The price of anything, whether it is a cake of soap or a jumbo jet, is meant to convey a whole bunch of information to an investor, producer or consumer. Prices send signals up and down the supply chain and these signals determine the ultimate supply and demand of any product or service.
If prices are meant to be the signal that helps smooth the supply and demand of a product or asset, just what is going on with the Australian property market?
Recently released data reveal that new home sales fell for a second straight month in June to a 17-month low. This was followed by news that new home approvals fell by 3.3 percent in June, the third successive monthly drop.
How can this be? We are constantly told that Australia has a chronic housing shortage, yet we are not building anywhere near enough new homes to satisfy this supposed demand.
Shouldn't high prices be sending a message that more housing is required? It should, but the fact that it isn't goes to show the completely dysfunctional state of housing in this country.
Here's the way I look at it. House prices are high not because rents are high and the income returns are healthy. They are high because the vast majority of new credit creation in our economy goes to people buying existing homes. Australian people and its banks are participating in a giant ponzi scheme and they don't even know it.
High house prices and low rental yields (the reality for most capital city property) are not a signal for investors to come in and construct new homes. It is a deterrent. Who wants to risk building a new house and renting it out for less than the cost of finance, when the capital value is at risk from the ponzi scheme ending?
If yields were more attractive, Australia would solve its so-called housing shortage. But it's not that easy. You also have layers of government involved, which add to the distortion.
Local and State governments enjoy a healthy slice of the housing pie, which adds to the final cost. The Federal Government uses taxpayer funds to give to first homebuyers whenever the market looks shaky, which ironically adds much more to the cost. The recent phasing out of the latest government handouts is probably a major factor behind the construction slowdown.
All we ever hear month after month is that Australia has a chronic housing shortage and because of this, house prices will remain high. I'm sorry, but if new homes sales are approaching 18 month lows, and construction remains in the doldrums, perhaps its time to think a little differently about the problem. Commentators and bureaucrats need to realise that it's the huge amount of credit being funnelled into existing housing that is pushing prices up and leading to weaker construction statistics.
I'd be willing to bet a waterfront mansion (if I had one) that if house prices began to fall substantially, yields would increase and so would the incentive to build new houses. For centuries property has been an income-based investment. Only relatively recently has it become the focus for capital gains. Increase the yield to healthy levels and you increase the supply of housing, it's as simple as that.
So it's time for the government to get out of the market, stop propping up prices for the sake of political gain and start releasing enough land to satisfy the demand that will flow from weaker prices.
The chances of this happening are virtually zero, but we need to stop kidding ourselves that our housing shortage is keeping prices high. It's high prices that are leading to the shortage, if indeed there is one.
Greg Canavan
for The Daily Reckoning Australia
P.S. to get The Daily Reckoning direct to your inbox sign up to our free e-mail newsletter or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed.
Related Articles:
- Property Buyers Are Not Buying Property at All
- Housing Is a Buy
- Brazilian Real Estate is a Buy
- Housing and Unemployment Are Weaknesses in the U.S. Economy
- Housing Market Sinks Beneath the Waves
About the Author
Greg Canavan is the editor of Sound Money, Sound Investments, a financial report devoted to unearthing great value investments amid today's "money illusion" of fiat currency. For a free trial of Greg's service, go to Sound Money, Sound Investments.
Comment by vp on 6 August 2010:
I agree with a lot of what you say regardung the giant housing ponzi scheme, but hasn't it been stated here (and elsewhere) that the housing shortage argument is a myth anyway? Wouldn't additional new housing, therefore, ultimately make yields even lower due to an excess of rental property?
Comment by AnnoyingOrange on 7 August 2010:
The housing "shortage" is not relevant. If the investment bubble pops many people will move back in with mumma and puppa, which means more houses on the market, prices drop further, and so on.
Immigration does help keep the bubble inflated, which is all well and good until you can't get to your fishing spot on the weekend because the boat ramp carpark is chockers.
Comment by Biker on 7 August 2010:
"The housing "shortage" is not relevant. If the investment bubble pops many people will move back in with mumma and puppa, which means more houses on the market, prices drop further, and so on."
First part almost correct. Second part incorrect. When sales are flat, we simply pull houses off the market... and rent them.
If it keeps you happily annoyed... and extra-fruity... believe the myth.
If you believe life with mama and papa is nirvana, why even leave the nest at all? We could even create an Oz TV show about the concept: "Chockers in the Bathroom".
Comment by Ned S on 7 August 2010:
"the vast majority of new credit creation in our economy goes to people buying existing homes" - Sounds to me like they want houses close to work and other attractions in the city centres and are all competing for them?
"Chockers in the bathroom" - I knew a nice young lass overseas whose bed was a mattress she rolled out on the bathroom floor each night. She had a degree and a fulltime job. But you take what you can get when there is a real shortage of affordable accommodation I guess.
Comment by Ned S on 7 August 2010:
"bed was a mattress she rolled out on the bathroom floor each night" - Wouldn't suit me; But at a similar age my bed was a mattress in the loungeroom of a two bedroom flat. I got there last - And the bedrooms were both taken; As was the nice private little nook under the internal stairs - Ah, for the good old days!
'Course as Aussies I doubt it ever would have crossed our minds to put some poor basket in the bathroom - Never been a shortage of affordable accommodation here in my adult lifetime?
Comment by Ned S on 7 August 2010:
Brace ourselves ready for the soft landing maybe fellahs? :
http://www.watoday.com.au/wa-news/property-price-plunge-for-perth-20100805-11k1k.html
I'm cashed up ready to go if us suckers should get a half even break ...
Comment by Stillgotshoeson on 7 August 2010:
Comment by Biker on 7 August 2010:
"The housing "shortage" is not relevant. If the investment bubble pops many people will move back in with mumma and puppa, which means more houses on the market, prices drop further, and so on."
First part almost correct. Second part incorrect. When sales are flat, we simply pull houses off the market... and rent them.
Yes Biker.. YOU may well pull your houses of the market.. you own them almost outright. MANY however do not and WHEN they can not get tenants (not IF) they WILL have to market them, Australia is different to America.. Australians can not send the keys back and say "your problem Mr Bank" As I posted previously.. Houses in the US are sitting empty because families have become "multi generation dwellers" They are not selling because it is the banks problem.. the banks are trying not to flood the market with these empty foreclosed homes.. here will be different, the many that can not hang on will be trying to sell as quickly as possible. Available tenants will reduce as Share accomodation becomes more the norm and/or younger ones stay at home and be a burden to their folks a little while longer.. Granted this may be more a problem here on the East Coast as opposed to the West you must still consider the the east has the higher population, the effects would be more felt here. The US is heading for a double dip, China is cooling it's rapid growth and Europe is flat at best..These NH issues will be felt here in Australia, we are part of a global economy and not big enough to ride this out with domestic demand. China MAY have enough domestic demand to keep up a growth rate of 5 maybe 6 percent but coming down from double digit growth rates will impact our resource stocks and thus our economy.
Comment by bearamundi on 7 August 2010:
'I'm cashed up ready to go if us suckers should get a half even break'
That is my thinking too Ned. I'll get a little silver so I can feel like a wannabe 'player' at least but the real joy will be getting a bargin of some sort. Aussie dollar won't hyperinflate, it is a good store of value, so hold onto it. I don't have to wait for a property crash, what is so wrong with holding down a job like everyone else and paying off the family home? I grumble about work but it's bloody fine dumbar*e.
Bargins could be a boat for you, or a 4WD for the bushranger inside. They are going to come thick and fast now, must go and get the w/e paper.
Comment by Biker on 7 August 2010:
Inflation running at 3.5% here... the highest in Oz.
Shoes, Keen offered most of the arguments you make, above. If you're still making his nonsense the foundation of your planning (wait & wish) good luck, son.
Comment by Ned S on 7 August 2010:
Keen's got some interesting ideas alright - One I've just read is that if a house rents out for $26K pa (like the one he's living in
), then no-one should be allowed to borrow more than $260K to buy it!!!
"Bargins could be a boat for you, or a 4WD for the bushranger inside" - I don't hanker after those things Bear - Although as I've mentioned before I do sometimes have wistful thoughts about a nice old 1950s AJS ...
Comment by Biker on 7 August 2010:
"...no-one should be allowed to borrow more than $260K to buy it!"
HaHaHaHa...!!
Love the 'ifs-and-shoulds-crew'. Space cadets!~
Comment by Stillgotshoeson on 7 August 2010:
Comment by bearamundi on 7 August 2010:
Aussie dollar won't hyperinflate
I expect the aussie dollar to drop back into the 60's in the not too distant future.
Comment by Biker on 7 August 2010:
Shoes, Keen offered most of the arguments you make, above. If you're still making his nonsense the foundation of your planning (wait & wish) good luck, son.
Nope.. not part of my plan, just an observer watching the goldfish in their bowls
swimming around without a clue of what is about to happen.. no memory of what has happened in the past.
Comment by Ned S on 7 August 2010:
Oh well, the good news is that we know the solution - It's called WWIII - Wonder which side is going to win? And whether we'll be on it???
Comment by Biker on 7 August 2010:
"...just an observer watching the goldfish in their bowls
swimming around without a clue of what is about to happen..."
Uhhh, you mean goldbugs, doncha?!-
Comment by Stillgotshoeson on 7 August 2010:
Nope, Goldbugs know what's going to happen
Comment by Biker on 7 August 2010:
You mean your post considering the possibility of gold at $5K per ounce, son?!~
Comment by bearamundi on 7 August 2010:
Ned, there's a lot of bikers around here. AJS-nice, you're a man after my Dad's heart. I had a BMW R60/5 which I liked but frame flexed so I got an R100RS, and had obligatory accident (had 4 or 5 other bikes, brother had Dukes, including an S2 900 after a Darmah). Isn't an AJS a British single? With push-rod valves? Read somewhere a bike with more than one piston has one too many and I'm inclined to that view now.
I'd like a KLR650, cheap reliable big single and you could get out in bush too with the boy, or maybe a DR350. I sometimes dream of a weekender in the bush. Converted garage or open-plan muddie. Nothing fancy, but about an hour away towards Dungog. Friday arvo burning up on the KLR, wife and kids following in cage, back to city on Monday morning as I like both lifestyles.
Comment by Biker on 7 August 2010:
"...wife and kids following in cage..."
You mean 'with cage', don't you, Bear?
Comment by watcher7 on 7 August 2010:
WW3 is going to be, for at least the first two years, the world against the Anglo-American-Celtic peoples. The US, Britain, Australia and New Zealand are going to bear the brunt of a blitzkrieg. After war, occupation and deportation there maybe only 10 percent of these people left alive.
The Anglo-American Hegemonic cycle, which maybe viewed at http://www.members.optusnet.com.au/futurewatch/id10.htm presents the historic precedent and its future projection.
A map of the world with the possible height of the European and Japanese empires in WW3, after they fall out with their allies, maybe viewed at http://www.members.optusnet.com.au/futurewatch/id76.htm
As Enoch Powell observed: History is littered with wars which everybody knew would never happen. This is well illustrated in a letter written by Winston Churchill in 1924:
"I do not believe there is the slightest chance of it in our lifetime. The Japanese are our allies... She has no reason whatever to come into collision with us... war with Japan is not a possibility which any reasonable government need take into account" (quoted by Paul Johnson, Modern Times, (London:Orion Books, 1994), p.175).
Comment by Stillgotshoeson on 7 August 2010:
DR400 is a good choice Ned. As for Biker being the idiot he is... Someone else posted the gold @5k/oz. My response was that I did not think it will get that high. I also said that I would not dismiss that possibility that it may go that high. Interesting times ahead for all the markets.
Comment by Biker on 7 August 2010:
Shoes: "I also said that I would not dismiss that possibility that it may go that high."
Shoes: "Nope, Goldbugs know what's going to happen
"
Swim, little goldfish, swim... .
Comment by Stillgotshoeson on 7 August 2010:
Having an open mind to a possibility is not the same as agreeing
Comment by Biker on 7 August 2010:
"...Biker being the idiot he is..."
Blow all the bubbles you like, son. Get as angry as you like.
You've been flushed from your bowl.
Comment by Stillgotshoeson on 7 August 2010:
I don't get angry gramps
Comment by Biker on 7 August 2010:
Hook, line and sinker. You're sprung.
Comment by Stillgotshoeson on 7 August 2010:
None so blind as those who will not see
Comment by Biker on 7 August 2010:
Stop blowing bubbles and you'll have a better view of the world-outside-your-bowl, goldie!~
Comment by Stillgotshoeson on 7 August 2010:
Funny you should say that, as that is why I think your an IDIOT and a FOOL, you have a closed view of the world, your walking around with blinkers on. Don't mistake my words for thinking that I am calling you stupid because that is wrong, I actually get the impression you are quite intelligent. However an idiot and a fool you are and my English is improving enough to know the difference.
Comment by Biker on 7 August 2010:
Shoes: "...no memory of what has happened in the past..."
Yeah, well I appreciate you'd much rather forget your comment about the likelihood of $5K gold, Shoes... but I've rather enjoyed reminding you; especially since your goldfish simile was so appropriate.
Funnily enough, I think gold may still have some upward movement.
Think you should bail before $5K, though.
No more time to waste on you. Get over the anger. Not good to sleep on it!
Comment by bearamundi on 7 August 2010:
Yeah Biker, 'with cage' sounds much better, less sexist!!
Got paper today, and sure enough Kathmandu had upped the anti to 70% 'clearance' and I scored more outdoor gear. My aim is to get the family out hiking regularily over the next decade or so, it's what Dad did. DR400, have to google it shoes. Ned got me thinking about a bike again as commuting by bicycle is hard work after 4 yrs. Use the moto on Wednesday and w/e's. But it has to be a bike, I had an old Honda CN250 given to me a few years ago and it had zero charisma and I got sick of it. At least with BM's you always got personality, looking down at those 2 staggered pots. Dukes are too scary for me Biker. I'd borrow my bro's S2 and gun it. Massive 12 plate clutch from memory that could slip under full load. I never got off that thing without legs shaking, but the coolest sound around. Did you see that film with Anthony Hopkins on an Indian? Well actually an Indian sounds sh*t at revs so they dubbed a duke over it.
Shoes, I'm no expert but I don't know if aussie will go to 60 again. I think perhaps the greenback might fall faster. Aussie is good like Loonie but i'm a loony so who knows?
Comment by Stillgotshoeson on 7 August 2010:
MY call has always been $2400USD/Oz for Gold
Comment by Biker on 7 August 2010:
*yawn*
Comment by Stillgotshoeson on 7 August 2010:
:ignore
Comment by Biker on 7 August 2010:
One...two...three... exhale the stress. ')
Comment by Ned S on 8 August 2010:
Steve Keen's advice to aspiring home owners - "I think it’s only going to be political change and getting those sorts of legal reforms I’m talking about, that’ll work. Don’t bother saving money for it."
http://www.finnewsnetwork.com.au/archives/finance_news_network15376.html
Bloody government - And property speculators - Stitched him up - When he was speculating on them going down!
Comment by Lachlan on 8 August 2010:
Gold priced in "floating abstractions". Who can guess final highs with the skies the limit management on major economies/currencies? Print till you drop. Just remains to be seen whether gold will ever reflect this in its entirity. Like Ned says..WW111 may happen yet. In fact if you read around it looks more likely than ever...ie Iran.
I do agree with you Shoes about AUD gold just over the 2k mark in shorter term. Might be an exit point for me also. A gold bug I am but the land is my primary goal...dont want to wait forever.
Comment by Biker Pete on 8 August 2010:
HaHa... censorship is alive and well, here at DRA...!~
Comment by Biker Pete on 8 August 2010:
We certainly won't post anything which examines the cost of gold production, will we?
Comment by Biker Pete on 8 August 2010:
Consider that $2K / oz is almost seven times production cost. If I applied that same mark-up to homes we build, we'd be trying for nearly $3 mil each at sale time.
Comment by Biker Pete on 8 August 2010:
There's always a workaround. Gold is now four times production cost. Attempting to double that is fanciful.
Inclusion of WWW3 in your financial planning is probably not a sound strategy, Lachlan. Wouldn't bank on it.
Comment by bearamundi on 8 August 2010:
With a cage sounds much better biker!!
My last post got hit with a 'waiting moderation' moniker....?
I was wondering about shoes and aussie going to 60. i think that maybe the US dollar is falling faster and the aussie will be relatively fine. In the short term (6 months to a year outside) maybe all the heat will be on the greenback. If their economy blows up which is likely I don't know if it will affect us that badly.
Sure enough, yesterday Kathmandu had 70% discounts and I was able to get heaps of bargins as my plan is to get kids hiking over the next decade or so as Dad did me. Also looking for a little land Lachlan. In Europe that is what everybody tries to do. City and country lifestyle, seems good to me. I agree, you have to wait for the deflation to bite. It's hitting retail now, it's just a matter of time before bigger bargins appear.
Comment by Lachlan on 8 August 2010:
"We certainly won't post anything which examines the cost of gold production, will we?"
Go for your life BP.
Comment by Ben on 8 August 2010:
It's interesting from my point of view seeing a thread on housing including or perhaps degenerating to one on gold.
The mansions vs bunkers argument.
I think in situations like this both sides should count non-critical praise of their chosen investment as a liability. Nimbleness is the best option. I am not familiar with the fish Im observing here, whether Biker Pete is a mouth breeder or a Clownfish; or whether his opponents are Goldfish or not. You're all in fishbowls of your own choosing.
The only thing I believe is important currently is being on the side of liquid assets. Real estate doesn't rate highly in that respect. I am not wedded to either side since I own a modest amount of gold, and real estate both fully owned and conservatively leveraged. The mistake is to dismiss things outright.
Comment by 89peterg on 8 August 2010:
you'll all have those assets confiscated come the revolution. one family/person, one house... one car.... one world. 2 tonnes of CO2 each, reducing 10% pa. that's it in a nutshell, recipe for a sustainable madhouse, that or the end of the world.
Comment by Biker on 8 August 2010:
"It's interesting from my point of view seeing a thread on housing including or perhaps degenerating to one on gold."
See if you can locate the crack that brought it on, Ben.
Yes, I agree a revolution or a war might boost gold's chances of doubling.
Having been formed in the forties, I've survived the threat of nuclear obliteration, the Yellow Peril and the Red Revolution... and all the indoctrination of imminent Armageddon. Great movie themes, but it might be a very long shot hardwiring them into your financial plan.
Ben, who has never heard of offset accounts, figures property is illiquid.
)
(Illiquid is the stuff in your bowl, Ben.
Comment by Ned S on 8 August 2010:
"you'll all have those assets confiscated come the revolution" - It's been tried before Peter - And doesn't 'work' (pardon the poor pun!
)
Not to say it won't be tried again - But if it is, the best plans will involve emigration. Possibly to a country that has tried it reasonably recently. Where they still recall that it doesn't work.
Comment by Ned S on 8 August 2010:
"Also looking for a little land Lachlan. In Europe that is what everybody tries to do. City and country lifestyle" - Strikes me that is sort of what we have in much of Oz with our urban sprawls Bear - The best of both world combined with a little bit of country and a little bit of city having both being afforded by our 600 and 800 m2 blocks. We'll probably have to adjust. And some certainly won't like it.
Comment by Ned S on 8 August 2010:
Wonder what some Affordable Home Ownership versions of this cartoon might look like?
:
http://www.theaustralian.com.au/news/opinion/gallery-e6frg6zx-1111120349509?page=9
Comment by Biker on 8 August 2010:
Well Ned, if the guru advised:
1.) Take the 21.25% (after tax!) saving offer; 2.) Save 20%; 3.) Start small (3 X 1); 4.) Make shelter the priority it is, making _fortnightly_ payments; then I figure the balloons are filled in, Ned. Didn't have any assistance like (1.) when we were young, so I had to leave the capital for over a decade, before I could _afford_ anything... .
While we were seeking tenants for the new 3 X 2 X 2 rental, it was scorned by the first dozen couples through: no fourth bedroom, no home cinema! Horrors!!~ Didn't matter that all three bedrooms were huge, with walk-in-robes... . No fourth bedroom? No cinema? Good heavens!~
Comment by Ned S on 8 August 2010:
"While we were seeking tenants" - You aren't allowed to call renters tenants anymore Biker - It seems to have become PIc? Still trying to figure what that makes me though ... A rentee? A rentor?? Or something less flattering perhaps?
Comment by Ned S on 8 August 2010:
I sort of cringe and shake - And think of people saying "You man, you!" and "You heterosexual, you!" and "You employed person, you!" ... Not that I willingly indulge in the latter sin by choice these days. Bugger that! No-one else wants to work so why should I? - Oh well, dare say it'll all resolve itself one day.
Comment by Biker on 8 August 2010:
Well, I doubt that I'll be digging any more soakwells this year, Ned! We've reached the happy stage where we believe we have enough property... and it's time to harvest the fruit of the ocean, rivers, gardens and orchards.
Damned if we need to sponsor oversupply!
We figure we've built enough.
Tax claims are ready to submit. We'll soon be submitting 'The List of Questions' to the accountant, for his responses. After that we'll test the advice to see if it stands up to practice. Let you know how we go... .
Comment by Ned S on 8 August 2010:
Soakwells - Yeh, I've still got a bit to do on a couple of properties Biker. I'll buy more if the breeze blows that way. But if it doesn't I'll just develop what I have - Looking at aiming within regs of no more than 6 bods per property to maximize rental return.
Agree with you on the supply situation - People can always economise.
"The List" - Looking forward to same as stated - Ta!
Don't mind me - I'm just doing a dummy spit tonight ... I really do like our way generally but we've right royally rogered our thought processes with socialism over the last 3 decades. Which I find frustrating.
Cheers!
Ned
Comment by Stillgotshoeson on 9 August 2010:
Comment by bearamundi on 8 August 2010:
I was wondering about shoes and aussie going to 60. i think that maybe the US dollar is falling faster and the aussie will be relatively fine. In the short term (6 months to a year outside) maybe all the heat will be on the greenback. If their economy blows up which is likely I don't know if it will affect us that badly.
Dollar will rise yet for a little while longer.. parity with USD and beyond is still a reasonable call.. Interest rates are going to rise for a little longer too.
WHEN the interest rates reverse direction and start coming back down our dollar will suffer.
Interest rates down to SK prediction of 0%? Not likely but down they will come again.. Interest rates coming down is a bad thing for Australia..
Comment by Bearamundi on 9 August 2010:
Comment by Biker:
"While we were seeking tenants for the new 3 X 2 X 2 rental, it was scorned by the first dozen couples through: no fourth bedroom, no home cinema! Horrors!!~ "
Biker, if you can allow me a little more time, I'll have you dead or snoring. You know my philosophy, well how does it apply in this instance? I think that most aussie's have been effectively brain-washed into believing consumerism is what they want. Education is linked to Government (Hi, Julia!!) to advertising to religon etc. The big boys/ladies want at some level centralised control of the 'sub-ordinates', that is why they chose these 'career paths' in the first place. So when your average aussie asks the first question: "What do I want?" a carefully planted piece of propoganda answers: "You want to consume and feel successful".
If consumption was what the masses really want then why are they so unhappy generally speaking? The wealthy man, surrounded by all his possessions often looks miserable.
If you really ask that question with some sort of gravity then I think the answer is 'good relationships' most of the time. But human love cannot be commodified and therefore it is the last place we look.
Aussie's are so easily controlled that I disagree with 89Peterg. There isn't going to be a revolution in Aussie.
Comment by Stillgotshoeson on 9 August 2010:
Comment by Bearamundi on 9 August 2010:
Aussie's are so easily controlled that I disagree with 89Peterg. There isn't going to be a revolution in Aussie.
No because little Johnnie took our guns off of us...
Comment by Biker on 9 August 2010:
"...most aussie's have been effectively brain-washed into believing consumerism is what they want..."
While I agree that we're all conditioned to respond to 'wants', I really can't see that you've managed to evade salivating yourself, Bear. Would you like a recount of all the items you want, including a KLR (why?!~
)
Your glee finding 'bargins' indicates you're little different from those you despise for their weakness.
Reality check: This is an investment site. It thrives on greed and fear (mainly the latter.) I read no great happiness posted by those who feel deprived. Many blame government, the past generation(s)and a host of other scapegoats for their inability to get exactly what they want.
I don't think this is a particular Aussie trait. I've seen it on every Western continent.
Comment by bearamundi on 9 August 2010:
Shoes, don't underestimate the persuasive power of lawyer 'mean and tricky', he got voted back repeatedly, despite some of his crooked investments. No-one will rebel, those that would will just be a minority and elect to play dead.
Biker, you are zeroing-in again. All I am doing is considering investing in the most self-interested light possible. After a point investing becomes counter-productive, as Illich demonstrated. You have to invest, but with an eye on both the general and the specific concurrently.
I'm not suggesting throwing the baby out with the bathwater and depriving yourself either. You need an interesting mix, if that is what you really want. I do.
I don't despise aussie's in general just trying to offer up a rational explanation for what I see as irrational behaviour. Who really wants to rent a massive home with theatre etc? The rent would be the equivalent of paying off a modest home. Doesn't figure unless you factor in propaganda and then these 'decisions' make eminent sense. Your 'little' rentals should suit just fine.
Comment by Davo on 9 August 2010:
All I want for the rest of the year is for the AUD to stay strong against the USD. Hate to think how much the credit card bill will be after US trip in Nov/Dec if AUD drops to 60c again. Consumer spending figures in US will take a jump - here's comes my wife!
Not worried about housing plunges, WW3, Interest Rates, Oil Price (my car's done 9,500 kms in the past year)or any of that worrisome stuff.
One thing is certain, don't sweat what you can't control.
Comment by Biker on 9 August 2010:
Davo, while I _hate, loathe and despise_ American Express, it's worth considering their platinum card, particularly if you can get one free.
(We do.) You get 1.5 flight points per dollar and a lot of other benefits.
Most of the time we use our Visa platinums, but we're racking up free flights quickly with the Amex card. As you probably know, platinum offers all kinds of free insurance, including travel... .
Comment by Davo on 9 August 2010:
Believe me, I'm no charting expert, but have just looked at a 6 month chart of the All Ordinaries.
Mid May, hit a high of around 4,675 and dropped over the next couple of weeks by around 8%.
Stuggled back to a lower high of around 4,625 by late June (6 weeks after previous high) and then dropped by around 8% again by early July.
Today (6 weeks after last high) it's up to just over 4,600. Does history repeat itself? If so, market may drop to around 4,200 range wihin next couple of weeks.
Time will tell I guess.
Any of you real experts on charting care to comment on what I've noticed?
Comment by Davo on 9 August 2010:
Hi Biker,
Yes, we're all frequent flyer members in our family, and use the Westpac/Qantas cards (Amex and Mastercard) to build up points.
She of shopping fame managed to generate almost 500,000 frequent flyer points in short order (paying for things when we did the reno last year/early this year helping tremendously). Result being 3 of us flying Brisbane/New York, Miami/Brisbane for about $1200 total.
Total airfares, including paying for our son plus several internal flights cost us the points plus $4,300. Makes it a cheaper holiday.
Last US trip cost $28K.
Key thing is to pay it off each month.
Am finding it's getting harder to use Amex, without additional merchant fees.
Comment by bearamundi on 9 August 2010:
lucky bugger Davo, going skiing? What's your itinary? There is no reason why USD won't halt its pattern of decline. AUD will be closer to parity by then.
Comment by Ned S on 9 August 2010:
"All I want for the rest of the year is for the AUD to stay strong against the USD" - Hedge Davo - Buy some USD now?
"little Johnnie took our guns off of us" - That's a good thing - Watching the pollies attempting to buy our votes might have tempted me to use mine.
"Your 'little' rentals should suit just fine" - Theoretically yes, but in practice I still get the impression that an awful lot of us still covet a modest little 4BR, 2 car garage and ensuite job?
Comment by Bearamundi on 9 August 2010:
Not me Ned. I don't like those big open-plan jobs. They don't feel homely. There must be an optimum room size for coziness and I reckon most modern homes exceed it. But a good workshop in the garage, now that I covet Ned. Put ABC or Triple-J radio on and chill out with some tinkering, love that. Hell will freeze over before I'm tempted to buy a Mc Mansion.
Comment by Biker Pete on 9 August 2010:
"Am finding it's getting harder to use Amex, without additional merchant fees."
You're not wrong... and most Asian merchants refuse it outright, Davo. Sounds like you've covered the card thing well. We're now disinclined to use my missus' Plat Visa, since they offer just a half-point per buck. ANZ's advice: Don't ever give up your husband's 1:1 Plat Visa deal!~
"Buy some USD now" may be good advice. Bit of a punt, isn't it? Think I'd consider it.
The 3 X 2 X 2 was an experiment, as you know, Ned. Converting a 4 BR design plan to 3 BR was aiming at a new rental demographic: young couples, small families and elderly downsizers. Instead it has attracted primarily, in order: young unmarried men, young unmarried women, one older couple. Families want 4 BRs and either a games room or a cinema. It's too early to call the experiment a complete failure, but by ruling out _half_ of all tenants, it has less appeal and is 'higher-risk'... .
Probably needless to say, but our 'best' rental has 4 BRs, huge living area, cinema, children's lounge, etc.
'Best' here means never vacant, highest return, most likely to sell quickly.
We're still learning... .
Comment by Davo on 9 August 2010:
Hi Bear,
Itinerary is NYC, Washington DC, New Orleans, Orlando, Miami, Key West and back to Miami. Biggest issue will be luggage allowance, as we'll need thermals and warmer weather gear as well, plus what gets purchased along the way. Looking forward to the drive down to Key West over the bridges connecting the various Keys. No skiing though - something I've never tried.
Grew up in North Queensland, so never had the opportunity.
I'll buy some cash soon - have already paid NYC, DC and New Orleans accommodation when dollar was around 89c. NYC hurt ($466 a night), and not 5 stars by any means.
Comment by Biker on 9 August 2010:
Stamford Hotel (NY) gave us a brilliant deal in 2009, Davo. Very central too.
Ordinary (free) breakfast... .
Comment by Pat Donnelly on 9 August 2010:
Inflection point may be signalled by the slowing sales and fall in construction?
I still see levelling of prices only!
Comment by bearamundi on 9 August 2010:
Try Ramada Hotels also. I would wait before buying cash, I think it will get better. Do you have GPS on the car for the ROAD TRIP? I normally buy second hand winter jackets/outwear at a franchise I can't recall now and just hand it back when we leave. You lucky bugger.
Comment by Biker on 9 August 2010:
"Inflection point may be signalled by the slowing sales and fall in construction?"
Yes, I think you're right in the latter, Pat. You may have missed the post in which I mentioned a WA developer is paying purchasers $80 to tell him why we aren't building!~
On the former point, slowing sales, in our case it's not an issue.
Our rentals pay well.
What we need to ask is:
- Why aren't investors like us building?
- Is it because the FHOGs took out 200,000 tenant families?
- Is it uncertainty over rates (not in our case);
- Has the FHOG actually created oversupply in some locations?
(Possibly. If so, how long will that last?)
- What percentage of potential homebuyers actually still believe in
Keen's Krash? We know from this site they're still here in force!
What is certain is that there are now blocks remaining unsold in developers' previous developments (Yes, _some_ are resales; but prices rival those in much, much more farflung new releases.)
In past decades, we bought when no-one else was buying; we built when no-one else was building. Has the FHOG actually succeeded to the point where the heat _has_ actually been taken off demand?!~
Comment by bearamundi on 9 August 2010:
"fall in construction" and I thought building codes were pretty good ..
Comment by 89peterg on 9 August 2010:
ned, of course, I am only shit stirring, but the valid point amongst that crap was that Mr Market has FAILED so far in matters of the environment. *IF* the sea levels start rising dramatically (1m in the next few decades) then that will call for direct (read WWII or Chinese style) planning. in that case, like in WWII (according to the conventional interpretation of that adventure, rather than the idea of banksters backing both sides and pulling the puppet strings), the advantages of doing something, however inefficiently, outweigh business as usual.
biker, hows this for a suggestion, that 4X2 large homes be designed as seperate living areas from the start, like some 2 bedroom units which are converted to 1 bedroom unit. future planning for poorer (richer in less debt) or smaller households. cant be all that hard. of course if the demand was there, the market would provide. and a workshop for each, of course.
ps I was saying the same thing about 1m in a decade in 1994. do I have to climb Mt Kosciosko now? Im not so (Steve) Keen on that prospect.
Comment by Lachlan on 9 August 2010:
We're close to some bearish action on risk eg aud/usd (overbought about to find price resistance) unless someone unleashes a QE which I doubt at this very moment. More likely to happen during a bearish panick. Gold and USD (behaving as safehavens in sovereign debt crisis) bottoming or entering support areas. Soon to rise more.
Comment by Freddy on 9 August 2010:
Negative gearing was introduced to encourage investment in "new" ventures. It is the perversion of this intent that has caused house prices to become overinflated.
We need to revert to the original intent of negative gearing and only allow claims for interest costs on new properties, and for the portion of interest related to renovations of existing properties. This will add value to the economy with the construction of new houses, increased renovations, more jobs. More importantly it will end this silly ponzi scheme once and for all and give houses back to the families who need them.
Comment by Biker on 9 August 2010:
"...give houses back to the families who need them..."
Blind Freddy knows ya won't get 'em for free, son!~
Comment by bearamundi on 9 August 2010:
So Lachlan are you saying the USD will rally against the AUD? This could happen, but won't the bear market on the USD then resume in earnest? Davo is leaving in Nov, that's ages away. Me, I'd hold off buying USD and take my chances. Gold will do well I guess, but USD is pretty much toast.
Comment by Ned S on 9 August 2010:
"ya won't get 'em for free" - Wasn't ending neg gearing one of those things in the KHR that Swan vowed no ALP government would ever do "in one thousand years"? And that's the real socialist stance on it.
Maybe they didn't like the bit where Henry mused that anyone who'd invested in something in good faith should be compensated for any fallout from the rules being changed? Let's see what's Keen's 40% of our $3.5 t housing market???
Hmmm ... $1.4 t. Yep, I can see even the big spending fair minded socialists baulking a bit at that. Not to mention all the other problems seeing housing drop by 40% would cause.
But anyone who struggles a bit with those concepts IS in elevated academically intellectual company obviously.
Comment by Biker on 9 August 2010:
"Wasn't ending neg gearing one of those things in the KHR that Swan vowed no ALP government would ever do "in one thousand years"?"
Gotta laugh, Ned. Hawke introduced NG thirty years ago. Fred notes:
"Negative gearing was introduced to encourage investment in "new" ventures."
What BS!~ Labor noted that it was introduced "...to increase the amount of rental property available for people who were unable to purchase their own homes." No shortage of winkers here, mate. Please excuse my South African accent, Ned!~
Comment by Ned S on 9 August 2010:
Keen must reckon they'll get them for free Biker. As he has advised people not to bother saving for them. Jeez, Oz will become an attractive place for migrants when word goes out about THAT - Free beer for all the workers indeed!
Hey here's an interesting pic - Any thoughts on alternative captions for it?
:
http://www.smh.com.au/news/national/big-sale-despite-keens-gloom/2008/10/24/1224351544016.html
Comment by Lachlan on 9 August 2010:
Bear I'm only seeing that a reversal in trend for these entities may be on cards short term. I dont see a higher high on USD (DXY) due to fundamentals..just a technical bounce maybe. Another valid technical scenario for DXY may be to track sideways/rest for a little while before another plunge. A plunge straight through technical support from here ???..possible but highly unlikley. So similar for AUD/USD but inverse. At least we probably wont see it continuing much higher without a rest or a pullback.
The markets are very hard to gauge on TA recently..for mine. Too many interventions.
Check out Harvey Organs latest bit on gold manipulation Bear. Very interesting at present.
Comment by Biker on 10 August 2010:
"Any thoughts on alternative captions for it?
"
What a _great_ link. I'll create a caption and blow it up to 8 X 10.
Son, who is now in London, has left his superb colour laser printer here, so I'll run off a few top-quality prints... frame them... and present them as gifts to friends.
Indebted to ya, again, Ned!~!
Comment by Ned S on 10 August 2010:
A possible variation on the caption theme is thought bubbles? (Check out the bloke back left!)
Must say, the new owner is presumably pretty happy with the view though?
Comment by bearamundi on 10 August 2010:
Could have a thought 'bubble' getting bigger and bigger and something like; "I thought that prick was going to pop this bubble"
Comment by Davo on 10 August 2010:
Stock broker technical research out today, based on yesterday's ASX 200 closing price indicates upward shift with upside located at 4895, or 300 point rise. Market heading in the other direction today, so 300 point rise now needs to be 333 point rise to be correct.
Biker, staying at the Hampton Inn (owned by Hilton) in NYC and DC. Room includes breakfast each day, including some hot food. Chose it for it's non-smoking status, queen beds and central location (Times Square North)between 51st and 52nd streets and price, compared to others was OK.
Comment by Biker Pete on 10 August 2010:
"...staying at the Hampton Inn..."
A little too upmarket for us, Davo!~ We paid US$140 per night at the Stamford.
Mind you, we were travelling for six months. (Four, the previous trip... .)
Our only complaints about the Stamford were a.) wireless wasn't free; 2.) breakfast was typically US cafe fare.
OK if you're a donut or bagel aficionado (we're not). Overall, we'd give it a 'Good' rating. The limo scam with the doorman was a disappointment I reported. Our advice: Take a cab... the limos aren't ko$her!~
Comment by Ned S on 10 August 2010:
"war with Japan is not a possibility which any reasonable government need take into account" - Churchill 1924 - And sometime between then and 1937 we quite 'reasonably' put some oil and iron ore embargoes or somesuch on them didn't we Watcher?
I can see the attractions of Austrian economics to an American - The thought that they could actually lose a major war, let alone ever have to fight and lose one at home, is probably a bit difficult for them to get their heads around.
There seems to have been a spate of Taliban atrocity stories finding their way into the media lately - I worry a bit that mightn't be totally coincidental.
Comment by Ross on 10 August 2010:
Ned, don't get too alarmed until reports having the Iranians eating babies. As for Churchill's comments, his design was to have Japan head off the US's global imperial ambitions (as announced by Teddy Roosevelt's white fleet) in Asia and slow their encroachment into central asia and the middle east. He had Billy Hughes and the Australian unions allying with the Americans to contend with. The full story on Ming (Pig Iron Bob) versus those forces and history's account on the US invasion of Asia mark I (mark II if the Korean public let them take up the war again at the 38th parallel) won't be written until the end of the US empire. president Lee's party got hammered in the most recent election, Cheonan didn't do much to save his defeat and could have taken it the other way by the look of it. 2 more years he has in office.
Comment by Ned S on 10 August 2010:
"future planning for poorer (richer in less debt) or smaller households" - It's one of the options Peter - And an important and useful part of an overall solution for mine. Unfortunately lots of us get all NIMBY about it. And others seem to figure something like that is a bit beneath us? So zoning (and more specifically re-zoning) to support and even encourage 'duplex' development is a pretty touchy topic.
Comment by Ned S on 10 August 2010:
"his design was to have Japan head off the US's global imperial ambitions" - What a tangled web we weave when first we go blah blah hey?
"The full story on ... the US invasion of Asia mark I (mark II if ...) ... won't be written until the end of the US empire." Well that was good for a laugh at least!
- Thanks Ross.
Comment by Biker on 10 August 2010:
"biker, hows this for a suggestion, that 4X2 large homes be designed as seperate living areas from the start, like some 2 bedroom units which are converted to 1 bedroom unit. future planning for poorer (richer in less debt) or smaller households. cant be all that hard. of course if the demand was there, the market would provide. and a workshop for each, of course."
Sorry, I'd missed your post until Ned just commented, Peter.
Conversion with moving walls would be ideal. I notice a HK resident has perfected the art.
Our decision to turn four tiny bedrooms into three large(r) ones was cost-neutral, probably mistimed, and discriminatory (in that it doesn't really work for families with three kids... .) Mistimed, because we think this kind of house may be the new standard in 2015... but we _may_ be misreading the signals there, too.
At $340pw, it's our cheapest rental. While it has attracted immense interest, mainly from single U25s, they're the group most likely to sub-let, party hard, etc, etc. We know this from past experience, as
a.) rental home owners b.) amateur rental home repairers; c.) having being U25 party harders once or twice ourselves!~
Comment by Ned S on 10 August 2010:
A change in ownership choices? :
http://www.couriermail.com.au/property/brisbane-property-buyers-embrace-unit-living-with-sales-surging-25-per-cent/story-e6frequ6-1225902219575
Comment by Biker on 10 August 2010:
Interesting story, Ned. It may possibly be more about location than the number of rooms. Both our kids chose their (central) university (UWA) for its location, almost as much as its reputation and courses.
Thinking more about this, our latest project has attracted the same age group... but it's 10kms from the CBD, so maybe the minimal care issue is a major reason units are popular with the young. I'm fairly sure our kids wouldn't want to maintain gardens and lawns at this age/stage... .
Comment by Ned S on 10 August 2010:
Those unit things could have something to be said for them Biker - Leastways if one was the evil capitalist basket controlling the body corporate fees rather than paying them - Food for thought in my next reincarnation when I've got some money maybe?
Comment by Biker on 10 August 2010:
Yes, the complexity of strata fees is an issue, Ned. Too little and you're unprepared for major replacements (like roofs!); too much and you're in penury (which is in the heart of the Coonawarra.)
The horror stories I've heard of Corporate Body politics! (Appears it only works if you're in charge!~)