The RBA, Interest rates and house prices
- Thread starter dunno
- Start date
I was reading an article the other day Sunfish, where it stated over the next 20 years or so, a massive amount of wealth shall be transferred from the BB Gen down to the X's.
I would presume that the bulk of that wealth will come in the form of unencumbered residences. That equity, which has been built up and currently lies dormant, if not immediately sold to buy cars TVs etc, may well be leveraged up by the X's, who are more confident than their parents, into further assets.
I read that somewhere else this morning. From The West Australian (whatever) was it? Again it doesn't fit my description of NEW MONEY. The wealth effect will be welcome for the beneficiaries but if they can only sell to other beneficiaries then that is the equivalent of taking in each others' washing.
Hey! I'm not sure I'm right here. I'm not that arrogant, but it "feels" right to me.
I agree that new wealth would need to drive prices higher, as this massive growth has reached a point where I think it needs different factors (wealth) to continue past where we are now.
The 'double income, cheaper consumer goods' you mention, is now the new benchmark. I don't know... So what is next? Perhaps it's little new wealth and very slow growth ???
I've seen it happen before. Interesting times...
I'm sure the previous generation had no idea either & said something similar..... then double incomes & cheap Chinese goods became the norm.
You appear to be saying that the human race has reached a plateau, and we cannot improve our situation from here - do you really believe that ?
I aggree, there is no housing shortage (even close to the CBD), just an excess of property investors/speculators. From what I've seen at auctions lately, people arent buying PPORs, they're buying investment properties.
If the government was serious about having more affordable property for people to live in, they would make property investment less lucrative. But they wouldnt do that, and I'm sure everyone in this forum is happy with that
And before people go on about 'if it wasnt for investors, there would be no rental properties', it also works that if investors werent snapping up properties, there would be less competion for properties, prices would be lower and more people could buy instead of rent.
Flame away.
Yea well it's all about where do you draw the line.
And also an issue of how socialist you are or how capitalist you are.
You could always go one step ahead. If it wasn't for all these capitalists (eg lending money for developments/investments, free-riding off their employees' effors etc), there probably won't be inflation and the price of your lettuce won't keep going up and there'd be no poor people and homelessness. Why are people who inherit businesses allowed to make money at the expense of others' hard work when they didn't work hard themselves to get to where they are (eg Packer).
We should just make cash readily accessible and everyone can have money when they want it. In fact, better still, everyone can have what they need (eg food, TVs, cars) on a needs basis rather than a 'who's got more money basis'. I can think of a few countries that did this in recent times and it didn't quite seem to work. Maybe you can come up with a way to make it work.
given that most of these achievements revolve around cheap oil then yes it is a scary prospect.
I'm reluctant to mention the greater fool effect lest it be thought that I am calling property investors "fools". I'm not!
But there can be no doubt that the US housing bubble was driven by the expectation that there will be a greater fool next year. To be fair, that is what also drives share market bubbles too, the dot com bubble being the best (worst!) example.
Now a fool and his money are soon parted, but he must get the money in the first place. The beneficiaries Dazz speaks off will only use the new, unused, equity to leverage further into property if they can reasonably expect a greater fool to come along next year. If there is no extra money in pockets they will be unable to bid prices up further.
But there can be no doubt that the US housing bubble was driven by the expectation that there will be a greater fool next year. To be fair, that is what also drives share market bubbles too, the dot com bubble being the best (worst!) example.
Now a fool and his money are soon parted, but he must get the money in the first place.
The beneficiaries Dazz speaks off will only use the new, unused, equity to leverage further into property if they can reasonably expect a greater fool to come along next year. If there is no extra money in pockets they will be unable to bid prices up further.The only way to generate wealth is to take someone else's wealth. So as a country, what resources is doing is taking some of China's / South Korea's / India's / South East Asia's wealth. Or as the papers say, sharing in their wealth. This wealth transfer then trickles down our economy through consumer spending, investing and developing more mines to resell to others., houses etc
When we sell a piece of iron ore to them, we exchange our commodity for their wealth. For our next generation, there's enough commodities to go around to keep fueling this. But what happens when it's all over?
Of course, resources is not the only area that generates new wealth. Another prominent area I could think of is education. Navitas has alerady hit $3.0bn and Study Group is floating soon with a price tag of $300m or so. Most of the educational institutions are also public institutions. Some of the wealth generated in this industry trickles down our economy in the form of salary rises and consumer spending. Other wealth is funnelled back into the education system to make it even better, so we can stay on top of our game and continue 'sharing in the wealth' of China and India.
What has some of our other major industries got to offer? Well many services companies are trying to tap into Asian markets now to 'share the wealth'. Not to mention agriculture. So in short, resources is just one area of wealth generation.
I am saying that Australian workers (outside the resource sector) have reached a plateau in their wealth, at least until the next boom in banking and finance and I won't still be alive then so I'm not going to invest with that expectation.
If there is a general increase in pay packets it will cause (or be caused by) inflation and I don't believe inflation erases debt either because interest rise in lock step.
Heretic ain't I?
Banking and finance is just there to service a booming sector, because that's precisely what it is, a servicing industry. It's not going to boom on its own... so if there's a bulk commodities, base metals, energy, education boom, the wealth trickles down.
Population growth also helps create stronger work force, giving established capitalists the opportunity to make more money off the supply of workforce and thereby free-ride the economy.
Population growth also helps create stronger work force, giving established capitalists the opportunity to make more money off the supply of workforce and thereby free-ride the economy.
I read that same article (The Australian - Business) and couldnt help but think thats a big IF!
Also definitely agree with Ausprop about the resources sector as the major positive news at the moment appears to be these record breaking deals across Aus, which seems to be generating alot of positive speculation on Australia globally.
Gindalbie strikes $71bn ore deal
BHP wins 100pc price rise for iron ore
Oakajee project deemed feasible
BG, Cnooc sign binding deal - biggest single LNG contract in Australia's history
etc.
Yes, I agree.
"The City" style banking thrives when the general economy thrives and there is a flurry of excitement causing merger and acquisition activity and new companies are listing on the exchanges. Do BHP and RIO need the services of Macquarie very often? I see better opportunities elsewhere.
Ive been reading a lot how people seem to think the RBA will keep pushing up interest rates to 'pop' the property bubble. This confuses me-isnt their sole responsibility to control inflation and inturn the health of the economy? Why/how could they keep pushing up rates to slow down property whilst seemingly being ignorant of the subsequent effect on inflation and the economy?
People payed to say/write something will say anything to get paid... That is my thoughts on what is said in the media on IR, housing the RBA and the tooth fairy. People who do it for free have too much time on their hands.
The RBA is mandated to do Australia's banking in the best interest of Australia. If that means robbing Peter to pay Paul they'll do it. Australia's economic best interests is currently defined, as far as I can tell, is not to sink into a pit of debt and to keep inflation at +3%
The only thing I can see that will pop this 'bubble' is a increase in unemployment. Double income households are the norm now, and people certainly have the capacity to absorb additional costs. IMHO interest rate rises may flatten out the groth rate, but cant see it popping the bubble as the bears would so dearly love to see.
bubble, bubble toil and trouble...
IR's go up,
IR's go down,
Don't be caught with your pants down
Another good one is...
Don't count returns on your investment, until you have counted on the return of your investment.
Thoughts?
There is only poverty for the poor, and more riches for the rich. Play the game your own way.
follow my one step easy to follow chart to wealth building success.
(Jonril copyright 2010 )
Please forgive my deranged opinion I am a very bad man.
TL;DR sorry dunno, I dunno either... but I am enjoying the journey.
Hmmmm, this thread was posted yesterday morning and we are already up to page six.
Just imagine how useful it would be if, instead of navel gazing about the future, we could get the same level of involvement from the experienced investors here in discussing deals that can be done now, in today's market, that make money regardless.
Just my wishful thinking i guess!
Back to the thread...
Just imagine how useful it would be if, instead of navel gazing about the future, we could get the same level of involvement from the experienced investors here in discussing deals that can be done now, in today's market, that make money regardless.
Just my wishful thinking i guess!
Back to the thread...
"Making money" involves the future. How can you invest without having an opinion about the future?
Even saying "nothing will change" is an opinion and you should be able tell us why you think that.
