Huge article from Steve Keen on why prices are going to crash

[hobo-jo]

Have a read of "Grow Rich with the Property Cycle", Kieran Trass.

Looks like you may have misintepreted his opinion on where we are in the current cycle!
Although a little difficult to work out which market the comment relates to.

Kieran Says: Hmmmm you forget we are already 2years and 2 months thru this slump (yes it started mid 2007!) so at this point looks like less than 3 years to go. Lets hope it's ONLY that long.

http://www.landlords.co.nz/read-article.php?article_id=3518

I haven't read his books, but I wonder whether his cycles book covers longer term credit cycles which peaked in 1890, 1929 and 2007??
What is his opinion on these cycles and the effect on housing?

Also you may have missed this post on the bottom of the last page:

Please provide:
- The specific states you were referring to when you said "some" were in early stages of upswing
- Links to the facts (figures and sales) that you are looking at "in black and white", besides Melbourne's

Hoping you can hook me up with these sales figures mentioned?

 

[boz]

A pundit on the ABC pointed out yesterday that Australian banks are fast approaching a trillion dollars in mortage commitments which is funded by a giant amount of overseas borrowings. The reporter concerned was making parallels to 'all the other RE bubbles' in the world and giving credence to the 20-25% drop - if not more.

With this type of exposure to overseas funding I think we're in a perilous position. With everyone feeling 'rich' with their very valuable houses and the whistling wind of a close miss GFC a distant memory, caution is advised in my humble opinion. The tumble in the top end in 2008 will be exceeded next time and all those upgraders with increased mortages will be under water for about 10 years if our history, and other country's, is repeated.

At the end of each month RBA gives banks lending numbers RBA link
from the XLS file you can see home owner housing debt is 763 bil$ (seasonally adjusted), the investor debt is 324 bil$, other borrowing 139 bil$ and business 697 bil$. Shadow use to post his chart and overall credit growth is quite stable and 2009 had a big growth in housing credit and fall in business credit. This year seems housing loans is taking a hit (end of FHgrant), ABS link, so I wouldn't believe the ABC guy comment about loans growing fast (even if he is right about 1 tril$)
About the overseas funding they are getting towards 700 bil$. The key is weather in the future this money is a lot of money or not that much (inflated away), for the moment australia is paying a relatively low interest on this money also because it is mainly denominated in US$

 

[WinstonWolfe]

well said Boz.

for the moment australia is paying a relatively low interest on this money also because it is mainly denominated in US$

well, Australian banks are paying relatively low interest. they then lend it to us at substantially inflated interest.

the big external risk to Australian property is inflation in the US, Europe, and Japan. When that happens, foreign rates will rise, and so will the returns Australia's creditors expect.

 

[Aaron Sice]

A pundit on the ABC pointed out yesterday that Australian banks are fast approaching a trillion dollars in mortage commitments which is funded by a giant amount of overseas borrowings. The reporter concerned was making parallels to 'all the other RE bubbles' in the world and giving credence to the 20-25% drop - if not more.

With this type of exposure to overseas funding I think we're in a perilous position. With everyone feeling 'rich' with their very valuable houses and the whistling wind of a close miss GFC a distant memory, caution is advised in my humble opinion. The tumble in the top end in 2008 will be exceeded next time and all those upgraders with increased mortages will be under water for about 10 years if our history, and other country's, is repeated.

The recent barely published reference by China to a possible W shaped recovery is worth taking on board I'd say. Granted you can't believe the official statements - and it may be a commodities bargaining ploy - but!

I read a lovely quote yesterday from Seinfeld 'The road less travelled is often that way for a reason', but at this juncture I think the wise will be planning for a positive cash flow even after the RBA is fighting inflation with interest rates and re-sale values are down by a third and the country is in unemployment stress. Personally my plans are for a 90's scenario, and I just hope it's not a 70's scenario. We are too populous and selfish to cope with too much hardship these days.

this is why i see it becoming harder to obtain finance and creditors set the conditions of lending.

australia is moving into a global standard of lending because our creditors do not want the risk.

 

[Aaron Sice]

YES well done, i agree with Top Cropper it was your ability to spot a 'sweet' deal that has created the performance figures you achieved.
The danger is when you try to extrapolate that over the broader market.

perfect - you can't take these poor/great micro deals and extrapolate them macro - been saying it all along. kudos.

 

[DeanoC]

well said Boz.

well, Australian banks are paying relatively low interest. they then lend it to us at substantially inflated interest.

the big external risk to Australian property is inflation in the US, Europe, and Japan. When that happens, foreign rates will rise, and so will the returns Australia's creditors expect.

Yet still feel the need to raise interest rates when the RBA holds theirs the same, not to mention rising LVR's across the board before that has even happened!

If the banks were so happy with all this debt, they would be encouraging more of it. Where have the 105%, 100% and 95% loans gone? The housing market is booming and the fundementals support the growth if I am not mistaken. Yet the banks are slowly trying to cut back on their exposure to property?

 

[Ausprop]

Yet still feel the need to raise interest rates

need or want? they can do what they like, they control the market.

 

[WinstonWolfe]

If the banks were so happy with all this debt, they would be encouraging more of it.

Banks don't think all debt is equal.
Rather, they consider risk adjusted rewards.

IMO, they are pulling back from high LVR lending because they believe the risk of property values coming down is higher now, then before.

Some argue otherwise, saying the banks are finding less capital available to lend.

I'd retort there'd be more capital available if banks and their creditors were more confident risk adjusted reward was attractive.

 

[boz]

well said Boz.



well, Australian banks are paying relatively low interest. they then lend it to us at substantially inflated interest.

the big external risk to Australian property is inflation in the US, Europe, and Japan. When that happens, foreign rates will rise, and so will the returns Australia's creditors expect.

I think his stuff is quite complex and that is why economists get things right after they happened.
Anyway, I think Bernanke and FED policy of printing money had greatly helped australia, in the way that kept short term interest rates low and caused a run on resources/commodity demand.
I believe this policy of interest rates below consumer inflation will continue for long time, this will help banks all around the world in making easy money and resources and commodity prices would continue to go up.
Like you said would be true interest rates will go up but that will be for debt due in the long term, short rates will probably be still in control of the FED and set very low. Even if inflation will go up if rates are below wages and cpi banks would make good money.
But I don't know what will happen, for sure EU have a policy of low inflation, so i'll expect the euro to track more resources/commodity/gold then the US$ (and it is already like that). Also I don't know what will happen to the US$ and USA if FED lose control of inflation in US.
The greatest risk of Australia is the other way around (deflation) when you have australian assets dropping and those foreign creditor are risking to see the resources of australia backing their credit losing value and will get more willing to get their money back. This happened in the GFC when the US$ was strong with the deflation and AU$ tanking to 60 cents.

 

[willair]

memories are always short,willair..

 

[WinstonWolfe]

The greatest risk of Australia is the other way around (deflation) when you have australian assets dropping and those foreign creditor are risking to see the resources of australia backing their credit losing value and will get more willing to get their money back. This happened in the GFC when the US$ was strong with the deflation and AU$ tanking to 60 cents.

what will cause deflation in Australia Boz

I don't see it as big a risk as foreign inflation, and, like you, I actually don't think foreign inflation in developed economies will be an issue for some time.

Deflation in Australia would require a withdrawal of investment in Australia, i.e. like drop in demand for commodities, which would be contingent on a drop in foreign consumption.

I don't think a significant drop in net foreign consumption is as big a risk as inflation in the developed world.

 

[MTR]

perfect - you can't take these poor/great micro deals and extrapolate them macro - been saying it all along. kudos.

Hi BC

Agreed, but who would do this? This would be foolish isn't this just part of your DD.

You still make money in a rising market but you can do alot better if you know what the market wants and if there is limited supply BINGO.

Cheers, MTR

 

[Ausprop]

willair do you think it's 9pm? could easier money really be that close? seems hard to believe huh? always the darkest before dawn (actually that's a dumb expression - because it's not)

 

[Ausprop]

I hear you MTR! if you want average returns, buy an index tracker. I think the debate is fuelled because you were saying how great you were doing and then everyone else says well hey the market aint that great and then it gets down to which market where and really it's irrelevant to your specific deals anyway

 

[MTR]

Hi Aus
maybe you are not reading the posts I am reading on SS, the market is great for many.

The specific deals were in reply to Topcropper post. Shoot me.....

As they say the glass is half full or half empty, take your pick.

Over and out.

Cheers, MTR

 

[Aaron Sice]

Hi BC

Agreed, but who would do this? This would be foolish isn't this just part of your DD.

You still make money in a rising market but you can do alot better if you know what the market wants and if there is limited supply BINGO.

Cheers, MTR

i don't do it!!!!!

it's the way the media does this to support "boom" and "bust" articles.

media control sentiment.

 

[Ausprop]

Hi Aus
maybe you are not reading the posts I am reading on SS, the market is great for many.

OK, lets get back to Doom and Gloom stories it seems to make some happy.

Over and out.

Cheers, MTR

yeh some markets are great. Once again, all depends which markets and where. I have made good returns in karratha... resources states still lingering tho. Seems Melb is going for a run for some reason and if resources dont hold up I would expect the baby and the bath water to be chucked out in a mighty hurry. Perth premium market still no where near 2007 levels, nor mandurah, dunsbororugh etc. Plenty of under performance where you would least expect it which is ominous

 

[Aaron Sice]

willair do you think it's 9pm? could easier money really be that close? seems hard to believe huh? always the darkest before dawn (actually that's a dumb expression - because it's not)

i call 8:30.

easier money ain't coming back - LVRs will remain tighter but lending criteria my relax a little.

i noticed RAC is back in the devvy lending game in WA. that's some semi-big news.

 

[Ausprop]

i noticed RAC is back in the devvy lending game in WA. that's some semi-big news.

ooh that is interesting. I was almost begging for them to come to the party last year.

 

[Token Funder]

Majority of refi/cash out deals crossing the desks of banks atm are coming in under borrower's "expectations". As a consequence and with no disrespect to MTR, I take all statements of the type " the property I bought last year is now worth x" with artery-hardening levels of salt.

Additional heaped teaspoon of salt for DA-dependent expectations.