Some nice Supply Side numbers and charts

[evand]

Are you saying property prices will increase when inflation increases? Of course, interest rates will increase out of sight.

Re China i think world wide demand has dropped off quite a bit and the effects of that will be felt for a while around the world.

Once China kicks into gear to avert a global recession, today's calamities will seem like yesterday's news.

Concise enough?

Cheers,
Michael

 

[evand]

What about the 07 mini boom that coincided with the stock market peaking.

Foreign investment is negligible in the scheme of overall demand, or lack of. (no more graphs please)

Price gap not important when prices are historically very high by nay measure everywhere.

FHOG minimal impact due to only affecting very bottom of the market. At best will create a short price spike at the bottom of the market for a short time.

The fall in interest rates wont be for long and then they will increase rapidly.

Evidenced by myself rents flat and/or falling in Sydney of late.

I have seen no cashflow properties for a long time. If there were nay, they probably wouldnt be worth buying.

Increased population means squat when they cant afford the property.

Banks keen to lend, but less keen then they have been for ages. Its all relative.

Sales volumes are low and have been for ages.

Common sense tells me this...

- Property prices in Sydney are down 15% from their peak and have moved backwards for half a decade.
- The falling Australian dollar has made Australian property up to 40% more affordable for foreign investors.
- The price gap between Sydney and other cities is now quite small by historical standards.
- FHOG increased to $24K in NSW.
- Interest rates are plummeting.
- Rental vacancy rates are at historic lows and rental yields are rising.
- Many properties are now cashflow positive, could soon be cheaper to buy than rent.
- The population is growing very strongly.
- Banks are still keen to lend.
- Sales volumes are as strong as ever.

Common sense tells me it is a good time to buy property in Sydney.

Cheers,

Shadow.

 

[DavidMc]

A large majority (the largest?) of new immigrants into Victoria are Indian. I would agree that Indians would be more likely to live in higher density dwellings than existing Australians.

However, I do not think that this number is significant enough to change the downward direction of the average number of occupants per dwelling in a significant way (i.e. enough to be a major cause of a crash).

 

[Shadow]

What about the 07 mini boom that coincided with the stock market peaking.

Not much of a boom. About 3% in real terms.

Foreign investment is negligible in the scheme of overall demand, or lack of. (no more graphs please)

Not negligible when we have such high overseas immigration levels, especially to Sydney.

Price gap not important when prices are historically very high by nay measure everywhere.

Price gap is very important, and the previous large price gap between Sydney and the other cities is one of the main reasons for such high interstate migration away from NSW recently. This is starting to reverse with the price gap narrowing.

Net Interstate Migration

FHOG minimal impact due to only affecting very bottom of the market. At best will create a short price spike at the bottom of the market for a short time.

When the bears thought FHBs were being priced out of the market, they used this argument to show prices would crash because FHBs are required to drive the whole market because an FHB sale leads to a sale higher up which leads to another sale etc. New money in is always required. You can't have it both ways! FHBs bring the new money into the market, which works its way up to the top.

The fall in interest rates wont be for long and then they will increase rapidly.

That is pure speculation. If I had a dollar for every time this year the bears said that rates definitely wouldn't fall, the banks definitely wouldn't pass on any cuts, the banks would raise rates even if the RBA cut them etc!

If rates look like rising again then I will fix.

Evidenced by myself rents flat and/or falling in Sydney of late.

I just put the rent up on one of my properties last week (Northern Beaches).

I have seen no cashflow properties for a long time. If there were nay, they probably wouldnt be worth buying.

Not looking hard enough. There are plenty out there, and there will be even more next year.

Increased population means squat when they cant afford the property.

But they can afford it. Especially when prices are 15% lower in real terms and interest rates are halved!

Banks keen to lend, but less keen then they have been for ages. Its all relative.

Still pretty keen though...

Sales volumes are low and have been for ages.

Wrong, see below.

Shadow.

 

[evand]

ok, you win.

What about the 07 mini boom that coincided with the stock market peaking.

Not much of a boom. About 3% in real terms.

Foreign investment is negligible in the scheme of overall demand, or lack of. (no more graphs please)

Not negligible when we have such high overseas immigration levels, especially to Sydney.

Price gap not important when prices are historically very high by nay measure everywhere.

Price gap is very important, and the previous large price gap between Sydney and the other cities is one of the main reasons for such high interstate migration away from NSW recently. This is starting to reverse with the price gap narrowing.

Net Interstate Migration

FHOG minimal impact due to only affecting very bottom of the market. At best will create a short price spike at the bottom of the market for a short time.

When the bears thought FHBs were being priced out of the market, they used this argument to show prices would crash because FHBs are required to drive the whole market because an FHB sale leads to a sale higher up which leads to another sale etc. New money in is always required. You can't have it both ways! FHBs bring the new money into the market, which works its way up to the top.

The fall in interest rates wont be for long and then they will increase rapidly.

That is pure speculation. If I had a dollar for every time this year the bears said that rates definitely wouldn't fall, the banks definitely wouldn't pass on any cuts, the banks would raise rates even if the RBA cut them etc!

If rates look like rising again then I will fix.

Evidenced by myself rents flat and/or falling in Sydney of late.

I just put the rent up on one of my properties last week (Northern Beaches).

I have seen no cashflow properties for a long time. If there were nay, they probably wouldnt be worth buying.

Not looking hard enough. There are plenty out there, and there will be even more next year.

Increased population means squat when they cant afford the property.

But they can afford it. Especially when prices are 15% lower in real terms and interest rates are halved!

Banks keen to lend, but less keen then they have been for ages. Its all relative.

Still pretty keen though...

Sales volumes are low and have been for ages.

Wrong, see below.

Shadow.

 

[Token Funder]

Banks keen to lend, but less keen then they have been for ages. Its all relative.

Still pretty keen though...

...and yet today's rumour is that Suncorp have just pulled the plug on their broker business.

Odd, that.

Perhaps they're going to apply themselves to the massive amount of lending opportunity brought about by all those cashed-up immigrants *snigger*

 

[MichaelW]

Token Funder,

Honest question here, so please don't see it as rhetorical or trying to mount an argument...

Could you please explain your take on the current bank funding situation given that the government is today moving to legislate their banking guarantee? This means all the big 4 will go to market big-time in January with their shiny new AAA rating and really improve their balance sheets. This should significantly reduce their cost of long term debt sourced from international markets and allow them to get ahead of the RBA in their rate cuts if they want to grab share off their peers.

This is the jist of the argument mounted in the AFR which I think makes perfect sense. I believe that funding has been hard to come by of late so banks have been forced to tighten their lending criteria to protect their balance sheets. But as the access to funds ease given government bank guarantees, surely this will mean a slight loosening of lending by the big 4.

I figure the credit crunch is an issue of trust, and the government backings fixes the trust problem. Whatever the case, my personal balance sheet and servicability is strong enough that I don't face any credit rationing issues, but I can understand how credit rationing can reduce asset prices given the impact of money supply on aggregate demand. But this should have different impacts based on market demographies. If I am typical of my postcode, then prices should be maintained given all buyers in this postcode won't be impacted by credit rationing for example.

Am I missing something?

Cheers,
Michael

 

[warmed_cockles]

Year ending is misleading. The December 07 quarter was a relative buying frenzy. What are the sales volumes since then? Or in the September quarter this year? That would be more accurate.

Why will people come back to Sydney when its economy is in such a parlous state? Who cares about the housing 'gap'? There are more jobs elsewhere and given the state of the NSW government it is very much likely to stay that way. On your graph, people aren't returning to NSW - fewer are leaving. That's not indicative of positive interstate migration.

 

[MichaelW]

Why will people come back to Sydney when its economy is in such a parlous state? Who cares about the housing 'gap'? There are more jobs elsewhere and given the state of the NSW government it is very much likely to stay that way. On your graph, people aren't returning to NSW - fewer are leaving. That's not indicative of positive interstate migration.

How about this for a solution?...

Queenslanders can save NSW from itself, by buying it
By Paul Syvret
November 24, 2008 11:00pm

THE NSW Government is a national embarrassment.

When its misbehaving Cabinet ministers aren't being sacked, it is making headlines for going down the economic gurgler.

The state is so bankrupt that while the rest of the country is looking at stimulus packages to restore confidence in the economy, NSW is raising taxes and charges, axing infrastructure spending and plunging into deficit before a recession has even officially hit.

It is a basket case with housing investment at the lowest levels since World War II and three consecutive quarters of contracting consumer spending, being propped up by stronger, better-managed economies such as Queensland's.

The solution, as former NSW premier Morris Iemma proposed, is to sell some assets. But given the left wing of the NSW Labor Party's trenchant opposition to privatising sections of the state's creaking power industry, a rethink is in order.

The way to solve the state's problems is to sell some of northern NSW to Queensland.

We can afford it (unlike NSW, we don't have debt approaching 10 per cent of gross state product) and people north of Byron Bay would no doubt be grateful to no longer have to rely on incompetents in the south for essential services.

It makes geographic and economic sense.

If NSW were a public company it would be in receivership. Queensland is its best hope of salvation.

Cheers,
Michael

 

[Token Funder]

Token Funder,

Honest question here, so please don't see it as rhetorical or trying to mount an argument...

Could you please explain your take on the current bank funding situation given that the government is today moving to legislate their banking guarantee? This means all the big 4 will go to market big-time in January with their shiny new AAA rating and really improve their balance sheets. This should significantly reduce their cost of long term debt sourced from international markets and allow them to get ahead of the RBA in their rate cuts if they want to grab share off their peers.

This is the jist of the argument mounted in the AFR which I think makes perfect sense. I believe that funding has been hard to come by of late so banks have been forced to tighten their lending criteria to protect their balance sheets. But as the access to funds ease given government bank guarantees, surely this will mean a slight loosening of lending by the big 4.

I figure the credit crunch is an issue of trust, and the government backings fixes the trust problem. Whatever the case, my personal balance sheet and servicability is strong enough that I don't face any credit rationing issues, but I can understand how credit rationing can reduce asset prices given the impact of money supply on aggregate demand. But this should have different impacts based on market demographies. If I am typical of my postcode, then prices should be maintained given all buyers in this postcode won't be impacted by credit rationing for example.

Am I missing something?

Cheers,
Michael

Kind of but not really

Availability should improve to the extent that those with the cash are still prepared to give it to anyone. However, when times are tough everyone likes a buffer, even the big instos.

As far as the cost, OZ banks have to "pay" to get the guarantee. For the Big 4 that is looking like 70bp. So irrespective of the margin over bills potentially coming down a smidgin (technical bank term), they still have another 70bp to fork out to the govt (or add to the cost of funds, depending on how you want to characterise it). For non-AA rated banks, the govt is charging twice as much.

Cost better but not good.

 

[warmed_cockles]

Token Funder,

Honest question here, so please don't see it as rhetorical or trying to mount an argument...

Could you please explain your take on the current bank funding situation given that the government is today moving to legislate their banking guarantee? This means all the big 4 will go to market big-time in January with their shiny new AAA rating and really improve their balance sheets. This should significantly reduce their cost of long term debt sourced from international markets and allow them to get ahead of the RBA in their rate cuts if they want to grab share off their peers.

This is the jist of the argument mounted in the AFR which I think makes perfect sense. I believe that funding has been hard to come by of late so banks have been forced to tighten their lending criteria to protect their balance sheets. But as the access to funds ease given government bank guarantees, surely this will mean a slight loosening of lending by the big 4.

I figure the credit crunch is an issue of trust, and the government backings fixes the trust problem. Whatever the case, my personal balance sheet and servicability is strong enough that I don't face any credit rationing issues, but I can understand how credit rationing can reduce asset prices given the impact of money supply on aggregate demand. But this should have different impacts based on market demographies. If I am typical of my postcode, then prices should be maintained given all buyers in this postcode won't be impacted by credit rationing for example.

Am I missing something?

Cheers,
Michael

Plenty of other countries have guaranteed wholesale lending and the markets are still impaired. The rating and government guarantee don't matter - the financial system is aware of the size of the problems that exist and know that no guarantee from the government can underwrite it.

What you have is a dilemma where all the banks know (or suspect) that other banks are as crooked as them. Somewhat of a prisoner's dilemma.

 

[MichaelW]

As far as the cost, OZ banks have to "pay" to get the guarantee. For the Big 4 that is looking like 70bp. So irrespective of the margin over bills potentially coming down a smidgin (technical bank term), they still have another 70bp to fork out to the govt (or add to the cost of funds, depending on how you want to characterise it). For non-AA rated banks, the govt is charging twice as much.

Cost better but not good.

Hi Token Funder,

Great insight, thanks! I had read in the article yesterday that there would be a cost to the banks, and this was explicitly spelled out in the millions based on their billions of dollars of refinance, but it didn't say that this would translate to a 70bp premium. I find that to be a lot higher than what the math suggested based on the article I read. Unfortunately it was yesterday's AFR so I can't just dig out the article and post the key paragraphs. I'll go for a walk around the office and see if I can find an old copy but small chance...

Here's the link to the article online, but its subscriber only:

http://www.afr.com/home/login.aspx?ATL://20081124000030569712&section=search

Time will tell, but the rate improvement delivered to another foreign bank by using its government guarantee was significant. Not just 20bp odd.

Cheers,
Michael

 

[Max Carnage]

Teehee!

A friend just emailed this funny to me. I thought that some here might appreciate the humour, and it's relevant to the thread regardless...

 

[boz]

That is funny, very much in line with the thread
I would add:
shortage of houses:
people sleeping under bridges, on beaches and in parks
shortage for great fool:
be a true believer in the ANZ underlying demand
Any other add on?

 

[warmed_cockles]

That is funny, very much in line with the thread
I would add:
shortage of houses:
people sleeping under bridges, on beaches and in parks
shortage for great fool:
be a true believer in the ANZ underlying demand
Any other add on?

ANZ's change to lending requirements certainly doesn't indicate confidence in their beliefs of underlying demand.

 

[MichaelW]

Teehee!

A friend just emailed this funny to me. I thought that some here might appreciate the humour, and it's relevant to the thread regardless...

Max Carnage,

That wouldn't be a resort to argumentum ad hominem would it?

i.e. When you lose the argument, attack the individual instead. Instead of addressing the relative merit of the argument, you introduce a pretty graphic and label one side the greater fools. Also, a trick of the ad hominem attack is to disguise it under the pretense of humour.

Ah well, the debate was moving along so nicely too.

I'll let you off and presume it was an attempt to establish an argument as to why there isn't really an over-supply, but I'm not sure that was the intent...

Cheers,
Michael

 

[Mr. Fabulous]

I believe that funding has been hard to come by of late so banks have been forced to tighten their lending criteria to protect their balance sheets.

What's all this about? Sound like you could be describing some sort of credit crisis, maybe.... Kinda like the one that we've been in for the last twelve months or so that every man and his dog knows about.

Mark

 

[Token Funder]

Max Carnage,

That wouldn't be a resort to argumentum ad hominem would it?

i.e. When you lose the argument, attack the individual instead. Instead of addressing the relative merit of the argument, you introduce a pretty graphic and label one side the greater fools. Also, a trick of the ad hominem attack is to disguise it under the pretense of humour.

Ah well, the debate was moving along so nicely too.

I'll let you off and presume it was an attempt to establish an argument as to why there isn't really an over-supply, but I'm not sure that was the intent...

Cheers,
Michael

Subsitute "greater fools" for "buyers" and we all play nice and the point still stands.

PS: Not sure it is technically ad hominem as no-one here is using the moniker "Greater Fool"

 

[MichaelW]

What's all this about? Sound like you could be describing some sort of credit crisis, maybe.... Kinda like the one that we've been in for the last twelve months or so that every man and his dog knows about.

Yep, that would be the one!

And that is why I was asking Token Funder what he thought of the government guarantee and whether that might help alleviate the crisis. He's closer to the lending market than I am, and I'm not too arrogant to be afraid to ask someone more informed than me for some insight. I appreciated his comments.

Cheers,
Michael

 

[MichaelW]

Subsitute "greater fools" for "buyers" and we all play nice and the point still stands.

PS: Not sure it is technically ad hominem as no-one here is using the moniker "Greater Fool"

Agreed... That's why I "assumed" it was a nice valid argument hidden a little bit behind what might be misconstrued as a personal attack!

I actually really enjoy the alternate point of view as it continues to temper my enthusiasm and inform me of the thought process of the contrarians. Or maybe it is I that am now the established contrarian!

PS Not sure "falling prices" and "rising inventory" are actually occurring. Everything I read suggests falling inventory, and the thread I just started in where to buy demonstrated that falling prices is not a universal occurrance. Although I'll grant that rising FHB Grants and Falling Construction are definately in play.

Cheers,
Michael