Glenn Stevens to gun down inflation

[StefanA]

IRs may very well be an accelerator/decelerator; but not the only one.

Remember GFC?
rates down, non rate bank lending criteria up, buyer risk aversion up.

Fast forward to today.
Rates on hold. housing finance down.



INVESTMENT HOUSING - TOTAL

Considering the Aust. popn has grown ~11% since 2005, investor activity is pretty dead. I wonder why.



Number of Owner Occupied Dwellings Financed Excluding Refinancing

And considering the 11% popn growth since 2005, no. of Owner Occupied dwelling financed looks positively comatose. worse than GFC.
I wonder why.


Could it be that house prices are too expensive in the eyes of the lenders that previously financed them to current prices? Now there's a paradox.

 

[random]

prices in perth have not seen growth since 2007 and have come down in nearly all suburbs, in the meantime wages have increased, how is that a bubble?

i would bet on growth in the next 24 months over decline if i had to choose

I don't think it's near finished yet Tone, poss' not even begun , same with QLD but eh be my guest.

Cheers

 

[random]

the US also have a construction mantra of "build it and they will come", massive oversupply is a key factor for such large drops.

Basically what I said plus some to WW 18mths back on Qld and take a look at what's on the market up there now and they'll still be coming for yrs yet - sit tight . They can build and develop like the yanks .

 

[random]

IRs may very well be an accelerator/decelerator; but not the only one.

Remember GFC?
rates down, non rate bank lending criteria up, buyer risk aversion up.

Fast forward to today.
Rates on hold. housing finance down.



INVESTMENT HOUSING - TOTAL

Considering the Aust. popn has grown ~11% since 2005, investor activity is pretty dead. I wonder why.



Number of Owner Occupied Dwellings Financed Excluding Refinancing

And considering the 11% popn growth since 2005, no. of Owner Occupied dwelling financed looks positively comatose. worse than GFC.
I wonder why.


Could it be that house prices are too expensive in the eyes of the lenders that previously financed them to current prices? Now there's a paradox.

I've suspected this is really what the banks are worried about for awhile now. They want 20% down , another 20% and often a lot more of their valuations of just a few yrs back, other properties,income practically enough for double the required loan as compared to 3 or 4 yrs ago . Personally I think they're blaming it on this and calling it that but what they're really worried about are our prices and getting left holding the baby.

 

[coastymike]

Agreed Blue. Look at the curve http://www.bloomberg.com/quote/GGGB1YR:IND

The bond markets are pricing in a default. The question is when and how will it occur. The german population aren't going to be too happy about bailing out their partners.

Remember what happened the last time the germans felt like they were being screwed over. A little known fella called Hitler rallied up the hatred building in people. Don't say it can't ever happen again.

 

[locko24]

Remember what happened the last time the germans felt like they were being screwed over. A little known fella called Hitler rallied up the hatred building in people. Don't say it can't ever happen again.

Indeed!
Heil Merkel!

 

[willair]

There was nothing impolite in it.

Too much D&G for Sim I'd say. Can't talk property down on this sacred property forum. Even though the reality is that we are entering a second phase of a global downturn, and Australia property will suffer this time around.

There is an interesting article in the SMH today on the reliance of Europe on China to help out now. China will go it smartly and strategically.
China offers Europe a helping hand

See you all. Enjoy your one .

I think most people would know the reality full well,but the problem will be like in the early 1990's,it does not hit everyone only those with zero employment some inner city Brisbane areas above 75% own the propertry unemcumbered clean title so they won't give a stuff,then you have the welfare safety net,or sell down and rent but this never happens overnight,you will need 2 serious triggers,interest rates start to climb,plus the basic house price drops,and the listing takes up too 1 year too sell,auctions become useless,people stop spending very early yet ..

 

[Deltaberry]

A shame really. I didn't necessarily agree with everything Bluestorm said or his views but he did raise some challenging issues for others to consider.

If you were banned for merely suggesting what you said above then that is crazy. Then we truly are living in the land of lolipops and fairy floss. Even my high net worth clients (net worth over $20m in my view) are very cautious at present and the EU issues are concerning them deeply. Particularly the impact that a breakup of the EU could have on China demand. Oh well guess there opinions mean nothing and better to take the opinion of someone with 1 or 2 investment properties with equity of $1m. I'm sure they are much wiser.

I'm no IT expert but what stops someone who is banned creating a new user account with a spoofed or ghost IP and then posting once again. Doesn't make sense to me.

Agreed.

If that's all he said then it's fine.

I probably share similar views regarding Europe. Greece default is a near certainty, and Italy default is a likelihood.

As I've mentioned numerous times, if the Europe collapse is sufficiently severe it will be contagious and China will fall. At some point the Chinese Government is going to stop using its hard-earned reserves to artificially prop up its markets by building empty offices and useless bridges so demand for coal/iron ore will also fall dramatically in the short to medium term.

This will translate to a commodity bust which will lead Australia in to a recession. As usual, anyone who thinks this is not a possibility is probably just deluded.

Regards
Person who deals with key-decision makers who invest $bn in to this country, but of course what would I know over people with 1 or 2 investment properties at the sub $600k level. Oh well time to go back to looking at my Manhattan condos and HK apartments (though I wouldn't touch them yet)

 

[Deltaberry]

I get mine at K-mart. I find Y-fronts support the goolies a bit better than boxers.

Haha do you people know what bonds are?

Though if you are serious go set up a sophisticated investor account at an institution like Macquarie - though you'll need a few documentation to prove you're a sophisticated investor.

PS: Greece will probably default tomorrow so if you put your life savings in to it you'll be spending many years cleaning toilets at K-Mart.

 

[Deltaberry]

Blue, I enjoy the grounding perspective that you offer and whilst I do not agree with the magnitude of the down side risk you propose, I also don't see resi investing (for new purchases) to offer much upside for some years ahead. The exceptions I have indicated above.

I also read and entertain the information from the likes of Keen, Harry Dent, etc. Once again, I may not agree with the magnitude of correction they propose, however considering differing viewpoints augurs well for decision making moving forward in the current times.

Blue, if I can offer one piece of advice, I feel that sometimes your posts and replies, in the heat of the moment are non-endearing. Particularly when you gloat about how you are renting with harbour views and how others are silly (including your landlord) for subsidising your chosen location of residence. I say this respectfully, however if you wish to be taken more seriously and with less conjecture, some humility might be in order. This may also have been one of the contributing factors leading to your banning. Not judging you; merely observing. You can disagree with this and that's OK. Merely how I see it.

Not everyone shares your knowledge or desire for alternate investments. You may not be here to gain friendships, however your rapport with others will be enhanced by stating your opinion without the need to pooh pooh other property investors. I am not a buyer right now and have sold down a couple of high worth assets, however I still have resi holdings that are positive and with offsets set up and folding stuff earning decent net returns, I am looking and investigating. It doesn't mean I don't consider other views bearish or bullish. I am also still learning.

I've called it 1991 for some time. Those old enough will know what I mean by that. It will be sideways for the medium term with chance for further softening. Magnitude?.....well I don't know the lotto numbers and it will depend on location and demographics, supply/demand, etc. Suffice to say, there is no rush to buy investment style real estate in much of Australia right now............ Doesn't mean everyone should sell up either.....merely my 0.02.

Keep posting

I share a lot of bluestorm's views. When it is cheaper to rent the habour view place than it is to buy one, you must wonder what gives... either rent goes up or the place comes down in value to find equilibrium. Last I heard rent was already pretty unaffordable... so........

The problem with some posters is there's too many mum and dad investors who don't have a macro view of things and they get all angry when someone tells them their life savings are going to be hit their 2 or 3 little $500k properties. My only advice to these people is, look, you win some you lose some.

I think 1991 is a very likely scenario. Though I was young, I do remember my family going through it and the business community (without giving away who they are/might have been) thought we had fled the country with much business debt racked up at 30% interest rates. Well it all worked out in the end with a few law suits (as was common back then)

 

[Deltaberry]

I think most people would know the reality full well,but the problem will be like in the early 1990's,it does not hit everyone only those with zero employment some inner city Brisbane areas above 75% own the propertry unemcumbered clean title so they won't give a stuff,then you have the welfare safety net,or sell down and rent but this never happens overnight,you will need 2 serious triggers,interest rates start to climb,plus the basic house price drops,and the listing takes up too 1 year too sell,auctions become useless,people stop spending very early yet ..

Interesting point - no not really, in fact obvious point.

Part of the reason I am always against investing in new suburbs that are sub $400k is that these are all new money with 90% mortgages.

As I've said over the last two years, when the hit does come, these suburbs are hit the most % wise because

a) These blue collar people are the easiest to let go (do you think the mobile investment banker living in Carlton will be out of a job and unable to pay his mortgage or the immobile factory worker who's just lost his Bluescope/Toyota job and can't relocate? Check out USA for the answer... )

b) These people are most heavily geared and are mostly small and new money. Easiest targets to fall for foreclosure (again do you think New York Manhattan has fallen the most or Detroit?). I can tell you on my street in Kew (blue-chip Melbourne suburb) everyone I know has paid off their house including my relatives across the road and my two neighbours either side, oh and ourselves.

8-page special liftout in the AFR yesterday (for those who even follow financial news) talking about good investments being inner city due to demand, safety net during tough times as more houses are paid off, and generally faster growth on a rebound.

 

[Propertunity]

...When it is cheaper to rent the habour view place than it is to buy one, you must wonder what gives... either rent goes up or the place comes down in value to find equilibrium.

It has always been cheaper to rent than to buy the harbour view. What gives is that in exchange for poor rental yield the owner gets capital growth. Over time the rent goes up and the value of the property goes up but the rental yield remains poor.

 

[Deltaberry]

It has always been cheaper to rent than to buy the harbour view. What gives is that in exchange for poor rental yield the owner gets capital growth. Over time the rent goes up and the value of the property goes up but the rental yield remains poor.

Then what you need to do is track the relativity of rent vs buying.

So if the factor of buying to renting is traditionally 1.2:1.0, then you know something is amiss when it's 1.8:1.0 because either rent increases more than cap growth or cap growth decreases more than rent (note I presume both move in the same direction, hence why I call it a relativity analysis).

 

[Propertunity]

Part of the reason I am always against investing in new suburbs that are sub $400k is that these are all new money with 90% mortgages.

I always advise against this too - for much the same reason.

As I've said over the last two years, when the hit does come, these suburbs are hit the most % wise

I'd change that to if the hit comes.

There are many new estates that do well and people have done well out of them......but there are times when a hit does come. I do remember driving around new estates in 1991 when almost every house was for sale. 2 streets over there was a builder selling brand new homes cheaper than the 2nd hand homes the FHBs were trying to off-load. All the builder had to do was reduce his margin to keep trading. Not a good place to be in trying to sell your 2-3 year old place.

 

[willair]

a) These blue collar people are the easiest to let go (do you think the mobile investment banker living in Carlton will be out of a job and unable to pay his mortgage or the immobile factory worker who's just lost his Bluescope/Toyota job and can't relocate? Check out USA for the answer... )
.

Nothing like a bit of foward thinking,in the park on the river just down the road there was over 27 cars this morning with everything they own in the back seat and they sleep in the front seat,plus about 5 that sleep around the private school boat shed a 40% drop in property prices is not going to worry them 1%,welfare has them cover stress free,as with the investment banker and the factory worker,i would be more worried for the investment banker as most banks will cut their total workforce over the next few years if they stay in business with all the rapid change happening around them..

 

[Deltaberry]

Nothing like a bit of foward thinking,in the park on the river just down the road there was over 27 cars this morning with everything they own in the back seat and they sleep in the front seat,plus about 5 that sleep around the private school boat shed a 40% drop in property prices is not going to worry them 1%,welfare has them cover stress free,as with the investment banker and the factory worker,i would be more worried for the investment banker as most banks will cut their total workforce over the next few years if they stay in business with all the rapid change happening around them..

A mobile workforce is rarely out of a job. Most bankers I know who were let go in GFC or in USA are in other cities. To put some examples:

- Just had a friend who got laid off here by Macquarie go to Beijing with one of the biggest commodity traders
- Had an ex-colleague who got laid off here go to USA and is now a Vice President at another company
- Had another friend who got laid off when Lehman folded and went to a major insurer here as a manager
- Had another ex-colleague who got laid off here and went to Future Fund as a senior executive

In short, it is so easy to find a job if you're willing to look. The only issue is it might not be easy to find the right job (ie the $400k job where you work 9-5 and take 2 hour lunches). Though if they wanted to settle for something low like $150k and work til 7pm, there's plenty. Not to mention the lowest level banker would probably have saved up at least $200k in 2 years or so.

Not sure if I can say the same about Detroit factory workers.

Not trying to say who's a more worthy person, but just trying to put in to context why I think suburbs where such people are renting are less likely to die than factory worker suburbs.

 

[tom32]

This will translate to a commodity bust which will lead Australia in to a recession. As usual, anyone who thinks this is not a possibility is probably just deluded.

I agree with that outcome but you don't even need a europe collapse for the pipeline of investment into our mining sector to be cut off.

Port Hedland is gearing up to be exporting 550MTpa of iron ore per year, I think it was in three years time.

This was the entire output of Australia a decade or so ago.

India, Brazil and others are growing similarly exponentially with their capacities.

This is the minerals cycle, you cannot guarantee demand falling away and can speculate on this but you can guarantee when prices are this high capacity will eventually overshoot and then.... no more capacity building anymore till the next one.

All of a sudden price drops when capacity exceeds demand and this may be for the reasons you suggest, but even if this does not transpire we could still be in a world of hurt at some point over the next few years just because our capacity along with Indias, Brazils etc is too large.

 

[wobbycarly]

*snip*

Regards
Person who deals with key-decision makers who invest $bn in to this country, but of course what would I know over people with 1 or 2 investment properties at the sub $600k level. Oh well time to go back to looking at my Manhattan condos and HK apartments (though I wouldn't touch them yet)

You make some good posts, but putting out this sort of **** makes you come across as a tool.

 

[Ausprop]

I agree with that outcome but you don't even need a europe collapse for the pipeline of investment into our mining sector to be cut off.

Port Hedland is gearing up to be exporting 550MTpa of iron ore per year, I think it was in three years time.

This was the entire output of Australia a decade or so ago.

India, Brazil and others are growing similarly exponentially with their capacities.

This is the minerals cycle, you cannot guarantee demand falling away and can speculate on this but you can guarantee when prices are this high capacity will eventually overshoot and then.... no more capacity building anymore till the next one.

All of a sudden price drops when capacity exceeds demand and this may be for the reasons you suggest, but even if this does not transpire we could still be in a world of hurt at some point over the next few years just because our capacity along with Indias, Brazils etc is too large.

if you consider the likes of that recent ANZ report and the companies that are putting their own cash in as hurt money it seems that aside from the greeks possibly defaulting (again) the longer term consensus is this resources boom will run "many decades". Yes we can all say they are fools and BHP was going to pay too much for Rio, but eod these guys have the best shot at getting the forecast as right as you can get it. It's also interesting the lack of discussion regarding peak oil on here these days, given our current / upcoming reliance on energy exports which will overshadow ore exports

 

[tom32]

if you consider the likes of that recent ANZ report and the companies that are putting their own cash in as hurt money it seems that aside from the greeks possibly defaulting (again) the longer term consensus is this resources boom will run "many decades".

Industrial cycles play out in more than just commodities. The thing is they always play out, for as long as we have had interconnected capitalist societies. In 2008 they thought it was all over then. Now two years later its runnin for decades again. We might have demand fall away, I actually doubt that but what I know capacity will overshoot and the pipeline of investment will be shut off. This will have a large impact on amoung other things my own liveliehood. I am in no way cheering this but for anyone involved in the capacity building parts of the mining industry they should be saving for that day.

Yes we can all say they are fools and BHP was going to pay too much for Rio, but eod these guys have the best shot at getting the forecast as right as you can get it.

I don't have to make a specific forecast to know that every industrial cycle runs at somewhere from around 1.5x to 2x the length of time to bring new capacity on line, i.e. lead time to extra capacity. this has been happening repeatedly for centuries, once indusrty was complex enough that capacity could not be built in a month or two. I actually think it is the GFC which helped us this time stopping investment over a near 2 year period with much postponed over that period. This has meant high prices for longer minus the short spell in the GFC when we were told its all over, oh no it aint stronger for longer this time lads...

It's also interesting the lack of discussion regarding peak oil on here these days, given our current / upcoming reliance on energy exports which will overshadow ore exports

Yes LNG has a heap coming up even with much of the civil stuff on barrow well underway. I am thinking of making the switch myself. Nearly did it last year but then got scared (well my other half did at any rate) by the longer swings.

I guess I should add I take a pessimistic view on my own job. It helps me stay cautious. That said I am not signing up for the bullet proof public service job just yet; I reckon this thing has at least a year or more in it yet.