Thnings are slowing a lot quicker than I thought!

[Dis]

Will you dismiss investment in property knowing of severe property shortage and guaranteed returns of 7% up (at least for the next 5 years until construction is revived)?

.......... and I stopped reading there.

Really?

In 1995 I have got my first mortgage at 9.4% pa. Before that rates were even higher.

During 90s property prices came off merely 5% off boom peaks.


There was no $21K FHOG

There was no stamp duty treshold.

There was oversupply of properties.

Which rock you slept under?

5% capital loss over 8 yrs unadjusted for inflation? Is that what your saying? Sounds stellar!

isn;t inflation your FRIEND when it comes to property valuations?

i thought inflation worked the other way against property - as in, 5% inflation just made your proerty 5% more expensive to replace, therefore 5% more expensive to purchase, therefore 5% more CG?

If property values are moving in line with inflation, then arguably so. If property values stagnant in $ terms, in inflation adjusted terms you've just been hosed!

 

[BayView]

Do people think first before posting hysterical posts about Steve Keen? Do they know it has happened many times (not just in Australia) and could certainly happen again.

It just indicates the low level of investor experience/knowledge this forum has come to. It is unfortunate as there used to be so many wealthy, experienced and rational investors here that posted from experience, not from theory and spreadsheets.

Yes; the armchair investor syndrome has grown exponentially Ev.

But don't let it put you off mate; there are still plenty of us here with a few runs on the board, and enough newbies who are out there doin' it who need assistance.

 

[Highlygeared]

Personally I am excited about "inflationary erosion" as it erodes my mortgage, thus paying off my properties even when I am on IO loans.

Can someone please explain to me how inflation will erode the mortgage if wages/rents dont go up by at least the same rate...and we have 0% nominal growth if not negative (no, I'm not being sarcastic and this isn't a rhetorical question. I really want to know) ?

I believe in property but think we're in for a rough ride over the next few years. Immigration can and may slow as unemployment ticks up and if that happens, even with dips in construction, rents just can't increase at the same rate. In fact, they could fall by a modest amount if people find creative ways to cut accomodation costs.

 

[warmed_cockles]

Can someone please explain to me how inflation will erode the mortgage if wages/rents dont go up by at least the same rate...and we have 0% nominal growth if not negative (no, I'm not being sarcastic and this isn't a rhetorical question. I really want to know) ?

I believe in property but think we're in for a rough ride over the next few years. Immigration can and may slow as unemployment ticks up and if that happens, even with dips in construction, rents just can't increase at the same rate. In fact, they could fall by a modest amount if people find creative ways to cut accomodation costs.

Inflation only really erodes your mortgage if you are getting wage rises in line with inflation. Otherwise, it doesn't really help you.

I was a bear, but now I'm agnostic. Without government intervention, I was fairly certain property would correct about 10-20% starting this year. Now I am not sure. You've always got to keep in mind who makes the rules, and how they will change them.

What I fear though is the damage the FHOG boost will do. We could be setting up our own subprime lending here. I have already heard of NBLs taking advantage of the governments guarantees and offering 0% deposit loans to FHBs with the grant. This is madness which should have been purged by this crisis.

A return to prudent lending with a minor property correction would have been good for the majority of investors and owners, and the banking system. Instead Rudd has panicked and shoveled what he can into keep property prices and lending at pre-crisis levels. In doing so he has undermined the long-term security of our banking system.

We are heading for a very bad scenario where our foreign debt will blow out along with our current account deficit (see Paul Sheehan in today's paper). The government will find it very difficult to remove the guarantees in three years time, as the banks will have been encouraged to keep lending at levels which they shouldn't. If they do remove the guarantees, our banking system will be very vulnerable.

You can always trust that when a politician panics, he will screw it up!

 

[rastus2]

Inflation only really erodes your mortgage if you are getting wage rises in line with inflation. Otherwise, it doesn't really help you.

I was a bear, but now I'm agnostic. Without government intervention, I was fairly certain property would correct about 10-20% starting this year. Now I am not sure. You've always got to keep in mind who makes the rules, and how they will change them.

What I fear though is the damage the FHOG boost will do. We could be setting up our own subprime lending here. I have already heard of NBLs taking advantage of the governments guarantees and offering 0% deposit loans to FHBs with the grant. This is madness which should have been purged by this crisis.

A return to prudent lending with a minor property correction would have been good for the majority of investors and owners, and the banking system. Instead Rudd has panicked and shoveled what he can into keep property prices and lending at pre-crisis levels. In doing so he has undermined the long-term security of our banking system.

We are heading for a very bad scenario where our foreign debt will blow out along with our current account deficit (see Paul Sheehan in today's paper). The government will find it very difficult to remove the guarantees in three years time, as the banks will have been encouraged to keep lending at levels which they shouldn't. If they do remove the guarantees, our banking system will be very vulnerable.

You can always trust that when a politician panics, he will screw it up!

Clap Clap... very well said.

This is a path we should not tread unless we wish to dodge a very ugly recession bullet ... by walking right in front of a freight train.

The last thing we need to encourage people to do is spend their way our of recession by using more debt... digging that hole even deepr... but, alas, I suspect that's exactly what low rates will achieve.

 

[topcropper]

We are heading for a very bad scenario where our foreign debt will blow out along with our current account deficit (see Paul Sheehan in today's paper). !

Hey, interesting article,....

http://www.smh.com.au/news/opinion/paul-sheehan/paul-sheehan/2008/10/19/1224351052160.html




......."Evans-Pritchard thinks the early signs are hopeful that the answer is the good one, that nations will be rewarded for having sound economies. But he does not believe Australia can escape the consequences of excess: "Australia has allowed its net foreign liabilities to reach 60 per cent of GDP during a decade-long boom, twice the level of the US. The country will, in effect, have to pay 4 per cent of GDP in the form of rents to foreign asset-holders as the bill for such extravagance falls due."

The bill is falling due. Earlier in the year Australians travelling in Europe would have paid about $1.50 for every euro spent. Today they need $2.10. The Aussie dollar is weak again, despite all the luck of the China boom. This raises a number of awkward questions. Did the lucky country became the greedy country? Did it fail to sufficiently embark on a program of nation-building during the resources boom? Was most of the bonus redistributed as tax cuts, which were spent chasing bigger mortgages, bigger homes, new cars and general consumption, stimulating short-term economic growth but not enough on long-term productivity and higher savings?

During 17 years of unbroken economic expansion and a 10-year commodities boom, it took a lot of people, borrowing a lot of money, taking a lot of unproductive risk, to get to where we are today: a nation with excessive debt and excessive vulnerability to external circumstances barely within our control"........




I hope he is wrong. But I can see his point.
Our good luck in having natural resource wealth could really be a curse.

See ya's.

 

[Sunfish]

It's not even a case of "Obvious in hind-sight."

Did the lucky country became the greedy country? Did it fail to sufficiently embark on a program of nation-building during the resources boom? Was most of the bonus redistributed as tax cuts, which were spent chasing bigger mortgages, bigger homes, new cars and general consumption, stimulating short-term economic growth but not enough on long-term productivity and higher savings?

I try not to get into political mud-slinging but I always thought Howard was putting his own re-election above the Nation's well being. There was never going to be a Snowy Mtns MkII during his time. And there were plenty of ppl telling him but he did it his own way.

 

[quoll]

Will you invest it in cash knowing that interest rates going down?

Seems like a lot of people have decided on CASH

http://www.theaustralian.news.com.au/story/0,25197,24444726-601,00.html

Regards
Graeme

 

[Sunfish]

But in the meantime, it is cheaper for banks to pay customers annual interest rates of 8per cent

Nothing wrong with 8% in this climate.

 

[sash]

Better fix quick for a couple of years....8% is not going to be around much longer. I will probably be around 4% by this time next year as credit eases.

Cheer
Sash

Nothing wrong with 8% in this climate.

 

[frehnejc]

This is not good:
Global shipping is grinding to a halt because of the refusal of banks to issue letters of credit. In fact the Baltic Dry Index of bulk shipping rates has collapsed by 89 per cent – from 12,000 in May to 1355 last night. In October alone it has fallen 61 per cent. Rates for Capesize vessels used to ship grains, iron ore and coal have fallen 95 per cent. This indicates a drop in Aust terms of trade.

 

[AUSPROP...]

This is not good:
Global shipping is grinding to a halt because of the refusal of banks to issue letters of credit. In fact the Baltic Dry Index of bulk shipping rates has collapsed by 89 per cent – from 12,000 in May to 1355 last night. In October alone it has fallen 61 per cent. Rates for Capesize vessels used to ship grains, iron ore and coal have fallen 95 per cent. This indicates a drop in Aust terms of trade.

a bottle neck like this would see commodities spot prices go thru the roof!

 

[warmed_cockles]

a bottle neck like this would see commodities spot prices go thru the roof!

Except the opposite is happening.

 

[lizzie]

Except the opposite is happening.

until the stockpiles run out ...

 

[AUSPROP...]

a solution would have to be found pretty darn quickly if this is even half true? recall the fuel riots of a few months ago (yeah I know its hard to recall anything much pre Steve Keen's shoot to fame)

 

[warmed_cockles]

until the stockpiles run out ...

What stockpiles? Chinese steel mills are going bust, and their property market has tanked hard.

 

[Max Carnage]

Jobless rate may double as China slows
* October 22, 2008 - 2:01PM

Australia's jobless rate will more than double in the next two years as slower economic growth in China, the nation's largest trading partner, prompts companies to fire workers and cut investment, JPMorgan Chase said.

The unemployment rate will surge to 9% in late 2010 from 4.3% in September, Stephen Walters, JPMorgan's Sydney-based chief economist, said.

The investment bank also cut its forecast for Australia's economy in 2009 for the second time in as many weeks as ''softer growth in one of Australia's leading export destinations'' means export volumes will be lower. Gross domestic product will rise 1.4% next year, down from a previous forecast of 1.8% and 2.5%, Walters told clients in a note.

''Australia's commodity exporters cannot sail in calm waters while the rest of the world battles a storm,'' Walters said.

''Anecdotes from Western Australia, the beating heart of the mining boom, indicate that projects already are being postponed and jobs cut, partly because firms are finding it increasingly difficult to secure project finance,'' Walters said.

http://business.theage.com.au/business/jobless-rate-may-double-as-china-slows-20081022-5622.html

If this is even just 1/2 true, then...

 

[sash]

Hmmm......Not sure about the 9% unemployment rate....seems very high to me. If that is the case, it would be catastrophic for Australia. Particularly Western Australia and Queenland which have a high reliance on mining industries.

I will be awaiting for the Oct. - Dec. Qtr figures in Jan./Feb. 2009. If there is a 5 in front we are in trouble!

Cheers
Sash

http://business.theage.com.au/business/jobless-rate-may-double-as-china-slows-20081022-5622.html

If this is even just 1/2 true, then...

 

[Sunfish]

a bottle neck like this would see commodities spot prices go thru the roof!

It's not a bottleneck. It's lack of demand from the customer (China). Everyone has a different opinion on whether this is temporary (slow down during olympics and a little manipulation) or demand destruction and a world recession.

 

[rastus2]

It's not a bottleneck. It's lack of demand from the customer (China). Everyone has a different opinion on whether this is temporary (slow down during olympics and a little manipulation) or demand destruction and a world recession.

This may have already been posted, but the Baltic Dry Index is a good indicator of what shipping is doing.

It's been a very, very long time since this index has pointed so low. (far before the 5 year chart that bloomberg can provide).

Do a google search for your own DD... it all seems to point to worldwide freezing of shipping now rather than simply credit.

As Sunfish points out... this is not going to help any country that relies on shipping commodities at all... we are stuck with the stuff in the middle of a price collapse for commodities.