment used will be imported. We are simply not moving up the value chain.

• 111 Ralph // Sep 14, 2009 at 9:38 am

  Pete -- yes, good links. I think you must be right about the sheer weight of numbers stacking up against the government. I guess it depends on how desperate they get. I reckon that, for the time being, the government and banks are working nicely together. The government is poking the market with increased grants, while the banks are offering relief to struggling home buyers to prevent the losses from hitting their books. To the extent that this can be continued, I can see a general stagnation in property prices, if not a slight rise. But if the merry go round can’t continue, then I think we’ve all got as good a guess as anyone as to what the gov’t will try next.

  Not sure if any of you saw 60 minutes last night. Had a story about poor gold miners in the Congo being royally f*ckd over and that the country was dirt poor, despite having all sorts of minerals in the ground.

  Australia is merely a more developed and ‘civilised’ version of the Congo, Angola, Nigeria, Venezuela and so on. Perhaps it’s because we came reasonably late to the mining game, having already built our economy off the sheep’s back, as they say. And perhaps it’s because we are primarily a digger and seller of dirt that our secondary industry is now selling houses.

  As Greg says, we’re not moving up the value chain.

• 112 Pete // Sep 15, 2009 at 10:49 am

  Greg:
  Yeah the LNG deal may not be all it is cracked up to be. I see you have written an article

  Ralph:
  I did see that Four Corners episode about the Congo actually -- gold and tantalum (coltan?) mining destroying their country. It is really sad to see people live like that, where corrupt military types control everything and leave people poor and starving.

  And I agree with the one of the speakers that probably the only way it will get better is by a large, committed international Government intervention. So maybe now they just need to find enough Oil in the Congo for the US to be interested…

• 113 Pete // Sep 15, 2009 at 11:04 am

  On a counter argument to myself (a bit strange) -- I am starting to feel that our housing bubble is becoming less significant compared to global financial issues.

  It seems that Governments and central banks ‘may’ be willing to try and stimulate their way out of everything -- regardless of the impact.

  And I know I have covered that, but particularly for Australia, this may mean:
  - US and Chinese stimulus meaning higher commodity prices (another bubble)
  - stimulus ending up in Australia as ‘investments’
  - Australia seeing a resurgent (and short-term) resources boom as commodity prices surge again
  - Australian bubble problems getting even worse

  Now, I don’t think this means that house prices will necessarily go up. But it may well mean they don’t crash either, for a long while. Interest rates may play havoc, but in the name of ‘stimulus’ the Gov will probably try and curb those for a while.

  But I think within 5 years we will see a crash, but not just of the property market, of much bigger markets -- to the extent that we will seem insignificant.

  Incidentally, one ‘idea’ that someone else had was that the Gov may allow people (possibly FHB’s) to use Superannuation to pay for deposits (etc) on their homes. There are some issues with that:
  - FHB’s probably have no super worth mentioning
  - what do you use to retire with if you eat into your super?
  - if people only have houses and not super, what happens if the housing bubble crashes? Everyone on pensions? This would make the bubble even more important for Gov’s to prop up
  - Super fund managers would be livid

  Anyhow, everything economic seems to be more and more complicated every day. I am going to focus much less my views on the housing bubble and (selfishly) more on what I can do to survive this mess that our Gov’s are getting us into.

  Incidentally, there is a great article about stock markets and high inflation here:
  Can stocks hedge you from price inflation?

• 114 Ralph // Sep 15, 2009 at 11:53 am

  Pete -- It seems you’re finally coming around to the reality of the situation. Sure, it would seem that the sheer size of the task ahead of the government to keep the debt-fuelled bubble going is too big for the government to hold back. If we were anything like a true free market economy, market forces would take care of things, debts would reduce and asset prices would fall.

  But I don’t think there is any doubt that the government will attempt to stimulate their way out of this, whatever the consequences. It’s a sickening thought, but I think that’s the reality. A recession virtually guarrantees a change of government, so Kev and Swan aren’t going to give us that if they can possibly avoid it. At least until we get through the next election, I think the gov’t will be prepared to increase debt as much as necessary to buy a result. People losing their hard-earned equity and insolvent banks is not an option.

  I think the most realistic outcome for house prices will be slight increases at less than the rate of inflation. There will be continued gov’t intervention to ensure that this is the case. I agree, Pete, it’s a disgraceful situation. But that’s just the world we live in.

• 115 Pete // Sep 15, 2009 at 2:48 pm

  Ralph:

  I’m not even sure what will happen to house prices anymore in the short-term. I have an idea what should happen, and as you say, won’t because it is not a free-market environment.

  I stand by my calculations that the Gov could not borrow its way to maintaining the housing bubble though. The problem is, it occurs that there are other things to consider.

  See, it is one thing for our Gov to stimulate our economy. They have a very limited arsenal for doing that, without resorting to money printing (which is disastrous).

  However, when we factor in the stimulus of other countries it all becomes really complicated.
  For example, if China tries to raise its interest rates to combat internal bubbles forming, it will attract a bucketload of US speculation money (due to the carry trade advantage) and cause even worse bubbles. If we do the same here in Australia, the effect could be much different (due to the lack of parity between AUD and the USD).
  The point I am making with that example is that with so much stimulus floating around, it will not all go to the places it should (repaying debts) but a significant amount may well go into more speculation -- on stocks, commodities…real estate.

  None of those are sustainable, but they do really mess the free-market thing up a lot. And with all this global financial turbulence, adding extra stimulus will just create even more turbulence -- and the effects could well be even more extreme.

  Imagine super-bubbles or environments where bubbles are created and deflated within a matter of months. That is not a good place to be living.

  And if we get some interesting stock-related bubbles in Australia, I expect that a lot of money from the property markets will flow into that instead. Simply, if stocks are offering 50% returns whilst property is offering less than 10% returns…you can see where the money might go.

  That is, assuming that speculative stimulus money won’t also go into property. But, due to the fact that property is generally bourne by the cost of credit (its generally tricky to buy a $10,000 portion of a property) and is affected by interest rates (which will rise during inflationary times), property looks less promising.

  …however
  In the longer run, you would probably be better off with property than to buy into a stock-market bubble, unless you know how to trade it.
  Not to recommend property, it might just be a bit safer to hold than volatile stocks.

• 116 Ned S // Sep 16, 2009 at 11:52 am

  Bernanke reckons the recession is over. Perhaps – a double dipper I’d suspect? But not for a while with Obama’s stimulus timed to peak in 2012 when he is up for re-election. Although my accountant reckons Europe is looking real brittle now. And he still doesn’t like all that other Yank debt one little bit – Credit cards, mortgages, commercial property loans.
  Either way it has been interesting. And I guess in many ways many of us have lost something.
  I own the house I live in – Purchased last year. And one I purchased in 1996 as an investment. It was negatively geared for a while but as I went to work overseas a few years later and had virtually no Aussie income to negatively gear against, that didn’t work out well. But either way it still was a gold mine of course – Price has increased over 5 times since from $83 k to maybe $460 k – Crazy eh? Plus one in the name of my superannuation fund – Also purchased last year. And have cash in the bank.
  I live on the bank interest and the income from the investment house. Plus some sporadic casual work which may or may not come my way -- Perhaps.
  In a bad year I can maybe rely on $25,000 BEFORE tax. And in a good one maybe $48,000? From which I try to make heavy superannuation contributions.
  What have I lost? More a case of what I’ve gained I suspect – In that I’ve gained an understanding that our system relies on central bank driven debt and inflation masquerading as growth. But with the upshot still being that something has to give. Because despite Oz having been in such growth over the past decade I’ve never previously found it so hard to get ahead.
  But, as said, something has to give – In my case it’s the choice to have kids. I’m not bringing kids into this sort of system. Too unreliable unless one turns themself into a welfare case – Or a government employee. With neither of those options being palatable to me.
  Sent my fiancee an email to that effect just before – No kids for us Love! (Not at all sure I’ll still be engaged when we speak? Maybe – She’s a good sensible lady. But really does want a child -- So we’ll just have to see.)
  With other Aussies, I guess it’ll be the hope for home ownership that goes out the window – I’m very fortunate in that regard of course. But as I said, in many ways, many of us have lost something.

• 117 Greg Atkinson // Sep 16, 2009 at 12:23 pm

  Getting a start in the Australian housing market could be made a lot easier via a few simple steps:

  1. The establishment of well connected satellite towns/cities. For example I have ranted on about a high speed rail link between Sydney -- Canberra many times and if such a link was to be built government supported townships could spring up along the way. This would open up thousands of more affordable housing spots for people willing to commute says 30-40 minutes in a high speed train to either Sydney or Canberra.

  and:

  2. Stop the State and Local Governments pushing up development costs. It seems pretty silly to me to hand out money to home buyers on one hand while State and Local Governments push up housing costs via increased cost to developers, stamp duty etc. If councils need more money, then they can increase rates out in the open, not rake money in by stealth. Perhaps they could even charge higher rates for new homes for say a few years to cover development costs? But at the end of the day they should be welcoming growth, not trying to kill it off.

  So instead of running around building halls maybe it would have been better to address the issues I have raised above?

  If school halls gave builders something to do, imagine what a new town would do?

• 118 Ralph // Sep 16, 2009 at 3:31 pm

  I somehow doubt the recession is over yet. I reckon Bernanke will be eating his words. We have a world economy running on borrowed and printed money. And it seems that the most valuable commodity these days is not iron ore or coal, but confidence. If we Aussies are confident, we can continue to go into debt and will the recession away. As I’ve said before, the key will be what happens when the stimulus runs out.

  I think we’ll see the first signs of that in a few weeks when the FHOG boost is halved. The reaction to that will be a good predictor of how the gov will respond. If the RE industry wails about possible price falls, Kevvie will surely be tempted to go back in there with more cash. This is where we’ll see whether Pete is correct and the gov is limited in the amount of money they can keep throwing away.

  Should be interesting times over the next few months.

• 119 Ralph // Sep 16, 2009 at 3:55 pm

  Was just thinking again about this. Short of a major international economic shock to the system, the government is going to have a very tough time selling any new stimulus. Yes, let the existing stimulus roll on, there’s little doubt that will happen. But announce NEW handouts, NEW cheques and NEW bailouts?

  The public is now fully believing that we’ve dodged the recession and it’s all apples from here. Swan and Kevvie are continuously gloating about it. And for that reason, I think the general public thinks that we’ve had enough of a handout. And then we have the Liberals continually in the media saying that the stimulus should be wound back. Imagine the outcry if the gov comes out and announces that they are going to rack up even more debt.

  So I think any more outright stimulus (pork barrelling) won’t wash, unless there is a major turn for the worse. In that context, I’m thinking that Pete could actually be right and that the government might be running out of ammo, even if only for political reasons.

• 120 Ned S // Sep 16, 2009 at 7:24 pm

  The most fundamental problem would seem to be the cost of the land Greg. You won’t often hear it mentioned by government of course -- Because that would effectively be an admission that government has caused the problem. Much safer to just rabbit on about the unaffordability of “housing” -- What twaddle!

  But as you indicate, there are ways that could be addressed.

  And relaxing some of the planning and OH&S restrictions wouldn’t hurt either of course -- Aussies were quite clever enough to manage to build their own houses last century. I and my father and one of my grandfathers all managed to do that -- Despite the fact that none of us were ever employed in the building game. And the houses didn’t fall down and kill anyone. And none of us killed ourselves in the process. Although the industry used to disparagingly refer to such houses as “jerry-built” I believe. Smile!

  And there is all the spare housing capacity already in the cities. A country that wanted to see that used would certainly give people a choice on whether capital gains tax accrues on spare main residence capacity that is rented out -- Claim the deductions and cop the tax exposure; Or don’t claim the deductions and remain CGT exempt. Your choice! But that would not encourage as much new debt and building so your ideas are more palatable from the system’s perspective I fully imagine.

• 121 Ned S // Sep 16, 2009 at 9:57 pm

  15 to 20% falls in housing prices would be politically acceptable IMO Ralph. Cheered by some. Tolerated by the majority in the expectation they’d recover. Plus not catastrophic to the banks given we do not have non-recourse loans.

  On the off chance things should look like doing that, then expect stimulus I think. Which will be tolerated and even desired(?) by the majority because it keeps their house prices up. And the others will be grateful for their little 15 to 20% windfall. All without damaging the banks.

• 122 Pete // Sep 16, 2009 at 11:00 pm

  Ned:

  15 to 20% falls in housing prices would be politically acceptable IMO Ralph. Cheered by some. Tolerated by the majority in the expectation they’d recover. Plus not catastrophic to the banks given we do not have non-recourse loans.

  I disagree with this. Any significant falls will put a lot of people into negative equity. Negative equity is a bank killer.

  I see it as a house of cards. Even a 5% drop could easily see one of the foundations removed and pave the way for even higher falls.

  I guess we’ll wait and see anyway. It is an unfortunately sad state of affairs actually. There are just so many people with a stake in our housing bubble that a crash means a lot of potential financial stress and pain.
  The only up-side I can think of (and it is significant) is that future generations won’t have to sign up to a life of debt-slavery to buy a house.

  But for the here-and-now thinkers, that is too far off to be a concern.

  Greg:
  I agree about better transport between cities. Fast, cheap and available transport is a huge growth factor.

  Ralph:
  I guess we’ll see what the Gov does huh? With all the officials tending towards a ‘recovery’, as you say they hardly have any excuses left for stimulus. That makes it really hard to sell.
  They can put on brave faces and say everything is fine, but if their actions seem contradictory, then what will that do to ‘confidence’ (I laugh at the notion that they think it is all about confidence anyway. If only confidence made a countries economy tick. You can’t export it, you can’t eat it or use it to build anything. It is just a fickle feeling that can be here one second and gone the next).

  The RBA is the same as the Gov I think. All this talk of interest rate rises, yet I really doubt they’ll do it. Losing FHOG and increasing rates at the same time? Suicide? They’re all talk, and I don’t think they are worth listening to. I’d even go so far as to bet that the RBA’s next step would be to lower rates, except that I don’t think lowering rates would actually achieve anything. Banks wouldn’t lower mortgage rates, and if things were getting bad enough for the RBA to lower rates, then overseas lenders would be likely to raise their rates. So it is a catch22 for the RBA and I think they will probably leave them. Guess we’ll wait and see.

• 123 Pete // Sep 16, 2009 at 11:21 pm

  Incidentally, on Lateline Business tonight they had some fellas from the Australian Property Institute saying the standard lines, but the following ones I found interesting (being the property bear I am):

  The API’s 2009 survey found that (and I hope I remember these correctly, please correct me if I am wrong):
  *- 90% of people thought the sharemarket would outperform the property sector next year
  *- 70% thought the end of the FHOG would cause a fall in house prices

  And interestingly, one of the guys said at the end (not an exact quote, in fact it is probably way off but the point is the same):

  “The downside of the FHOG is that FHB’s will be the most stressed mortgage holders if interest rates rise, however this negative is balanced by the fact that they kept the market up”

  (it’d be great if someone managed to find the real quote, but it doesn’t matter).

  Basically, he casually admitted that we could be sacrificing the youth to support a housing bubble, but that it is okay because the main thing is that prices didn’t fall.

  What a strange world we live in.

• 124 Greg Atkinson // Sep 17, 2009 at 9:20 am

  I don’t think a 15%-20% correction in home prices would cause a bank like CBA to run into problems. For anyone who is interested I think this CBA presentation is well worth having a look at.

  UBS Eighth Annual Australian Financial Services Conference -- presentation by David Craig

  It seems the CBA has some faith in the housing market and sees no reason to panic. But are they reading the housing market correctly?

• 125 Ralph // Sep 17, 2009 at 10:29 am

  That’s a fascinating little presentation, Greg. Thanks.

  A 15-20% fall would be interesting. For recent buyers, it would be disastrous, plunging them into negative equity. But for people who’ve had a mortgage of between 5 and 10 years or more, they wouldn’t probably still have a bit of equity left in the tank. I don’t think people in this situation would mind a great deal. They would have less money to withdraw from their equity ATM, but they’re still ahead overall, so that’s ok. So on balance, I reckon the banks will survive despite a few nerves as long as they don’t actually have to realise any losses -- cue mortgage holidays etc.

  I think the banks see no reason to worry right now. Prices are not crashing, they are well supported by government intervention and the government is sitting in behind them with the deposit guarrantee. And they probably feel like it’s going to continue that way. Perhaps they’ve been given some assurances from the government. Nevertheless, I’ve read somewhere (can’t produce source) that about 49% of CBA’s assets are housing loans -- that’s a pretty big exposure if that’s true.

  As Ned has alluded to a few times, perhaps the next form of housing support will come from the Henry tax review. The gov’t can’t come out and announce new spending measures without earning the ire of both the Liberals and the public. But they can tinker with tax regulations to make housing more attractive and keep the bubble inflated. I’m thinking that they might grandfather negative gearing in some way -- bring forward some investors so that they can take advantage of negative gearing before it goes.

• 126 Pete // Sep 17, 2009 at 10:42 am

  Greg:
  I wouldn’t trust a presentation from CBA. Too biased. And of course they will say the housing market is solid -- because they desperately want it to be. For a bank to suggest otherwise would affect the market negatively.

  I don’t think a 15%-20% correction in home prices would cause a bank like CBA to run into problems.

  I totally disagree with you there. How much reserve ratio do our banks have? 5% reserve? 10%?

  Even at 10% it only takes loss of ~10% of all money lent out to completely destroy a bank. Yes, they have the Government guarantee, but that means two things:
  1) the Government will have to pay to support our banks (uh-oh deficit)
  2) smaller non-banks without the guarantee will crash and burn even harder than the banks, with no support.

  Things to ponder:
  - 95% of new FHB mortgages have been made by the big four banks (not sure about overall percentage).
  - FHB’s are a group that is at a very high risk of negative equity with even 5% falls in the property market.
  - FHB’s are a high risk of default
  - people who negatively gear property (investors/speculators) and pay interest only are at very high risk of negative equity, as equity is solely achieved by capital gains on the market, not by paying off the mortgage. Many people do this to avoid tax. What would the banks think of this negative equity, without any provision to pay off the property?
  - people currently on mortgage holidays are slowly eating into their equity, even whilst property prices remain stable. If there is a property price drop, they will be eating into their equity at an even greater rate. Negative equity.
  - many people have overextended themselves in their mortgage thanks to the “equity” ideal. This means that people who bought their place 5 years ago may have used “equity” for other purchases such as renovations (usually adding some value), holidays, cars, boats, furniture, etc -- reducing their current equity level. Combine this with a drop in house prices and they are at risk of negative equity too.

  I keep talking about negative equity. But how does that affect banks and the market? Perhaps we could say, “so what” to negative equity and assume that we could ignore it and just wait until prices rise again?

  I see a few problems with that:

  - Firstly, if you owe more on your house than what it is worth, and have no other assets, you may well consider bankruptcy. I am not saying all people would, but it doesn’t take many of those to significantly add to the supply of houses on the market, assisting price falls.

  - Secondly, banks don’t like negative equity, and understandibly so. Every bit of negative equity for the banks is a potential loss waiting to happen. And the more prices fall, the more the banks will lose if they don’t sell early. For instance, 5% negative equity may be something one of the banks would tolerate in the short term. But what happens when that gets even higher? The probability of the mortgagee defaulting/bankrupting gets higher and higher.

  - Thirdly, banks are not in the real estate business. The foreclose, they sell. They do not hold assets like houses and rent them out and play the property game and wait for prices to go up again. No, they sell the house at the best price they can at the time.
  For instance, in the US I read about many times where banks would drop the price of a house every single week until it was sold. Week one, $500K. Week 2,$480K. Week 3, $460K. Etc. This adds to the price fall expectation of the public. They see prices falling, and quickly. The banks end up being their own worst enemies, but they have no choice in the matter.

  ‘Officials’ say that our banks are well capitalised and in a great position…but they are wrong. Our banks are in an increasingly precarious position, due to:

  1) the fact that they keep on lending to risky customers (eg FHB’s), even though the economic climate would suggest they try to recapitalise instead. Why? Because they have to! All four are so alike and so competitive (profits to shareholders) that they cannot afford to lose any ground. Even if that means providing loans they know they shouldn’t.

  2) the prime/subprime argument. What is a prime loan? A subprime loan? It all comes down to risk. Risk of default, or negative equity. So a sub-prime might be someone with 5% equity. And a prime might be someone with 10% equity. What happens if we experience a 5% drop? A bunch of people just got reclassified from prime to sub-prime. And whilst a mortgagees classification of prime or subprime doesn’t affect their loan or ability to pay their loan, it does affect the way ‘officials’ rate our banks. My point is that if price falls occur, our banks ratings could very quickly go down the toilet. Overseas interest rates will rise for those banks, which may well push house prices even lower.

  Personally I see that for the forces that push house prices up, there are just as many that can work in reverse and push them down. And once they start falling, I think that it will be a self-perpetuating loop that will push them further and further down (price fall expectation, credit becoming expensive, increased supply on the market). But, this does not factor in Government intervention (which is a big variable, and will probably ruin the country).

  Anyhow…i’ll leave it at that. I talk too much.

• 127 Pete // Sep 17, 2009 at 10:57 am

  Greg:
  Incidentally, I have to laugh at the CBA’s presentation. Here’s their ‘strengths’: (and my comments below each)

  -AA credit ratings
  (can easily change)
  -All rated in top 20 global safest banks
  (can easily change)
  -Profitable
  (can very easily change)
  -Well capitalised
  (hardly)
  -Conservative/focus on core business
  (actually, they focussed on home lending)
  -Continuing to lend
  (and that is because they have to, to remain competitive as I mentioned above. Every $100 lent would be about $12 less capitalisation)
  -Effective rate pass-through
  (yes, because rates are low at the moment)

  The presentation goes on to use the “GDP growth” stats compared to other countries (even though we know that’s dodgy) and to highlight growth in loans, such as home loans and personal loans and credit cards. Not exactly the safest loans…

  Anyway, that is what I would expect from a bank.

• 128 Ralph // Sep 17, 2009 at 11:35 am

  yes, the government intervention is the great unknown. It’s a frightening thought that the government is prepared to ruin the country for the sake of avoiding two consecutive negative quarters of GDP growth. In times gone by, we would have simply accepted the tough medicine and got on with it. These days, the government is prepared to go all out to ensure that no one has to take any medicine.

• 129 Greg Atkinson // Sep 17, 2009 at 12:07 pm

  Pete I think it is fair enough for the bank to outline their strengths as they stood at the time of the presentation. Yes things could change..but also for the better not only for the worse. We can of course question how well they have their loans covered etc. but the fact is our banks have held up well during this crisis and so for all their faults, they (and APRA) must have been doing something right…yes?

• 130 Pete // Sep 17, 2009 at 1:14 pm

  Greg:
  Yes you are right that it is fair that the banks present their strengths as they see it. What I question is the validity of those strengths. It is a bit like saying that Lehmann Bros was in a strong market position just before the GFC. Sometimes the situation ‘now’ just doesn’t cut it in the future.

  And I cannot dispute that our banks have held up well on paper. But the problem is that we are relying on them to provide the information in the short-term. The banks may well have a survival strategy in place whereby they avoid declaring losses as much as possible in order to attract shareholders (and hence better share price). The question is, how long can they avoid declaring losses? Are they hoping that it will all clear up by next year? Just like the notion of these mortgage holidays, all it is doing is putting off the inevitable. But if we take what they say as true and honest, then we haven’t learned anything from the past -- because banks (and other financials) are the masters of creative accounting.

  As for the banks doing something right -- i’d say that is more to do with Government intervention than anything else. The banking guarantee, the bailouts of toxic assets, increasing FHOG, subsidies and protections -- without those I don’t think we’d have any of the big four left.

  So whilst they have the right to say things as they see it, personally I’d take anything they say with a whole cup of salt.
  (figuratively speaking of course)

• 131 Ned S // Sep 17, 2009 at 8:32 pm

  I come back to the one point that we all do seem to be agreed on which is that the world economies are based on bubbles. Policy makers seem to indicate some desire for those bubbles and the debt that drives them to decrease. But their actions indicate an effective commitment to the opposite.

  And America is printing money -- Which really is a pretty big deal. And is borrowing some pretty worrying amounts. To keep the entire system propped up -- Not just the financials, but also their health care and their pensions and their jobs. So I think policy makers are telling me fibs. And that the bubbles and busts will continue.

  Which still leads me to the view that long term, Oz housing will do OK. In an intentionally inflationary environment. And in what is quite possibly the world’s major future growth region. With the general question for those who have the skills in trading them, being can they do better from things like stocks?

  The Henry tax review -- Pete is correct -- Swann certainly seems to have knocked the concept of doing away with dividend imputation on the head. For now under this administration. Although if Treasury has looked at it and thinks it is a good thing, then it is probably just a question of when.

  A lot of the review will be like that I expect. Some recommendations that will be taken up immediately. But a lot of others being an indication of where we are likely to go over the next 5, 10, 15 and even 20 years. Which is still handy knowledge.

  It concerns me that we’ve seen so little stated about housing. It’s a central issue in Oz. Property is very easily taxed. Yet there are significant affordability issues -- Regarding the type we’ve traditionally lived in with the same proximity to jobs anyway. And the working classes are making choices like “a kid or a house”? Or “a kid or keep working until I’m 70 -- Or older”? And the banks have heavy exposure to the property market. And it is a core part of our economy.

  I wouldn’t say I’m expecting any bombshells in the current environment -- But I am expecting an indication of direction.

  There is also a possibility that the concept that taxing the income from investments is unreasonable could pop up -- In that the money was taxed when originally earned.

  Reading stuff Henry has said, the indications are that he compares us to other OECD nations and sees that our rates of taxation on personal income are low and that our rates of tax on companies and investments are high. Not that the current government will necessarily like hearing that right now perhaps? But the boomers will be retiring over the next 5 to 10 years. And are voters of course.

  My accountant is strongly of the view that having the top personal income tax rate align with the company tax rate would remove a huge amount of complexity from the system -- He is undoubtedly correct. And part of the thrust of the review is supposed to be to simplify the system. But it is difficult to see that getting particular consideration given the other things Henry has said.

• 132 Greg Atkinson // Sep 18, 2009 at 8:00 am

  Pete I would agree that the steps taken by the Government have helped the major banks and I do worry about how much exposure they have to non-performing loans. If housing prices were to fall and loan defaults rose that would cause them some pain, but even in recessions it seems Australian non-recourse loans hold up pretty well so the big four banks would see a decline in profits, but live to fight another day.

• 133 Pete // Sep 18, 2009 at 9:51 am

  Ned:
  Good post.

  Unlike the US, Australia cannot print its way out of debt. The US borrowed money in US dollars, meaning that every dollar printed is capable of repaying debt.
  Australia does not borrow money in Australian dollars, therefore every dollar we print affects both our exchange rate and the interest rates that overseas lenders charge us.

  Also Australia does not have a symbiotic relationship with China like the US whereby they produce for the US to consume (well thats the old model they are clinging to anyway). The fact the US has (had) this model, allows them a lot of flexibility with their debt to China -- eg, China buying lots of US gov. bonds (but they are stopping that).
  Australia does not have such a relationship, other than the fact that we provide them with some resources. Keeping credit flowing in Australia is not in the interests of China. In fact I would think the opposite is true, because the more credit starved Australia is, the more open we are to foreign investment in our resource companies.

  My point is that we do not have the luxury of printing money without severe repurcussions.

  However a possible counter-point to the above may be that if we print money, our dollar will fall, increasing interest rates and import costs but also increasing exports. The question is, what is going to have more effect on our economy? More exports or higher interest rates? I strongly suspect that it would be higher interest rates and import costs.

• 134 Pete // Sep 18, 2009 at 10:53 am

  Greg:

  If housing prices were to fall and loan defaults rose that would cause them some pain, but even in recessions it seems Australian non-recourse loans hold up pretty well so the big four banks would see a decline in profits, but live to fight another day.

  Why do you say that? Are you referring to the 80′s/90′s recession?

  See, the difference here is that people are really overextended in Australia. As I mentioned, people borrowing using equity, FHB’s, all sorts.

  We might not have non-recourse loans, but we do still have bankruptcy provisions, most of which are being revised (or were revised recently?) to enable them to be even nicer to people claiming it.

  Questions:
  If you had a mortgage for $500K and your house was only worth $450K (10% drop), how keen would you be to pay that extra $50K?

  How about if you had 4 negatively geared properties, and they were all ~10% underwater, how keen would you be to hold onto them, knowing that they are costing you money (especially if interest rates rise) whilst not beating the inflation rate? Suspecting that over a five year period you wouldn’t even break even?

  I don’t expect that all people who go ‘underwater’ (negative equity) with property will declare bankruptcy and ditch their loans. But, it is an important consideration. Particularly if people can see that the loan they got was actually too much for their income if interest rates rise. Eg, first home buyers get a mortgage they can barely service at 6%, but interest rates rise, house prices fall and they just don’t see themselves getting ahead in the foreseeable future. I know what I would do in that situation.

  I hear the non-recourse argument a lot. The “it’s different here” argument all over again. Think about other countries that don’t have non-recourse loans that have also had significant falls in house prices. Yes, non-recourse makes things a bit easier, but it does not stop people ditching their loans.

• 135 Ned S // Sep 18, 2009 at 11:08 am

  I haven’t got my head around the concept of Oz printing money Pete -- But suspect the world would roll around on the floor laughing if we tried that on? We’d probably just be better off going to the IMF cap in hand in such circumstances and having a good think about how we might do better in our next financial reincarnation?

  There are two main difficulties with the Ken Henry tax review as I see it. Firstly it is trying to change an existing system. With all the unknowns that can come of that. And with quite a bit of what they would like to do appearing to be contradictory. Given what we already have in the existing system at least. Then secondly there is the difficulty of what is politically acceptable at this time.

  The GST is a good example. We were always going to get it. But I suspect John Hewson regretted lots of things about being the first bunny to really champion it. (Against Keating who’d originally proposed it but was astute enough to do as he was told and drop the idea.)

• 136 Greg Atkinson // Sep 18, 2009 at 1:57 pm

  Hi Pete, when I said home prices should hold up okay in a recession I was basing this on what happened in the early 1990′s.

  As for your other questions:

  If you had a mortgage for $500K and your house was only worth $450K (10% drop), how keen would you be to pay that extra $50K?

  I am not sure many banks will give allow $500K mortgage for a $500k house but in any case if the value of your home drops 10% why would you need to pay $50K? In many cases people have no idea what their house is really worth at any point in time anyway. You only really know when you put it up for sale.

  How about if you had 4 negatively geared properties….

  In that case I guess the person owning the money would be in some trouble, but that situation is hardly the norm. Most recent home loans for example have been for owner occupiers.

  The banks also have loans spread over many years so even if prices fell by 20% most properties on their books would still be be in the black. A 40% fall I guess would cause some trouble but even then if people hang onto their jobs they can still hold onto their homes. Why would a person sell out of a home they liked and take a loss just because homes in the area fell 40% if they could keep up repayments?

  As I mentioned in: Australian home prices, spending trends and statistics for many people owning and buying a home is not some spreadsheet exercise. Many owner occupiers will hold onto their home until the bitter end and for emotional, not economic reasons. This may not fit into the models Steve Keen uses but it is a factor that should not be overlooked nonetheless.

• 137 Pete // Sep 19, 2009 at 1:32 am

  Greg:
  For your first point:
  You can value your house by what the neighbours value theirs as. An educated guess is pretty easy to do. But I was making a simple example, and you are right, most people wouldn’t still owe $500K on a $500K house. But with a deposit rate of say 5% in recent times (ignoring the 100% loans out there), it is still significant.

  Unless they tapped into the equity (this is fairly common, although unlikely they ate up all the equity, I don’t think the banks allow that).

  Or unless they have other debts, like personal loans, credit cards, car loans, or harvey norman “50 million days interest free” loans (a lot of FHB’s get buy a house and then get right into furnishing it using Harvey Norman interest free deals. An FHB I know spent $7K on bedroom furniture recently ). These debts will add to the total household debt. Which you would hope is not much greater than price of the assets…

  I can agree that people will own their home and not want to move. Totally agree. But I know that if I had bought a home and knew I would struggle with interest rates, yet I can see house prices coming down and that I am in negative equity -- I’d ditch that thing real quick.

  The reason is that yes, you won’t be offered credit to buy a home again in a hurry, but you also won’t have to pay an extra 10-20% or whatever it is on your mortgage. Eg, 20% of a 500K mortgage is 100K which is a lot of money to pay off -- just to break even. Yes, some people would pay for their house regardless of how far underwater they are. But the more stress financial stress people are put under, the less ‘hope’ they will have of getting value for money.

  And everyone hates not getting value for money. It’s like going to a shop and buying something, only to find out it is 30% off the next day. Yes, you bought it because you wanted it, but you still feel like a fool anyway. Other than the convenience factor, I don’t see why people would feel so differently about house purchases. Ultimately people don’t want to pay any more than they have to.

  Plus we should factor in the short-termist nature of westerners. We think short-term, and love things that enable us in the short-term, like easy credit and interest free from Harvey Norman. So many of those who are underwater may well be thinking short-term like “oh no I have to pay all this extra” rather than “it’s okay, in the long run we’ll keep the house”.

  And…
  If you consider that people would still want to keep their home knowing they are paying significantly more for it than they should be, also consider that if interest rates rise people will be paying more mortgage interest each month. That seems extremely obvious, but one of the real driving forces behind property purchases has been low interest rates (also obvious). People compare their interest payments on a mortgage to their rental payments and say “For a bit extra I could be buying a house instead of renting!”. I have heard that everywhere. If interest rates got to 9% for instance (and knowing that rentals won’t follow*), people would realise that it is much cheaper to rent than to pay off the house.

  Many owner occupiers will hold onto their home until the bitter end and for emotional, not economic reasons.

  Is that any different to the other countries that have suffered significant falls in property prices?

  Overall I think your points are still valid, I just don’t think they are particularly strong factors for keeping the bubble alive or saving our banks.

  *I’ve covered this before: rents don’t rise when interest rates do.

• 138 Ned S // Sep 19, 2009 at 8:49 am

  Henry tax review -- The following sounds quite authorative and comprehensive -- As an initial taster. But I can’t see any official version???

  http://www.smh.com.au/business/my-tax-rules-the-ken-henry-way-20090918-fvan.html

  Happy reading!

• 139 Pete // Sep 19, 2009 at 6:07 pm

  Interesting article Ned.

  From the article:

  The review won’t recommend an end to real estate stamp duties for as long as the capital gains tax exemption remains, and even it is unlikely to have the courage to recommend an end to the exemption.

  There goes that idea then…

  The review believes mining companies have been treated too generously. In an earlier discussion paper it noted that as mining profits raced ahead during the commodities boom, the revenue to the nation whose resources were being mined failed to keep pace. It will recommend a higher resource rent tax or a switch to a resource profit tax.

  Would the Government have the guts to implement that? Imagine the flack they’d get.

  Taxing income from capital gains in the same way as other income would have an economic rationale as well as recovering some of the revenue to be lost from a lower company tax rate.

  Interesting and massive change to CGT?

  It has discovered we are living longer in unpredictable ways, meaning that private insurers have stopped lifetime annuities -- a role it wants the Government to perform so that retirees can be certain of getting a monthly cheque for the rest of their lives no matter how long they live.

  Government footing the bill for retirements more? Is that a better idea? I think we need a lot more detail to judge this though.

  Land tax, another favourite of economists, will get some sort of endorsement but the committee has found that its benefits aren’t as straightforward as claimed. It’s often hard to distinguish the value of land from the value of the purposes for which it is used.

  Interesting idea…and it would be bad for the housing bubble me thinks. Who knows though, more detail needed of course.

• 140 Anon // Sep 21, 2009 at 3:13 pm

  Australia makes up some of the most expensive house prices in the world.

  Out of the 50th least affordable housing in the world Australia ranks:
  6th Mandurah
  7th Sunshine Coast, Queensland
  11th Sydney
  19th Perth
  22th Melbourne
  24th Rockingham
  28th Bundaberg, Wollongong
  33rd Bunbury
  35th Adelaide
  36th Brisbane, Cairnes
  40th Geelong, Hobart, Newcastle
  45th Townsville
  46th Mackay

  Australia represents 19 of the top 50. If this is not a bubble about to burst -- I dont know what is!

  Mugs on the street are telling me houses are safe investments as “they always go up.” Our housing bubble is now worse than what America experienced.
  Some people are expressing that we wont correct substantially, go down, or have a soft landing. I believe we are going through the “indifference/denial” phase of the investor psychology chart — http://www.investmentpostcards.com/wp-content/uploads/2008/08/29-aug-2c.jpg

• 141 georgia // Sep 21, 2009 at 5:15 pm

  AMP & PTM

  Can someone provide insights as to why a Bank CEO may not want to bid for AMP? AMP has over 1,000 Financial Planners that can flog its’ (the new owners) products (FUM, mortgages, insurance, toilet paper etc). Not to mention the cost savings from merging Head Office costs. For example, I don’t see the sig’ benefits for NAB buying AVIVA, Challenger mortgages vs AMP. And why would Smith take ANZ to Asian markets when there is so much potential and synergies (and less risk) to obtain buying AMP?

  Why doesn’t Kerr Neilson make a bid for AMP? PTM has no debt (I believe) and the acquisition of AMP can save heaps of money (starting with the firing of those useless fund managers and the eco “guru” -- Dr. Shane Oliver). PTM will have over 1,000 planners flogging their products with a 1.5% MER. BTW, why hasn’t PTM start an aussie fund? In addition to the money they could make, investors need a saviour from the incompetent fund managers such as Colonial First State!

• 142 Pete // Sep 21, 2009 at 7:16 pm

  Probably the wrong article ask those questions.

  Who knows why anyone makes a bid on anyone until it is done?

  Companies in the finance industry do not show their true balance sheets or even outlook to the public. The deals you talk about go on behind closed doors somewhere.

  Besides, who needs a bunch of financial planners? There isn’t exactly a shortage of them out there.

  Sounds like you have a vested interest.

• 143 georgia // Sep 21, 2009 at 8:40 pm

  Sorry -- new blogging and to this website. Yes, ownership to the abovenamed. Planners are salespeople and they are good at moving financial products which in turn generate strong profits parent company.
  Who needs Planners? The majority of the population who are naive about investing and MERs etc. That’s why the largest fund manager in Australia has produced some of the worst returns.
  I would still like a sound opinion as to why the Bank CEOs (NAB to revisit) will not make a tilt at AMP and get rid of that useless economist?
  And why Kerr Neilson will not start an Aussie equities hedge fund? Doesn’t matter how well he / PTM runs their Int’l portfolio. At the end of the day, there are still many novice Aussies (and their SMSF) and retirees who want a sound manager that can give them sound dividends with some franking credits.
  And why doesn’t Kerr put some growth strategies to PTM’s lazy balance sheet? He could potentially double FUM within 3-5 years! That’s a lot of money @ 1.5% MER pa.

• 144 Greg Atkinson // Sep 21, 2009 at 9:11 pm

  Georgia -- no problems regarding the comment. I think I probably need to start up an area on this site where people can post comments/questions not related to blog articles. I am also new to blogging

  In regards to PTM I suspect that financial planning is not something they are interested in. They are fund managers not planners, and so they probably don’t see much benefit in getting into that area.

  I tend to agree with Pete re financial planners, I do think there are far too many in the market place at the moment.

• 145 Ned S // Sep 21, 2009 at 9:33 pm

  Its a bad time to be singing the praises of financial planners -- Be they government ones or private.

• 146 Pete // Sep 21, 2009 at 10:10 pm

  Anon:
  Personally I think we are still in the greed-conviction part of the ‘investor psychology chart’. I think we need to have some momentum in price stagnation or falls to get to indifference (so that people have something to be indifferent about).

  However…I can honestly say that I thought we were at this stage in the past. It seems to me that every twist and turn (usually Gov induced) takes the cycle back a notch.

  Strange thing is, whilst Australia is a nice place to live, our wages and lifestyles hardly warrant prices that high over the entire country.

• 147 Ned S // Sep 21, 2009 at 10:44 pm

  Two points about the chart -- 1) It applies to Investors which many property buyers presumably aren’t and 2) It is pretty much out of whack even for investors I guess with everything that has been been going on -- If I had to take a punt I’d say Oz property investors were at the fear stage late last year, panic never set in, the contempt stage has definitely not arisen and investors are now somewhere around the caution stage.

• 148 Senator13 // Sep 21, 2009 at 11:23 pm

  Georgia – I am usually pro deregulation but one area that really needs tighter regulation is on financial planers. There are defiantly too many of them. Most are just cold calling telemarketers trying to flog anything from mortgages, CFD trading, insurance and anything else they think they can make a buck from. Not many would have a genuine interest in mapping out people’s financial future.

  Regarding AMP and PTM I figure that PTM are plodding along pretty well at the moment and don’t really want the hassle and their core businesses are slightly different and trying to do different things. PTM have been doing quiet well all this year just doing their own thing.

  Anon – Australia have always featured heavily in lists like these over the years. I have found it very hard to compare prices overseas with prices in Australia. I have found that there are too many different factors and at the end of the day have not found much point because it does not really help with what is happening on the ground in a particular area. Anything in Australia would seem unaffordable when using the Zimbabwean dollar for example. Also I think people have to ask them self after reading those lists if they would change their mind and put their money in other asset classes over RE? And what represents the best value for them for their needs. I think it is always good to be wary of people that make the comments “they always go up” – either relating to shares or RE because as we have seen both go up and down. Some faster then others.

• 149 Greg Atkinson // Sep 22, 2009 at 5:31 pm

  Anon I remember digging into a worldwide housing list once before and the big problem is they seem to compare a large city like Sydney with small cities like Bunbury. That seems like a pretty odd way to compare house prices? What is the baseline exactly?

  Is the list you mention the same one that leaves out Asian cities?

• 150 Anon // Sep 22, 2009 at 6:12 pm

  “Anon I remember digging into a worldwide housing list once before and the big problem is they seem to compare a large city like Sydney with small cities like Bunbury. That seems like a pretty odd way to compare house prices? What is the baseline exactly?”

  I am not sure what the baseline is. The survey was the “2008 Demographia International Housing Affordability Survey.” — Yes it leaves out other Asian cities. It focuses on: Australia, Canada, Republic of Ireland,
  New Zealand, United Kingdom and the United States.

  I got the original table from a secondary source: However, on inspection of the “Demographia
  International Housing Affordability Survey 2009″ it appears theres data to suggest things may be even worse than my previous table:
  Top 60 Severely Unafforable Housing Markets (Page 12):
  1) Sunshine Coast, Queensland.
  3) Gold Coast, Queesland-NSW
  5) Sydney, NSW
  10) Bundaberg, QLD
  12) Adelaide, Australia SA
  12) Melbourne, Australia VIC
  14) Mandurah, Australia WA
  19) Wollongong, NSW
  23) Newcastle, NSW
  26) Perth, WA
  28) Brisbane, QLD
  29) Hobart, TAS
  30) Cairns, QLD
  32) Geelong, VIC
  34) Albury-Wodonga, NSW-VIC
  34) Darwin, NT
  34) Rockhampton, QLD
  40) Mackay, QLD
  41) Townsville, QLD
  42) Launceston, TAS
  42) Australia Maitland , NSW
  55) Australia Bunbury, WA
  60) Australia Canberra, ACT-NSW
  60) Australia Toowoomba, QLD

  There lots of data here, the source file is: http://www.demographia.com/dhi.pdf

  Some other stats from the “Demographia
  International Housing Affordability Survey 2009″ --

  “Least Affordable Markets: In a major change from previous years, most of the least affordable
  markets are outside the United States. Last year, the 5 least affordable markets were in the United
  States. This year, 3 of the least affordable markets are in Australia and only one in the United States.
  This change is, of course, the result of the steep housing price declines that have been experienced
  in some markets in the United States, especially California.
  The 64 severely unaffordable [housing] markets include 24 in Australia, 16 in the United States, 10 in the
  United Kingdom,10 7 in New Zealand, 4 in Canada and 3 in Ireland (Table 4).”
  All of the affordable markets were located in Canada and the United States, while most markets in
  Australia, Ireland, New Zealand and the United Kingdom are rated “severely unaffordable.”
  Note: NZ, UK and Irish housing markets have already declined or crashed.

  “Australia: The Median Multiple in Australia is 6.0, double the 3.0 historic maximum norm and well
  above levels of just a decade ago (Figure 1).12 Among the larger metropolitan markets, Sydney
  remained the worst, at 8.3 (down from 8.6). Median house prices dropped in Sydney and Perth.
  Perth’s Median Multiple dropped from 7.6 to 6.4, reflecting not only the price decline, but strong
  income growth. At the same time, Adelaide’s already serious housing unaffordability worsened, with
  its Median Multiple rising from 6.5 to 7.1.”

• 151 Pete // Sep 22, 2009 at 11:09 pm

  Ouch, Adelaide would surely get hammered by this -- being that their industry is suffering and its not really the best city to find a job in. Sounds like Perth and Adelaide are on opposite paths.

  There are only a few ways that things can go from here:

  Less affordability:
  - Decrease in wages
  - Increase in prices

  More affordability
  - Increase in wages
  - Decrease in prices

  Obviously there are unlimited shades of grey between those. But at the moment it doesn’t look like wages will be rising (except for perhaps WA in the short-term), so ‘affordability’ will probably be determined by whether house prices increase or decrease in price.

  Affordability can decrease in real terms such as circumstances where house prices meet or exceed the rate of inflation, yet wages are not increasing at the rate of inflation.

  So, essentially for house prices to become affordable (without crashing), we need wages to increase at a faster rate than property. That seems very unlikely.

  To state the obvious, I think that in terms of affordability there will either be no respite unless there is a significant fall in house prices.

• 152 Pete // Sep 25, 2009 at 4:56 pm

  One thing that I have not particularly considered in the past is the role of international investors propping up the housing market.

  Eg this international article (marketing) is interesting:
  Survey finds Australia number one for property investment

  If the Government were to provide incentives for people overseas to invest in the Australian housing market, prices could be inflated without the Government having to spend much to do so. They could even provide incentives such as including Visa’s and the likes.

  However…to do so would make it even harder for Australians to buy homes. I don’t know if that is something they’d care about. Inflating the property bubble even more seems kinda dangerous.

  And this article is interesting:
  Wave of confidence brings flood of mortgages

  I find the attitude of the couple “we don’t want to do that forever” as interesting. Like property is a risk free ride to early retirement. Perhaps it has been…and perhaps it will be. But I think the risks are mounting, and the more prices rise, the more people will find it very hard to service their mortgage if events stress them financially.

  And of course it is worth noting that fixed rate loans are in decline. 95% of FHB’s are on variable rates anyway.

• 153 Ned S // Sep 26, 2009 at 1:57 pm

  There isn’t the incentive to go on a fixed rate that there was before the GFC Pete -- Firstly people know that any sharp contraction in the economy will be responded to with aggressive lowering of interest rates and secondly we know that we are looking at a cycle where governments will try to keep interest rates low. It will be many years before the RBA willingly pushes rates back to pre-GFC levels. Even now it is only talking about wanting to get the official rate up to about 5% over the next two years.

  And at lower interest rates at least some people (like the 26 yos in the link you give) are saying “Yippee -- Buying houses is easy -- It’s Party Time!” As opposed to at pre-GFC interest rate levels when things were more difficult -- Perversely. So the RBA goes back to jawboning about “Please be careful or we might get a housing bubble.” Which they’ve been doing since 2002 that I know of.

  As to the Oz government caring or not caring about whether Australians can afford houses -- Well at the moment they reckon housing is quite affordable. And if interest rates only go back up to 5% without huge increases in house prices they’ll still reckon they are affordable.

  Certainly the housing market hadn’t collapsed due to affordability issues even pre-GFC -- Although it did seem (to me) to be cooling.

  We are in a pretty strange situation now. But if I take the broadest possible view of it that I can, I tend to say No recession = No major housing price declines?

  What would drive Oz into a recession? A recession in Asia. (And most particularly in China we are told.) Which doesn’t seem that likely anytime soon given the size of their reserves and committment to growth. Throw in our own government’s unwillingness to see any marked correction in the price of housing and there are some huge buffers against significant falls in Oz housing prices. As I see it anyway.

• 154 Pete // Sep 26, 2009 at 3:14 pm

  Ned:

  I pretty much agree with all you have to say there, except that I believe China/Asia is not particularly robust and that demand could fall easily. What China spends its reserves on could be resources from Australia…or could be anything. China buying up Australian companies doesn’t exactly give us the economic boom that we need (although it does provide a few jobs).

  I agree about fixed rate loans -- there is no incentive. And banks won’t give them to FHB’s anyway.

  I guess my point is that Australia will be extremely sensitive to external shocks that affect interest rates, which are:
  - drop in the exchange value of AUD
  - increase in rates charged by overseas lenders
  - changes in Australia’s ‘ratings’ by ratings agencies, eg from AAA to B, etc (will push rates up)
  - increased borrowing by Government will make Australia seem more risky
  - if Australia prints money, external rates will rise (and internal rates if the Gov tries to sell bonds)

  My belief is that a lot of these factors tie in to each other. This means that we could have a compounding effect on interest rates (eg, increased external rates plus falling AUD).

  And I think our current market will be very sensitive to changes in interest rates, as I have mentioned before. This is one reason that the lack of fixed interest rates is of (slight) significance.

• 155 Pete // Sep 26, 2009 at 3:37 pm

  And as I was discussing before, another article on international investment:

  Chinese buyers fuel top-end property boom

  I think it says something about the property bubble when they need to go overseas to find buyers (although the article does specify it was top-end property)

  …complaining they are being priced out by foreigners who have no intention of living in their new properties.

  A few critics go further, arguing Chinese money is now putting upwards pressure on interest rates.

  Overseas buyers ‘may’ add to the rental market. Increasing interest rates isn’t good though.

  Perhaps the latest Australian craze isn’t to sell our products, but rather to sell our assets.

• 156 Ned S // Sep 26, 2009 at 8:52 pm

  Back in the 1980s it was the Japanese buying Oz property Pete. They had a special fondness for Queensland as I recall it:

  http://www.time.com/time/magazine/article/0,9171,968024,00.html

  One of the things that has come through clearly to me from the GFC is the lack of diversification in the Australian economy and its potential to hurt if (or commonsense really says when) a recession does eventually hit.

  Forewarned is good I guess and people can at least be bearing it in mind as they consider things like their overall investment strategy, plans for retirement and such like. Balanced against the overall growth potential of being part of the Asian region.

• 157 Greg Atkinson // Nov 7, 2009 at 10:02 pm

  Ned as you know I have been rambling on about the Oz economy being too focused on mining and farming for quite some time. Also Pete a while back posted some very interesting links about the Resource Disease/Dutch Disease which highlighted the risks that go along with being a nation blessed with abundant natural resources.

  Now it seems even the RBA and Treasury are starting to worry about the same things. See: http://www.smh.com.au/opinion/time-has-come-for-rudd-to-face-the-big-test-20091106-i22k.html

• 158 Ned S // Nov 9, 2009 at 4:19 pm

  What do we do Greg? I know we aren’t smarter or harder working or more frugal than most. So competing in “honest” trade isn’t going to maintain our lifestyle. It’s resources and be grateful I guess -- While we try and find some sane pollies who are willing to build up a surplus as the article suggests. But where to long term?

• 159 Greg Atkinson // Nov 9, 2009 at 5:55 pm

  Ned I see a lot of worrying trends developing in Australia because resources seems to have saved us once again and people like me talking about the need for the economy to be more broadly based look out of touch.

  I see the real estate super bulls are now excited about talk of the Australian population reaching 60 million by 2050 (or thereabouts) and yet I wonder where the power or the water will come from to supply the extra millions? Sydney for example has chronic public transport problems already and is unable to maintain existing infrastructure in good order, goodness knows how the city will ever be able to take in a few more million people.

  I wonder if the rising costs of energy, land, materials etc. will start to act as an automatic brake on future house prices rises? (i.e. start to eat into disposable incomes) In addition maybe the only way we will fit more people in is to increase the amount of medium and high density housing in our cities and if this happens, what impact will this have on residential real estate prices?

  So many questions to try and find answers for

• 160 Ned S // Nov 9, 2009 at 6:34 pm

  Gday Greg -- As I said, no answers at all … But some facts -- The migrants will keep coming. It’s “comparatively OK here!” And government wants/needs them -- To generate growth and contribute tax dollars. So that’s a Fater complee (Apologies to all and any Frog listeners! )
  Water -- Nuclear is good -- Our major cities are all coastal -- No problem! Public transport in Sydney -- To get to the CBD when noone with any brains wants to be within cooee of the place? We’ll just have to see I guess … But one hardnosed premier for a term is all it would take to sort that out.
  High density living -- Has to happen. Cheers!

• 161 Greg Atkinson // Nov 10, 2009 at 7:17 am

  Ned I have no answers either I am afraid. There seems to be so many reasons for house prices to keep rising it would appears a mugs game to even contemplate how they could fall. However I recall a similar situation developing in Ireland some years ago..GDP was on the rise, people were flooding into the country and it was labelled the “Celtic Tiger”. Nonetheless the economy did run into trouble and house prices did adjust downwards although who knows, this could just be a short term blip?

  Let’s just hope nobody labels our economy the “Pacific Tiger”

• 162 Ned S // Nov 10, 2009 at 11:36 am

  I was working with an Irishman at the time Greg and he was telling me what was happening there. It seemed crazy to me -- Why Ireland? But they were heavily into the banking/finances type stuff I’ve since gathered? There’s a lesson in that I guess.

  Oz house prices -- I’ve given up making calls as I said. But the long term prospects would have to seem just fine regardless. That immigration is the biggy. I had no idea the projections were that high until quite recently. It’s a pretty sobering thought actually. Cheers eh!

• 163 Ned S // Nov 25, 2009 at 9:16 am

  What do you make of this Greg? : http://www.smh.com.au/business/high-home-prices-sustainable-rba-20091125-jp4z.html

  In one way, it pretty much accords with my current view that “they” have figured out just what is the absolute maximum that we can pay for housing and are going to do everything that is necessary to preserve that in real terms. But at the end it says “”Census data show that the number of dwellings built has exceeded the increase in the number of households by a large margin.” The ratio of the number of dwellings to the number of households has been rising over time with 8 per cent more dwellings in Australia than households in 2006. “Presumably, most of this surplus reflects holiday houses and second houses,” Mr Battellino said.”

  That just seems weird??? Are they really asking us to believe that there are heaps of Aussies who are so flash for cash that they build houses at todays prices and don’t bother renting them out? If so, it would seem that whatever “shortage” there may be could be addressed at a pretty fast clip -- If it wasn’t for that factor? Strange -- It isn’t gelling with me at all -- Your thoughts please?

• 164 Greg Atkinson // Nov 25, 2009 at 6:27 pm

  Ned I am not entirely sure the RBA is the best source of information regarding house price trends and it sort of worries me that they seem somewhat obsessed with home prices at present.

  Maybe there are a lot of people out there with 2 or more homes, but does the RBA or anyone else really have enough reliable data to say this is a major reason behind any apparent oversupply? In any case I fail to see why holiday homes in Tasmania for example would have any bearing on home prices in other regions anyway.

  I think we just have to wait until next year when the impact of higher interest rates and removal of some first home buyers money starts to bite before we will have a clear indication of where home prices may be heading.

• 165 Ned S // Nov 26, 2009 at 4:18 am

  I think if I was the RBA, I’d be embarassed by coming out with a statement like “Presumably, ” blah blah blah … It would be more credible to say “It doesn’t make sense to us either -- Maybe we’ve got our sums wrong -- Or maybe there is a reason for it that does make sense -- Hang on, we’ll go and check!” The word “numpties” comes to mind?

  And we’ve also got Ken Henry sounding convinced Oz is about to enter its 40 year Golden Age -- Could very well be true. But I’d like to see a bit of caution attached to a projection like that -- As in “IF the world doesn’t collapse in a screaming heap because of all the bad debt that is out there which our central banker type mates are currently having a bit of an experimental fiddle with trying to inflate away!”

  I also notice he made the statement “That, incidentally, does not necessarily mean abolishing the states. COAG can show real leadership.” -- I’m sure Anna Bligh will be pleased to know Ken isn’t “necessarily” going to abolish her -- Although I can see considerable potential merit in doing so!

  Source: http://www.theaustralian.com.au/business/news/golden-age-will-stretch-to-2050-ken-henry/story-e6frg90f-1225790218893

• 166 Ned S // Nov 26, 2009 at 4:55 am

  Where the heck do Rudd and co reckon they got the mandate for all of this stuff -- “incidentally” “not necessarily” “abolishing the states” ??? Or is it just a matter of Oh dear, Yank house prices went down a bit so we can do whatever we want! If it wasn’t so obviously a case of big frogs in little puddles one could get the impression King Kong was going on a drunken rampage in a nunnery.

• 167 Greg Atkinson // Nov 30, 2009 at 2:28 pm

  Ned -- Ken Henry really scares me sometimes. He and Glenn Stevens perhaps need to work outside the public sector a little and live overseas for a while because to me they look out of touch.

  I do wish they would ease up talking about house prices, it simply makes me nervous. However as of a few days ago I ceased to be a home owner in Australia as I parted with my apartment in Sydney.
  I did not sell because of any unique insight into the property market, I simply sold because I am here in Japan and the apartment is back in Sydney

• 168 Ned S // Nov 30, 2009 at 6:56 pm

  You can put Kev Rudd in the same boat I think Greg -- A cradle to the grave beneficiary of welfare and government -- Nevermind; (We let) These things happen.
  As to your home ownership in Oz -- I wouldn’t do what you’ve done -- As in I’d always maintain my tie to the umbilical chord through at least one property.
  But you have skills (and even opportunities I’d guess?) that I surely don’t.
  So we each try to make the best of things in our own ways I guess? Cheers mate! Ned.

• 169 Senator13 // Dec 1, 2009 at 8:01 pm

  We are in some very interesting times indeed. Many of the statements coming out of the RBA have been very concerning with their very narrow focus on housing along as their main justification for raising rates. I wonder what the small business community are thinking, specifically retailers, in the lead up to christmas with the latest increase to rates.

  Coincidentally and very relevant to this blog topic I have been very busy over the last few months with the purchase of my first home. Specifically, an apartment, that I have now moved into and living in for the last month or so.

  For me personally I believed that it was the right time for me. Obviously I’m going to have a biased in wanting prices not to plunge -- and want them to rise -- but I do believe that I have done a lot of research, done a lot of looking and am very happy with my purchase.

  I still reckon that rates will continue to go up in the new year but think I have bought into a stable area that will be able to hold its price and been conservative with my estimates not to over extend myself… But like with all things time will tell.

  Also, I did find this article the other day that I did find interesting in relation to the increasing size of Australian houses.

  http://www.news.com.au/business/money/story/0,28323,26418362-5013951,00.html

• 170 Greg Atkinson // Dec 2, 2009 at 1:55 pm

  A good reason why it does not make sense to compare house prices across countries or even over time. http://finance.yahoo.com/real-estate/article/108274/study-australians-have-the-worlds-biggest-homes

• 171 Ned S // Dec 2, 2009 at 2:41 pm

  I’ve got to admit I’m tired of reading It’s a bubble so it’s gunna crash; Can’t tell you when; Or by how much -- But trust me, it will!!!
  Simple facts are Aussies dig holes in the ground and swap the dirt for overpriced houses. Not a real healthy basis for an economy perhaps -- But what to do in a global world?
  In truth it probably does beat trying to compete with Asia in manufacturing. And America in manipulating financial systems. Or Dubai in building ski slopes in the desert.

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