Follow along with the video below to see how to install our site as a web app on your home screen.
Note: This feature may not be available in some browsers.
And I'm not picking on resi property here. What about farm land prices for an example that I'm more familiar with. Same thing. I can't see that it would be good for an economy if farm land suddenly doubled in price. The net return of the land would stay the same, but it wouldn't be any more productive. Probably less productive, as an owner has more capital tied up. Any property the same. I don't see how increasing property prices benefits the economy.
What difference would it make to the economy if a 40 year old red brick red tile roof house in Sydney worth a million dollars, suddenly is worth 1.25 million if there was a resi property boom starting right now? That house suddenly becomes a quarter of a million more expensive, so anyone buying the house to live in needs a quarter mill extra, and that money is then tied up doing nothing more than puting a roof over ones head when it could be put to more useful purposes.
I guess if 1.25 mil suddenly is worth like 1 mil it is not that bad for the economy .
Certainly stable prices are important, as property, especially resi is used as capital for small business owners to invest and expand into business. So I agree that property prices that aren't falling is important. .
Surprise surge in Consumer Sentiment
The Westpac Melbourne Institute Consumer Sentiment Index increased by 9.3% in July from 100.1 in June to 109.4 in July.
...
This is unquestionably a stunning result.
...
This is now the highest level of the Index since December 2007. It is 38.5% above its level a year ago and at 109.4 optimists decisively out-number pessimists for the first time since December 2007.
...
The lift in Confidence appears to have spread to the housing market. In May we added a special question to the Survey asking households about their expectations for house prices. In May, only 32% of respondents expected house prices to rise over the next 12 months. In the July survey that proportion has increased to 52%. And the rise has not been due to over exuberant First Home Buyers. Respondents in the 35-54 age bracket have increased their confidence levels from 28% to 53%.
...
I'd agree. However, it's another small piece in the jigsaw, that helps determine where the economic cycle is going next.... and when.I can never work out a good trading opportunity with sentiment.
What difference would it make to the economy if a 40 year old red brick red tile roof house in Sydney worth a million dollars, suddenly is worth 1.25 million if there was a resi property boom starting right now? That house suddenly becomes a quarter of a million more expensive, so anyone buying the house to live in needs a quarter mill extra, and that money is then tied up doing nothing more than puting a roof over ones head when it could be put to more useful purposes.
It will, in all probability, be the property sector that leads us out of this recession IMHO.
TC, what about the vendor that just got an extra $250k for their property? In some* instances wouldn't that release more spending money into the economy? I think you might have been looking at it from only one side (that of the purchaser).
.
The events of this week have persuaded us that the prospects for further rate cuts in Australia have diminished to the point where we have revised our forecasts to eliminate rate cuts from our view. We now expect that rates have bottomed out and expect that the next move by the RBA will be to increase rates although we do not expect that move until early in 2011.
....
The events of the last week that motivated this change of view have been:
1) The 9.3% surge in Consumer Sentiment to 109.4. That followed a 12.7% jump in June....
2) The evidence that the interest rate cuts are working was further emphasised in the housing finance data released for May. The number of loans to Owner Occupiers grew in annual terms by 23.5% up from 13% in April.
...
Of more crucial importance to us were the reactions of those in the 35–54 age bracket .... the broadening of the housing recovery from FHB's to upgraders and investors is much more likely if these groups are confident about house prices. Scepticism about the sustainability of the housing surge given the inevitable withdrawal of FHB's has been largely allayed with the recent strengthening of finance approvals and the sharp increase in confidence about prices in the 35-54 age group.
...
3) The Governor's Statement following the Reserve Bank's Board meeting showed a significant increase in the Bank's optimism relative to the June Board meeting. On the global economy the Bank noted that "Downside risks to the outlook have diminished"......
...
4) The employment data was in line with our expectations. However we recently lowered our target peak in the unemployment rate to around 8% in late 2010 from about 9% in early 2011....
.....
With our new expected low point of 3% in the RBA cash rate we continue to expect that the first upward move will not be until early in 2011.
In fact, given the current momentum in housing, there is even some risk of overstimulating that sector.