Housing recovery hopes dashed

http://business.smh.com.au/business/housing-recovery-hopes-dashed-20090831-f4jj.html


Dear Mr Zappone,

Let me take the liberty to make some remarks on your today's article "Housing recovery hopes dashed".

For some obscure reason one very simple thing has slipped behid your attention. Why "new housing starts" indicator is so important? Simply because it is connected to GDP like dog is connected to its tail. With the exemption of resource bubles and other abnormalities distorting our economy, GDP lags new housing starts by 3 months. Todays figures mean that in 3 months GDP is going to shrink.

For that reason today's data is in conflict with your statement that interest rates are coming up. This is simply a myth. Befor they come up (in a "good time" like Mr Stevens said) there has to be start to a good time. So far we had the worst reporting season in living memory, and now - grim housing construction data. We have on our hands strong case for lowering interest rates - all points to the blatantly obvious fact that Australia is gradually caving in under the weight of the rates that are the highest in the developed world.

Needless to say that under conditions of the severe undersupply of housing we are in for a price boost like we have never seen before. And please also note that large investment in infrastructure projects that is planned by the Government would divert resources from housing construction, thus increasing the construction costs, slowing down the recovery process and making the property boom potentially the longest in the living memory. I would not even mention that most of capital cities since 2003 experience almost total lack of new land supply.

Hope this helps.
 
absolutely.

if IR get raised too early it's gonna strangle the economy.

it's so fragile at present - confidence looking forward does not equal great footing at present.

3.00% cash IRs are not "emergency rates" - try 0.1% or 1.0% - them's EMERGENCY rates. hell - i'd like to see where they get their inflation figures from - because my local supermarket has been getting cheaper non stop for the past 6 or so months. a weekly staple shop (that is, packaged goods, no fresh anything) used to be $250 - is now more like $180 and getting cheaper.

i think the RBA needs to look long and hard at that one big lever in the corner of the room marked "interest rates".

yes it's a bit dusty.

yes there's not much else to do but stare at it.

i say, better to not act and "appear" a fool, than to act and remove all doubt.

business is only just getting a little foothold on the way down. bottom ain't here yet, but the slope is shallowing out.

one 0.25 rate rise would make that shallowing slope a slippery dip slide, complete with mat and cool loop-the-loop all the way to the bottom of the jar.
 
Agreed, and thanks to the media spruiking the possibility of higher rates theres less chance of it actually happening as they help lessen demand.

I hope they keep talking it up.
 
Agreed, and thanks to the media spruiking the possibility of higher rates theres less chance of it actually happening as they help lessen demand.

I hope they keep talking it up.

I agree. Glen Stevens is jawboning where it comes to interest rate rises. While he may like to raise rates a little bit to cool the property market, he knows he can't do that without damaging the wider economy. Today's RBA financial aggregates show that housing credit is the only form of credit that is growing. Business and personal credit is falling off a cliff. Raising rates now would further exacerbate that problem.

Early last year (on another forum) I suggested that interest rates would fall in late 2008 to mitigate the possibility of a severe downturn. Most bears at the time said there was no way rates would be cut due to inflationary pressures. In response I suggested that the RBA and government would choose the lesser of two evils (inflation over deflation) if they had to make that choice. And that is what happened.

The bears twisted my argument (building a strawman as usual) and said that the RBA would never cut rates just to make house prices boom. I explained that was not what I was suggesting. The RBA would have to cut rates to ward off a recession, and the housing boom that followed would simply be an unavoidable side effect.

Monetary policy is a fairly cumbersome tool. The RBA can't prevent house prices surging while at the same time kick-starting the wider economy. The property market in Australia is very strong, underlying demand is high, population growth is at record levels, and the banks are still very keen to lend money. Keeping interest rates low in that environment was always going to create upwards pressure on house prices.

Now the RBA is in a bit of a bind. They can't really raise rates much in this environment, and while they keep rates low, house prices will continue to rise. The best Stevens can do is try to scare the punters into thinking rates may rise. He may even throw in a token 0.25% rise in the next few months. But beyond that his hands are tied until we see business and personal credit start to rise again.

The USA was in a similar predicament several years ago. They were forced to keep interest rates low for a long time. What eventuated there was a construction-led housing boom, that ended in disaster due to deteriorating lending standards and massive overbuilding. Perhaps five or six years from now we will be in the same position as the USA, if we follow their path. But first we would have to have the construction-led housing boom.

House prices are certainly rising. Stevens says he would like to see the current upwards pressure materialise into increased construction. The government will probably reduce the FHOG boost for existing houses, but retain or increase it for new builds. What happens next...?
 
Am I the only one who reckons we'll see the beginning of a recovery in Q1 2010?

I think the RBA will wait to see what happens at the end of the FHOG before they consider raising interest rates, and if they do it wont be anywhere near '2% by Christmas' that many media outlets have been fabricating.

I reckon there is a bubble at the lower end of the market, and it seems to be flowing onto other areas of the market.

Many people are waiting for the FHOG to end before purchasing their next property, and that in itself will probably drive prices upward, even if IR do increase.

I may be totally wrong, but thats what I think anyway..
 
Agreed, and thanks to the media spruiking the possibility of higher rates theres less chance of it actually happening as they help lessen demand.

I hope they keep talking it up.

I agree. Glen Stevens is jawboning where it comes to interest rate rises. While he may like to raise rates a little bit to cool the property market, he knows he can't do that without damaging the wider economy. Today's RBA financial aggregates show that housing credit is the only form of credit that is growing. Business and personal credit is falling off a cliff. Raising rates now would further exacerbate that problem.

Early last year (on another forum) I suggested that interest rates would fall in late 2008 to mitigate the possibility of a severe downturn. Most bears at the time said there was no way rates would be cut due to inflationary pressures. In response I suggested that the RBA and government would choose the lesser of two evils (inflation over deflation) if they had to make that choice. And that is what happened.

The bears twisted my argument (building a strawman as usual) and said that the RBA would never cut rates just to make house prices boom. I explained that was not what I was suggesting. The RBA would have to cut rates to ward off a recession, and the housing boom that followed would simply be an unavoidable side effect.

Monetary policy is a fairly cumbersome tool. The RBA can't prevent house prices surging while at the same time kick-starting the wider economy. The property market in Australia is very strong, underlying demand is high, population growth is at record levels, and the banks are still very keen to lend money. Keeping interest rates low in that environment was always going to create upwards pressure on house prices.

Now the RBA is in a bit of a bind. They can't really raise rates much in this environment, and while they keep rates low, house prices will continue to rise. The best Stevens can do is try to scare the punters into thinking rates may rise. He may even throw in a token 0.25% rise in the next few months. But beyond that his hands are tied until we see business and personal credit start to rise again.

The USA was in a similar predicament several years ago. They were forced to keep interest rates low for a long time. What followed there was a construction-led property boom that ended in disaster due to ever deteriorating lending standards and massive over-supply of housing.

Could the same thing happen here? Five or six years from now, could we be in the same position as the USA? It is possible, but first we would need to experience a construction-led boom. House prices are certainly rising. Stevens has said he wants to see the current upward pressure materialise into increased construction. The government is likely to reduce the FHOG boost for existing dwellings but retain or increase it for new builds. What happens next...?
 
Funny. They can take a stat like that and turn it into a negative headline. Gotta love the media.

Try this bit on for size:

SMH said:
Hopes for a recovery in the housing sector have been dashed by fresh data showing new home sales were flat in July.

In NSW they increased 9.8 per cent and vaulted 10.2 per cent in Queensland.

Crikey! Only up 9.8% in NSW. Better dump my stock now before it tanks in price by 40% or more. ;)

The media can be buffoons sometimes.

SMH said:
"In a change of forecast, we have dragged forward the expected timing of the RBA's first rate hike to October, from February," said JP Morgan economist Stephen Walters in a statement.

Ah, that explains it. All this "flat market" depression is why economists are adjusting their rate hike forecasts forward. Makes sense to me...

Cheers,
Michael
 
http://www.homepriceguide.com.au/saturday_auction_results/sydney.pdf

It is very hard to see anythig supporting media myth about "lower end bubble".

Sydney November 2008 (when current boom just started) - 64% clearance rate, $538K median auction price.

Sydney August 2009 - 74-77% clearance rate, $680-$706K median auction price ($742K average price last Saturday).

There is absolutely no evidence lower end is leading the way. Booms do start from lower end, but with this boom it was over very quickly.

Recovery 2010 ? Seems to be wishful thinking. For developers starting to get decent margins, property shall grow another 25% from what it is now. After that, allow few months for banks to come up with finance for property projects, Banks are still very nervous. After that allow 6 months at least for Councils to come up with approval. After that few months for construction finance. After that few months for construction. We will be lucky if construction starts to show signs of revival by mid 2011.

And revival of construction is not going to last terribly long. There is some leftovers of small subdivisions left from 2003, but that land in capital cities is going to run out sooner than you blink. This will be combined with that building resources diverted to Government infrastructure projects.

As to sharemarket "recovery", this graph does not need any explanation as to what lies ahead for shares.

http://dshort.com/charts/bears/Dow-and-Now.gif

50% growth in a space of few months - does anyone actually believe this is not usual sucker's rally?

This means that we are on the brink of MASSIVE deinvestment from shares.

This property boom is not going to be like anything seen before. It is going to be very hot and very long.





Am I the only one who reckons we'll see the beginning of a recovery in Q1 2010?

I think the RBA will wait to see what happens at the end of the FHOG before they consider raising interest rates, and if they do it wont be anywhere near '2% by Christmas' that many media outlets have been fabricating.

I reckon there is a bubble at the lower end of the market, and it seems to be flowing onto other areas of the market.

Many people are waiting for the FHOG to end before purchasing their next property, and that in itself will probably drive prices upward, even if IR do increase.

I may be totally wrong, but thats what I think anyway..
 
Hi Guys,

If you want the facts go straight to the horses mouth. Here's Chris' own coverage of his stats, and I like the little dig he puts in against the validity of using the RBAs stats with their 'compositional bias'. I remember the arguments a little while back a few of us were having on here about the way the RBA stats were not as good.

Housing recovery firms in July

Good work Chris!

Chris Joye said:
Most capital cities recorded solid gains in the month of July with every single city experiencing growth during the first seven months of the year.

Melbourne and Sydney home values have led the charge in 2009, rising by 8.5 per cent and 6.6 per cent respectively. Darwin is the strongest of all the capitals, with home values increasing by 10.8 per cent. Brisbane (+3.8 per cent), Canberra (+5.4 per cent), Perth (+2.5 per cent) and Adelaide (+1.9 per cent) have also seen gains. Perth is no longer the laggard of Australian housing having outperformed Adelaide in the year to date.

Here's a bit for the FHBer bubble troop who are arguing that the resi property market will tank when the grant ends. Can't see it happening myself. More bear talk that can safely be disgarded nowadays.

Chris Joye said:
Home values are now increasing steadily in all areas including Australia’s most expensive suburbs. This has eviscerated the popular myth that the recovery was being driven exclusively by first timers at the cheaper end of the market. While first time buyers did initially furnish the early momentum, upgraders and investors have now taken over the baton as we anticipated.

And here's his little dig at the RBA stats:

Chris Joye said:
After a long delay, the ABS’s house price data has belatedly fallen into line with the RP Data-Rismark findings. According to the ABS, detached houses experienced 4.2 per cent growth in the second quarter of 2009. As expected, the ABS was also forced to make substantial upward revisions to its first quarter estimates as well. The ABS’s 'compositional bias' – whereby record numbers of first timers buying cheaper homes gave the appearance of a big house price decline in the first quarter based on their stratified 'median price' index – reversed out in the second quarter with the large 4.2 per cent (positive) correction.

In contrast, the RP Data-Rismark Index, which removes these compositional biases using a hedonic regression approach and includes all property types (the ABS excludes apartments, semis and terraces, which are up to 30 per cent of sales), showed that Australian dwelling prices actually rose in the first quarter by 2.6 per cent and by a lesser 2.3 per cent in the second quarter of 2009.

The RP Data-Rismark Index was the first to identify the recovery of Australia’s housing market in February 2009. All other index providers have now fallen into line.

Cheers,
Michael
 
As to sharemarket "recovery", this graph does not need any explanation as to what lies ahead for shares.

http://dshort.com/charts/bears/Dow-and-Now.gif

50% growth in a space of few months - does anyone actually believe this is not usual sucker's rally?

This means that we are on the brink of MASSIVE deinvestment from shares.

This property boom is not going to be like anything seen before. It is going to be very hot and very long.


So your saying shares are going to crash again, and property will boom for years in a bigger boom than any seem before?

Surely you must realise that the share market is a reflection of Australia's business health? If business if buggered, how will wages rise? How will business keep employing people? How will people afford higher priced property?.

I believe that shares have rallied as hard as they have because our economy was never really in dire straights. Share's dropped way too much, and as people realise this, they are correcting back to more sensible levels.

Either our economy really is rooted, in which case shares were priced correctly in March 09, or our economy is not rooted and never was, so shares were once in a lifetime cheap.

It's one or the other. If shares do crash again like you predict, and if company profits and our economy really is still doing well, than dividend yields will go through the roof. And if property booms like you reckon, then rental yields would be way less than now. I just think property rental yields and share dividends should maintain some sort of equalibrium.



Do you see shares with 10% fully franked dividends and resi property with 3% rental yields? I just don't think people are that silly, but lets see what happens?


See ya's,
 
Either our economy really is rooted, in which case shares were priced correctly in March 09, or our economy is not rooted and never was, so shares were once in a lifetime cheap.
See ya's,

A great old adjective...brought back to life..thanks TC...lol lol

Agree with your post 100% too..!:eek:
 
Surely you must realise that the share market is a reflection of Australia's business health?

Either our economy really is rooted, in which case shares were priced correctly in March 09, or our economy is not rooted and never was, so shares were once in a lifetime cheap.

If you believe shares were cheap in march - or they are cheap now - you must believe that for the first time in history sharemarket bottoms at PE ratio of 7 and then recovers back to PE ratio of 10-12 and then continues to rally.

At every crash before market bottomed out at PE 3-4. You also have got to believe that this bear market is going to do without savage bear market rally. This also will be the first time in the history.

And yes - exactly - sharemarket is indeed reflection of the economy. Problem is that at the moment this reflection is twice as big as a real thing. Sharemarket turnover is around 2 times GDP. Also, if you believe that sharemarket crash will have catastrophic consequence to the economy, you must to believe that when mirror you reflected in breaks then you will inadvertently die.

Link between health of sharemarket and health of the Australian economy is grossly overrated. Our economy is driven by consumption. Apart from beer and prostitutes it is only property sector that does not mostly benefit overseas business. Thanks God, we do not import (yet) bricks and mortar.
In other words - we are fine as long as property market is fine.

And remember - "sharemarket" is a technical term for a place where money go from people who do not understand how economy works to their rightful owners.
 
If you believe shares were cheap in march - or they are cheap now - you must believe that for the first time in history sharemarket bottoms at PE ratio of 7 and then recovers back to PE ratio of 10-12 and then continues to rally. At every crash before market bottomed out at PE 3-4. You also have got to believe that this bear market is going to do without savage bear market rally. This also will be the first time in the history.....


OK, maybe shares will crash again. But that would mean the worst would not be really over, companies would start offloading workers, unemployment would head towards 10%. Not really the stuff of a resi property boom.

Who knows what the market PE is in an economic downturn anyway? It's all guess work anyway. Seems to me that aussie companies are reporting pretty good results, so the reported [guessed] pe ratio might have been even lower than thought.

Sounds like you think this is the great depression repeated. You'd better get the history book out mate. Resi property didn't have a massive boom as shares dropped 2 years after 1929. Property dropped heaps too. Farms dropped in value in my area by half. Unemployment was 25%. Yeah right?


Link between health of sharemarket and health of the Australian economy is grossly overrated. Our economy is driven by consumption. Apart from beer and prostitutes it is only property sector that does not mostly benefit overseas business. Thanks God, we do not import (yet) bricks and mortar.
In other words - we are fine as long as property market is fine. .


Driven by consumption eh..?? Ok I agree we are. Our GDP is mostly made up of services and consumption. We manufacture hardly anything. I've pointed out repeatedly what a meaningless piece of drivel GDP is to compare economic health.

We still have to have something to export though. Mining is something like 10% of GDP and employs 1.5% of the workforce and produces most of our exports. Ireland and Iceland are examples of countries who had a consumption and property bubble but not the exports to pay for it. They both had GDP's per capita way above Australia's. Look at them now though. Both economic basketcases. Consumption can only happen if a country is actually producing stuff to export to pay for the imports.


See ya's.
 
Last edited:
And remember - "sharemarket" is a technical term for a place where money go from people who do not understand how economy works to their rightful owners.


So, let me guess. You understand how economies work. Economies work purely by consumption and housing and your waiting for the all ords to get to 1500, then your gunna pile in and make a heap..??



Maybe I'm a rightfull owner? I've done alright so far. Sold half my portfolio right at the very top and paid out all my share debt.....

http://www.somersoft.com/forums/showpost.php?p=346690&postcount=432

Then rode what was left right to the very bottom and bought back in heavily at 4000. Not going too bad at all.


See ya's.
 
Rightful owner? Sorry to rain on your parade, but on the other thread I noticed that you deny there is a property boom in full swing. You do not even seem to see what is going on right under your nose.

If you understood sharemarket , you would have "bought heavily" at 3000, it would not take even one brain cell to figure out that it would be starting point for the sucker's rally.

And you wrong again assuming that I want anything from sharemarket even at 1500. It is just a point where shares will be "not overpriced". And stock market will be bouncing on this level for decades.

Give you an example. October last year bought a house across the road from UWS - $220K. My investment - $11K deposit, $6K stamp duty, $10K reno.

Last friday identical house across the road was sold for $320K (only difference - this one was unrenovated). Extremely conservatively - my gain is $100K. My ROI - 370%. This is not counting for $360 a week rent and tax benefits.

Why would I need to waste money on such a rubbish as shares?

So, let me guess. You understand how economies work. Economies work purely by consumption and housing and your waiting for the all ords to get to 1500, then your gunna pile in and make a heap..??



Maybe I'm a rightfull owner? I've done alright so far. Sold half my portfolio right at the very top and paid out all my share debt.....

http://www.somersoft.com/forums/showpost.php?p=346690&postcount=432

Then rode what was left right to the very bottom and bought back in heavily at 4000. Not going too bad at all.


See ya's.
 
If you understood sharemarket , you would have "bought heavily" at 3000, it would not take even one brain cell to figure out that it would be starting point for the sucker's rally.?


Wow, I certainly mustn't know anything about the market. I thought the all ords and ASX 200 both bottomed at about 3150. And that was for about half an hour. You must have some great contacts to get in at 3000? Care to share some secrets?


Give you an example. October last year bought a house across the road from UWS - $220K. My investment - $11K deposit, $6K stamp duty, $10K reno.


Well, good for you mate. What a legend.


OK, while we're at it, any other clowns want to get on here who joined up yesterday and have a brag about what they bought something at?

You only get braging rights on here mate if you have the history to back it up. People who join up yesterday and then share all their wins 12 months ago..?? Nah.


Oh, did I tell you about buying 10 grand of fortesque for 2c a share 10 years ago..??:D
Oh, and that 100 acres at Byron Bay 20 years ago.

See ya's.
 
Last edited:
Wow, I certainly mustn't know anything about the market. I thought the all ords and ASX 200 both bottomed at about 3150. And that was for about half an hour. You must have some great contacts to get in at 3000? Care to share some secrets?
Mate, I'm pretty sure they did actually trade all the way down to about 2700. I was watching it at the time. Its just the lowest "close" was a tad higher.

But, FWIW, I'm with you 100% that the ASX is in solid shape. We might see the Dow have another pulpitation or two given the dire straights of the States, but the worst that might happen here is a sympathy drop.

Alan Kohler makes the case quite strongly now too having changed his bear suit for bull horns as I linked below:

My post another thread

Cheers,
Michael
 
Last edited:
Mate, I'm pretty sure they did actually trade all the way down to about 2700. I was watching it at the time. Its just the lowest "close" was a tad higher.

Cheers,
Michael


Yep. No worries.

At least I did say I know nothing about the market then. So the low was an intraday one? Silly me for not getting in in that one hour then?

See ya's.
 
Top