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Forums->Australian Bubble Forum->Correction imminent or already underway

homes4aussies	Correction imminent or already underway
	That's right. I think there are clear signs that we are on the edge of the correction if it has not already begun. Last year I accurately forecasted the timing of the correction and was reasonably accurate on the rate of decline (actually I accurately predicted that I was being conservative - http://www.homes4aussies.com/080708paper.pdf) In another slightly later piece I highlighted how the vested interests that released housing market data were cleverly concealing that the correction was underway (http://www.homes4aussies.com/h4a081104.pdf). Actually, they did such a good job of fooling the every day person that by the time it was common knowledge that house prices had indeed been falling through 2008, they were going back up again due to the Rudd/Stevens put (a la the Greenspan put)! My advice to all is to be even more skeptical than usual about media stories etc surrounding data releases over the next short while - try to read between the lines, and look for signs! Below I've outlined the signs that I am seeing. But I think it is very worthwhile noting that NAB recently said that it is forecasting a 5% price decline in Aussie house prices for next year. That is a fairly major development as the banks are usually extremely conservative with such forecasts and, of course, until recently "accepted wisdom" was that "house prices never declined". http://www.smh.com.au/business/property-prices-on-way-down-warns-bank-20091204-kays.html It will not surprise anybody that I agree that prices will fall. I'm sticking with my latest forecast www.homes4aussies.com/090610h4a.pdf even though I slightly underestimated the impact of the boost. As such, I think that NAB might have underestimated the size of the fall next year - but that will largely be determined by when the boost-induced peak is reached. My reading of the tea leaves is that the peak has been reached or is nigh (2009Q4) - I'll explain my reasonings below - and that means that house prices will likely be falling all of next year (and for a few years after that) so NAB's estimate of 5% will likely be an underestimate. OK - the indications of weakness. It's a mix of media reporting and personal experiences. Firstly there is abundant evidence in the media that - contrary to the Real Estate Institutes' continual assertions - the investor is NOT back. Not at all. And this was vital to the "bubble perpetuating" - or is that the "plunge protection" - plan. There have been recent comments here of investors complaining about being outbid by the booster kids. How ludicrous. What is actually happening is that they are less gungho about capital appreciation than they were earlier in the bubble - the myth that house prices can only go up has well and truly been burst - so they are applying more stringent assessments of value. Moreover, the media is awash with stories of struggling housing markets in the investor-dominant sectors - especially apartments in holiday areas. This week there were these two stories on Nelson Bay highlighting 1) it has the highest proportion of delinquent loans of all Australian postcodes (good report by FitchRatings? - well worth the read) explained by the authors as being partly due to stressed sellers being unable to offload properties, and 2) that forced sales that are occurring are at 30-40% discount to previous pricing (and note how the media is trying to spin this as a bad thing for tenants - "we need to save the wealthy investors by propping up prices and keeping these poor buggers paying high rents" - in a similar way to slow death by gangrene is somehow preferable to amputation to save one's life!) http://www.smh.com.au/national/pain-in-the-postcodes-as-interest-rates-rise-20091207-kffg.html?autostart=1 http://www.smh.com.au/national/tenants-are-being-made-homeless-as-investors-default-on-mortgages-20091207-kffj.html I have seen very similar stories about Mandurah in WA - which was in the headlines a few years back for having the most expensive housing in the country (relative to wages) - and I noticed that it was quite high in the FitchRating? list of postcodes delinquency rates. There has also been much talk in the media of unit developers in SEQ attempting to get sales to appease banks by discounting 20-30% (one specific article was in the AFR on 12 Nov 09). And Louis Christopher recently on the "Barefoot Investor" (CNBC) was saying that the postcodes with the greatest number of old listings (on the market for over 60 days) are in the Gold Coast and Sunshine Coast areas. A personal anecdote. Last month my parents picked up a heavily discounted unit in the first and only multilevel unit development in my home town (in north Queensland) after two contracts - the first from a southern investor who bought a whole floor off the plan - failed to complete. At the auction there was zero "southern interest" - just locals. In the one market I'm personally looking - the Brissie house market - I've noticed a fall off in interest and agents getting keener for offers, and I've seen a lot of similar comments online. It is very clear that it is a widespread phenomenon that investors - speculators - are not active in the market. And frankly, since investors are giving greater attention to value, why would they invest in the last remaining and greatest bubble of them all? In the 4Corners program on James Packer, the “Vulture of Vegas” showed Michael Barry an apartment one level below the penthouse with an “in your face” view of the strip currently on the market for US$399K and negotiable (sold new two years earlier for over double that). In the next stage apartment tower, brand new apartments with an even better view of the strip, only around 30 out of 360 have been sold! With the $ approaching parity I reckon a flash Vegas apartment for $400K would have far greater potential for capital gain than a small apartment with a nice view of the “black stump” for the same price. But what about more stimulus? I doubt strongly that Government will extend any further enticements to first home buyers because they are clearly tapped out and the Government would not want to give up the illusion of it’s omnipotence (seeing as probably the greatest propaganda tool spruikers have is that Government is all powerful and will do what it needs to prevent house prices from falling). At the same time the banks will be telling the Government that existing investors are already very highly leveraged and that they are rerating the risk in this sector (increasing rates and lending standards). That only leaves one last cab on the rank - the naive first time investor - the ones that have largely resisted to this point the temptation of “equity” withdrawal to “invest” or waste on rampant consumerism. How many of those are around – and how many are naive enough to take the bait? Not many I would reckon! And I would think it is a fairly risky strategy for Rudd in any case. Contrary to many, I think the political will to perpetuate the bubble is far from infinite – especially when linked to Government debt and our kids’ futures (the opposition strategy, when it’s not committing hari kari) - and that is why our brochure is so important to tap into that growing vein of concern (which is, of course, very valid!) So putting it all together - even if they do want to stimulate the investor market, and even if the political will exists (ie. electoral support), and even if the investors respond – there seems to be a significant amount of stock to be soaked up before there would be an upward effect on price. One last thing That FitchRatings? report showed that delinquency rates have not improved as much as you would expect with that the lowest cash rate in half a century and unprecedented cash handouts. The graph below shows an interesting story. The graph of 30+, 60+ and 90+ day delinquency clearly shows a down trend from 2009Q1 – as expected. However, note that at 30 Sep 2009 - before the recent 1% increase in mortgage rates - the 90+ day delinquency line had only just reached the level (and stabilised?) it was at around May/June 2008 (when mortgage rates were 3-4% higher) which also corresponds with the early 2007 peak in the first upcycle shown in the graph (data from 2003 to 30 Sep 2009). No doubt our delinquency rates are low by international standards. But the fact that these absolutely unprecedented actions did not have a significantly greater affect in lowering the 90+ day delinquency rate is very telling in my view. The graph suggests that we are experiencing cycles where the levels of distress are sequentially higher at the trough of the interest rate cycle - even though this time the trough in the interest rate cycle was EXTREMELY low (and unemployment is still below 6%). This strongly supports the views of Steve Keen. That we are commencing this upcycle in interest rates at such a level - together with the expected rate of increase in interest rates (due in part to tight credit markets) - and also concerns over credit standards applied through the period of "Boosteria" (when Fujitsu surveys regularly showed that 60% of FHBs had 10% deposit or less - and on this point, it's worth checking out the comparisons in the FitchRatings? report of delinquency rates across loan LVR segments) - suggests to me that we are going to see a sharp increase in delinquencies in Australia. All of this represents very serious headwinds for "The Greatest Bubble in History"!
	on: Wed 09 of Dec, 2009 [22:28 UTC] reads: 15984

Posted messages Messages 10 20 30 All Style Plain Threaded Headers Only Sort Newest first Oldest first Find author message TPL001  Re: Correction imminent or already underway on: Thu 10 of Dec, 2009 [03:18 UTC] H4A: Good work and analysis. My concern, though, is that the state might (nay, probably will) step in when delinquencies increase. They do not want to see a crippled housing market on their watch. (Rudd's lashing out at Westpac just reveals their democratic-socialism.) In any case, I think the kicker is not going to be domestic, though I concur that the banks may be advising the state that the risk ratings of their books are at a high. There was also a piece in yesterday's AFR, which stated that once the super new bank regulations are imposed by APRA, it may add another 20-30bp to rates here in Australia. I think this may have also been referred to in another post, but in terms of better incentives for deposits with banks, as a possible outcome from the Henry Review. (Another article also spoke about the rising cost of international debt.) Just think of that, a government providing tax incentives from people who save! H4A, apart from loose fiscal policy (FHOG), I think you hit the nail on the head by reminding us of the 50 year low interest rates. Just think what will happen if the now increasing rates will be affected if the price of capital from offshore increases. The killer in all of this has been low-low-low Australian rates: easy monetary policy. This, in itself, as it shifts the stock of wealth from capital into consumption goods (i.e. housing), is such an idiot policy. High private and public debt, spent at the best on dubious activities, will not produce wealth, as investment does. Houses wear out; massive debts on houses do not. I can envisage a time when housing in this country may become the new pariah. The contingency will be the cost of money, and its impact of mortgages here in Australia; other factors (negative gearing, etc) do affect the situation, of course. author message kodiak  Re: Correction imminent or already underway on: Thu 10 of Dec, 2009 [05:35 UTC] I've been thinking that the correction has already started for exactly the same reasons as above. The pool of buyers has been considerably lowered. Interest rates are on the way up. I don't know if anyone noticed, but I couldn't believe the scope of the anger at Westpac recently. People are over-leveraged and I think in a bit of pain. It's no surprise that a place like Nelson Bay is getting hit first. Lots of investors (read: speculators) in a holiday area. This is going to unfold just like it did in the USA. Expiring ARMs on loans that people couldn't afford are what started (and continue) the slide and virtually every loan is an ARM in Aus. Investors are getting stung, which puts the lie to the myth that they will rush in when prices start to dip. The ones in Nelson Bay certainly won't. The idea that the rest of the west is in recovery is suspect as Obama is extending TARP and going to run another stimulus package. Greece is a disaster, as are many other EU countries - and they look good compared to Eastern Europe with big debt denominated in Euros. Dubai is also going to be damaging and it's not going to be the last to default. I really don't see what the government here can do to buoy this anymore without creating a situation that is politically untenable in the near-term and disastrous for this society in the long-term. It's too big for them, just like the problems with the US financial institutions are too big for the Fed and Treasury to handle. author message homes4aussies  Re: Correction imminent or already underway on: Thu 10 of Dec, 2009 [05:43 UTC] Thanks. What Rudd says publicly and in private to the banks are certain to be very, very different. So I aportion very little relevance to the yesterday's publicity stunt. (Though I know it does speak to his political sensitivity to mortgage holders and his political donors - but that's nothing new.) He knows the precarious situation the banks and the country are in needing to fund our current account deficit while sitting ontop of the last remaining and biggest housing bubble so he is certain to be far more pragmatic about interest rate margins and bank profitability when sitting on the other side of the desk from the CEOs. The real question is whether he has an infinite bucket of money to keep throwing at the bubble even though it will ultimately prove ineffectual - I think Aussies have too much common sense - "throwing good money after bad" is a well understood concept. And this is something the opposition will keep reminding the public about. I should say that I am not against all remedies. Free market action doesn't necessarily need to solve the problem. I would be quite alright if the people who have been foolish are bailed out before feeling the pain from their mistakes - AS LONG AS regulation of lending is implemented to prevent the associated avalanche of moral hazard and allows responsible Australians to purchase homes at fair prices. That's why I agree with the remedies proposed by Steve Keen - if I recall correctly he talks about limiting the amount able to be borrowed on a house to 3x the applicant's income. This would not totally restrict the amount paid for a home, it would just restrict the leverage on it, because we all are free to save as large a deposit as we like author message aardvark  Re: Correction imminent or already underway on: Thu 10 of Dec, 2009 [09:59 UTC] Agree that govt somehow limit housing debt to x3 or 4 annual average incomes, but how? The best Labor or Liberals can hope for now is to NOT be in power when the bubble either pops or does an imitation of Japan’s decade long price deflate. Found an article that gives fair description of where banks are sending the debt – into unproductive housing rather than real business. The article is US situation, but I see no difference to here (from memory saw something about commercial debt in Aus peaking in Nov 2008 but housing debt still increasing - good snow job by MSM, RE industry and duplicit govt): ‘Credit Crunch Continues’(excerpt) "Unfortunately, from a macroeconomic perspective, lending to consumers rather businesses is a suboptimal emphasis/counterproductive exercise. Prechter writes in his book Conquer the Crash that the lending process for businesses “adds value to the economy,” while consumer loans are counterproductive, adding costs but no value. The consumer may call his borrowing “productive,” but it surely does not create capital, i.e., build shops or factories or manufacture tools and dies that enhance the productivity of human labor. The banking system, with its focus on consumer loans, has shifted capital from the productive part of the economy, people who have demonstrated a superior ability to invest or produce (creditors) to those who have demonstrated primarily a superior ability to consume (debtors). Total household debt peaked in 2008 at $13.8 trillion, with $10.5 trillion of that being mortgage debt. And as Sean Corrigan explained, “Houses are nonproductive assets, financed with a great deal of leverage.” And while homeowners reap the services provided by homes slowly over time, houses “deliver a large dollop of uncompensated purchasing power up front to their builders or to those cashing out of the market,” making housing “the ultimate engines of created credit on the upswing, and…among the more dangerous deflators on the way down.” In the last decade, the US system of fractional-reserve banking has created what Frank Shostak calls “empty money,” which masquerades as genuine money when in fact “nothing has been saved.” This explosion of money was created through the banking system, as consumers gorged themselves on nonproductive assets like houses, autos, and big-screen TVs. These purchases gave the illusion of economic growth and good times, but in reality weakened the process of wealth formation; instead of building capital, this system wasted it." http://dailyreckoning.com/the-credit-crunch-continues/ author message TPL001  Re: Correction imminent or already underway on: Thu 10 of Dec, 2009 [19:37 UTC] Aardvark et al, The unfortunate thing about an asset price bubble, particularly on a consumption good like a house, is that it diverts badly needed money away from investment. Investment capital is always "badly" needed, to invest in producing things like food, clothing, houses (for family use, not speculation!). When a lot of savings (and present income diverted to debt) are diverted to paying off over-priced consumption goods, it leads to capital consumption; it means we are consuming our future productivity, today. You only need to look at what is happening in the US to see this: "U.S. Homeowners Lost $5.9 Trillion Since 2006 Peak": http://www.bloomberg.com/apps/news?pid=20603037&sid=af9OWXW1MJ6k author message altakoi  Re: Correction imminent or already underway on: Thu 10 of Dec, 2009 [23:04 UTC] The tape-worm effect of housing on the overall economy is what will eventually make the market unsustainable and it is only really been possible because Australia is in the fortunate position of being able to make huge profits from minerals with some pretty shaky infrastructure. When you add it all up - we have farming which is badly in need of new plant such as covered irrigation and dams, and minining getting by on cheap open-cut operations and ancient rail/port heads. Any more complex economy would have fallen over under this kind of neglect. My view is that the only purpose of a price on housing above the cost of providing it is to 'keep score' on who gets the big house. Since some houses are nicer than other, there will always be a gradient from top to bottom. But it makes no real difference to the outcome if that gradient is $400K to $100K or $900K to $600K. The richest person still gets the big house, its just that the economy gets the debt as well. We do indeed need all this money to be invested in the 'real' economy. As an aside, I don't know when it became OK to talk about real and otherworldly economies. I seldom get say "In the real world, you have hepatitis. But thats only part of the story, because you also have a pretend puppy. So everything balances out nicely." But the point is, imagine all the solar-thermal plants we could have build with 1.6 times the GDP, for example. author message homes4aussies  Re: Correction imminent or already underway on: Fri 11 of Dec, 2009 [04:25 UTC] You know things are getting dicey when a very intelligent and well-informed man with a significant vested interest adopts such cheap and obvious trickery. http://www.smartcompany.com.au/property/20091210-property-experts-claim-australian-housing-is-not-as-unaffordable-as-you-think.html It's all about discrediting the view that we have a bubble, and minor things like accuracey, balance or truth should not stand in the way - right (I've left some comments there exposing some of the flaws in his comments.) How atrocious that this gets airplay on the ABC and Australian Business Channel, and it is probably being held back from the newspapers (at least online) until tomorrow for more spruiking bang for the buck. On Steve Keen's site I suggested they've probably been sitting on this report for a bit. But I've been doing some thinking - what report? - there's nothing on the authors' websites. And really all that he's talking about is the RBA research from the front page of our own brochure. The only indications of a report are some comments made in interviews. Perhaps it's the opposite - perhaps there is no report, or something very minor was hastily put together for him to get in the media as vain attempt to keep the bubble afloat! Either way, this could be viewed as desperation. author message erutangis  Re: Correction imminent or already underway on: Mon 14 of Dec, 2009 [14:54 UTC] Great work H4a. Just one note... the link to the RBA graph that you used isn't working in that comments page. I note that Ms Ketchell noted that there were significantly less auctions than this time last year.... interesting... Fewer auctions in Brisbane. author message Pragmatist  Re: Correction imminent or already underway on: Mon 14 of Dec, 2009 [15:16 UTC] I think you're right. Even news.com.au had a story about an expected drop of about 9% home loan demand over the next year. A friend of a friend in Canberra recently purchased a reasonable (livable) unit after it failed to draw any bids at all at auction. She ended up buying it off the bank for $7k less than their reserve (presumably the outstanding loan amount) It certainly doesn't look much like a market that's about to boom because the "chronic shortage" can't keep up with growing "underlying demand" driven by high rates of immigration. author message homes4aussies  Re: Correction imminent or already underway on: Mon 14 of Dec, 2009 [23:14 UTC] Thanks erutangis The RBA website has been revamped and file locations have changed. The new link is: http://www.rba.gov.au/speeches/2008/images/sp-so-270308-graph7.gif (And I've updated it in original post) author message homes4aussies  "the most comprehensive study of its kind" on: Wed 16 of Dec, 2009 [02:19 UTC] http://www.realestate.com.au/doc/Resources/News/how-expensive-aust-housing.htm?rsf=newsletter Has anybody even seen the report of this "the most comprehensive study of it's kind"? This "report" keeps getting mentioned, but with no link to the report and it is not even mentioned on the authors' websites. And most stories like this will have one or two of the most salient graphs - not this one. All we have are a few comments about "the most comprehensive study of it's kind". Well firstly I can say that the authors have comprehensively forgotten how to divide 7 and 8 by 4.1 Seems to me that this "report" is essentially an excuse to get on TV and in the papers to try and convince people we don’t have a house price bubble. The strategy appears to be all about discrediting a number 7 (or 8). The authors have attempted this by simply changing the metric - instead of median house price divided by individual income, the infomercial discusses median house price divided by household disposable income. Well of course the resulting number is different! But it is the international comparisons that are important and as the RBA graph in my comment immediately above shows - incidentally the same graph on the front page of our brochure - the story remains that we have the most expensive housing in the world! There is no doubt that this is all complicated - and this complication is being used to confuse the average person on the street. First we have different figures for mean house prices for our capital cities - the ABS figures tend to be much lower than the real estate institute figures. And different measures of income can be used. One of the problems I experienced in the past is that the regular ABS data series for income is based on state, not city, and the ABS house price data are based on city. And the income data are presented as a mean not median. So plotting this gives an indication of trend – for Brisbane it showed a doubling in this decade – but the actual number perhaps had little relevance. But this latest assault on public understanding of the situation has encouraged me to look even harder. I have found that Census quickdata (on the ABS website) does list the median individual, household and family incomes for statistical divisions (eg. capital cities). For example, in the statistical division of Brisbane the median weekly household income in 2006 was $1,111. If we allow 10% growth in this figure for the 3 intervening years you get a median annual income of $63,549.20. Using the latest house price data from ABS – and using the latest preliminary q/q figures to obtain a $ figure – the median house price for Brisbane was around $428,000 in 2009Q3. This results in a Brisbane median house price to median household income ratio of 6.7! Exactly the same calculation for the median individual income of $516 (in 2006) yields a ratio of 14.4!! OK - again it is not exact, but it is going to be fairly close to the mark. (Note even allowing for an improbable 15% growth in median income results in ratios of over 6 and close to 14, respectively.) Boy are those high numbers The other issue that the RBA and others discussing household income neglect is one of cause and effect. That is, how much of the household income IS CAUSED BY the high price of housing? How many households have parents working for longer than they would like to meet mortgage repayments on highly priced homes? Judging by the many comments over recent years – including of the extreme case where people have decided to not have a family in lieu of buying a home – I would suggest that this has had a very significant impact. And if you could somehow calculate the ratio using a family income that families felt was ideal for them, that ratio would be higher again! Agreed - this whole issue of putting numbers on our affordability crisis and the size of our bubble is confusing. But I fail to see how this "report" - more specifically, the public comments made about it - does anything to improve public undertanding, and I can't help but wonder whether that was precisely it's aim. I guess it makes the Australian property spruikers - who I consider are our equivalent to American investment bankers - very nervous when they see that somebody as well respected and highly regarded as Professor Ross Garnaut clearly state his view that we have "the greatest bubble in history"! author message squirrell  Re: Correction imminent or already underway on: Wed 16 of Dec, 2009 [05:56 UTC] Good points H4a. There are many issues I have with using houshold income. eg 1) as you rightly point out, how many are forced into double incomes because of high house prices. If we send our kids out to work and take night shifts at the local 7/11 we will be able to bid houses up even more. 2) an extra income in the household also implies additional costs for the household which did not exist with the 1 income household, so these should be deducted before considering the impact on housing. The biggest cost is child care, others include transport, lunches, more takeway meals, dry cleaning etc. (the child care rebate obviously is a big mitigant on CC costs, I have noted before that I view this an indirect govt stimulus for the housing market). 3) just because a household can afford more does not ipso facto justify a rise in prices. Have cars doubled because of dual income households?? If the supply v demand dynamic is in balance then it should not make a difference. Its not like rents have doubled because of dual incomes. Reduce speculative demand, and we wont need to use the wife's salary to bid up the neighbour. In essence we need to ensure our society is reshaped so that we that we dont devote EVERY SPARE DIME to housing. If we do, what is the point of becoming more productive?? I once thought it was so we could have a better quality of life? I think now it is so the banking industry can enjoy the windfall and reuced risk of 2 incomes working for them. SHAME!! author message NM  Re: Correction imminent or already underway on: Sat 19 of Dec, 2009 [15:11 UTC] Seems that the Australian trend of a stagnating "echo bubble" is repeated in other parts of the world - Canada, Europe etc. Speculation is tempered by the prospect of future rate hikes as the reflation matures. I expect softening or sideways markets until the next shoe drops, then a market rout. author message chase  Re: Correction imminent or already underway on: Tue 22 of Dec, 2009 [23:20 UTC] New member here, so hello all. do you actually think a correction that is so signifcant will occur that will allow everyone to buy a house. look i am no property expert, but in my 10 years of working full time i have managed to buy 2 houses, and have a lot of debt that is manageable, albeit i do sacrifice yearly holidays and luxuries i would love to have, but having a roof over my head is the most important thing along with food and clothes on my back, i do find house prices in sydney are expensive, but i am not going to sit and wait for properties to come down, and the reasons why, 1. is because if they come down so signofcantly most houses that you may think have dropped will be snapped up by people like myself, developers or anyone else who thinks a good bargain on a house and is able to borrow some money from a bank, and the prices will probably inflate back to normal levels (todays levels) 2. banks and govt wont allow a significant drop, it will cause banks to lose alot of money if people go in default and ocnfidence will drop, jobs lost...and you know the rest of it, the aussie GFC will happen. 3. houses within 15km of CBD will always have demand, (talking about sydney), there is over 4 million people in this city...and most people would like to live close to where they work, not in Orange or Bathurst, if house prices fell to a level within the city limits, people from all over the world will snap them up, i.e. asia, middle east, etc.... my advice my fellow aussies, if you want a house to yourself, you need to just jump in and do it, if you can afford it, everyhting else will sort out for itself, if not be patient. although my advice wouldnt be to buy in places where significant housing construction is onccuring because the prices will go nowhere for a while and is only supported by short term demand, i would buy in established areas close to transport within 15km. good luck, my advice and comments is without any motivations because at the end of the day, i would like australians to be buying our houses in this country instead of overseas investors who are collecting rent from you. soon we will be renting our own land to other countries... author message squirrell  Re: Correction imminent or already underway on: Wed 23 of Dec, 2009 [01:21 UTC] Chase, nice to have a bull on board. A few things. Your arguments have been made plenty of times before in lots of countries around the world currently enjoying a housing crash. Australia is no more immune to asset bubbles than any other country. For my part this site serves 2 important processes: 1) It questions whether the current insanity is sustainable - you are right, there will always be demand, but AT ANY PRICE? This is where the bulls dont get it. People are only prepared to make MASSIVE cash losses on investments when they feel sure of large capital gains. Remove this certainty from both banks and buyers and reality can quickly set in (eg US, JApan, UK). These are huge economies where asset speculation has landed them deep in the dirt. Govts and banks are not all powerful. They can not make money magically appear in the pockets of first home buyers without taking from other areas of the economy. They have done this for sure, but can not go on infinitum as the cost of doing this gets higher and higher as prices rise. Or to put it more simply, if you want to know about real supply v demand, look at rent. Rent measure the TANGIBLE value of what a house does - provides shelter. People do not speculate on rent. YES, rents have risen somewhat over the last 15 years but NOWHERE NEAR AS MUCH as house prices. When capital gains outstrip revenues then the implication is that people are speculating. With yields of 2-4% on homes in areas close to the city, clearly the speculation is massive. You NEED great gains to break even!!!!!! 2) WE ask that even if the farce is sustainable, is it fair? After all, slavery was sustainable. Can we change it? How can we lobby govt and get people to think for themselves? Clearly tax changes, lower immigration rates, removal of FHOGs would lower house prices (the last 18 months have proved what govt largesse does for house prices). We look at the real winners from this scenario (banks, developers, investors) and the losers (aussie households now with mortgages 15% greater than a year ago) and ask whether it is fair for the already wealthy to contine to cream more wealth from Aussie households on the back of govt largesse?? This question is rarely posed to politicians and NEVER answered adequately. author message homes4aussies  Re: Correction imminent or already underway on: Wed 23 of Dec, 2009 [02:52 UTC] Hi Chase Thanks for your comments. Just a few obvious points. 1. you most certainly do have a vested interest when you have already purchased two houses and have a lot of debt outstanding on them. 2. in your investment time horizon you have only known a bull market. I suggest you talk to some old timers - honest ones, go to a little privately run RE agency where the proprieter is older and not interested in chasing the latest bubble - and ask what things were like in the early 90s (and through to the early noughties for Queenslanders) 3. as the market corrects you will find that banks are not so willing to lend to investors with high leverage - I think it is already happening btw. The main factor in increased lending has been the rise in market value of housing - and it's a circular phenomenon because the increased lending has increased prices. Any observer of the GFC should realise that the reverse can happen very quickly - lower prices reduces lending which further reduces prices. (And you need to be aware that Australia is highly susceptible in this regard because we have a very big current account deficit - ie. we've been borrowing beyond our means as individuals, thus as a country, for quite a long time.) 4. having the expectation that the Government will bail you out whenever things look shakey has a technical term - it's called moral hazard - and markets don't work efficiently when there is too much of it (why worry about whether you are paying an appropriate price for something if the Government will ensure that you never lose from your bet?) This certainly has been a factor in us developing the "Greatest Bubble in History" - but it is not sustainable because it is not in the economic interests of the country and shortly it will not be electorally wise for the Government. 5. bubbles are inherently unstable. That is why we have seen such a big effect from the first home ownners boost. But what we are dealing with is extreme EMOTION - not rational thinking - and emotions can turn on a dime. There are only so many times the populace will be susceptible to emotional manipulation by "boosts" and what have you. The Government is not all powerful, and I actually think the Government is essentially out of ammo right now. Now I could go on, but like most long term members of this community we have seen all of these comments a million times and rebuffed them as many times. You are entitled to your opinion and are most welcome to participate here. But please, before raising points may I suggest that you read all of the information on these pages as well as the blogs going back some time and I think you will come to realise that we have seen and answered it all. And finally, I realise that people bullish on housing have very strong views which have been reinforced over the years by a lot of cheerleaders (who have made a mint themselves out of the bubble.) But if you would like to hear similar comments to what you will read here on Bubblepedia from somebody very well respected in political circles as well as general community, might I suggest you get a copy of Prof Ross Garnaut's latest book "The Great Crash of 2008" and carefully read in particular Chapter 2 "The Greatest Bubble in History". Bubbles inflate because there is an irrational belief in the market momentum. And all of us here know that there will be a lot of disbelief that markets can go down when it starts. But every bubble in history has popped - and the chances of this being the first to not pop are very slim indeed. People essentially have a choice. Go down with the sinking ship "content" they stayed in the comfort of the herd but lost a heap of money (and financial security) - or look honestly at the situation and act. One thing is for certain - history has taught us that bubbles are the selling opportunity of a lifetime! Welcome, thanks and Merry Christmas author message pb123  Re: Correction imminent or already underway on: Wed 23 of Dec, 2009 [03:07 UTC] Chase , To asipre that Australian property should be in the hands of Australians but also wish property prices exceed Australian wage growth by a large factor would result in congnitive dissonance. author message altakoi  Re: Correction imminent or already underway on: Wed 23 of Dec, 2009 [07:23 UTC] Hi Chase, always nice to hear a contrary view. The way I see it is that for prices to drop you need one or both of the following 1. a reduction in the availability of credit or 2. an increase in the volume of sales. Sales could increase because of deterioration in the economy and rising unemployment, which leads people to have to sell. Once a few people sell, and houses hand around on the market longer, the prices inevitably fall. This is supply and demand working against housing prices, because the housing market is relatively 'shallow'. It doesn't take too many houses on the market in an area to glut the market. Credit could reduce for a number of reasons including a reduction in the availability of overseas loans for the banks to finance lending, a drop in the dollar (making lending more expensive) or an increase in the rate of bad debts requiring the banks to retain deposits to sure up their balance sheets. If credit reduces then the size of mortgage people can take out drops and, as a logical necessity, the price of houses which actually sell drops. The 'paper' price of houses people hold, or the asking prices, might not drop but you can only sell for the amount of money people have to give you. Supply of houses, or its shortage, has nothing to do with this this - its the supply of money in mortgages which matters to prices. These two factors can easily interact. A deterioration in economic circumstances can lead to more people defaulting on their loans and forced sales. These bad debts force the banks to restrict lending, or to lend at a higher interest rate, and the price paid for property falls. The banks lose more money and restrict lending further, so the price goes down again. And so it goes in what you have correctly called the Aussie GFC. This has happened everywhere that has a housing bubble as large as Australias. None of the things which you have pointed out will prevent this: 1. Investors will not jump in to snap up bargins when house prices fall. This is firstly because buying a house which you will pay less for in 12 months is not a bargin. Secondly, investors will not be able to get the finance to buy these properties even at a reduced price because the whole problem is that credit will have become tight. You might think $200K is cheap as chips now, but would you if you had to finance it at 18 percent. 2. The banks will lose money, but this will make it worse not better. When the banks lose money, they stop lending. This is what happened in the US, and it was what caused the GFC to deepen. As credit reduces, so do the size of mortgages written for the purchase of property. 3. Houses within 15km of the CBD will always be desirable, but this will not keep prices from falling. This is because in deteriorating economic circumstances many of the mortgage holders on central properties will sell, and they will not get people able to pay their high asking prices (for the reasons stated above). Therefore the sale prices will fall. Its not that CBD properties won't sell, because they are desirable, its just that they will sell for less. And here I have to be blunt. Many of thse holding mortgages on high prices property and the moment will go broke - their properties will sell for less to those who remain solvent in hard economic times. Clearly a reduction in the price of desirable property will reduce the 'book value' of less desirable properties, causing a reduction in prices overall. There is a nasty clause in most mortgages where the bank can require you to provide additional payments against reduced value of the collateral held against a loan - and once that kicks in people will go bust fast. As an observation, there is a common mistake made by people who believe house prices can go up forever which is to confuse 'desire' with how much a person will pay for something (demand). Desiring something is not economic demand. Starving African children desire grain more than anyone in Australia demands a house, but they have no money to pay for it. This desire for grain does not result in a market magically sellig these children grain at a higher price. All that happens is that the price of grain stays the same, and starving African children buy no grain. Which is the second misconception - that everyone in Australia will always be housed. I mention this because the argument is often put that population increase alone will cause increased house prices. If prices increase beyond what people can pay the the consequence is homelessness, no matter how many people their are, not rising sale prices. Sale prices only increase if the amount people can afford to pay increases. Some mortgagees secretly believe that the amount people can afford to pay for property can increase forever, and implicit in this is the understanding that the quality of life for new purchasers will decrease forever. In other words, if people can't afford a 4 bedroom house they will pay the same for a 3 bedroon, then a 2 bedroon, then 1 bedroom house in order to get a roof over their heads. The same argument has been played out in the rental market with unscrupulous landlord charging people hundreds of dollars for 1 room or poorly maintained property on the basis that they have to find a way to afford it. This clearly can't go on forever - people will eventually reach a point where they feel that living on rented furniture, never going out and forgoing holidays is not worth the price of admission. What should be more concerning is that the young, who have nothing invested in the market as yet, will either not be able to afford to living in big cities or chose to move - possibly internationally. Is an inner city apartment worth $800 000 really desirable if there are no nurses, teachers, restraunteurs or other service industries within sight? Not for long, I don't think. The fact is that rising real estate prices can pretty much kill a city once the young and essential workers flee. So these are the powder kegs I think you are sitting on. It has nothing to do with scarcity, banks or such. Those who have hitched their star to rising property prices depend, whether they realise it or not, on rising incomes. Those who are bears believe incomes cannot rise indefinitely, and will fall. Which is right? I say look around the world, and ask yourself how long the Australian economy can dodge the bullet. 30 years is a long time in global economics. author message erutangis  Re: Correction imminent or already underway on: Wed 23 of Dec, 2009 [22:03 UTC] I think a key thing that you haven't mentioned is that the house is king of investments. In Australia, mentally people believe that it will never fall. So it's the investment. People are borrowing money knowing that they won't have to give it back and that they will be ever wealthier. I think once there is a decent fall and it dawns on people that then could actually be left holding the can - that there will be mass hysteria. Many people will think their world has ended - and it will have. :o I think we got close to this mental tipping point last time. Maybe the point is 15%? At that point someone with a 100% 500k loan will owe roughly 75k more than what their property is worth. They will be being very cautious and banks will be unspeakably worried. The big question now is, can Govco stop this happening in 2010? author message chase  Re: Correction imminent or already underway on: Thu 24 of Dec, 2009 [01:03 UTC] i appreciate the response, i am no bull as you referred. i worked hard for the 2 houses i have, and put big depsosits on both of them, i didnt borrow 100% like some people do, i did the hard yards and bought when i could, instead of force. i have lived the 90's and 2000 property bubble, so i am aware of the inflated houses, i did try and buy in 2002 but couldnt afford too especially wheh in 2000-2001 a house in my area went from 400k to 700k within 12 months, i was literally kicked out of the market before i even entered. since then i have waited patiently and the property market has gone nowhere since, prices in my area now are hovering between a weatherbood house in the 650's to a brick house around the 750k mark, and the time on the market is very short, so they are pretty much the same level since 2002. so i think the bubble has truly already burst which is why i cant see it going down even further, since i go to a few auctions and i can just see the type of people who are buying these houses, its unbelievable the prices they pay for houses i dont beleive are worth it, i have seen houses go over 100-150k on the reserve... by the way, i do beleive next year will be interesting, to see what impact the FHOG will have, and interest rates going up, but i dont think interest rates will not go up as much as what people are predicting, because the banks are doing it for us already. anyway good luck with your decisions, and merry christmas. author message homes4aussies  Re: Correction imminent or already underway on: Thu 24 of Dec, 2009 [03:41 UTC] Chase You seem to be a good sport, and from what you say bought your houses with lower risk than a lot of others. But as you said in your original statement, you still have a lot of debt on them. And that may seem "worthwhile" or acceptable while prices are high, but there are no guarantees that will be the case. If you are in Western Sydney, then I will agree with you to a point that the bubble may have already burst there. But that doesn't mean that prices can't continue to retrace significantly more than what they have already. And for everywhere else in Australia, there is no firm evidence of the pop yet but as I said in my initial post in this thread there are a lot of signs that this point may have been reached or is close. Finally, while interest rates will be a factor, what property bulls fail to address is the emotional aspect (even though many are expert at pushing those emotional buttons in others.) Simply, the price of houses in Australia has not reflected fundamentals for nearly a decade - prices have been driven by speculation - so why would prices begin to move in line with fundamentals from the peak of "the greatest bubble in history"? That is what the bulls want people to believe, but that is not what the history of bubbles has taught. Even more simplistically, the price of anything is what somebody is prepared to pay. In periods of irrational exuberance people are prepared to pay high prices (relative to ther incomes). And my view is that Australians - especially property investors who are decreasingly gung-ho - are very close to turning tide and saying a median house is worth nowhere near 8x the average salary (or 5x the average household disposable income or 14x the median salary, or whatever metric one may like to use to assess value.) All the best and thanks for the "chat". author message jazzwoman  Re: Correction imminent or already underway on: Sun 27 of Dec, 2009 [23:06 UTC] Hello - Finally I made it! After reading this site for the past few month I registered - so hello everyone I am not a bull and doing a bit of juggling with RBA Datas myself I found quickly out that Australia has a unsustainable debt problem which is linked wit the house prices and therefore with the FHOG. But you all know this much longer and much better then I do - of course. Looking at all my charts and correlations I believe that Australia will experience something the US hasn't -> "The Double Popping". So when the house bubble and the credit bubble do burst what does happen to the banks? Is the money of savers truly guaranteed by the state? Does the state have still money after the handouts and FHOG? Or is this then only a matter of printing new money? I know these are a lot of questions but it all comes down to one: is my money save in the bank? Or would it be advisable to shift it? Oh and: Merry Christmas (bit late) and a Happy New Year (bit early) author message kodiak  Re: Correction imminent or already underway on: Thu 31 of Dec, 2009 [07:16 UTC] Hi Jazzwoman: I think that the banks would be nationalized by the Australian government, wiping out equity and bondholders. I just can't see the same US-type bailout, especially given the history of the banking sector here. As far as a run on the banks, I think that you should keep some fiat money on hand, but there were really no effective "runs" in the EU or US and I think that the average punter with deposits here is even more confident than their US/ EU counterpart. If you call yourself jazzwoman, you'd better post your top 3 jazz albums as a gauge for your future posts... author message erutangis  Re: Correction imminent or already underway on: Fri 01 of Jan, 2010 [00:43 UTC] Actually, there were reports of people withdrawing their savings in the days leading up to the government guarantee of the banks. I reckon they would have had a run if they had left it too much longer. As we all know now the banks were already insolvent from not being able to roll over their debt. I bet there were some phone calls to govco happening. author message jazzwoman  Re: Correction imminent or already underway on: Sat 02 of Jan, 2010 [00:52 UTC] Hi kodiak Thanks for your reply. Honestly I can't really imagine that the government would let the banks go down. So yes most probably they would be nationalized. After all it is an asset they have which is VERY attractive to savers around the world. Only a few countries give you more interest rates and these countries (e.g. Turkey, Iceland) file or filed for bankruptcy. Australia's interest rates have always been high in comparison. Also I read that the term deposits are guaranteed up to a million dollar/person (so I am WELL within that bracket What did you think about the GDP being sucked up by Aussie's personal debts? Anyway here we go: Les McCann? & Eddie Harris - Swiss Moments Joshua Redman - Freedom in the Groove Stan Getz - Soul Eyes But you know Jazz is not static - neither is this list. Looking forward to your judgment! author message Clawhammer  OK, but what do we do when it pops? on: Sun 03 of Jan, 2010 [08:03 UTC] Hi All (i'm in the same boat as Jazzwoman) What do we do when 70% of the nations' wealth is wiped out or liquidated? How are we rewarded for our prudent decision making? (those of us, who read the signs, bided our time, were patient, saved our pennies and road out the silliness) What will it be like when and average house is 250K but the banks will only lend me $200K at 18%? (my parents had to sell their home in the 90's when that happened) Is that the time to buy a house? or invest in the market? (both are overvalued now, the only thing I can think of is putting my savings in gold to offset govt meddling in currency) Do I buy 2 properties at half price (but percieveably double the interest rates) I'm a public servant now, so even though my wage isn't high, my job will still be around then. (I left mining because even though the wages were good during the boom, it didn't cover me during the bust) But what good will it be if there's no jobs or investment in comercial growth?i.e the stockmarket will be 'bear'. There are some good brains here so please lay it out for me; What will the bust look like? and what should I do to maximise my position? Thanx in advance author message homes4aussies  Re: Correction imminent or already underway on: Sun 03 of Jan, 2010 [23:24 UTC] Hi and Welcome Jazzwoman and Clawhammer I'll preface my comments by saying that I'm not a certified financial planner and to my knowledge no other regular contributor is - so these comments are general.... (you know the spiel). Firstly, I would say that you would be well advised to read through Steve Keen's blogsite at http://www.debtdeflation.com/blogs - including the comments going right back - because this has been a constant theme for discussion and there are some very bright regular bloggers. Nonetheless, I don't like seeing a comment linger unanswered on a thread I started so I'll basically share my approach. My family is essentially doing it's best to save as much as possible while renting - though we share the philosophy as outlined by Dan on the front page that you need to enjoy life. The propagandists out there would seek to put pressure on even the naturally contrarian amongst us by suggesting that you have to work very hard and sacrifice - basically sweat blood - to own a home (the inference being that if you don't buy you are either lazy or wasteful with money.) My view is that housing is massively overpriced. At some point in the near to medium future it will be much more rationally priced. But I am fortunate, like I know many others here to be - even though our rental costs have escalated, we are able to add substantially to our savings every year that we rent. We are not people particularly interested in the size of our bank balance - actual dollar figures have little relevance to us. What is most important to us is what our resources (ie. in this case money) can do for us and how it can improve our lives and security. So this is getting to the nuts and bolts of your question. I am not sitting here hoping for a correction. It's my view - based on all of the relevant facts and my understanding of markets - that there will be one. But I'm busy enjoying my life and raising my kids while protecting our security. At this stage, the long term goal for my family is to own the home in which we live and raise our kids - but note we already have a home in which we are all very happy - it's just that we rent it rather than own it. When more rational pricing returns we will look to put all of our non-super savings into a modest home. We won't be looking to pick the bottom. We will just be looking to buy at around fair value. If by that time we have more in savings than are needed, we might put that towards improving the home with a few special things - within reason - to increase our quality of life. If we still have a surplus of savings, we will direct them towards other investments - probably shares for diversification. Again, what matters most to us what we can do with our resources not the actual amount. Apologies that this is more philosophical than actually a map of what the world might look like post-bubble. I can assure you there are more than enough broad-ranging views on Debtdeflation to get you thinking author message Clawhammer  Re: Correction imminent or already underway on: Mon 04 of Jan, 2010 [00:39 UTC] Thanx for the reply H4A. Just what I wanted to hear. I'm doing just you are, living my life, while I rent in the medium term. And thanx for the link. I've just found this site and there's so much to read, it's hard to know where to start...hence the post. It's a bit overwhelming... I live on Brivegas's Northside and have watched my rent go up steadily as we're warned about 50,000 people moving into the SE this year (2010). They keep saying, "but SE Qld is different"! But neither is it Sydney or Melbourne (or NYC or Tokyo for that matter) I just needed some reassurance...it's been said before, but it's difficult when you're the only one that can see the rich manure of growth for the BS it really is..... it's hard to soar like an eagle when you're sorounded by turkeys! author message Clawhammer  Re: Correction imminent or already underway on: Mon 04 of Jan, 2010 [00:41 UTC] P.S. Is there a way to edit a submitted post? My spelling and grammar needs the support. author message Pragmatist  Re: Correction imminent or already underway on: Mon 04 of Jan, 2010 [00:43 UTC] The other thing to consider is not just how to protect yourself from the collapse but how to prepare yourself from the government's response to the collapse. Cash savings are entirely at the mercy of the government of the day and, on current form, they are definitely prepared to rob savers in order to bail out the speculators. Renting is certainly a big part of the solution but the big question is what to do with the money you save? The most obvious (and traditional) way that the government will do this is via inflation. You still have your dollars but they are worth a lot less. This also satisfies the political imperative to avoid the sticker price of property falling. It probably won't work but they'll certainly try it one and may take a large slice of the value of our cash savings along the way. Traditionally (and somewhat ironically) the best hedge against inflation was property. Obviously this isn't an option here so what are the next best options? The Chinese are going for commodities and there are always those around who are convinced that the only reliable store of wealth is gold. History has shown that even this is not infallible as the US government forcibly bought all citizen-owned gold in the 1930s (at a mandated, fiat-currency price) What are people's thoughts out there? author message jazzwoman  Re: Correction imminent or already underway on: Mon 04 of Jan, 2010 [01:09 UTC] H4A - thanks for the Welcome and for sharing your living philosophy. The past few month I spent a lot of time reading. And of course I came across Debtwatch and also Daily Reckoning and and and.... All very good. Thanks for the Tip. I find it very hard on Steven Keen's blog to search for a specific question. An the Daily Reckoning is trying to lure me into investments - whereas at present I have no clue about. Probably need to make some some sort of study in economy and finance. Pragmatist, what you are asking in your post is exactly what I am on about. What happens to our money e.g. stored away in a term deposit? Would it be better to partly invest (there we go) in gold or trying to shift the money into another country eg. Switzerland, where the currency is more stable and the inflation or deflation not as severe as in Australia? Even tough you consider yourselves as not certified financial planners - your knowledge about the subject is much more advanced as mine is - I am just in the course of gathering different opinion. What are people's thoughts out there? author message homes4aussies  Re: Correction imminent or already underway on: Mon 04 of Jan, 2010 [03:34 UTC] Pragmatist, I agree that they will likely try to create inflation (regardless of what the RBA and Government say). Formulating a response to this risk depends on personal circumstances. I, personally, am not too concerned by this because the first use of my savings will (almost certainly) be purchasing a home. The idea of creating inflation is to deflate away the bubble (the debt) whilst nominal house prices most likely will remain flat at best even under this high inflation scenario. It's not just purchasing power that needs to be considered - it is what you intend to purchase. I can well understand the concern of others - especially those closer to retirement - wanting to preserve their purchasing power of necessities and discressionary goods. But I have to say that I do tend to agree with Steve Keen that they probably won't be able to manufacture high inflation in any case due firstly to China trying to restart it's export engine - with it's massive capacity overhang keeping downward pressure on prices - and then prolonged global deleveraging. author message homes4aussies  Re: Correction imminent or already underway on: Mon 04 of Jan, 2010 [04:38 UTC] I should add that I have a slightly unique view of the RBAs intentions with it's recent rate rises. A common view on the RBA rate rises is that it was pre-emptive action on the rising threat of inflation (and bubbles). I believe it was in their latest minutes that they spoke of increased flexibility due to the decision to raise rates. Most interpreted that as flexibility to stay on their hands if the recovery does not continue. I'd go further and say that they were actually taking out some insurance - while they could afford it - on the risk of a serious deterioration in the global economy. With rate movements, the psychological affect of the actual move - partly associated with the quantum of the move - is perhaps more important than the actual level of interest rate achieved. One of the biggest thing in Australia's favour going into the GFC was that we could get more bang from our buck on interest rate reductions because our rates were higher. By taking back 75bp they got another shot (or two) in the locker should they need it - when a lot of other central banks have not had that opportunity. And I reckon they will need it.... So I don't think that they are concerned at all about inflation at this point.... author message kodiak  Re: Correction imminent or already underway on: Mon 04 of Jan, 2010 [05:06 UTC] First off, I'm in the deflationary camp to start with - at least for the foreseeable future. In my opinion when a house with graffiti and iron bars in Broadmeadows gets almost 700k in a bidding war, the inflation has occurred already. Even QE won't cause inflation in the classical sense if huge amounts of credit and wealth are being destroyed. I have in the past few years sold my real estate, been a short seller in equities until the bottom and traded foreign currencies and commodities in domestic and offshore accounts among other things. Those strategies are all extremely risky. Our central bankers have made it virtually impossible to find any safe haven among asset classes. Currency wise, I don't think that anything is safe. There will be fluctuations that have no basis in fundamentals, a potentially violent unwinding of the carry trade, and potential black swans like Dubai, sovereign default within EU states and the burst of the Chinese bubble. In fact, as absurd as it sounds, the USD looks oversold compared to the GBP and EUR. We live in Aus. We require AUD to buy things here and I think that the end of the credit cycle is to own "things" before the subtle, masked deflation picks up into rapid inflation. There is no way that the Aussie govt can pack the shit back into the horse via inflation. For real inflation there must be a way to increase incomes. Otherwise you get demand destruction. Your money is better off in a vehicle that is earning close to zero and is "guaranteed" (if that's possible) if shares and real estate (and bond prices) are getting crushed. Commodities and currencies are no place to hide for a novice investor - or often even experienced ones. You can get your face ripped off and it doesn't help that we are in Australia when the rest of the world had been long into the trade. If you want to hedge, buy a book on options, be prepared to lose a few thousand bucks and take a risky, leveraged position that will increase in value if the rest of what you own tanks. author message Clawhammer  Re: Re: Correction imminent or already underway on: Mon 04 of Jan, 2010 [06:16 UTC] > >" Your money is better off in a vehicle that is earning close to zero and is "guaranteed" (if that's possible) if shares and real estate (and bond prices) are getting crushed. Commodities and currencies are no place to hide for a novice investor - or often even experienced ones." OK Kodiak, That got my attention. Commodities was where I was looking (gold principally). But could you develop this point a little further? You've told us there's a fire...now what's the escape options? :) Thanks in advance! author message Pragmatist  Re: Correction imminent or already underway on: Mon 04 of Jan, 2010 [06:21 UTC] wow Kodiak - and I thought I was a bear As I'm relatively young (33), the safest hedge I've found is me. I've been investing as much time and effort (and money where necessary) in educating myself. My theory is that no matter what markets do, services will always be required and paid for in a suitable amount of the currency of the time. I'm an engineer by degree and experience. I run a non-engineering business and have applied to study teaching full-time this year (offers come out in a couple of weeks - wish me luck). Maybe I'm spreading myself too thin (my better half certainly thinks so ) but I figure that diversified income potential through different choices for my own labour is the ultimate hedge against financial turmoil. This, combined with a total lack of debt offers me the greatest freedom and minimises the chance that I will ever be trapped in a miserable job because I need the money. In any remotely functioning economy (even a black-market one) there will be demand for building and fixing things as well as for teachers. The reimbursement should reliably be enough to live. It might not work out that way but it's as good a plan as any I've seen. Future income potential is also (relatively) immune from the policies of any government of the day. "stuff" is all very well but only if you know it will hold value to someone else in the future. "In the long run" gold has the most reliable track record of maintaining value. Then again, in the long run, we're all dead ;-) author message bps  Re: Correction imminent or already underway on: Wed 06 of Jan, 2010 [00:19 UTC] I live in a picturesque little coastal village 1 hour south of Sydney where over the past two years and more so this past year houses for sale in the 500k-600k range have been selling like hot cakes, a real feeding frenzy. Above that however activity has been a lot slower and anything over 1 million are not selling at all. A few houses advertised as signature properties with an initial price tag of 1.5m have dropped 200k and still not sold for over 1 year now. Other properties newly built by a greedy local developer who knocked down the beautiful old cottages and built ugly concrete blobs advertised as luxury apartments with price tags around 1 million have been sitting for well over one year now even after changing real estate agents several times (not sure what he thinks that will achieve except every time a change occurs the property is advertised as a new listing). Pre 2007 these one million dollar plus homes were an easy sell, but now looks as if you couldn’t give them away. Not sure what all this is telling, maybe that people are not that gullible and that price does matter. author message homes4aussies  Re: Correction imminent or already underway on: Wed 06 of Jan, 2010 [00:47 UTC] Housing sector hit by rate rises, end of grant http://www.theaustralian.com.au/business/property/housing-sector-hit-by-rate-rises-end-of-grant/story-e6frg9gx-1225816385452 "Three rate rises in a row was overkill for a vulnerable market, and the latest figures confirm our fears," AFG general manager Mark Hewitt said yesterday the value of mortgage applications by first-home buyers is down by 71.9 per cent from its peak in March First-home buyers accounted for only 13.1 per cent of new loan applications in December " The loss of momentum in recent months reflects investor and upgrade owner-occupier sales activity failing to fill the considerable void left by the winding down of first-time, buyer-related activity," the survey reported author message Clawhammer  Re: Re: Correction imminent or already underway on: Wed 06 of Jan, 2010 [02:15 UTC] " The loss of momentum in recent months reflects investor and upgrade owner-occupier sales activity failing to fill the considerable void left by the winding down of first-time, buyer-related activity," the survey reported And the pyramid/ponzi starts to really wobble now! This is the equivalent of Madoff telling his closest mates, "there's no new money coming in, it's time to get your cash out"! author message NM  Re: Correction imminent or already underway on: Wed 06 of Jan, 2010 [08:33 UTC] In related news, building approvals were strongly up in November - despite the 3 rate hikes. http://tinyurl.com/ybtg86j "A 27.5 per cent rise in apartment approvals over the month skewed the overall result. Private sector house approvals fell 1.9 per cent over the month." Seems that McMansions? are out, compact living in. We can also note that any increase in building approvals are generally touted as "good for the housing sector" and implicitly good for property prices. The reality of course is that any increase in supply will put a downward pressure on prices. In conclusion - demand is down and supply is up. Hence prices will come down, at least for now. author message erutangis  Re: Correction imminent or already underway on: Wed 06 of Jan, 2010 [09:41 UTC] Chris Joyce hasn't been spruiking about clearance rates for a while so things must be bad. author message homes4aussies  Re: Correction imminent or already underway on: Wed 06 of Jan, 2010 [22:21 UTC] The Economist latest email reminded me of their interactive graph. http://www.economist.com/displaystory.cfm?story_id=14438245 If you leave it on the default setting (house price index, starting point = 1990 = 100), and then add all of the other countries with sufficient data, we come in second only to Spain (which is currently correcting sharply). On Real House Price movements we come in in the top cluster very close with a few others. House price v income we're in the top 3 % change we're neck n neck with NZ and Netherlands. Of course, the starting point that you choose is very important in all of this - but it's interesting to play with. Very visual and easy to use... author message homes4aussies  Re: Correction imminent or already underway on: Tue 12 of Jan, 2010 [21:26 UTC] Bunching up .... http://www.theaustralian.com.au/business/property/rebound-tipped-for-stagnant-rents/story-e6frg9gx-1225818589224 and note the propaganda - all of the actual signs are of weakness - but the usual stories on why it can't continue to get weaker author message homes4aussies  Re: Correction imminent or already underway on: Thu 14 of Jan, 2010 [21:46 UTC] Clawhammer, Kodia, et al - from the other thread - look at the graph in the original post above to help understand that yes indeed there are stressed sales going on. Common practice these days is to pressure stressed borrowers to sell prior to foreclosure (as the latter sales typically occur at 15-20% discount to market pricing). However, this will only work while there are enough "greater fools" coming into the Ponzi to soak up the sales. As the bubble pops, and there are fewer buyers, more and more of these stressed sales will progress through to foreclosure sales. Btw, the information in the article which spurred the discussion as another sign.... http://www.smh.com.au/business/cba-freezes-mortgage-fund-20100113-m705.html author message jc1982  Re: Correction imminent or already underway on: Fri 15 of Jan, 2010 [06:58 UTC] On another note.... it hit me today that the very first time I heard the word subprime mentioned was in July 2007 when I was reading about Bear Stearns freezing one of their investment funds which had large exposure to subprime mortgages. Now this was July 2007 before the absolute apocalypse in American house prices. While they clearly do different things (totally different investment strategies), could the recent (another!) freeze in redemptions in the CBA's mortgage fund be thefinal warning? BTW, I reckon you'll all hear interesting PR gobbledygook from the likes of AXA, Perpetual and Challenger over the next few weeks about how *their* mortgage funds are different etc. Perpetual has a habbit of selling their fund by saying they have 'special' access to first-rate mortgages and that they get to 'pick and choose' which mortgages they want. This is total and utter BS. Having dealt with all these fund managers I can tell you categorically that this is total and utter garbage. They have no more say about how these mortgages perform then the portfolio manager of an australian share fund has over what the market does. Just my two cents... author message Clawhammer  Re: Correction imminent or already underway on: Fri 15 of Jan, 2010 [15:07 UTC] Here's another one Courier Mail; Slowdown hits Logan City UNIT construction http://www.news.com.au/couriermail/story/0,23739,26592064-3102,00.html author message homes4aussies  Re: Correction imminent or already underway on: Sat 16 of Jan, 2010 [08:42 UTC] With the Brissie BBQ coming up tomorrow, I thought I might add a little more to this thread to whet the apetite for tomorrow's discussions (here online and at the BBQ) I've extracted a few graphs - one from the FitchRatings? report mentioned in my original post, and another from a JP Morgan/Fujitsu Consulting Report "Australian Mortgage Industry - Volume 9; Will Australian Households End Up With Too Much On Their Plate?" from 8 April 2009 First graph is by FitchRatings? and tracks the delinquency of Australian mortgages according to their loan to valuation ratio (LVR). As can be seen, the highest LVR segment is 80-90% and it is well ahead of the other segments. The other graph, from JP Morgan/Fujitsu Consulting, provides the context. It shows the proportion of first home buyers in different segments of LVRs in the 12 months to February 2009. As can be clearly seen, and with a little simple maths, over this period less than 20% of first time buyers had LVRs of less than 80%! What's more, around 60% had LVRs of 90% or greater!! One could only assume that if the FitchRatings? paper included this segment in their analyses it would be worse again than the 80-90% LVR segment. Based on data from Mortgage Broker AFG, the JP Morgan/Fujitsu Consulting report showed that new lending LVR reached 72.7% in early 2009 as FHBs fell under the spell of Boosteria and dominated the new lending. What's more, these data discussed in the JP Morgan/Fujitsu consulting paper does not quite capture the peak in Boosteria in March 2009. This should add a fair bit of "colour" to the discussion on the another thread regarding forced sales. It also highlights for me just how much the pollies have used the exuberant, but inexperienced, young Aussies as pawns to keep the housing bubble going! author message homes4aussies  Re: Correction imminent or already underway on: Sun 17 of Jan, 2010 [08:26 UTC] In that graph of mortgage delinquency, note it goes up to Sep 09 - so as discussed in the original post in this thread, the falloff after 2009Q1 is due to the 4.25% drop in official interest rates, the unprecedented cash handouts, and the stimulus of the first home buyer segment (which creates buyers to allow troubled borrowers to get out of their difficulties.) But, again as I said in the original post, note that it has not dropped back all that far given those massive and unprecedented actions. And an aweful lot of very high LVRs were added to the pool of mortgages with the boost. And mortgage rates have gone back up 1% since Sep 09! I expect that we will see the mortgage delinquency rate heading up strongly over the next few years. author message erutangis  Re: Correction imminent or already underway on: Sun 17 of Jan, 2010 [12:23 UTC] H4A.. those are great graphs. The was I read that once there is a 10% drop in prices (and we had 8% last time) then 60% of the FHB's will be underwater in their mortgages! As Jeremy Clarkson would say = "What could possibly go wrong?" author message hojusaram  Re: Correction imminent or already underway on: Mon 18 of Jan, 2010 [01:17 UTC] Actually , it probably will take a much smaller correction because in the first few years the total size of your mortgage actually goes up as the bank adds interest quicker then you pay off the principal. 5% would probably do it. And also all those FHB would have had to pay stamp duty and mortgage insurance on top of the sale price. This would also be wrapped up in their mortagages. So the percentage could be even smaller. Page: 1/3  [next]

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