That is so true!
that is so true as well! it is getting more clear by the day that Glenn Stevens doesn't want a house bubble with a consequent US style crash (but I don't think all RBA think that way, for sure Battellino would disagree...
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RBA just put rates up again to 4.25%
- Thread starter MichaelW
- Start date
That is so true!
)In 2008/09 i talked about the application of game theory and the big 4 banks (and why you had to buy the shares).
Well this time around its RBA game theory.
After appearing on morning television trying to get the message across, its quite logical that the RBA increases rates today, otherwise they could just be accussed of crying wolf.
This increase was necessary, otherwise the media would be all over the RBA about 'jawboning' without action. This muddles the waters which is good.
In regards to employment, well it was up again in March, yes only 1.something %, but thats after a huge increase in feb, so it looks at this stage like its sustainable.
Everyone has to deal with imperfect information, the RBA included.
Well this time around its RBA game theory.
After appearing on morning television trying to get the message across, its quite logical that the RBA increases rates today, otherwise they could just be accussed of crying wolf.
This increase was necessary, otherwise the media would be all over the RBA about 'jawboning' without action. This muddles the waters which is good.
In regards to employment, well it was up again in March, yes only 1.something %, but thats after a huge increase in feb, so it looks at this stage like its sustainable.
Everyone has to deal with imperfect information, the RBA included.
My thoughts also. I would have liked to see slow steady modest growth over the next few years until we are completely clear of the gfc. The sudden uptick in values in many (but not all) areas puts more risk into the sustainability of house values. Plus from a greedy point of view I have more to buy before hitting my borrowing limit. Interesting times
I see it as - the sooner it goes up, the lower the eventual peak will have to be.
We have low unemployment, high consumer & business confidence, huge commodity price increases, increasing house price, etc. These will all affect the economy in the future. The RBA must get to a neutral level ASAP, and possibly even a restrictive one, to damp this down. No-one (including RBA) knows what neutral is ATM - when house prices stabilise, confidence is a bit lower & inflation looks like it will stay within band - that's when IRs are at neutral.
The RBA works on a least regrets basis. If it finds that it's neutral is to high, then it has the space to reverse slightly - a trivial change. By failing to raise to neutral early enough, it risks high inflation & asset price bubbles - that would be a more significant failure.
This is a very good observation. I wish more people would 'get this'.
And another point, for those with property, the RBA increases are acting as a sought of 'insurance policy'.
Remember the sighs of relief when the RBA decreased rates last year, they could only do this because it was coming off a reasonable base.
I'm sorry but I just don't 'get' all this nonsense talk about bubbles. There is no bubble IMO - just normal cyclical RE growth.
For example, let's just pick an ordinary garden variety suburb in Sydney's West like, I dunno, Merrylands, and look at its CG over the last 15 years:
1996-97 2.0%
1997-98 16.1%
1998 -99 12.1%
1999-2000 20.3%
00-01 0.4%
01-02 17.4%
02-03 33.3%
03-04 13.7%
04-05 -3.4%
05-06 -8.1%
06-07 -1.3%
07-08 -0.7%
08-09 -0.6%
09-10 10.4%
Why were we not talking 'bubble' in 97-98 when we had 16% growth?
Why were we not talking 'bubble' in 99-2000 when we had 20.3% growth?
Why were we not talking 'bubble' in 01-02 when we had 17.4% growth?
Why were we not talking 'bubble' in 02-03 when we had 33.3% growth?
But the media and some posters are screaming 'bubble' now?? when we are having 10+% growth (in Merrylands) and 20% growth in other places like the Inner West and parts of Melbourne.
Look, maybe the media and the Doom & Gloomers were talking 'bubble' back then and history tells us how the bubble "popped" in 05-06 with a massive 8.1% fall
Please gimme a break and lay off with the 'bubble' talk already. It is pure D&G and media sensationalism IMO.
For example, let's just pick an ordinary garden variety suburb in Sydney's West like, I dunno, Merrylands, and look at its CG over the last 15 years:
1996-97 2.0%
1997-98 16.1%
1998 -99 12.1%
1999-2000 20.3%
00-01 0.4%
01-02 17.4%
02-03 33.3%
03-04 13.7%
04-05 -3.4%
05-06 -8.1%
06-07 -1.3%
07-08 -0.7%
08-09 -0.6%
09-10 10.4%
Why were we not talking 'bubble' in 97-98 when we had 16% growth?
Why were we not talking 'bubble' in 99-2000 when we had 20.3% growth?
Why were we not talking 'bubble' in 01-02 when we had 17.4% growth?
Why were we not talking 'bubble' in 02-03 when we had 33.3% growth?
But the media and some posters are screaming 'bubble' now??
when we are having 10+% growth (in Merrylands) and 20% growth in other places like the Inner West and parts of Melbourne.Look, maybe the media and the Doom & Gloomers were talking 'bubble' back then and history tells us how the bubble "popped" in 05-06 with a massive 8.1% fall
Please gimme a break and lay off with the 'bubble' talk already. It is pure D&G and media sensationalism IMO.
I just did a search in this thread for that word - 14 occurences - 10 of them by you
.I agree, it's part of a normal cycle. The RBA is making sure it stays normal, and doesn't develop into one of those unmentionable things that either deflate slowly (in real terms like Merrylands did) or go pop.
I could have guessed it because Logic doesn't work with these guys
I'm not worried because they'll slow down the economy too much and when they realise their mistake they''ll pull the lever hard the other way so IR's will average out for me.
I think the rba is doing a great job, now and for the last few years.
The really dumb idea was the first home owners boost. This sure did prop up house prices, but it's helped to create this house price boom that the rba is concerned about. Imagine if all these billions were instead used at the height of the GFC to give business a boost? And especially property developers to encourage them to build more? You would have less housing shortage, stronger business's, and the whole economy would be more in balance.
Think about things from their perspective? 3 years ago there was a 2 speed economy. The commodity export states were going silly, and the rust bucket states doing it tough. But we are one country, so you can't have different interest rates in WA and NSW/VIC.
One solution would be to split the country in 2. But then the south of the nation with 80% of the population would have a similar economy to Ireland or Iceland by now, very little export income and no way to pay for imports or debts, and the northern parts plus Perth with 20% of the population would be so wealthy it wouldn't know what to do with it's windfalls. The south could have .5% interest rates, just like Britain and the US, as it would need it, and the north plus Perth could have 10% interest rates.
Now, it looks like the 2 speed economy is on again, but the house prices are going silly in Melbourne and Sydney where most of the immigrants are piling into, but not where the nations wealth is being produced. I don't think a house price boom would be such a worry if it was going on in WA and Queensland.
See ya's.
Look, maybe the media and the Doom & Gloomers were talking 'bubble' back then and history tells us how the bubble "popped" in 05-06 with a massive 8.1% fall
They have used the "bubble" word from time to time in the past. Another popular one is "affordability crisis" (ie. house prices just can't go any higher). This one has been trotted out in the 60's, 70's, 80's .. etc you get the point.
Yet, prices do keep rising. The D&Gers keep talking about the bubble and the affordability crisis.
That's the only thing that never seems to change.
Oh .. nearly forgot my favourite over the past 40 odd years .."But this time it's different".
Yeah .. right. Whatever.
by the way,
lots of posts on saying that the RBA made some gd decision. I disagree. Not to bombard this with economics lesson...
One of the key goals of the RBA is to curb inflation. To keep it to the targeted level. Main tools of RBA - money supply (MS) and interest rate (IR). As MS is hard to control and slow for economy to react and response. The obvious tool is IR.
Now, however, RBA forgets that to control inflation, there are other measures that can be used too such as policies to stop/limit consumers spending. RBA/Govt should curb/control/deter/discourage consumer spending by policies and not just by changing IR, increase country saving (Economy with high saving tend to have a high investment return too).
Effect of IR can be drastic for importers and exporters - exchange rate with rise in favour of higher IR. Look around at other successful govt/central banks in the world. Businesses are not experiencing a stable environment in term of the AUD.
However, impact on IR -> adding stress to first home owners and low income families.
RBA and Govt are independently operated. I do however suggest a closer ties between the 2. This will eventually benefit the country as a whole.
cheers.
lots of posts on saying that the RBA made some gd decision. I disagree. Not to bombard this with economics lesson...
One of the key goals of the RBA is to curb inflation. To keep it to the targeted level. Main tools of RBA - money supply (MS) and interest rate (IR). As MS is hard to control and slow for economy to react and response. The obvious tool is IR.
Now, however, RBA forgets that to control inflation, there are other measures that can be used too such as policies to stop/limit consumers spending. RBA/Govt should curb/control/deter/discourage consumer spending by policies and not just by changing IR, increase country saving (Economy with high saving tend to have a high investment return too).
Effect of IR can be drastic for importers and exporters - exchange rate with rise in favour of higher IR. Look around at other successful govt/central banks in the world. Businesses are not experiencing a stable environment in term of the AUD.
However, impact on IR -> adding stress to first home owners and low income families.
RBA and Govt are independently operated. I do however suggest a closer ties between the 2. This will eventually benefit the country as a whole.
cheers.
Why were we not talking 'bubble' in 97-98 when we had 16% growth?
Why were we not talking 'bubble' in 99-2000 when we had 20.3% growth?
Why were we not talking 'bubble' in 01-02 when we had 17.4% growth?
Why were we not talking 'bubble' in 02-03 when we had 33.3% growth?
But the media and some posters are screaming 'bubble' now??
your recollections of the past are inaccurate. there was plenty of bubble talk back in 01-04 everywhere (but granted, you need a good memory).
case in point, on these very forums, do a search for 'bubble' in thread titles here.
in 01-04 then, there was roughly 1 in 1000 threads with 'bubble' in the title. (16 out of 16000 threads)
in 04-10 then, there was roughly 1 in 1700 threads with 'bubble' in the title (25 out of 45000 threads)
in the last 12 months, roughly 1 in 2500 threads with 'bubble' in the title (4 out of 10000).
so, the most infrequent use of the word 'bubble' out of those periods has been in the last 12 months.
i know as you have vested interests in the industry you must be pushing the buy buy buy line, but in this case i dont think the mentions of 'bubble's are disproportionate with the amount of growth occurring.
depends on the timeframe you want to take... the end of WW2 was a defining moment for western democracy, not to mention an ever evolving mountain of currency and debt. take a ruler and extrapolate as far as you like
There was an interesting graph today in the Australian Fiancial Review which showed i think it was Melbourne residential property prices. Anyway the base year was 1989/90 at 100. Basically the graph diddled around the base until 1998 at which point it has exponentially increased to the current level of around 400.
I found that graph to be extremely useful. Firstly 'if property doubles every 10 years, then using the graph should read:
1990: base is 100
2000: base is 200
2010: base is 400
2020: base is 800
So over the last 30 years the property doubling every 10 years has held (as we are at the index level of 400 now).
However the interesting part is that its not a steady consistent increase.
Basically nothing happened for 8 odd years, then things have gone gang busters.
This leads to an interesting point, how many Somersofters out there could hold on to their properties if property did nothing for the next 8 years? How many rely on revaluations to support negative gearing?
How many people are on variable loan structures?
This point is interesting because, if property is to continue to double, at some stage incomes are going to need to be brought into alignment with property prices. If property prices dont drop, then this suggests to me a period of inflation (which will push up wages), and whilst inflation is good for property, inflation with variable interest rates are not (at least in the short term).
Just some food for thought.
all RIPs should assume at least 10 years of no growth as this is quite possible. this is the problem with neg gearing - you really need that growth to support the investment, so you keep holding on, and on, and on. can you keep holding on?
Have you done any research on kind of resources export ($) and population growth rate between 1989/90-1998 and from 1998-present.
The reason might be people and government have more money due to the mining boom and there is increased demand for housing due to population boom in past 10 years that have assisted in pushing property prices. If there is any correlation then you can expect property to continue to grow as these two factors will continue to hold true for some years to come.
You can expect some rent rises, salary increments in 8 years which should help to hold on.
Cheers,
Oracle.
Thanks Peter, I did actually acknowledge that there may have been talk of a 'bubble' back then when I stated:
But the point I was really trying to make was, that there was growth occurring in those years (33% etc - which is much more than now, at 10-20%) and quite plainly there was no bubble to pop because the largest fall (in the Merrylands example) was a pathetic 8%.
Personally I don't like my RE holdings to fall 8% but I'd still be pretty happy to wear it, if I'd had previous years growth of 20%, 33% etc.
That's why it's called a "cycle". The growth is rarely, if ever linear.
The big picture is never linear.
At a macro level, suburb growth is not linear, either. Prices will be pushed up through the demand supply equation, then plateau. Surrounding suburbs will catch the ripple effect and show their own non linear growth pattern, then plateau. Then the pattern repeats with ebb and flow of varying durations and intensity.
