Steve Keen finally admits he was wrong!

[WinstonWolfe]

The IMF's view : Uren Colebatch

The RBA's property bubble view
A very real challenge in the near term is the following: how to ensure that the ready availability and low cost of housing finance is translated into more dwellings, not just higher prices. Given the circumstances – the economy moving to a position of less than full employment, with labour shortages lessening and reduced pressure on prices for raw material inputs – this ought to be the time when we can add to the dwelling stock without a major run‑up in prices. If we fail to do that – if all we end up with is higher prices and not many more dwellings – then it will be very disappointing, indeed quite disturbing. Not only would it confirm that there are serious supply-side impediments to producing one of the things that previous generations of Australians have taken for granted, namely affordable shelter, it would also pose elevated risks of problems of over‑leverage and asset price deflation down the track.




Australian household debt to income ratio mar09 qtr = 155.5%

 

[WinstonWolfe]

WW, I heard Kholer last night on ABC say the opposite? New unit block approvals were up around 30 odd % (2nd consecutive monthly increase of this %). He said that now finance has become more available developers are lining up at councils to build high rise flats.

He said that building aprovals were up an extraordinary 7% in July.

That 7% increase should be viewed in context of overall approvals falling from 14127 in jul08 to 7210 in jan09.

'Other dwelling' approvals are still down 40% on last year in trend terms.

Developers I have spoken with in the last 6 weeks say builder's wages dropped from $37.50per hour 6 mths ago to $28 now, and banks are asking for 120% presales.

 

[Shadow]

Hi Winston,

Throughout 2009, house prices have been booming, but construction activity has lagged.

Now we can see construction is starting to take off too. The construction boom is in its infancy, but it will accelerate from here.

The government is encouraging increased construction. The RBA has stated it wants increased construction. Developers want increased construction. Three fairly powerful groups there. Are you going to bet against them?

 

[Shadow]

My opinion is that home prices are not going anywhere in the future, probably propped up by government (politicians) if they fall and not much room left to rise (unless you get a monetary FIAT money collapse).

Boz, what factors do you think have caused house prices to boom throughout 2009, and which of those factors do you believe will disappear or reverse, in order to prevent this boom from continuing?

 

[WinstonWolfe]

The government is encouraging increased construction. The RBA has stated it wants increased construction. Developers want increased construction. Three fairly powerful groups there. Are you going to bet against them?

I'll bet on what the banks and mortgage insurers want and do.

The govt, RBA, and developers don't carry mortgage risk, nor do they provide the funds for consumer competition for property.

And I'll bet the banks are watching the Chinese economy as a leading indicator.

 

[Rockstar]

I'll bet on what the banks and mortgage insurers want and do.

Well what they are wanting and doing at present is not hampering the present growth in property vals which is great news for property investors. Imagine the consequences of them loosening the pursestrings.

 

[Shadow]

I'll bet on what the banks and mortgage insurers want and do.

The govt, RBA, and developers don't carry mortgage risk, nor do they provide the funds for consumer competition for property.

So what do you think the banks will do with all the capital they're sitting on? Hoard it forever? Is that how they make money?

 

[WinstonWolfe]

Well what they are wanting and doing at present is not hampering the present growth in property vals which is great news for property investors. Imagine the consequences of them loosening the pursestrings.

How do you reconcile banks tightening lending based on post codes, LVRs, and fhb and lo doc criteria?

And how do you reconcile the continuing demise of non bank lenders?

 

[Shadow]

How do you reconcile banks tightening lending based on post codes, LVRs, and fhb and lo doc criteria?

And how do you reconcile the continuing demise of non bank lenders?

And despite all this, property continues to boom. Just shows how strong the market really is. Imagine what will happen when the GFC passes, it becomes obvious Australia won't have a recession, and the construction boom really kicks off!

 

[WinstonWolfe]

So what do you think the banks will do with all the capital they're sitting on? Hoard it forever? Is that how they make money?

Well, I suppose they'd:
- loosen lo doc and fhb approval criteria
- raise LVR lends
- bring mortgage insurance in house because of the higher risk adjusted rewards of self insuring.

Funnily enough they are doing the opposite.

Obviously they are trying to control risks property permabulls, the RBA, govt, and developers don't see.

 

[boz]

Boz, what factors do you think have caused house prices to boom throughout 2009, and which of those factors do you believe will disappear or reverse, in order to prevent this boom from continuing?

that is quite easy to answer that.
for sure home prices went up for a higher demand that was introduced by reducing interest rates and FHG (and relative higher rent untill early 2009), offer was lower as there was no need to sell in a bear market as interest rates were lower and more affordable, unemployment still low and banks are not calling back loans.
All this will change as FHG boost is planned to go away, interest rates are not planned to go any lower (and even if they do will be by not much). unemployement will keep rising, banks will be more carefull on lending (but government might step in on that). also this price bounce up is a good opportunity for investor to deleverage and reduce risk and more property should enter the market if prices hold up.

The IMF's view : Uren Colebatch

The RBA's property bubble view
A very real challenge in the near term is the following: how to ensure that the ready availability and low cost of housing finance is translated into more dwellings, not just higher prices. Given the circumstances – the economy moving to a position of less than full employment, with labour shortages lessening and reduced pressure on prices for raw material inputs – this ought to be the time when we can add to the dwelling stock without a major run‑up in prices. If we fail to do that – if all we end up with is higher prices and not many more dwellings – then it will be very disappointing, indeed quite disturbing. Not only would it confirm that there are serious supply-side impediments to producing one of the things that previous generations of Australians have taken for granted, namely affordable shelter, it would also pose elevated risks of problems of over‑leverage and asset price deflation down the track.

thanks for that ww, i agree with that and that is why i agree that housing market is in a worse shape. this housing unsuccesful policy can be seen in monday HIA report:
link
you can clearly see from the chart that even with the 7% m/m approval increase new dwelling construction and approval is way lass then previous years, by the way approval is a volatile measure (even if leading and not lagging indicator) and for long term sales number might be a better way to valuate the housing industry status

 

[Peter 14.7]

Little people who don't eat a lot so we can export more? Using fewer resources because the houses can be smaller - gosh that's an aspect of our economy I hadn't considered before .

kaf

Why note, that how Tasmania works, Peter

PS apology to Tasmainian SS members

 

[Shadow]

All this will change as FHG boost is planned to go away

It was planned to go away before, but the government changed their minds and kept it. It won't go away if it is still needed, but in my opinion it is not really needed anymore. The boost will be retained for new developments, to assist the construction boom.

interest rates are not planned to go any lower (and even if they do will be by not much)

But you said in post 21 that "We are much closer to deflation and zero interst rates then most member of this forum think". Have you changed your mind? In my opinion rates will stay low, they might go up a bit, but not much.

Unemployement will keep rising, banks will be more carefull on lending (but government might step in on that). also this price bounce up is a good opportunity for investor to deleverage and reduce risk and more property should enter the market if prices hold up.

Unemployment is expected to peak much lower than previously thought. In fact unemployment has been a lot higher in the past and there was no property crash. Also we have mortgage holidays for the unemployed.

Banks have been careful with lending throughout 2009 and prices have boomed. I don't see any signs of further tightening by the banks.

You really haven't provided anything to suggest house prices will stop rising. If anything, the arguments from bears are now a lot weaker than they were a year or two ago.

 

[boz]

So what do you think the banks will do with all the capital they're sitting on? Hoard it forever? Is that how they make money?

banks they don't have much capital to sit on at all, they just leverage as much as they want to take more risk: they borrow money from overseas (at an interest and mostly in US$) then lend those money with a spread in australia, so more they lend more they borrow.

 

[Rockstar]

How do you reconcile banks tightening lending based on post codes, LVRs, and fhb and lo doc criteria?

And how do you reconcile the continuing demise of non bank lenders?

I, like you, look at a lot of things WW. You can't ignore the reality of what's happening on the ground despite some tightening of credit and reduction in competition. (my local agent just recorded record local resi sales in my area for August) There is growth happening out there mate despite what we all think might or might not happen. The finance sector wants and needs growth as does Govt's, RBA, etc. - and they're getting it.

I am sorry for you if you and some others here don't like it.

 

[willair]

Australia won't have a recession, and the construction boom really kicks off!

It could still happen there are different levels of uncertainty,Australia is not out of the problem zone,but as long as the Rudd government keeps pumping money into the system then it's anyones guess as some will see over the next few weeks on the ASX..willair..
"Trading may have Princes,but nobody stays a King"

 

[WinstonWolfe]

I am sorry for you if you and some others here don't like it.

I am not emotionally attached either way. I just try and understand the fundamentals, and the various biases that skew perspective.

The growth you and others see is very much based on the govt AAA credit underwriting of Big 4 borrowing, the FHB bonus, and most importantly, Chinese economic stimulation via very loose credit.

If you believe growth is organic and sustainable Rock, then jump right in and buy buy buy.

Meanwhile, I'll be keeping an eye on the Chinese economy.

 

[Ausprop]

The IMF's view : Uren Colebatch

The RBA's property bubble view
A very real challenge in the near term is the following: how to ensure that the ready availability and low cost of housing finance is translated into more dwellings, not just higher prices. Given the circumstances – the economy moving to a position of less than full employment, with labour shortages lessening and reduced pressure on prices for raw material inputs – this ought to be the time when we can add to the dwelling stock without a major run‑up in prices. If we fail to do that – if all we end up with is higher prices and not many more dwellings – then it will be very disappointing, indeed quite disturbing. Not only would it confirm that there are serious supply-side impediments to producing one of the things that previous generations of Australians have taken for granted, namely affordable shelter, it would also pose elevated risks of problems of over‑leverage and asset price deflation down the track.




Australian household debt to income ratio mar09 qtr = 155.5%

It is disappointing and it is disturbing - but it's kind of nice to see government acknowledging the impact of its own red tape.

The sign posts are all there, they all point to increased hosue prices. Unless of course, govt stepped in and took a direct role in property development and they could do it more efficiently than the private sector - ha ha.

" it would also pose elevated risks of problems of over‑leverage and asset price deflation down the track"

this comment is interesting - they are suggestign an eventual solution will collapse prices - but don;t indicate what that may be.

 

[WinstonWolfe]

It is disappointing and it is disturbing - but it's kind of nice to see government acknowledging the impact of its own red tape.

agree with you on that Ausprop. The govt is trying to appease two conflicting things:

- the desire of a green/enviro obsessed electorate to maintain the liveability of our cities.

- the desire of the government to boost the population, without strong clear policy for decentralization of employment centers and residential growth, nor the funds to provide infrastructure for such.

 

[Aaron Sice]

yeah, might be right, overnight US hare market plunged (even with the overnight green shots like good manufacturing number and home sales), S&P 500 back below 1000 so the reverse might have started (leading this time was the Baltic dry index first, the Shangai stock market then)

down 2% - yeah - PLUNGE. never mind it's the FIRST OF SEPTEMBER - first day of profit taking. like i said, a time-honoured and recognised profit takign season does not equal the beginning of the end.

I know it is bad, Spain is even worse,

then why did you compare apples and bananas? was there any point in bringing up ireland at all - or was it a distraction technique?

remember that those things happen when government and central banks allow bubble to happen and the economy growth and spending is beyond the mean of the country, australia is no different in that. Commodity demand and prices (and investing in resources) is what has been saving australia in the last couple of years (I don't think will last).

you don't think resources will last? as in, Chevron, ExxonMobil and Shell have spent a combined $8bil+ in DD for....what, 2 or 3 years of gas? and Mega Uranium being the first off the ground for uranium mining for 18 months? Woodside is building a gas platform and assc. infrastruture for .... tourism? Maybe BHP/RIO aren't finishing the train loop so that ore trains can run 24/7 but to stick the Ghan on that instead...?

that was an interesting point as that speach was made before the GFC and at that point RBA didn't know with certainity weather the credit expansion run its course, but of course Shadow know for sure that it doesn't...

I like to reply like the rba would and we don't know with certainity weather the credit expansion run its course, we have to see what happen to growth after stimulus is finished. Also other big factors will play a key role like productivity, unemployment, company profits, commodity prices, markets speculation etc.

if banks don't invest in business, UE will grow, hurts serviceability - there's the downward spiral. not more people buying houses at a 20% margin lending rate and doing what they can to owntheir own home.

My opinion is that home prices are not going anywhere in the future, probably propped up by government (politicians) if they fall and not much room left to rise (unless you get a monetary FIAT money collapse). About rent I see vacancy rate going up with the high unemployment. I also expect trouble for who got too much into debt and with too much leverage with that
I'll expect more interesting developement and volatility on currencies and on the share markets

sorry boz - you just chucked FIAT in there to try and bolster a lost argument. trouble is with your stated contradiction - if a FIAT system DID collapse, any and all hard asset prices would SKYROCKET - gold, ore, diamonds and LAND. folks might not be able to afford to rent - fine - govt brings out rent control and land prices still spiral upward. perfect example here is a city you should be able to wiki - NEW YORK.

if your spotuing the end of the financial world as we know it, you must have missed the quadzillions of dollars spent worldwide to keep the system going, with new regulations in place to keep it that way passed by the puppets and their masters.....

seriously - i think you've had your fill.