[cobran20]

Multi-part series. Please delete this thread if already posted.

link

[staringclown]

cobran20, on 09 January 2012 - 04:20 AM, said:

Multi-part series. Please delete this thread if already posted.

link

The earlier articles were posted but this guy is ex real estate and is now a real estate school lecturer so I thought he was just towing the industry line. Maybe that's a bit unfair. He has faith the government will attempt to bail out property.

[Crest]

The guy in the article said:

Quote

the question is not whether Australia have a housing price bubble, but what fundamentals are in place that might sustain our housing prices.

I like how the bubble deniers always try to steer discussion away from the idea of there being a house price bubble. Its a "dont mention the war" type thing. Im sure in their weekly meetings they gather around and discuss how to stop people talking about "the bubble".

Unfortunately the reality (IMO) is that there is an almighty property bubbe in Austalia. Its built on debt. As long as Aussies are prepared to suck up more debt the bubble will remain in place. My gut feeling though is that Australians are becoming more and more tired of debt. All things considered its peoples appetite for debt that is the key fundamental when it comes to the Australian property bubble.

[tom]

Crest, on 09 January 2012 - 11:58 PM, said:

The guy in the article said:



I like how the bubble deniers always try to steer discussion away from the idea of there being a house price bubble. Its a "dont mention the war" type thing. Im sure in their weekly meetings they gather around and discuss how to stop people talking about "the bubble".

Unfortunately the reality (IMO) is that there is an almighty property bubbe in Austalia. Its built on debt. As long as Aussies are prepared to suck up more debt the bubble will remain in place. My gut feeling though is that Australians are becoming more and more tired of debt. All things considered its peoples appetite for debt that is the key fundamental when it comes to the Australian property bubble.

I know where he is going though.

You can have price spikes in things and high prices can be sustainable. In these cases it means it really is not a bubble but a change in the fundamentals; potentially means of production change, government regulation changes or perhaps qty demanded is higher for a fundamental and sustainable reason with an inelastic and unresponsive supply side. Price can fall as well and stay low for similar fundamental reasons.

IMO he is asking the right question, I just think he is giving the wrong answer as current prices are not sustainable long term.

On the supply side, housing supply is understood to be elastic albeit with a large lead time. This just means bubbles take longer to run there course.

On the demand side, as you say debt has enabled demand to ride at these levels.

On the demand side, rents are now even becoming unnafordable for a larger swathe of the population.

Take away our "powering" economy and I think people will see within months of any aggregate demand collapse just how stupid australians were.

[Crest]

tom, on 10 January 2012 - 01:24 AM, said:

I know where he is going though.

You can have price spikes in things and high prices can be sustainable. In these cases it means it really is not a bubble but a change in the fundamentals; potentially means of production change, government regulation changes or perhaps qty demanded is higher for a fundamental and sustainable reason with an inelastic and unresponsive supply side. Price can fall as well and stay low for similar fundamental reasons.

Sure Tom, there are many things you can talk about when asking the question "what caused the Australian housing bubble?"

But when you look at everything the one big thing that jumps out is the level of debt of australian households over the last 20 years.... We've all seen the chart showing the exponential growth of Australian household debt. Debt is the fundamental when it comes to housing prices IMO. All other things (like government incentives, demand, supply etc) simply contribute to peoples appetite for debt.

The bottom line is that house prices go up because household debt goes up. Its as simple as that. And when you look at the debt charts in Australa they are even more obscene than the house price charts. The bubble deniers however dont want to talk about the debt.

I find it really interesting though that during the period in our history when government debt has been seen as such a great evil household debt has manage to fly completely under the radar, and continues to do so. I cant quite understand that.

[tom]

Crest, on 10 January 2012 - 01:58 AM, said:

I find it really interesting though that during the period in our history when government debt has been seen as such a great evil household debt has manage to fly completely under the radar, and continues to do so. I cant quite understand that.

Ironically it is true that our household debt levels have only survived the GFC and now continue to aneamically grow because our government fiscal position was so strong. If we had been in a more normal government fiscal position our overall debt position in Australia would be looking far worse.

In Japans case I guess it is an understanding that if necessary they could raise taxes to meet debt repayments? In our case raising taxes is not an option, can you imagine in Sydney what would happen if people had to pay say 10% more income tax reducing their nett income by about 15%! Some people there have 50% mortgage repayments! cut their disposable income by a whopping 30% in those cases!

In Australia for now our private debt is shaky our public debt solid, but you could see one contaminate the other in the case of an economic slowdown or house price collapse.

Maybe it is some rat cunning among Australians understanding that total debt private and public does have a bearing on financial stability and so they are keen to hock themselves up to the eyeballs as long as the government is capable of theoretically bailing out their financiers.

[xygen]

tom, on 10 January 2012 - 03:00 AM, said:

Ironically it is true that our household debt levels have only survived the GFC and now continue to aneamically grow because our government fiscal position was so strong. If we had been in a more normal government fiscal position our overall debt position in Australia would be looking far worse.

In Japans case I guess it is an understanding that if necessary they could raise taxes to meet debt repayments? In our case raising taxes is not an option, can you imagine in Sydney what would happen if people had to pay say 10% more income tax reducing their nett income by about 15%! Some people there have 50% mortgage repayments! cut their disposable income by a whopping 30% in those cases!

In Australia for now our private debt is shaky our public debt solid, but you could see one contaminate the other in the case of an economic slowdown or house price collapse.

Maybe it is some rat cunning among Australians understanding that total debt private and public does have a bearing on financial stability and so they are keen to hock themselves up to the eyeballs as long as the government is capable of theoretically bailing out their financiers.

Isn't disposable income calculated before mortgage repayments? Still... point taken.

[Crest]

tom, on 10 January 2012 - 03:00 AM, said:

Ironically it is true that our household debt levels have only survived the GFC and now continue to aneamically grow because our government fiscal position was so strong. If we had been in a more normal government fiscal position our overall debt position in Australia would be looking far worse.

Well what Rudd was able to do during the gfc was use borrowed government money to stimulate one more round of household debt growth and house price inflation. A very bizarre move if you ask me and one we'll be paying for for a while.

Quote

In Japans case I guess it is an understanding that if necessary they could raise taxes to meet debt repayments? In our case raising taxes is not an option, can you imagine in Sydney what would happen if people had to pay say 10% more income tax reducing their nett income by about 15%! Some people there have 50% mortgage repayments! cut their disposable income by a whopping 30% in those cases!

If some is sitting on a 50% mortage repayment they deserve to go under IMO. The bottom line is that they stupidly paid too much for their home. There is no sense in a country being held hostage to households with idiotic balance sheets. And an average household paying 50% on a mortgage is IMO idiotic.

Quote

In Australia for now our private debt is shaky our public debt solid, but you could see one contaminate the other in the case of an economic slowdown or house price collapse.

Maybe it is some rat cunning among Australians understanding that total debt private and public does have a bearing on financial stability and so they are keen to hock themselves up to the eyeballs as long as the government is capable of theoretically bailing out their financiers.

I dont think its rat cunning. People are just doing what the have been accustomed to. Under the Howard era people became accustomed to Government bailing them out of their economic wows. This meant that stupid household finance decisions relating to debt became the norm - because uncle Johnny would always be there to save them.

Gfc 1 and 2 has been a wake up call for some though. So the question now is will the bad (imo) behaviour continue or are we going to move towards a different type of economy. A more sustainable one perhaps?

This post has been edited by Crest: 10 January 2012 - 04:16 AM