I also predict high yields but the question is will it be the denominator or the numerator that moves? Maybe a bit of both?
Recession likely in Australia
- Thread starter greedy saffa
- Start date
Hi trendsta
I believe interest rates rise in a boom as the RBA attempts to slow growth to managable levels. So we had a booming economy, some of the money moving from the stock market crash of 1987 to property fuelling large price increases, smart money moving to cash, a recession induced in the early 1990's with increasing unemployment. By the way that is what a recession does......after 16 years of boom we might yet feel that effect again, much to the shock of those who weren't old enough to be employed the last time it happened. This reduced the amount of capital looking for a home...excess was paying interest or reducing principal. Reduced investment occurred with falling house prices and rising yields till property became very attractive with high yields and low interest rates in the mid to late 1990's. Also coinciding with improving employment.
As Mark Twain said " history does not repeat itself but it does rhyme". It is more interesting this time around as unemployment may not rise as much as previously. Perhaps the high mortgage prices will do the RBA's work at a lower interest rate level than previously. I suppose interest rate rises may depend in part upon the effect of export prices of commodities over this period. Like you I will be watching the stats closely and unemployment is one of the many to keep an eye on.
These two sites show unemployment on a historical basis for a number of countries;
http://www.aph.gov.au/library/pubs/histmesi/histmesi8.3.htm
ftp://ftp.bls.gov/pub/special.requests/ForeignLabor/flsjec.txt
Cheers
Shane
Last edited:
Imf Reports That Australian Property One Of Four Most Overvalued Markets In The World
Australia vulnerable to US 'tsunami', IMF warns
Tim Colebatch
April 9, 2008
AUSTRALIA'S overvalued housing markets and high levels of debt put it at risk of being hit by the financial tsunami swamping markets in the United States, the International Monetary Fund has warned.
The IMF's latest Global Financial Stability report, released overnight, estimates that losses to banks, borrowers, investors and other financial institutions in the US are now likely to exceed $A1000 billion. It says the crisis is spreading into prime real estate loans, consumer credit, commercial property and corporate debt.
In a morbidly gloomy stocktake of the crisis it had long foreshadowed, the IMF says this could be an underestimate, as losses and writedowns weaken institutions, with "additional reverberations back to the banking system".
It warns that, just as asset prices such as house and share values were built up by debt-fuelled borrowing, in the reverse way, they could collapse as debt contracts, slowing economic activity and shrinking wealth.
The world's financial watchdog and lender of last resort, the IMF says the US remains the centre of the crisis. But it is spreading to financial institutions in other countries, where good times led to a weakening of institutions' risk management systems — and of prudential supervision by authorities.
"Industrialised countries with inflated house price levels relative to fundamentals, or stretched corporate or household balance sheets are also at risk," it warns.
Last night's summary did not mention specific countries. But last week the IMF singled out Australia as having one of the four most overvalued housing markets in the Western world, and one of four highest levels of housing debt.
In a chapter released early from its World Economic Outlook, it estimated that Australian housing prices in 2007 were 25% higher than could be explained by economic fundamentals. It added that this could reflect factors not included in its model, but nonetheless risks a sharp correction.
Even in 2006, it found, Australia had the fourth highest housing debt in the Western world. Households owed mortgage debt equivalent to 80% of GDP (it's now 85%).
The warning comes as a new survey reports a sharp fall in business activity in March, on top of falling retail sales in January and February.
Treasurer Wayne Swan, who flies out tomorrow for the half-yearly meetings of the IMF and the World Bank in Washington, accepted the report's sombre warning last night.
The IMF told banks to move quickly to put their own house in order — including by terminating management pay schemes "that may act to shorten the horizon of top management" (such as bonuses for short-term results).
Banks should also disclose their problem exposures to reduce investor uncertainty; seek medium-term finance rather than rely on short-term loans; and correct their risk management strategies — particularly to address the risk that parties they have made deals with may be unable to meet them.
Governments need to step up supervisory actions and intervene early to rescue troubled institutions, the IMF says. They should even consider contingency plans for a worst case scenario of an asset price collapse coupled with a recession — which could require taxpayers to bail out the markets.
Australia vulnerable to US 'tsunami', IMF warns
Tim Colebatch
April 9, 2008
AUSTRALIA'S overvalued housing markets and high levels of debt put it at risk of being hit by the financial tsunami swamping markets in the United States, the International Monetary Fund has warned.
The IMF's latest Global Financial Stability report, released overnight, estimates that losses to banks, borrowers, investors and other financial institutions in the US are now likely to exceed $A1000 billion. It says the crisis is spreading into prime real estate loans, consumer credit, commercial property and corporate debt.
In a morbidly gloomy stocktake of the crisis it had long foreshadowed, the IMF says this could be an underestimate, as losses and writedowns weaken institutions, with "additional reverberations back to the banking system".
It warns that, just as asset prices such as house and share values were built up by debt-fuelled borrowing, in the reverse way, they could collapse as debt contracts, slowing economic activity and shrinking wealth.
The world's financial watchdog and lender of last resort, the IMF says the US remains the centre of the crisis. But it is spreading to financial institutions in other countries, where good times led to a weakening of institutions' risk management systems — and of prudential supervision by authorities.
"Industrialised countries with inflated house price levels relative to fundamentals, or stretched corporate or household balance sheets are also at risk," it warns.
Last night's summary did not mention specific countries. But last week the IMF singled out Australia as having one of the four most overvalued housing markets in the Western world, and one of four highest levels of housing debt.
In a chapter released early from its World Economic Outlook, it estimated that Australian housing prices in 2007 were 25% higher than could be explained by economic fundamentals. It added that this could reflect factors not included in its model, but nonetheless risks a sharp correction.
Even in 2006, it found, Australia had the fourth highest housing debt in the Western world. Households owed mortgage debt equivalent to 80% of GDP (it's now 85%).
The warning comes as a new survey reports a sharp fall in business activity in March, on top of falling retail sales in January and February.
Treasurer Wayne Swan, who flies out tomorrow for the half-yearly meetings of the IMF and the World Bank in Washington, accepted the report's sombre warning last night.
The IMF told banks to move quickly to put their own house in order — including by terminating management pay schemes "that may act to shorten the horizon of top management" (such as bonuses for short-term results).
Banks should also disclose their problem exposures to reduce investor uncertainty; seek medium-term finance rather than rely on short-term loans; and correct their risk management strategies — particularly to address the risk that parties they have made deals with may be unable to meet them.
Governments need to step up supervisory actions and intervene early to rescue troubled institutions, the IMF says. They should even consider contingency plans for a worst case scenario of an asset price collapse coupled with a recession — which could require taxpayers to bail out the markets.
Prepare for opportunity
With respect to the posts above and my previous thoughts, I believe that pricing will always return to a mean after sustained swings in either direction.
Pricing will never live on a mean as it is ultimately dependent on consumer confidence. And so we will continue to ride the roller coaster of confidence and either take profits where we can or see the ride out to the end.
Where the ride ends depends on our income and wealth demands and whether we get out near the top or bottom of any future market. But sooner or later we all have to get off the ride.
I foresee a window of opportunity from 2009 onwards for buyers in specific residential markets in Australia.
The window will only be open to those who have cash and can source additional credit at the time and conditions for credit are likely to be stricter than they have been for some time in the past.
This is a good time to fix your credit card debt and pursue other pastimes on weekends apart from the habitual "shopping" which comes up far too often as a "hobby" on CVs that cross my desk.
The land will be waiting at the end of the storm.
p.s. Saying "I told you so" won't make you or me any wealthier.
With respect to the posts above and my previous thoughts, I believe that pricing will always return to a mean after sustained swings in either direction.
Pricing will never live on a mean as it is ultimately dependent on consumer confidence. And so we will continue to ride the roller coaster of confidence and either take profits where we can or see the ride out to the end.
Where the ride ends depends on our income and wealth demands and whether we get out near the top or bottom of any future market. But sooner or later we all have to get off the ride.
I foresee a window of opportunity from 2009 onwards for buyers in specific residential markets in Australia.
The window will only be open to those who have cash and can source additional credit at the time and conditions for credit are likely to be stricter than they have been for some time in the past.
This is a good time to fix your credit card debt and pursue other pastimes on weekends apart from the habitual "shopping" which comes up far too often as a "hobby" on CVs that cross my desk.
The land will be waiting at the end of the storm.
p.s. Saying "I told you so" won't make you or me any wealthier.
Why would you want the market to drop if you have just bought property, and why sit there for years in a stagnant market. Personally I would wait until prices start on their upward trend......now.
Have to disagree on there being no prob with AUD falling. As I said the falling dollar reflects a weak economy, why would anyone invest in it? Would you seriously invest in America at the moment?
evand:
I get my figures from RP Data, but it depends on where your property is on the coast, I guess. One of my Wamberal properties is at the hgher end of the market and has seen 10-15% growth, (over 100k) woo hoo! The other I'm not sure of but if I go by RPD the median 12 month growth is 12%. For those of you who don't know the coast Wamberal and Terrigal are beachside suburbs. Both properties are less than 200m from the beach.
Which brings me back to the Sydney Market.
As has been pointed out - we can talk about the Central COast, Sydney or Melbourne etc generally, but it's sourcing the growth suburbs within those cities. Proving the Wave Effect, these are the Northern Beaches and Northshore suburbs and inner city suburbs in Sydney.
Take a look at API this month and check the graph out. There are alot of inner city 5%+ growth suburbs popping up. . . . .and it's spreading!
I do believe the time to buy is now, that NSW, VIC and some parts of QLD are the places to buy.
When talking about a recession after this next wave, I believe we will see some very tough times.
Preparation is the key, but I'm going to make my hay while the sun has begun to shine!
And with that. . . . .I cover my crystal ball. . . .
Because rather than just having whatever I have now bouncing back up, I'd rather have the next 5 years to double (or more) my exposure to the market and have THAT catch the next wave.
The AUD dropped below 50 US cents around 2001. Was it worth investing in then? Drops represent OPPORTUNITIES. I would much rather buy US shares now, given where the AUD/USD rate is at, than when it was trading at 50 US cents.
Alex
Last edited:
mate i don;t think we'll escape it. i think i wrote that somewhere else on here.
i just don;t see it being as bad here as in the EU and US.
i live in Perth as well, so I can have rose-coloured glasses on too. the WA economy can be gauged on how many cranes there are in the sky - and at the moment, there's a lot.
I disagree entirely with both your propositions. But thats ok. Thats what forums are for. You have your opinion and i have mine.
In my experience, people's predictions (especially bold ones) are usually based on what they want to happen rather than on what they think will happen (or what will happen, and of course no one knows). And they find many reasons to support those reasons.
Problem is tho, it usually leads to less than satisfactory investing performance at best and financial disaster at worse. As been witnessed a few times recently on the forum.
For what its worth i wouldn't trust RP Data or many other info sources too much. Especially with low volume, short term price variations. Definitely unreliable data.
btw: What do you mean by 'inner city suburbs'? Do you mean inner west (Balmain, Leichhardt, Glebe etc) and inner eastern suburbs(Darlo, Paddington etc)?
In my experience, people's predictions (especially bold ones) are usually based on what they want to happen rather than on what they think will happen (or what will happen, and of course no one knows). And they find many reasons to support those reasons.
Problem is tho, it usually leads to less than satisfactory investing performance at best and financial disaster at worse. As been witnessed a few times recently on the forum.
For what its worth i wouldn't trust RP Data or many other info sources too much. Especially with low volume, short term price variations. Definitely unreliable data.
btw: What do you mean by 'inner city suburbs'? Do you mean inner west (Balmain, Leichhardt, Glebe etc) and inner eastern suburbs(Darlo, Paddington etc)?
Why would you want the market to drop if you have just bought property, and why sit there for years in a stagnant market. Personally I would wait until prices start on their upward trend......now.
Have to disagree on there being no prob with AUD falling. As I said the falling dollar reflects a weak economy, why would anyone invest in it? Would you seriously invest in America at the moment?
evand:
I get my figures from RP Data, but it depends on where your property is on the coast, I guess. One of my Wamberal properties is at the hgher end of the market and has seen 10-15% growth, (over 100k) woo hoo! The other I'm not sure of but if I go by RPD the median 12 month growth is 12%. For those of you who don't know the coast Wamberal and Terrigal are beachside suburbs. Both properties are less than 200m from the beach.
Which brings me back to the Sydney Market.
As has been pointed out - we can talk about the Central COast, Sydney or Melbourne etc generally, but it's sourcing the growth suburbs within those cities. Proving the Wave Effect, these are the Northern Beaches and Northshore suburbs and inner city suburbs in Sydney.
Take a look at API this month and check the graph out. There are alot of inner city 5%+ growth suburbs popping up. . . . .and it's spreading!
I do believe the time to buy is now, that NSW, VIC and some parts of QLD are the places to buy.
When talking about a recession after this next wave, I believe we will see some very tough times.
Preparation is the key, but I'm going to make my hay while the sun has begun to shine!
And with that. . . . .I cover my crystal ball. . . .
Yes, but they are a family business and have been around a long time (30 years?) and have started talking up lots of markets prior to them having a run. They talked parts of the Sydney market down some time ago and were proven right. They didn't recommend investing in Sydney for quite a few years despite the fact that there was plenty of stock they could have got their hands on to sell. I'm not affiliated with them at all, but have been receiving their newsletter for years and years and they're predictions have been pretty good.
But of course they could be wrong.
There are so many divergent views out there, and lots of people will be wrong. We all pay attention to the things we most want to hear. Cashed up people sitting on the sidelines love any expert talking about a price crash. People sitting in properties love to read anything about an impending price run.
My Sydney inner west PPOR has increased 30% from purchase price in 02 to a recent bank val. Estate agents put the increase in value at 50% i.e. they say it's worth $1.5m now. So if we split the difference and say 40%, that's not bad in Sydney over the last few years. My other inner west Sydney property (Annandale) has performed similarly on bank vals. That's why these whole market stats get up my nose.
Scott
i agree - RPData is useless on last 9 months of low volume data. no accurate representation there whatsoever.
She'll be right (and we'll make up our minds but not until after you do)
'She'll be right', IMF says of Australia
Tim Colebatch
April 10, 2008
KEY POINTS
■World's output will grow by 3.7% this year (down from 4.9% last year).
■Australia's output will remain steady, growing 3.2% this year.
AUSTRALIA is set to escape the slump facing other Western countries in 2008 and 2009, but its inflation rate will stay above the Reserve Bank's target zone, the International Monetary Fund has forecast.
The IMF's half-yearly World Economic Outlook, released overnight, cuts its forecast of global growth in 2008 for the fourth time in nine months. It now tips the world's output to grow by 3.7% this year and 3.8% in 2009, down from 4.9% last year.
The IMF predicts the subprime crisis, now spreading across the full range of US lending, will throw the US into a "mild recession" until midway through next year.
But while predicting that the ultimate cost of the financial crisis globally will be more than $1000 billion — roughly half to banks and half to investors — the global financial watchdog predicts most of the world will sail through the crisis largely unaffected.
Over the next two years, it predicts, growth will average 9.4% in China, 8% in India and 6.7% in developing countries generally, down from a record 7.9% last year. While that implies they will shift down a gear — last year growth was 11.4% in China and 9.2% in India — the impact of the crisis on most of the world will be minor.
The IMF also expects only a minor impact in Australia. In surprisingly bullish forecasts, it predicts Australia's gross domestic product to grow by 3.2% this year and 3.1% in 2009. That more or less matches its average growth this decade.
It also predicts that inflation will defy the Reserve Bank's attempts to squeeze it back into its target zone of 2% to 3%. The IMF tips consumer prices to rise 3.5% this year and 3.3% in 2009, with inflation still outside the target zone as we enter 2010.
"At this juncture, the main short-term policy challenge in (Australia and New Zealand) continues to be to keep firm control on inflation in the face of strong domestic demand and tight labour markets," it said.
Treasurer Wayne Swan, who leaves for Washington today to take part in the half-yearly meetings of the IMF and the World Bank, said the Outlook highlighted the difficult international environment ahead. "Australia is well placed, but we are certainly not complacent," he said.
The authors of the Outlook appear far more confident about the world's capacity to ride out the financial crisis than another IMF team who on Tuesday published a morbidly gloomy stocktake of the crisis in its Global Financial Stability report.
That report warned that the crisis is likely to be the most costly the world has seen, and implied that Australia was at risk of being swept up in the crisis, due to its overvalued housing, high household debt and heavy reliance on foreign borrowing.
Any time you boys want to make up your minds is fine by me. I don't mind contradicting forecasts, I just don't expect them to come from the same source!!!!
'She'll be right', IMF says of Australia
Tim Colebatch
April 10, 2008
KEY POINTS
■World's output will grow by 3.7% this year (down from 4.9% last year).
■Australia's output will remain steady, growing 3.2% this year.
AUSTRALIA is set to escape the slump facing other Western countries in 2008 and 2009, but its inflation rate will stay above the Reserve Bank's target zone, the International Monetary Fund has forecast.
The IMF's half-yearly World Economic Outlook, released overnight, cuts its forecast of global growth in 2008 for the fourth time in nine months. It now tips the world's output to grow by 3.7% this year and 3.8% in 2009, down from 4.9% last year.
The IMF predicts the subprime crisis, now spreading across the full range of US lending, will throw the US into a "mild recession" until midway through next year.
But while predicting that the ultimate cost of the financial crisis globally will be more than $1000 billion — roughly half to banks and half to investors — the global financial watchdog predicts most of the world will sail through the crisis largely unaffected.
Over the next two years, it predicts, growth will average 9.4% in China, 8% in India and 6.7% in developing countries generally, down from a record 7.9% last year. While that implies they will shift down a gear — last year growth was 11.4% in China and 9.2% in India — the impact of the crisis on most of the world will be minor.
The IMF also expects only a minor impact in Australia. In surprisingly bullish forecasts, it predicts Australia's gross domestic product to grow by 3.2% this year and 3.1% in 2009. That more or less matches its average growth this decade.
It also predicts that inflation will defy the Reserve Bank's attempts to squeeze it back into its target zone of 2% to 3%. The IMF tips consumer prices to rise 3.5% this year and 3.3% in 2009, with inflation still outside the target zone as we enter 2010.
"At this juncture, the main short-term policy challenge in (Australia and New Zealand) continues to be to keep firm control on inflation in the face of strong domestic demand and tight labour markets," it said.
Treasurer Wayne Swan, who leaves for Washington today to take part in the half-yearly meetings of the IMF and the World Bank, said the Outlook highlighted the difficult international environment ahead. "Australia is well placed, but we are certainly not complacent," he said.
The authors of the Outlook appear far more confident about the world's capacity to ride out the financial crisis than another IMF team who on Tuesday published a morbidly gloomy stocktake of the crisis in its Global Financial Stability report.
That report warned that the crisis is likely to be the most costly the world has seen, and implied that Australia was at risk of being swept up in the crisis, due to its overvalued housing, high household debt and heavy reliance on foreign borrowing.
Any time you boys want to make up your minds is fine by me. I don't mind contradicting forecasts, I just don't expect them to come from the same source!!!!
Given that the IMF tends to be on the pessimistic side (especially on house prices being overvalued), and that they are now forecasting growth for Australia to be above 3%, I'd like to know why people think that we're going to have a recession.
From my basic understanding, we are still riding the commodities boom, and as long as China and India keep growing strongly, we'll be OK.
Cheers,
From my basic understanding, we are still riding the commodities boom, and as long as China and India keep growing strongly, we'll be OK.
Cheers,
Hi All,
I havent got an answer yet for this ... please can any investors from that era clarify ..
I think its really contradictory that people are expecting recession to occur and house price to come down (to invest) and at the same time expecting 50% rent rise over few years and current levels of low vacancy rates ...
My hunch is if there is a recession in OZ, unemployment will go up (less demand for buying property), there will be less migration (less demand for rents and buying property), less students coming in (less rental demand), less oseas tourists (less short stay accom demand) ... and we may see the shortgae in housing turn into a over supply in various areas... this will lead to less rental growth than what is being extrpolated (based on record migration) and low vacancy rates.
Looking at some data NSW oseas migration dropped from 60,000 to just more than 10,000 .. now surely this will have a massive impact on rents and housing demand .. the NSW state migration to other states improved from -40,000 to -20,000 (i,e less people going to QLD, hence QLd also got whacked).
Australia wide oseas immigration dropped from 157,000 in 88-89 to 30,000 in 92 ... currently is its about 180,000 (06-07).
Now imagine we have a 'normal' recession like the early 90s (not the deep ones of 70s and early 80s), likely immigartion will drop to 50,000 ... what do u think that will do to the housing situation? Dp you think we will still have the 30,000 housing shortgae that the industry is loudly trumpeting.. what do you think will happen to vacancy rates... there goes the 50% rent increase over 4 years ..
Bring it on.. im keenly waiting
trendsta, lets just get buying and leave this bearish crap to the pessimists...
&&&&&&&&&&&&&&&&&&&&&&&&&&&&&
Dear Trendsta and Plusnq,
1. Thank you for your post and for educating me regarding the last Recession that Australia needs to have back in 1991.
2. I observed the following trends reported back then:
a. Fall in the international immigration figures from 157,000 in FY 1988/1989 to 30,000 per year in 1992, was indeed "alarmingly signifciant" then.
b. So was the subsequent cumulative interest rate fall by more than 10%.
c. Interestingly, unemployment figures for Australia, has gone up to 9.5% in 1991 to 10.9% and has remained subsequently high at 8.7% even as at 1997.
http://www.aph.gov.au/library/pubs/h...istmesi8.3.htm.
3. Thank you for sharing the data with us here and for my own self-education, please.
Cheers,
Kenneth KOH
Last edited:
Dear All,
1. Despite the RBA maintaining a steady interest rate policy in April 2008, from my own reading, I understand that the various State Economies in NSW, Victoria and even Queensland, are now at the verge of falling into a Recession soon.
2. ANZ Bank is now said to be forceasting an interest rate cut by the RBA, as early as 2009, instead of from mid-2009 period, as it has previously forecasted.
3. It has been further suggested that the international immigration figures has more or less peaked around 187,000 per year during last June 2007 and that the Australian 's low unemployment rate has more or less bottomed out at around 4%p.a recently, as per the following news-report, " Labour booms bottoms out as jobless rate increases".
http://www.brisbanetimes.com.au/articles/2008/04/10/1207856768083.html
4. For your kind confirmation and further comments/discussion, please.
5. Thank you.
Cheers,
Kenneth KOH
1. Despite the RBA maintaining a steady interest rate policy in April 2008, from my own reading, I understand that the various State Economies in NSW, Victoria and even Queensland, are now at the verge of falling into a Recession soon.
2. ANZ Bank is now said to be forceasting an interest rate cut by the RBA, as early as 2009, instead of from mid-2009 period, as it has previously forecasted.
3. It has been further suggested that the international immigration figures has more or less peaked around 187,000 per year during last June 2007 and that the Australian 's low unemployment rate has more or less bottomed out at around 4%p.a recently, as per the following news-report, " Labour booms bottoms out as jobless rate increases".
http://www.brisbanetimes.com.au/articles/2008/04/10/1207856768083.html
4. For your kind confirmation and further comments/discussion, please.
5. Thank you.
Cheers,
Kenneth KOH
&&&&&&&&&&&&&&&&&&&&&&&&&
Dear House_Keeper,
1. I'm not sure if you are aware that the Shanghai Stock Exchange Composite Index has reportedly fallen by 40% or more, cumulatively to date, from its last market peak achieved in October 2007 period. This is as per some unconfirmed news reports that I have read recently.
2. Likewise, I believe that Mumbai Stock Exchange is also not performing well in 2008, as it has previously been in 2007.
3. Alan Greenspan has also "confirmed" that the US Economy is now in a Recession and that this Recession is likely to be the worst in 50 years time.
http://www.brisbanetimes.com.au/articles/2008/04/09/1207420432575.html
4. Testifying before the Senate Commiittee hearings recently, Ben Bernanke has further "likened" the present (global) Credit Crunch Crisis to be as bad, if not worse than that last Great Depression of 1929-1932 period when it last acted to "bail out" the Bear Sterns Investment Bank, earlier this year.
5. If you have been actively monitoring the commodity prices, you would have observed that since early 2008, the various hard commodidty prices have already started to fall from its previous ever-new recording breaking prices reported in 2007. ( This is despite the prices for soft commodities are likely to grow further over the next few years period).
6. We can re-visit your post again in about 6 months time after the August 2008 Beijing Olympics Games is officially over and to see if you are still as optimistic as you are presently.
Cheers,
Kenneth KOH
Last edited:
