House Prices Always Go Structurally Higher in Australia

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What an uninspiring way to begin the new financial year. Aussie stocks started out the second half of the year down two percent, staggering home from the bender celebrating the end of the first half. Come on boys. Get it together.

But the task of today’s Daily Reckoning is not to figure out where stocks are headed in the second half of the calendar year. No one knows. Our strategies are focused on energy stocks-both the conventional and highly unconventional kind. We’re bearish on fixed income, a bit more bullish on cash, precious metals, and tangible assets.

What about housing? ANZ Bank published a report on the subject yesterday. Among other things, it declared that, “We expect dwelling prices to edge higher for much of the remainder of 2009 with upside risk presenting from intensification of strong fundamentals, a shift in price expectations and restoration of confidence.”

Pardon?

That is some seriously tortured syntax. What does “upside risk presenting from intensification of strong fundamentals” actually mean? Does that mean there is a risk prices could go up? Blah blah blah.

On the plane to Adelaide yesterday we had a much more down to earth conversation about property with the man sitting next to us in the exit row on our Boeing 737. He was reading a story in yesterday’s Australian about the new “boom in the bush.”

“According to RP Data-Rismark, the national median house price of $468,819 is just $520 shy of the record set in February last year, before the global economy sank into recession. Melbourne is leading the housing recovery, with a 6.1 per cent growth in prices between January 1 and May 31 and auction clearance rates in excess of 80 per cent for the past seven weeks. Sydney recorded 5.2 per cent growth in prices over the same period.”

Adelaide was not near the top of the list. And that had this passenger concerned.

“My wife and I decided to buy another property about 18 months ago. We thought the financial crisis was a good buying opportunity. You had a lot of people scared. But now, I just want to get rid of the thing. It’s keeping me up at night.”

“But I’ve heard Adelaide is a nice place to live.”

“It’s lovely. But I bought around $410k and already the median price is below that here. I don’t care what I get now. I’d be happy with $408. I’m going to call my agent and let him know. My wife tells me I’m being silly. But I just want out. I have my pay stubs from back when I bought my first house and I have the mortgage too. I made $8,000 a year and the house was $25,000. Today, though, we need that money for retirement…I don’t wanna be caught selling when everyone else is. I want out.”

It sounded like he wanted out of the market.

“I get worried when people saying prices always go up. I mean there must be some evidence to show that isn’t true. Wouldn’t people want to know that before they took out a big mortgage…especially with interest rates. They have to go up sometime don’t they?”

Your editor didn’t say much because he was nodding the whole time. Choir, meet preacher.

Of course this preacher and this choir may be excommunicated from the Church of Aussie Housing. Median home values are within shouting distance of their all-time highs, thanks for the first buyer’s grant. It’s a disaster in the making.

Demographics, immigration, the concentration of the population in urban centres, and the much ballyhooed supply gap are all trotted out as reasons why house prices always go structurally higher in Australia. This also explains, apparently, how Aussie house prices can defy household earnings gravity.

That is, people spend much larger multiples of their income on housing here than anywhere else in the world. How is that affordable? A reversion to the mean ratio (3:1) would mean a serious correction/crash. That seems impossible and psychologically impermissible to a lot of Aussies. But once you wrap your head around the idea that, historically, house prices don’t go up much faster than the rate of inflation, it begins to make sense.

There may be multi-year periods (we call them credit bubbles) when low interest rates create a boom in mortgage lending. This leads to house price inflation. But those booms always go bust.

Governments seek to avoid the bust by reigniting another round of inflation to keep household nominal wealth from utterly collapsing (or simply reverting to a more sensible mean). Hence, the Aussie government sparking a lending boom to those people in Australia with the most to lose from taking on huge mortgage at the low end of the interest rate cycle; young Aussies who are the most vulnerable workers in the job market and spend the highest percentage of their discretionary income (not much) on an asset they bought at the top of the boom.

Come to think of it, if you were deliberately trying to wipe out the financial prospects of an entire generation by saddling them with crushing debt, increasing the first buyer’s grant is probably exactly what you’d do. And you’d laugh along with your banker friends.

Incidentally, two of our confirmed panelists for the Debt Summit later this month will have a lot to say about Aussie property. Stay tuned.

Finally, some reader mail. It raises a problem that’s been growing in the back of our brain. Credit is not money. So what happens if the credit bubble deflates and the liquidity measures (which are not money) instituted by the Fed and other central banks never turn into new money supply. Does this invalidate our entire position on inflation, and the investment strategy that goes with it? No! More on why tomorrow.

–Dear DR,

I have just read today’s DR – good work as always – and refreshing to hear more analysis on the likelihood of deflation prior to potential (hyper-) inflation.

Two highly pertinent factors, it would seem to me, are invariably over-looked in this debate and I thought you might like to explore them for your DR readers.

1. Central bank’s ‘quantitative easing’ via the printing press certainly appears highly inflationary viewed against metrics such as M0, MZM etc. However, viewed against the scale of debt lurking in the ‘shadow money’ world of derivatives where the figures are a factor of 10 greater, it compares to a bit of loose change. As you point out, the coming tsunami of ALT-A et al. debt refinancing/default represents a huge deflationary force that will manifest significantly via the derivatives market.

2. Of course the banks are going to rebuild their capital base with bail-out funds and deposit such taxpayer largesse in the safest place possible: the Fed – they were always going to and I find it hard to believe that anyone thought otherwise. If the Government/Fed was serious about re-liquefying the credit markets all it basically has to do is start charging the banks for holding their reserves. The money-grubbers would soon have their funds out and lent where they could get a return – albeit at extortionate interest rates.

Best regards,

David W.

Dan Denning
for The Daily Reckoning Australia

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.
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Comments

  1. Dan, I will watch closely for “More on why tomorrow”.

    Two things from US bond market commentator The Market Ticker

    1. Savings. Even the US households are saving now, but it isn’t saving in terms of creating lending capital for the real economy if households are paying back debt, even when that debt sits in securities exchanged with the fed.
    2. Market making. We have all heard that the US merchant banks are back hogging the market with index trades again. They sell each others assets back and forward between each other and the rest of the world gets sucked in.

    Beyond this the so-called stress tests are doing the same job as the old ratings agencies and coupled with the opaque quality of what is sitting on govt balance sheets creates new funny money liquidity but the way it is employed is making a difference and the velcity argument that you hate does hold up for a while if the banks do most of their market making on their own book. Other institutions and the surviving leveraged investors catching a ride have such dodgy balance sheets that little will escape short term surely.

    Separately, all Obamas mortgage mitigation applications from distressed borrowers seem to be getting “lost in the system”. I can see Goldman sending emissaries out around the US with shredders to make sure that it happens. Here we have margin borrowers from expensive suburbs being sold up spun into great news for increasing home prices. I’m not sure where Joye and BIS are going to spend the back end of their lives … Maybe Chairman Keating can find them a banana country.

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  2. Nice article Dan. It is good to hear an alternative view about house prices in Australia – particularly a word on Adelaide.

    I do agree with the article to some extent – particularly the comment , “…thanks for the first buyer’s grant. It’s a disaster in the making, ” and the sentiment that house prices do not always go structurally higher in Australia.

    However, there are some issues that mean Australia is able to have a higher house price to income ratio that i think you have understated.
    – First is the relative inelasticity of supply of land in Australia. That is that the supply of land has traditionally not been able to keep up with demand increases brought on by migration and increases in wealth.
    – Second is the rate of population growth. Adelaide in particular is expected to gain an extra 250,000 people between now and 2027 according to latest figures emerging out of the State Government. I actually have some involvement dealing with the processing and monitoring of visa applications and i can tell you this is not far off correct, even if current migration patterns slow by 10%.
    – Third is the often forgotten lack of infrastructure issues particularly associated with Adelaide. The relative lack of investment in transport infrastructure in particular during uban planning has meant that living beyond 20kms from the CBD significantly raises transport costs. The lack of vision presented in designing Adelaide has meant that demand for housing will remain strong as new land is often beyond the 20-25km boundries of infrastructure and basically consumers are not interested in this land.

    In conclusion, i agree that house prices do not always go structurally higher. However, in the next 10-20 years and until significant investment is made in infrastructure, our population growth reverts to a stable rate where we are simply replacing the existing population and consumers change their current preferences for housing and land, prices will continue to remain at dispropotionately high levels relative to income in Adelaide. Once that changes however, i can see your logic behind a required drop/correction in house prices in the long run.

    I see the short term a little differently, in that the home owners grant is creating an articifial bubble which has simply prevented lower priced housing from returning to a more sustainable price-income ratio. These first home owners will more than likely receive a rude shock in the 6-9 months from September 30, once the grant tapers off. A unit 15kms from the city of 90sqm just sold for mid $270s – un precedented in Adelaide and roughly 25-40,000 above market value over the last 2-3 years. This will re-adjust from September and these first home owners will face a shock fall in the values of their assets until at least the end of 2010…

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  3. Old rule – Average family earning average wages can afford average house.
    This has been a mean with variations above and below depending on demand and supply. If the average family earnings in Australia are circa $130K that would imply the average house should cost $390K. Anything above that is expensive, below it is cheap. I believe that the average house is well above this amount (in capital areas) and as such a correction is on the cards. My suspicion is that there will be a wage inflationary push, the problem with this is that before that there will be a rate rise that will hurt many before wage inflation comes to their rescue. In this over-lapping period there will be house price deflation and much higher defaults.

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  4. Spot on Joe, what you say is true in the long run – people will only buy what they can afford, on average, over time. If they deviate from this (usually by being deceived), then a hangover inevitably follows.

    But house price deflation is a big bogey man for the Government, which seeks to stall any dip in the housing market through its FHBG and other forms of market manipulation. It’s not a guaranteed thing. I suspect that instead, housing prices will ‘fall’ by not rising in keeping with wages and other goods/services. Either way, houses won’t perform well anymore as a speculative investment, at least not for the next few years, in my opinion.

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  5. I am not convinced at all that Australian residential property will drop significantly apart from the top end of the market – which has already started to drop. As far as Australian property being unaffordable because of the high price/income ratio maybe you should have a look at what is considered an average property in Australia compared to say western Europe; my conclusion is that what is considered an Average property in Australia will in a decade or so be considered an above average property and average properties will have reduced land content and reduced internal sizes – driven by better use of technology and more innovative design. Both these trends are also supported by the upcoming Gen Y …

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  6. Joe – New houses are certainly expensive – What does one expect when they are heaps bigger than they were in the past and every bloke who’s ever seen a nailing gun thinks he deserves big bucks to get out of bed in the morning and we’ve got lots of occ health and safety and other regs adding to the prices and people want ensuites and heaps of ceramic tiles and lots of other luxuries.

    But it is the land that is the real killer. And there are lots of vested interests playing a part in keeping those prices up. While it doesn’t keep prices up as such, it is still interesting to note that QLD isn’t going to value the land this year: http://www.propertyoz.com.au/Article/NewsDetail.aspx?id=1000 – Just in case they had to admit that it hadn’t gone up maybe – Or had even decreased a touch perhaps? Technically council rates charges are supposed to reflect land valuations as I understand it??? And it would seem a bit rude to put rates up (which councils have) if land values had gone down.

    Will house prices go up or go down? Volumes have been written on it of course. And while I suspect your assessment is at least as good as most, I am also mindful of the fact that the houses we are building nowadays aren’t exactly what I’d regard as “average” – Not from a longer term perspective anyway.

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  7. Erik, I think the term “average” home is tossed around without a lot of thought. It is hard to compare “average” homes within a city let alone with other countries.

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  8. Here we have government making light speed changes to legislation to lock people into property purchases they may otherwise have wanted to and previously been entitled to back out of:
    http://www.news.com.au/couriermail/story/0,23739,25694389-5011140,00.html

    The justification being things like “in an increasingly difficult market for securing credit, lenders who funded projects on the basis of off-the-plan sales were also concerned” and “Settlement of these contracts is essential to ensure the financial success of any residential project and the continued solvency of most developers and the continued employment of contractors and subcontractors” … continued solvency of MOST developers??? (That being a QLD state minister talking!)

    So the banks and the builders are worried and the government jumps like a puppet on a string. I don’t know the rights and the wrongs of the legislation, but I sure do know whose interests are being protected and by whom – The vested interests in holding the property market together are HUGE.

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  9. All interesting comments on the ‘average house’… . We’ve come full circle, I think. Some areas will fall; others will rise. But as Ned and Greg state, defining the average house is difficult. Almost every house we now build, in a beach suburb with high growth, has four bedrooms, two bathrooms, home cinema, full, fast optic fibre, air conditioning, double garage, water tank plumbed in, landscaped gardens, high ceilings, etc, etc. This is fast becoming ‘the standard’ in WA…. tenants want it, buyers demand it. A solar HWS caps it off. These homes, which we construct in areas with water or parkland views, are now the average, in a market around $400K – $500K. Our most expensive project so far has been $440K total, including quality carpets and fittings. It’s a buyer’s _dream_ that these homes will fall 40%, especially considering the rental situation. After two years that dream continues to shimmer like a mirage. Sorry, but as new super limits bite… and agroforestry tax schemes fail, investors like us will spend more, not less, on property. Should prices fall below construction costs, we’ll buy _established_ homes. Far less effort! :) Hasn’t happened here… .

    Biker Pete
    July 6, 2009
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  10. I think affordability to purchase might be a better way to compare Australian housing to other countries. What percentage of income must be used to provide shelter. This way you can measure the stress placed on household income. The more spent on housing the less you have for other expenditure.

    The other way to compare us to the rest of the world might be to look at rental yields. Finally you could even consider what percentage of wages are used to pay rent in other countries compared to Australia. Of course for Australia you may have to consider the $3 billion a year in tax breaks given to house investors as a form of rent subsidy.

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  11. Ned S
    “Technically council rates charges are supposed to reflect land valuations as I understand it??? And it would seem a bit rude to put rates up (which councils have) if land values had gone down”.

    Councils here base the general rate at x cents per dollar of unimproved valuation. The cents per dollar is based on the overall budget requirement.

    Falling land values has no bearing on the revenue they budget for – falling values has no bearing on council operations – ipso etc. the rate must rise if land values are revised downward.

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  12. I’m still of the opinion that house prices will hold up or decline by 5%-10% at the most. The real killer will be the lack of growth for a few years which will effectively reduce house values as inflation and wage growth start to close the gap. With average incomes at around $60k and the average household income up over $100k, existing “average” houses (3/4 Bed, 2 Bath, Brick Veneer on a 500+m2 Block within 20-30km of CBD) priced around $450k are reasonable value in my opinion…. All the new blocks I see in the cities are tiny 400m2 “plots” in cramped estates with narrow streets… Purchasing in one of these areas will provide you with the additional luxury of hearing your neighbour fart each morning because your windows and walls are a metre from his…. Not a good buy at all at $400k plus. There is value in existing property close to the city.

    Cyber Cynic
    July 6, 2009
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  13. Why do us Aussies think that a house that costs say, $450,000 is actually worth it. The amount of net income to fully pay off a loan for that amount is way more than $450,000. Do we so undervalue our precious time on this planet. It just seems to me that we seem to be sleepwalking, just going along with what society tells us should be. Instead of changing society to be the way it should be.

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  14. Yes, we could apply that logic to almost any commodity, Bob. Personally I fail to see why anyone would pay more than $20K for a _car_, which rapidly loses half its value. As Greg has noted, it costs around $500/ oz to produce gold. Why would anyone pay double that? The answer is, of course, that something is ‘worth’ what another will pay for it. Logically, in troubled times, gold provides some shelter. If you’re getting dividends, keep buying gold. I’m sure that in the the perfect society, we’d all have vaults full of the lovely stuff… . Imagine though if any one of us here contended gold would lose 40% of its value… and we’d then adorn our homes with shiny doorstops… ! It would be as silly a hope as many in this forum nurture…

    Biker Pete
    July 6, 2009
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  15. Thanks Michael – All too true – When push comes to shove, local, state and commonwealth government will all collect whatever tax they reckon they need. Although if they can make it look a bit less like a blatant tax grab I’d guess that is their preference.

    Just as a side note I read a while back that Ken Henry saw considerable merit in taxing land. It’s much easier than getting a handle on what business has really made what profit and what money has been hidden overseas and such things presumably.

    It’ll be interesting to see how the commonwealth get in on the action re taxing land. They get some income from it through CGT already. But I’d imagine a nice regular yearly income would be appealing to them.

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  16. There is a real estate crisis in every family, including mine. With her car driving days probably numbered my Mum needs to move into more suitable accom. The 4 bedroom house which we bought new in 1967 for $17K and with the big flight of stairs at the front isn’t that great any more. Of course she won’t move ……….. but even if she did, the financial implications would be quite daunting. OK she can get about $550K for what she’s in but she can’t get much for that in terms of retirement accommodation, particularly if she was to move closer to my Sydney siblings.

    Why would this snippit of info be of any interest to anyone out there? Well, my Mum lives in a longish street that used to be populated by young middle income families during the 60’s and 70’s. These days, more than half the street’s residents, many of whom live alone, are in their 70’s and have no intention of leaving at the moment. As the so called baby boomers follow in the steps of my parent’s generation, more and more streets will be populated almost exclusively by older retirees.

    Not withstanding the credit depression, fortunes will be both made and lost in real estate over the next 10 years of so – its a no brainer to say so. My view is that there will be far more losers than winners BUT the winners will be those who pick the demographic//location trends correctly and invest wisely. Factors such as perceived security, location, ease of access, nice garden and ease of maintanance are very important. Walled security villas are popular, over priced and perhaps take things a bit too far but the developers (along with their mates on council) will contunue to make a killing on these. By contrast first home buyers who get into something like my Mum’s old house in the suburbs will go underwater the day interest rates climb to 10%. At this point, the nominal price of this sort of house will start to collapse.

    There lies much of the Australian residential RE market.

    Coffee Addict
    July 6, 2009
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  17. CA..of course it also works in reverse in some areas. Areas that were once downtrodden become hip, prices rise and they undergo an urban renewal. years ago everyone seemed to want a big backyard, not more people want to be closer to the city and amenities. Times change.

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  18. Now, an educational administrator should know how to spell ‘they’re’ CA! :)

    Biker Pete
    July 6, 2009
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  19. CA I think you are right the final straw for the housing ponzi scheme will probably be interest rates. What the house bulls seem to over look is the increased leverage required to buy a home. Most of us BB’s have seen 15% plus interest rates but when you owe 3 times income its hard but not impossible to make ends meet. Now days when young families have to spend 7 or 8 times income a small rise in interest rates really cuts into their income.
    Who would you rather be the fella in the 80s on 20K a year paying off a $60k loan at 15% (9k interest pa 50% of income) or this generation earning 80k paying off a 560k loan at 10% (56k interest pa 65ish% of income). God forbid if rates ever went to 15% again, as anyone can see from the example above the interest on the 560K loan can’t be serviced with 80K a year. The key thing with housing is affordability and the owners ability to pay. While we have interest rates at 40 year lows it all seems very rosey but rates wont always be where they are now.

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  20. Coffee Adict has a very good point.
    Similarly it seems every second person of a certain age owns rental property encouraged by previous government policy. What happens as these landlords age and it all becomes a bit too hard to be bothered by the problems of managing rentals? In my early twenties I watched as smart 30 year olds bought up the inner city rental stock of a previous generation at low prices, because no one wanted to live in those ageing, damp, cold, uncomfortable conjoined piles of rubble. Fashions change.
    The most immediate factor however, is unemployment. Once that gets beyond a point housing price fall seems inevitable. If not, then a period of not much rise, not much fall seems likely.

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  21. I agree Shaun. Additionally I’d say that predicting the desirable residential locations for future wage earners is the big key, and is heavily dependent on future infrastructure plans (especially transportation). It’s a bit of a gamble, but assuming that peak oil does occur (even if it is artificial) then the only form of mass transportation that will survive reliably is rail (it will be back on the government’s agenda soon I am sure). After that it’s a question of which industries will survive or grow in the next few years and what class of worker is needed for them.

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  22. Talking of house prices and credit contraction….. I was listening to talk back radio the other day and a caller described how a bank (and i can’t for the life of me remember which one)called in the housing loan. The caller said the he wasn’t behind in his mortgage, which was just over $200,000, but that the bank had invoked a clause that said they could call in the loan at any time. He was able to refinance but had to pay out his loan. Now my rational brain thought, “Why would a bank do this? They make too much money out of residential mortgages to call in a loan from someone making timely payments”. The only reason I could think of was that the bank knew they would get their money back as the house was worth a lot more than the loan (after 5 years of capital gain), and they needed the money upfront and not over the next 20 years of the loan. Has anyone heard of this and whether the banks can actually do this?

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  23. Wow, Annie. This is juicy news indeed!

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  24. Annie, I have _huge_ faith in talk back radio. It’s very likely, based on the reliability of source, that this has actually happened… and will soon become commonplace… . Private home ownership is doomed. ;)

    Biker Pete
    July 7, 2009
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  25. Just a thought Annie, but maybe he was up to his ears in credit card debt or way behind on his child support payments or he hadn’t been so conchy in paying off his business loan or some other creditor and the move was really triggered/initiated by another party taking a lien over the property? Although I’m honestly not sure how such things might work.

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  26. Good points Ned S. The caller was silent on whether or not there were any other debts in his name and the interviewer did not ask either. Of course sometimes when the whole story is revealed it can put a different complexion on the matter. I was hoping however that someone on the forum that may have experience in the banking or finance industry could post about the legalities of this scenario. If it turns out to be true, every mortgage holder should feel very uncomfortable if the banking sector takes another hit (like some have prophesized)and they start scrambling for a better cash position.

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  27. Property purchases for those interested in making a buck from them – The old location, location, location rule is good (transport infrastructure, schools, shops, hospitals, universties, jobs etc close by) plus potential, potential, potential (can you subdivide the block [although such blocks come at a premium nowadays], get an extra bedroom out of it at minimal cost, put a granny flat underneath … whatever). Get both of those right and one should fare better than most. Long term anyway – As in I suspect it is a bit like stocks in that when the bear raids the fridge he tends to damage all the food – Smile!

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  28. Guys , you cant have house prices and rental prices like Australia and also be globally competitive and productive country . Something has to eventually give. For all the talk about migration , I do not think Australia figures well by scientists , doctors , engineers etc. Cooks , tradesmen maybe. They are other places where highly skilled people can take their skills to get and get a better bang of bucks for their skills, instead of wasting wages in rent and taxes here.

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  29. You think the talk-back-radio caller was genuine, Annie? There’s an empire built on talking down realty*… and much of that empire is built _Keenly_ on an academic’s generalisation: It happened there… it must happen here. It hasn’t happened here. Two years later, we’re _still_ waiting. Meanwhile we’ve seen super fall out-of the-sky…; sharemarkets fall from 6800+ to 3200… correcting to 3750; and a host of agroforesty tax schemes explode in flames. The ABC regularly broadcasts barefoot investor talkback horror stories, many of them the typical urban myths we’ve become used to… . For every one of these there are ten thousand sad tales of punters who lost megabux in shares, super and treefarms. Give me an asset class where dividends are paid weekly, every week, every time… ; where government recognises that primary need for shelter and supports those who provide it; where the rewards include our option to jetabout the world chasing the summer every year. (About to board as I type. Future posts from the NH for the next seven months… .)
    * Yes, I acknowledge there are many more empires built on talking realty up. Probably applies to Super, precious metals, tax-minimisation schemes, day-trading and the like, too! ;)

    Biker Pete
    July 8, 2009
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  30. That bit about the caller saying his loan was being ‘recalled’ is probably true. The bank quants call it ‘equity harvesting’ and is in fact quite widespread and very profitable for the banks and their mates as they get to load the ‘disposal’ of the property up with fees. The preferred targets are those people whose mortgages are almost paid off.

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  31. A solicitor would have a field day with your description of ‘equity harvesting’, Ram. Ewes your head and think of the ramifications, son: Lawyers, Guns & Money… . The dung would most certainly hit the aerator… . Widespread? Name just _one_ citizen of our 22 million who has almost paid off a mortgage, to have it harvested in this ‘widespread’ fashion. There are many more believable myths than this one. It’s laughable! :)

    Biker Pete
    July 8, 2009
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  32. Biker, Ned and Greg: Why do you hang out on this website if you disagree with the articles so much? This surely isn’t the most ideal place for real estate bulls to hang out.

    For every single article that mentions real estate or gold you are all straight onto it with the same old spiels against gold or for real estate.

    Why not wait and see what someone else has to say. You might learn something.

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  33. Oh sorry Pete, I forgot that we all had to agree with everything that is posted. It seems you think a person is a real estate bull just because they do not think prices will fall 40%. I have never been bullish about real estate, I am just not gloomish.

    On the subject of gold, is a debate about supply and demand facts such a bad thing? Or shall we all just nod our heads and blindly assume that gold prices are heading for the stars and there is no stopping it?

    Debate is healthy. Censorship is not.

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  34. Yes, I’ve checked again, Pete. REAL ESTATE is right up there on the menu bar. I may be the only property _bull_ in this forum. Both Ned and Greg have differed with my views at times… and I with theirs’. Your views and mine differ so markedly that there will always be conflict. You _need_ property to fall, to recoup major losses. It has failed you badly in the UK, by your own admission a 40% loss. But not all property has fallen in England, just as even in a worst case scenario, it won’t all fail back in Australia. I’m in a lovely country home near York, right now. Its owner notes that the value has remained constant through the GFC. Many of those who have been forced to sell in the UK borrowed heavily against their ‘equity’ for expensive luxury consumer goods… and were then forced to sell their homes. Is that a familiar story, Pete? ;)

    Biker Pete
    July 10, 2009
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  35. Pete – Re the current merits of gold and houses: I have a young niece and newphew – Should they happen to be orphaned tomorrow and I find myself with $750K to invest for their long term wellbeing, would I buy them 640 ounces of gold or a humble home each? I know what my answer is. Could I be wrong? Sure – But not to the point that they’d hate me forever for having destroyed their financial futures I suspect?

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  36. Gold is a hedge against cash. It’s reasonable to believe that its price will spike once the quantitative easing washes into the economies around the world, but even on this website we are hearing words of doubt. To me, it looked like a very good buy some years ago and in many respects gold has performed reasonably well since, but not as well as predicted.

    The problem I see with it is that the gold market is not transparent (I’d describe it as smoky at best) – it’s an international market and specific information on companies and personalities is difficult to come by. As a result I personally don’t trust the gold market, especially since banking cartels feature so prominently as owners of the world’s bullion. Do you trust banks? Good luck to you!

    We all know that real estate has done very badly indeed in the UK and US, and has been mediocre to disappointing in Australia lately, but there _were_ people who saw it coming, so it wasn’t impossible to foresee. I didn’t quite hit the peak of the market at sale, but came close enough such that I can’t complain.

    I personally can understand the mechanism of the price movements in real estate better than those in gold markets, and I am much more confident in predicting real estate movements down the track, because if I really wanted to find out about an area, or a class of real estate, I can travel to the physical object in question, get out of the car, sniff the air, see the people, perhaps buy a local book on the area’s history, etc. Having lived in houses all my life helps me understand them better. Plus it’s less overall work each day. For gold, I can only trust what other people tell me.

    OTOH if you are a multimillionaire owner of gold stocks, perhaps a major shareholder in a gold mine, you are 1. biased because you have a product to sell, but 2. you are in a strong position to understand where gold might be going because you have contacts in the business.

    But the big problem with both gold and RE is that both markets are being totally screwed over by government and banking intervention at the moment. This is a time like no other, in that those with insider information are set to make mega-bucks. It’s not surprising that the bears are becoming very cautious in the wording of their articles of late. Ultimately though, I think the system is still totally stuffed and that’s why I’m still a bear.

    Reply
  37. Dan you make a good point. The mega bears are questioning their stance those who have been a little cautious are getting more confident and the bulls are saying I told you so.

    If history is any guide it’s time to get bearish again. The majority are such a poor judge of markets.

    Did you hear Roubini and Shiller today on Bloomberg radio Aussie housing got a mention as one of the worlds bubbled RE markets.
    Not to worry, we all know that’s not true, Glen told us there is no bubble in Australia.

    Reply
  38. Dan, I think there are plenty of people around who have a similar view to you and I am one of them. I am fairly cautious on both gold and real estate simply because of the reasons you mention…these markets are very susceptible to tweaking by governments and banks.

    Anyway there is an awful lot of emotion in the markets now and we know that this can skew things either up or down. The dangerous thing is that during severe market corrections people can leap into a new investment in an attempt to cover losses they have had elsewhere….of course it may all turn out great if things work out as planned, but it can also be a recipe for simply losing more money.

    Reply
  39. comment – in many respects gold has performed reasonably well since, but not as well as predicted – is this a problem of gold or the prediction of the gold price action.

    Banking cartels feature so prominently as owners of the world’s bullion. Do you trust banks – No i dont as they are not your friends but if they own gold why would they want the proce to deteriorate of lose on thier investment – the banks bought gold for a reason and they know the profit principle backwards

    just a thought – why not view gold as an investment with the same time horizon as property investment?

    Reply
  40. Rag, thanks for the good comments. Just some thoughts back: there is a problem with gold, actually, as there is a misapplication of gold’s usefulness historically to the current situation. It’s that gold’s value, above its use in jewellery (especially in India) and industry, is entirely the matter of subjective opinion (of banks). Nobody needs it to survive, and the banks know this. Banks could turn around and invent a use for gold, like returning to a gold standard, but, individually, they are as likely to turn to platinum, palladium or silver for that matter. Also, there are doubts as to how much gold banks claim to own, compared with how much they physically possess.

    Banks make no money from the gold sitting in their vaults, so they trade it speculatively to get some kind of profit, as you suggest.

    I view gold in the same way as cash. Gold is sometimes better than cash (during rapid inflation), and the converse is of course sometimes true. But both are nothing but tokens of exchangeable value and they are worth nothing until converted into something useful. My problem with gold though is that it’s not a straightforward task to walk to any shop and flick a few gold coins on the table and walk out with goods. Whereas cash is always useful, as long as you don’t hold more than you need, and as long as people are still using it every day. But in some countries it’s not cash but cigarettes and coffee beans.

    Believe in gold’s future all you like, but unless you know something everyone else doesn’t, it’s still a gamble and in no way comparable to real estate or any other every-day need of the population.

    Reply
  41. there is an old saying though on houses – if you own 1 you are square, if you have 2 you only have 1 and if you rent you have negative asset – and another old chestnut is to rent and invest the difference in equities = like comedy this depends on timing – so it would be good to review the returns on assets since 1995 or 1998 when the stock market rose to housing, art and commodities.

    I basically put my wealth into property in 2007 – bought some gold [yes bid offer spread hurts for liquidation] but I still see gold/ silver as alternative to cash but always as a percentage to cash and not as an asset class in itself like housing – but I gotta say I have to sit back and think – lucky I have 15 years to retirement and work on how to invest my time = create a second passive income apart from the grind of a 12/5 job – start a company [again] and look for equity gains in owning a company, speculate of FX part time [they say it is easy to make money on margin trading – never mention who makes the money other then the platform provider] or simply think that it has been a fun party and glad I was there but the tomorrows are for a more simple life – so what I am doing is getting off the grid, solar panels as backup electricity and wind turbines, glass house for vegetables, rain water tank – wood fires and as I live in the mountains write political monologues [kidding]

    So I am as confused as the next guy, but for me the chaos means hedging assets for a while and cash is king = so metals in some form and if they take off then never have enough but for me the long term potential is metals and oil given the grwoth in demand – just take a look at youtube video on exponential growth or think about the long term consequences of growth in demand for any product at 7-8% + and perhaps it is the scariest issue we have to deal with

    Reply
  42. Getting off the grid in every possible respect is a very very good idea, and its wise to do it now (or better, years ago!) before everybody else gets the same urge. If you buy into metals, then at least they ought to be useful metals IMHO. Like tin or copper or iron is what I’d research. For example, I don’t hear of any ubiquitous alternatives to copper wiring just yet. Yes, information can travel through the air, but nobody is frying cockatoos by beaming megawatts of electricity through the humid atmosphere, nor is the moon yet being used to bounce energy around the globe – a Nikola Tesla idea (happy anniversary old chap) .. although someday it might. The platinum/palladium market looks interesting too, since both are valued mainly on industrial demand. But that’s my limit of expertise already.

    I remember a story of old rich and new rich, where real wealth existed in owning your stuff, growing your own staple food, having very few bills to pay and owning hard-wearing, long lived clothes and tools. That’s my retirement plan in a nut shell.

    Reply
  43. king gee pants and old denium jackets – look like old Mr levi on the Gold fields but he made a killing in selling levi strauss jeans….yes couldnt get the rebate so bought big on solar cells on ebay from american company as with the turbines and want to build my own panel – next door neighbour is off the grid and loving it – but now there is a company that can give you a 1.4 kw off-the-grid solar panel for $4,000 and this can be paid-off over 5 years so savings made on electricity can pay the loan [no interest] so come in spinner – but off the gris means if the grid goes down you have the same problems even with solar panels so I am still building the solar panels – dummies guide to solar panels, soldering iron, some aluminium casing and off I go

    have a friend who lives in Armidale building his own house – no electricity, wood heating so perhaps this is the zeitgeist – but he was a prop trader in the financial markets like me so no ‘hippie’ as they say on South Park – so he sits and reads comparative religion and philosophy living on selling trading research to hedge funds – no thats was a nice income steam or gravey stream but the tap has been turned off

    problem with the idea of metals is you need to trade them on margin – so unless you control the cash buffer required to stay in the game over the longer term on a investment cycle you will need to pay attention – or again invest in a fund for commodities = need more research as I dont think buying gold or silver and putting it in the bottom drawer is a long term solution – also I have heard many stories recently of husbands dying and their wives have found that they were buying silver coins over decades – perhasp for up to forty years and hidding them in the drawers in the attic [have 3 friends who have told me such stories in their family] without telling their wives and now they are millionaires – buy a $15 silver eagle each week for decades and presto, your own lotto winnings

    Reply
  44. Tesla one of the most underated geniuses of all time!!

    While browsing through some treasury papers the other day, I found a little gem that is pointing to the preservation age for superannuation being pressed out to retirement age so people don’t spend their super and then go on the pension. Bet your sweet bippy the tax reform report will hail that one. Well, looks like we’ll all be little skeletons sitting at our desks before we can retire!!

    With the price of electricity, transport and water going up all the time, I too am looking to get a place off the grid. Sold the house at the height and am now house sitting in the country on ten acres. Did a permaculture course and am reading up on everything. Got some chooks, fish in the dam, wellies, old clothes and tools and now eat my own veges. Ate my first home grown zucchini last night (well it’s exciting for me!!)So learning the ropes before I buy a bigger property of my own.

    OK settle petal you’re not out of the corporate jungle yet.

    Reply
  45. http://www.auzion.com is offering a solar pacjage of 1.4 kw off-the-grid – not means tested, you pay the loan off over 5 years on a no interest basis or you can build your own solar and wind turbines – any dummy can do it and I am no exception

    I thought of some chooks but I heard they attract snakes – got a three year old and live in the blue mountains so worried about snales and funnel webs

    Reply
  46. I avoided the snakes and funnel webs by relocating to Japan but of course I am very much on the grid. But there are advantages to living in the city and one is you do not need a car and that more than makes up for the cost of electricity. (which down where I am is most likely to be coming from a nuclear power plant)

    rag just out of curiosity how much of the wind and solar power stuff is made in Oz?

    Reply
  47. Annie its always a thrill to eat your own home grown produce.
    This Spring Im going to plant some tomatoes called “Mortgage Lifter”. A fellow bred this variety (up to 1.6kg weight per fruit) in the great depression and sold enough of the fruit to pay off his mortgage. They taste terrific.
    Greg although I live rural and like the self sufficient thing, it is interesting how you can drive so little. To live in the rural areas I inevitably clock up zillions of kms in car (ute) travel which is at odds with my self suff. philosophy. Oh well …no such thing as a perfect life/lifestyle. Cities need farmers and vice versa as I see it, its a great symbiosis.

    Reply
  48. Hello Annie – The Ken Henry stuff re bringing access to super in line with retirement age got me snooping too. It is a very strong chance. But from what I can make of it for now, the late 40s and above just mightn’t get caught by it. Makes sense – They’d express great displeasure at the poles over having been suckered into making voluntary contributions/salary sacrificing to a black hole in the ground. While the younger ones just probably haven’t gotten so heavily into it yet – Not enmasse anyway???

    But as I keep saying at the obvious risk of sounding like a broken record, keep an eye on the Ken Henry tax review – It does have the potential to be a defining moment in Oz fiscal history – In many ways.

    Reply
  49. Why go ‘off the grid’ Annie? Smarter to put in a larger solar system, sell back to the grid… and enjoy another income stream. On our ten acres we can grow more than enough, even tho’ six acres are still dense forest: jarrah, marri, blackbutt and peppies. Yes, chooks bring rodents and thus snakes, but foxes are actually worse!
    Snakes and rodents are easily controlled. Foxes are an ongoing nuisance, unless you have a dog… .
    The English property we’re staying on at present is just a couple of acres, but our hosts are virtually self-sufficient; and no culinary experience beats fresh produce…. including eating it while you harvest it…. . Our friends’ cars are mostly diesels (fuel nearly double Oz prices). Interesting to note that the QANTAS and BA flights we were on were both at least a third empty. I wondered if most travellers on the two first legs were mostly flightpoint users, in fact. The GFC must be really knocking the airlines and tourism generally…. .

    Biker Pete
    July 10, 2009
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  50. Hi Rag
    I think in any rural areas snakes are always going to be around, and yes chooks attract them. With a littl’un may not be a good idea. I get brown snakes and had a black and white python crawling around the verandah the other night!!

    Lachlan, will be looking for those tomatoes. Maybe BOGI has some seeds. I too drive zillions of miles and would love not to have too.

    Ned S, I have just about written off my super. Even though I have defined benefit in the public service and luckily put the sacrifice stuff into cash before the crash (thanks to Daily reckoning), I have a feeling the Government will get it’s greedy paws on it somehow (look at Argentina and murmurs of funding infrastructure projects here in Aussie). From living in a rural area I literally will not count my chickens before they hatch!! haha

    Biker Pete most of the place I am house sitting at is bush, lots of wildlife and about an acre cleared for the orchard and veges. When I get my place I would like to sell back to the grid and have an earner, although from my investigations there’s not much to be made from it. I love the peace and quiet so there’s always a trade off, not so much money for a simpler life.

    Reply
  51. Biker – I can see the logic in going off the grid – It’s almost an expression of total disgust and revulsion for government and a recognition that any link to them is an exposure to financial risk. That bloke over your way in the Hutt River Province played his cards pretty nicely – Smile!

    Reply
  52. Yes and it makes it harder for Terminators to find you ;)

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  53. My first date with the missus was a flight to Hutt River Province*, Ned. King Len probably got away with his ‘secession’ due to a certain novelty factor… . It has its dusty, rustic charms, but isn’t the most thriving principality we’ve visited!! * First prize at a Quiz Night. ( Pilot crashed in a pine plantation a week later… . )

    I’m still not sure that ‘off the grid’ is ideal, altho’ rural life has its advantages. Three decades ago my cousin went solar/wind/diesel on a very green 640 acre property, on a river with a series of very ample dams…. stunning place with an historic homestead, tennis courts, etc. It might seem an utopian existence, but I note he spends much more time at another place in the French Alps… and as much again in the UK (Oxford, at present.) We bought our rural hideaway after the owner suffered the ’87 Crash… . Much to our surprise, he accepted our first, low (cash) offer. I had the feeling that he was a little bored with it… and his disciples. He and his lady then went off to join the Rajneesh & Ma Sheela in Oregon… !

    Because we qualify for a 50% subsidy, being at the ‘end-of-the-grid’, we will probably put up a 5 kW system.
    It would then permit us to dehydrate our fruit, commence aquaculture, start egg incubation on a large scale, etc., but we also see benefits in taxation depreciation claims… and sale of excess power back to the grid. We may also recharge a couple of electric cars. We’re looking at the Tesla in the UK. A lot of money, but virtually free motoring… . Might not be able to hide from the Terminators, but in a Tesla you could probably easily outrun them… ! :)

    Biker Pete
    July 11, 2009
    Reply
  54. I predict the Australian Property market will get SMASHED! over the next couple of years. This bubble is so frothy it’s not funny….

    Alexander Malejew
    July 12, 2009
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  55. Define SMASHED! please, AM. Your prediction is so vague, it IS funny… ! :)

    Biker Pete
    July 12, 2009
    Reply
  56. Biker Pete yes smashed is pretty vague…it is like crash. Lots of people predict such things but when it comes to defining what they mean they are pretty vague.

    Ned pointed out to me the other day that Steve Keen has given himself so much wiggle room that he can escape a long walk if prices fall more than 20% even though his prediction was a 40% drop. That is quite a tolerance! Back in my engineering days you would be laughed at if you come up with a specification that was +/- 100% but it seems to work for a lot of economists!

    Reply
  57. People were calling for an Aussie property crash for longer than I can remember. Fact is, we’re still recording price rises. I believe that over next six months we might see a drop or lack of any rise due to perhaps job losses. But over the long term you can expect our property market to continue to defy gravity as people all over the world see Australia as the “lucky country” and are lining up for permanent residency visas.

    Reply
  58. At best, I expect an underpefforming housing market for the next few years. This will probably come about through increased interest rates, failure of rental prices to rise and muted gains in housing prices. At “worst” the FHBG will be revoked and the middle and lower pricing brackets of the housing market will fall away.

    Reply
  59. I agree with most of the sentiments expressed here lately. There’s a nice ‘updated’ report on Steve Keen’s predictions at:

    http://www.news.com.au/perthnow/story/0,21598,25750832-5013244,00.html

    Have to admit I chuckled a little…. . ;)

    Biker Pete
    July 12, 2009
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  60. Yeah, they laugh at Steve Keen now, but they ignore the FHBG and the stimulus packages, and practically the rest of the planet. Steve was right to sell his investment at the peak of the natural market – he played it safe, and you can’t fault that. People who held on and haven’t lost out are plain lucky, but they might look a bit silly once the government stops propping up the housing market.

    Reply
  61. greg – zero to panels made in OZ, just sourced from US, Germany or China

    off-the-grid + selling back – my thoughts are for OZ to turn to grid payments like Germany, Spain and Japan where you can work a good income in sending gross surplus electricity back to the generators – so off-off-the-grid with 2.0 kw – 3.0 kw, back up solar panels with batteries and wind turbines to top up = but this is all aspirational given I hope you can make an income in the future

    It is just a great feeling that you can eliminate a cost in your life – example: glass house, 1 packet of seeds = payback period 1 year, it is thought that for every $1 you reduce in electricity cost can add $20 to the value of your house – also I am building my own solar panels so have a new skill

    In the blue mountains the council is promoting community gardens – 1 in katoomba, new one soon in Lawson and the idea is to get it in more of the towns along the GWestern highway, coupled with a push to create a sustainable organic food infrastructure to allow greater access to organic food for the punters, so something is happening a community level that wont be stopped even if have the council involved – they give access to the land for free but the rest is up to the community

    transport – thinking about moped – like the pizza delivery guys = tank of fuel a month for $10 – or train it to the big smoke in Penrith or Lithgo = make a day of it – not much else to do in the country except shoot at yellow crested cockatoos and grow a beard

    heard that if you have a cat you are snake free – so have a cat protect the chooks – I would view the cat would have a great liking to watching the chooks

    Reply
  62. Dan I think if Steven Keen was really confident about his predictions then he would have have shorted all the major banks stocks and made a fortune. I see he still holds his day job at UWS so I guessing he is yet to amass a fortune as a result of his market insights.

    Reply
  63. Steven Keen being too optimistic?

    “Evidence from the past two depressions show that deflation reduced the value of the average home each time by wiping out the inflationary gains of the previous boom” (James Dale Davidson & William Ress-Mogg, The Great Reckoning, (London: Sidgwick & Jackson, 1993), pp.403-404).

    If this pattern is repeated in the depression to follow after the next American expansion ends – “We do feel that this economic recovery will be shorter than those of the last several decades. However, keep in mind that the 6-10 year economic expansions of the 1980s, 1990s, and from 2001-07 were more of an aberration than the norm. Prior to 1982, only 2 of 18 recoveries lasted beyond five years. We suspect this economic expansion will be closer to the norm of 3.8 years, if not shorter” (James Stack, The Pause that Refreshes, investech.com, July 3, 2009) – then Steven Keen’s prediction may be too mild.

    As has been pointed out before, the lead article on my website, for a number of years, is entitled “Sydney house prices to drop by at least 50%”.

    “…the nationwide doubling in established house prices over the six years to March 2004 prompted a “wealth effect” undoubtedly bigger than we’ve ever experienced before… The investment property orgy probably made a significant contribution to the doubling in house and apartment prices” (Ross Gittins, Welcome to life after the housing boom, smh.com.au, June 6, 2005).

    If the inflationary gains were 100% then prices would have to fall, if the historical relation holds, by 50%.

    But this may be too optimistic:

    “House prices have jumped 400 per cent between 1986 and 2007 while income has risen just 120 per cent” (Colin Brinsden, Great Australian dream becoming a joke, news.com.au, March 18, 2008).

    In this case the drop would be 80% – basically wiping out the gains of the asset-price inflation of the present ‘fiat’ monetary system.

    Too far-fetched? If the Biblical prophecy of a major revival of the Catholic Church in the end-times, especially in Western Europe, is to come to pass, then the coming depression will have to be so severe that people turn to ‘God’ in desperation, then house prices decline could go way beyond 50%.

    “Irish house prices could fall by as much as 60 per cent in the next eight years, a professor at Univerity College, Dublin, who has studied earlier real estate bubbles, said.

    “”Prices might drop by as much as 7 per cent a year, Morgan Kelly said in a paper published by Ireland’s Economic and Social Research Institute. The paper looked at housing booms and busts in Organisation fo Economic Co-operation and Development nations.

    “”Typically, real house prices give up 70 per cent of what they gained in a boom during the bust that follows” Professor Kelly said. “This is a remarkably robust relationship, holding across very different OECD housing markets over more than 30 years”” (Bloomberg, Irish owners not smiling, AFR, July 5, 2007, p.57).

    Reply
  64. Greg, perhaps you should consider his motives, people are driven by many different things..
    Firstly I’m no Keen supporter I think and hope his predictions will turn out to be wrong.
    What I see in Keen is a person driven by the failures modern economics.
    Most economists didn’t see the GFC coming and even the high priest Alan Greenspan was screaming there is no US housing bubble in 2005. Don’t you think if they couldn’t see it then there is a problem in mainstream economics. That is one of the reasons I’m on this site.
    Keens approach may not be even remotely close to the right one, but don’t you agree the current economic methodology is flawed.
    I say lets make economics more robust and ensure something like the current economic mess doesn’t happen again. Encourage the debate of new ideas even if I think they are crazy, just maybe someone will one day add something to modern economic theory and make it better.

    Reply
  65. Watcher7, once Russia is consecrated as per the request at Fatima (and once someone flushes the toilet in the Vatican), then you can have your biblical prophecy – it’s never a bad idea to get off the grid anyway. Until then, I’m going by my usual cynical-no-faith-in-humanity and go by historical precedent.

    Reply
  66. Here is another view of the housing market from Dr Shane Oliver with plenty of data that people might find interesting. See: http://www.investblue.com.au/imgresource/amisc/item_26.pdf It is a little dated but well worth reading.

    Reply
  67. Very balanced article, Greg. There are four aspects we find interesting: 1.) Low returns on rents. The figures are now outdated… yields are up to double those cited; 2.) Availability: We think it varies. There are many vacancies in areas affected by unemployment. Where job vacancies exist, there are still _queues_; 3.) It’s likely that because of lack of confidence, fewer investors are buying or building. That will have some major long-term effects; 4.) As the rest of the world becomes aware of Australia’s relative buoyancy, we can expect the population to rise. Limits on immigration mean that the only successful immigrants (apart from refugees!) will be high-income, skilled people we need for essential industries and professions. Our experience indicates that these people value property highly, pay higher rent, pay in advance despite no request to do so(!) and respect their accommodation. There’s no question that property has plateaued in two of three sectors, but we’ve yet to benefit from falls in the two sectors we target… .

    Biker Pete
    July 14, 2009
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  68. Digging up the solar electricity again.
    The reason not to go on the grid is that
    1) You get charged a large connection fee. For most consumers this is the biggest part of their bill. For generators, it is an avoidable cost.
    2) They pay you significantly less for the power that you generate, than you would pay for the same electricity if you bought it from them.

    This presents an opportunity for a small community eg regional town or new housing development, for everyone to have solar electricity and interconnet their houses. Every participant avoids connection fees to the grid (= a huge saving) and there is a decent amount of security in that if your solar system dies, or you use more than you generate, you can buy in electricity from your neighbours instead of cooking over a camp fire.

    Reply
  69. Biker Pete I just thought I would toss that article in because it shows how people can look at the same data and come to different conclusions. We often knock economists working for the banks etc. but they do churn out some good research and they are generally not headline seekers.

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  70. Richo: What happens in that town at night-time, or the early morning hot showers?

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  71. The housing equation – the investment horizon is 50 years [average life expectancy say starting at 20] – buying property you get capital gains – expenses = renting you pay rent and can invest the difference between rent and a mortgage in other assets [equities, cash, metals, art etc] = so the analysis should be over the your lifetime

    if housing returns 2-3% above inflation you are down on the investment while paying the mortgage and pickup for the remainder of the 25 years – but you get an income from not paying mortgage and investing = rent you are always paying rent but investing over the 50 years in other assets – is this the basic equation of living – and can build a spreadsheet with its assumptions and make rational decision

    as to solar – upfront fees is the killer [assume you mean $$$ to get the panels and link it to the grid and the payback period is 10 years or so] but the equation changes if you get a loan and pay back over 5 years with the interest pauyment somewhat vcovered by savings in lower electricity bills

    and also you can assume the grid payments for generating electricity can change from its pathetic model now to something more reasonable in the future – or not = but it is all dynamic and worth the punt – as there are business models that allow no upfront payment and so the dynamic changes in the payback period

    Reply
  72. Richo // Pete

    What’s wrong with a small gas powered power station in each town? We have one close to where I live.

    At the moment you would pay about $40,000 to maybe generate about $1000 or so of renewable energy (for electricity) off solar cells on your roof. This may change and they may come a day when cost effective roofing materials will include integrated solar cells. I have started researching some of the US firms involved in this technology and in the improvement of lithium ion batteries. There are some good speculative buys out there.

    Yeah … Ian Thorpe can keep the cold showers he recommends!

    Cheers

    Coffee Addict
    July 14, 2009
    Reply
  73. Can someone explain if the author is saying he literally talked to a guy on a plane to Adelaide? or is it just a literary tool?

    Been reading DR and DR oz for a few years now, and was just wondering.

    Reply
  74. If you tax people to death and then make one exemption (family home) of course the they will become overvalued and what better way to control the population than the yoke of a huge mortgage against the family home that is several times larger than it’s true value. Who needs chains, whips and soldiers to control the slaves.

    Reply
  75. Ha,ha Bargeass… you should emigrate to the UK if you want to see overpriced. We’ve just travelled over 540 miles in the last fortnight and we’ve observed that home prices in England and Scotland dwarf those back in Australia. Less for more. And if you’re paying more than 15% of your income in tax, you really need to do your sums, or get organised, FA! :)

    Biker Pete
    July 21, 2009
    Reply

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