More articles appearing about OZ 'property bubble'

Uh Oh!

http://www.news.com.au/money/proper...rket-a-time-bomb/story-e6frfmd0-1225880221197

Im starting to get nervous now. There are more and more international investors saying the same things. Are we in a bubble and we don't know it?

If interest rates do rise and ppl can not truly afford to meet repayments...that doesnt mean a crash is coming though right? Sure prices may correct somewhat but we have low and stable unemployment, rates can be taken down considerably (we have plenty of room to move) and we are not in the middle of a construction boom.

So I don't see any internal dangers, I don't see the same events that happened in europe and in USA occuring here. If the world does slip into a double-dip them maybe yes...
 
For those who get the free Residex monthly newsletter, John Edwards specifically explained why there is NOT a bubble !!!
I'll post the text here if no-one thinks its a breach of copyright. (I dont think so but the moderators might)
 
Awesome. Yields will be hot in all capital cities when this bust comes.

Daniel you need to relax mate! Worry will make you age quicker. :D

If interest rates go up it will be because our economy is firing and income will be flowing.
 
Awesome. Yields will be hot in all capital cities when this bust comes.

Daniel you need to relax mate! Worry will make you age quicker. :D

If interest rates go up it will be because our economy is firing and income will be flowing.

Don't see your logic.

1. Collapse comes.
2. Prices collapse.
3. People buy instead of rent
4. Rent yields collapse as rental supply outstrip demand
5. Investors with rental property severely underwater and have collapsing rents.
 
For those who get the free Residex monthly newsletter, John Edwards specifically explained why there is NOT a bubble !!!
I'll post the text here if no-one thinks its a breach of copyright. (I dont think so but the moderators might)

post an excert of it and link to the website and it's not copyright infringement.
 
Latest from Ric Battellino, RBA Deputy Governor, re debt.
http://www.rba.gov.au/speeches/2010/sp-dg-150610.html

Excerpts:

Has the rise in household debt left households over-exposed financially? In trying to judge this, there are a few considerations to take into account.

First, at the same time as the household debt ratio has risen, so too have the assets held by households. Some commentators might dismiss this as simply reflecting the fact that the additional debt has been used to inflate asset values. There is some basis for this in relation to housing assets but, even if we exclude housing and focus only on households’ financial assets, the statement is still true. Financial assets held by households have risen to the equivalent of 2.75 years of household income, up from 1.75 years’ income in the early 1990s.

Second, the available data suggest that the increased debt has mostly been taken on by households which are in the strongest position to service it. For example, if we look at the distribution of debt by income, we can see that the big increases in household debt over the past decade have been at the high end of the income distribution.

Another factor that has contributed to the resilience of household finances is that, by and large, the debt has not been used to increase consumption. Apart from some brief periods, household consumption has not been unusually elevated during this period of rising debt. Rather, the debt has mainly been used to acquire assets.

Perhaps the best, and most direct, indicator of households’ capacity to support the increase in debt is the arrears rates on loans. This remains very low in Australia. The current arrears rate is around 0.7 per cent. This is one of the lowest rates among developed economies. Other data also suggest that households’ aggregate debt-servicing capacity is quite strong: in recent years more than half of owner-occupiers have been ahead of schedule on the repayments on the loan they took out to buy their property.

In summary, if we look at the way the increase in household debt has been distributed, what households have done with the money, and the arrears rates on loans, it is reasonable to conclude that the household sector has the capacity to support the current level of debt. Having said that, the higher the level of debt the more vulnerable households are to shocks that might affect the economy. We at the Reserve Bank therefore welcome the fact that the household debt ratio has flattened out in recent years and, as Glenn Stevens remarked last week, there would be benefits in that stability continuing.

As the recipient of large amounts of offshore funds for much of the post-float period, Australia has had to remain alert to these challenges. By and large, it has been able to successfully absorb significant amounts of offshore capital over many years. There are several factors that have contributed to this:

- First, the country’s foreign liabilities are virtually all either in Australian dollars or hedged back to Australian dollars. Australia is able to do this because foreign investors are happy to hold a certain proportion of their assets denominated in Australian dollars. This means that Australian borrowers do not face foreign exchange risk on the capital sourced from overseas. Therefore, if sentiment turns and the exchange rate falls, domestic borrowers are largely unaffected. The large swings in the exchange rate of the Australian dollar that have occurred over the past couple of decades in no way threatened the corporate and financial sectors.
- Second, the offshore capital that has flowed into Australia has been used essentially to fund high levels of investment. Australia uses foreign capital not because its national saving ratio is low, but because its investment ratio is high by the standards of developed economies. In the past decade, for example, the national savings rate in Australia has averaged 22 per cent, much the same as in Europe and well above the figure of 15 per cent in the US and UK. Over the same period, the investment ratio in Australia averaged 27 per cent, whereas in most developed economies it has averaged around 20 per cent. This high ratio of investment to GDP is, I believe, an indication that Australia is using foreign capital productively, and sustaining the capacity of the country to service that capital.
 
grantham hits it on the head when he said this

"Bubbles have quite a few things in common but housing bubbles have a spectacular thing in common, and that is every one of them is considered unique and different," he said.

As an example, he cited the British housing market bubble of 1989. At the time, he said people dismissed the bubble because there was no more rezoning, creating a land shortage and as such, they believed prices would rise forever."

There are so many reasons why I keep hearing we aren't in a bubble. But it always does come down to one major thing - multiple of household incomes...

Now I'll wait for the "but we have more double incomes, so more disposable income, and bigger houses, and much less land supply, and inner city will always go up, we have no subprime (only low-doc), and lower unemployment, low loan arrears rate, don't forget new paradigms, yada yada."
 
Daniel you need to relax mate! Worry will make you age quicker. :D

Agreed. Daniel I know I am showing my age by saying this, but my advice would be to "Have a bex and a good lie down".

I'm more concerned about your posings and the flaps you get into by always worrying about the latest worse case scenario that some media player dishes up to the masses, and that you seem so willing to feast upon. :confused:

Most of this stuff never happens.;)
 
Agreed. Daniel I know I am showing my age by saying this, but my advice would be to "Have a bex and a good lie down".

I'm more concerned about your posings and the flaps you get into by always worrying about the latest worse case scenario that some media player dishes up to the masses, and that you seem so willing to feast upon. :confused:

Most of this stuff never happens.;)

There were many Americans that thought as you do...
 
There were many Americans that thought as you do...

That's true. There were many Australians that listened to some Prof. Keen too (and others) and sold up their properties only to miss out on the massive CG of the last 12 - 18 months.

At the end of the day, you have to chart your own course and allow for some flexibility in it to take some evasive action (if you need to) along the way.
 
i wish i had sold more up 18 months ago, would have missed some of the 20-40% drops. some places i have are bordering on being upside down
 
Im starting to get nervous now.
It's a bit late to get nervous.... this particular research was discussed on SS a couple of months ago.

It's all very well knowing a trend has a possibility of changing, but unless you have a reasonable idea of when it's pretty useless information.

Most D&Gers will be right eventually.... however, only a tiny minority of D&Gers actually make real money from their certain knowledge of D&G, because their timing depends on a critical mass of sentiment. Do a search of SS for bubble - there's threads dating back to when SS started.... the D&Gers have been wrong for 10 yrs... and counting.

Is anyone honestly expecting median prices to revert to 3x median income... ie $150K for a median house ? In fact they need to go far below the 3x income trend to make up for the current way above trend we've experienced for the last 20+ years..... the next 20 years with a $75K median ?

And why pick the 3x income trend ? that was only valid for a relatively short period before 1980s. That trend hasn't been in place for ~20 years, for the good reasons listed above.
 
I think BC is on the right track... there is so much uncertainty and dark clouds that you wouldnt want to be carrying neg cashflow on the hope of increased values. it is more likely that values are heading flat or down. if we can accept this then i think the majority of resi investors have a problem on their hands
 
That's true. There were many Australians that listened to some Prof. Keen too (and others) and sold up their properties only to miss out on the massive CG of the last 12 - 18 months.

At the end of the day, you have to chart your own course and allow for some flexibility in it to take some evasive action (if you need to) along the way.

True, and I realize the consequences and accept them. I didn't go into investing without the realization that losses were a real factor, but I do object of being accused of being extremely worried about negative views that come, as this is my livelihood we are talking about...and all of yours also.

If there is a bubble thats about to burst, or if there is a world depression on the horizon, surely it is reasonable for investors to be worried about it or not?
 
I am not totally convince either way that there IS a bubble or that there ISN'T a bubble. I think only time will tell. But even if there is, it would be more like a couple of little bubbles, so too speak. Not everywhere will be affected - the different markets are too spread out and variable for there to be a consistant affect throughout Australi.

All you can do either way is mitigate your own risks. If there is a bubble, it won't affect you so much provided that you can hold onto your own properties and ride the waves out. It may slow you down if you are no longer able to access equity, but for me that isn't a problem, I'm not in a rush anyway. So long as you can service your debts, it doesn't really matter what the rest of the country is doing (to an extent). Some people may even find themselve in a position where it actually allows them to buy into more property while it is down.

It is my beleif that even if there is a bubble and it does burst and it does cause my properties to decrease in value, that eventually they will regain the value they have lost. Obviously, it wouldn't be ideal, I could loose some significant equity - but then my strategy was always aimed more toward a long term goal of passive rental income anyway, and I really cann't see how this could slow me down any further (seriously, if I went any slower I wouldn't be moving at all...).
 
In Australia the potential cause of house price crash is mass unemployment at least 8%+. Unless people lose their jobs its unlikely they will lose their homes. Rising interest rates cause belt-tightening, however they are also only a temporary measure (e.g. 1-2 years to stop inflation) and at the same time inflation => wage growth. For people to be unable to meet there mortgages rates need to rise at least another 1-2% maybe more, however that can only happen if the economy is booming. Undoubtedly some people are at risk, but they are a very small fraction comprising those who have both bought recently, have low job security and overextended.

Most people are not on a financial knife-edge. If you bought more than 3 years ago then your income has probably gone up 10% since and your property value has probably gone up 20%.
 
Uh Oh!

http://www.news.com.au/money/proper...rket-a-time-bomb/story-e6frfmd0-1225880221197

Im starting to get nervous now. There are more and more international investors saying the same things. Are we in a bubble and we don't know it?

The Australian Financial Review also reported on Jerremy Granthams comments today. Pitty you cant get this article online without a subscription because they point out some inconsistencies in the message.

Summary of what AFR wrote...
* Grantham says prices must come back to the normal multiple of family income, based on the assumption housing normally trades at 3.5 times family income.

* Grantham says we are now trading at 7.5 times family income, which he says would mean if we hit 10% interest rates then people would be paying 75% of their wages in income (which by the same measure means we are paying 55% of wages in income now, not likely IMHO)

* AFR says that according to Rismark the average house price is $433,129. The ABS has family income at $93,926. Therefore the actual price to income ratio is 4.6 and has been steady since Dec 2003, implying we are paying 34% of our wages in repayments

* Since 1993 the average price to income ratio has been 3.6 times

* Mr Grantham has studied every bubble for which there was data back to 1720 (.toe comment - as I sudgested in a previous thread this is flawed modelling known as 'survivorship bias' because Grantham did not also study all 'phantom bubbles' (looks like a bubble but did not burst) over that period).

* GMO got out of tech stocks 2.5 years to soon and lost many clients as a result. GMO was also bearish on US housing since 2004, 3 years too soon there also.

* Quote Grantham "We live in a mean reverting world. All bubbles break".



By this logic we should not be able to find one historical example where people were calling a bubble but the bubble didn't burst. This doesn't mean that Grantham is wrong about an Australian bubble mind you. Just that he cannot be right every single time, as he sudgests he can.
 
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