Total Meltdown of the Aussie Housing Market

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“Dude…those drugs are messing with your head. You should step away from the typewriter and get your mind right,” a friend told us last night. “You haven’t really been reckoning…you’ve just been kind of wandering. It’s sad to see. Take a nap.”

The “drugs” he’s talking about are antibiotics, and your editor choked down the last of them this morning. Hopefully, we’ll be less infected from now on. So we’re going to push on and hope our mind clears up enough to figure out if the easing of one emergency can actually cause another.

We’re talking about the total meltdown of the Aussie housing market, which is, after all, just a matter of time. Next Wednesday will see the release of the national accounts for June. Those figures will probably show the economy being less bad than previously expected. That might lead to the end of the “emergency setting” of the RBA cash rate at 3%, which will precipitate the decline and fall of ridiculously high Australian house prices (although this could be good for equities).

Hang on a second though. The GDP numbers will be tough to read because they’re distorted by government stimulus spending, which spits in the soup of the economy. In other words, it’ll be hard to tell at a glance how well the economy is really travelling on its own momentum versus how much of it is Kevin Rudd, Lindsay Tanner, and Wayne Swan with their hands on the boot of the economy pushing it down the road. Will the engine catch or sputter?

Right now, it’s coughing a bit. Figures yesterday from the Australian Bureau of Statistics showed that business investment was up 3.3% in the June quarter. Most of the increase came from a 5.3% rise in investment in machinery, plant and equipment. It looks like businesses are taking advantage of Federal tax break to front-load future investment now. Whether they really need it now, who knows?

For instance, we received this note yesterday from a reader who paints a different picture:

Good Afternoon. I am a subscriber to your Daily Reckoning newsletter and thank you for this great service. I subscribe to the Grays online website for their daily online auctions and lately I have noticed a substantial increase in the amount of capital equipment auctions and often for equipment that are still under service agreement.

Here is an example of one of today’s listings…

This might not be an accurate measure of what’s going on with business in Australia, however, I just wanted to bring to your attention for further investigation. Thank you again for your daily newsletter. Much appreciated.

Best Regards

M.

You’re welcome M. And who knew it was a bull market in forklifts!? Maybe it’s not as surprising as you first think. You’d need a forklift to carry away the amount of BS being shovelled out by free-spending Keynesian politicians and the brainless economists who give them covering fire in the spineless media.

But we’ll have to take it is a given that the June quarter GDP figures are distorted in a way that makes it nearly impossible to find out how well the economy is doing. That uncertainty (government intervention diminishes the quality of our knowledge because it interferes with price signals) may prevent the RBA from raising the cash rate. Or it may not. We won’t know until the bank does something. Or nothing.

We’ve been saying all along, though, that the biggest threat to Aussie housing prices is the beginning of the tightening cycle in interest rates. The Aussie dollar was up overnight near 84 cents versus the greenback, partially in anticipation of the growing interest rate differential between the two countries. The U.S. dollar also fell against oil, which took a dip below US$70 on the front-month crude futures contract and then decided it liked it back above $70, which is just where it went.

You can take your pick of reasons for rising Aussie dollar strength…growing economy, yield difference versus the greenback…commodity currency benefitting from secular decline of the USD. But after you pick, you have to ask the next question: will the RBA raise rates because the economy here is healing? If it does, it will send the Aussie higher. But what will it do to house prices?

If you’re in the real estate industry, you’ll say “Nothing! House prices go up in all markets at all times regardless.” But if you have a brain and use it from time to time, you would have to at least entertain the possibility that climbing interest rates and the end of the first home buyers grant spell real trouble for the housing market and the marginal buyers who support it.

The housing market requires a constant stream of new buyers and a fresh supply of credit to keep demand for mortgage finance up. That’s the only way for new buyers to bridge the gap between stupidly high median house prices and real wages that are not keeping up with home price inflation. Yet as we pointed out yesterday, the government-backed mortgage finance operations are nearing the legislative limit on funding. Something is going to have to give.

Our guess is that it will be house prices. But you know that already since we’ve written in before. And besides, our main beat here is not property, but stocks. And it’s possible stocks – on the back of more energy deals and continue Chinese demand (see Baosteel’s prospective $300 million investment in coal and iron ore hopeful Aquila today) – could do a runner and sprint ahead of the property market (and bank stocks and listed property trusts at the end of their own little nice dead-cat bounce).

Don’t forget gold, either. It’s never far from our mind, nor our heart. Obviously the stronger Aussie dollar is bearish for Aussie gold bullion prices. On the share market side of the gold market, however, gold and explorers and producers may benefit from increased demand for ye olden yellow metal. Investment demand for gold stocks as U.S. dollar hedge is back.

Reuters is reporting that on Wednesday, ETF Securities, one of the backs of a gold metal exchange traded fund, saw its largest one-day inflow ever. The funds, “holdings jumped 7% or 211,500 ounces to 3.190 million ounces of bullion on Tuesday, from 2.978 million ounces the day before.” In the last week, the fund’s inflows are up 18%. Yowza.

And for those of you who began following (and suffering along with us) on the rare earth metals story, a new development today. Our story first began in June of last year when, writing a guest article at the Australian Small Cap Investigator, we tipped two Aussie rare earths shares. One was a producer, the other prospective.

Both got shellacked in the credit crunch, especially the more mature company that ran into a financing problem. But the underlying case for non-Chinese suppliers of some of the most essential and expensive elements for the modern technology and aerospace industries was still strong. Still is today, in fact. Even stronger, apparently.

The Times of London is reporting that China is ready to slap an export ban on rare earths in order to choke off any non-Chinese consumers of the elements. This affects Japanese, American, German, and South Korean companies to name a few. China has systematically and quite cleverly made itself the key global supplier of these elements. So what now?

For the consumers of rare earths, we have no idea. They are at the mercy of a limited supply. There’s no such thing as just in time lanthanides production. But for punters and strategic investors who have their eye on well-shaped rare earth ore bodies in Australia, or owned abroad by Aussie-listed companies, the story is playing out quite nicely, after a few bumps and bruises at the start.

Incidentally, ASI editor Kris Sayce is having lunch with the honchos of one of the rare earths shares he follows in the ASI portfolio. It’s not until the second week of September. But we’re keen to read his next report on the subject.

The China strategy on rare earths is still playing out. But you see another strategy playing out in solar cells. Today’s Australian reports that Chinese solar cell producers are selling their product into the global market at below the cost of production in order to gain market share and drive even low-cost producers in competitor countries out of business. Can it last?

You can sell your product below the cost of production for awhile, especially if the national government is subsidising the endeavour as part of a long-rate market strategy to own the bulk of the world’s manufacturing capacity. And for consumers – provided the product quality is good – it means low prices for awhile. But it’s also an unfair trade practice that could be taken up other countries with the World Trade Organisation, prior to resorting to less legalistic forms of conflict resolution.

Your editor got a note from an old friend who is running for Congress in the States. He asked, “With this current crisis and our long-term prospects bleak, why not move toward a more protectionist trade stance? Economically, what are the repercussions of attempting to level the playing field between America and countries that systematically under cut our workforce and product base? If Japan and china consistently strive to under bid is in all areas, why not close the gap at home through trade policies? Are we afraid they will call our loans?”

Our answer on Monday. Until then…we’re pleased to let you know our discussion of debt and what it does to a country – its economy, housing market, and stock market – is now available on DVD with a written transcript. There was quite a bit of discussion the Aussie property market that night. So if you’re interested in property, you’ll want to have a look.

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 – Regarding the solar cells and your Congress friends comment – how does that translate for Australia? See, loans repayments aren’t what Australia is currently offering.

    Whilst the US may not have much to offer China in the way of trade “to” China besides money, Australia is completely relying on China for many different trade agreements.

    So if we both start getting protectionist, surely that will not assist good trade relations between our two countries? Unlike your friend, we in Australia appear to have much more to lose.

    I believe protectionism will cause an end to the lifestyles we currently know and bring forth much more taxing ones. Pun intended.

    Reply
  2. Dan— another story about the housing meltdown in Australia– A bit of waffling through the fundamental orifice !

    Well I tell you what , over here in the WILD WEST the prices are taking off again .
    Maybe in the rust-buckets that are Victoria and NSW there is a meltdown but in the engine room of the nation prices are on the UP and UP .
    Dan could I suggest you are spending to much time in the cloistered atmosphere of the OLD HAT FACTORY and are out of touch with the real Australia .

    jake ,

    Perth W.A.

    Reply
  3. Fair go cop! $49 for a DVD in this day and age! Maybe we should wait and see if the Chinese step in with a budget version…

    beyondtool
    August 29, 2009
    Reply
  4. Yeah, have to agree, Jake. It’s olfactory all right. On the nose! ;)

    Biker Pete, Granville NS, Canada
    August 29, 2009
    Reply
  5. Dan, DR predicted that the whole global financial system was about to meltdown and that paper money would be basically useless…seems you are narrowing down your doomish view to just Australian housing now?

    Please define “meltdown” a little more: for example what % prices will fall and by when. Otherwise your calls are meaningless.

    Also are you willing to take a long walk with Steve Keen if you are wrong?

    Greg Atkinson
    August 29, 2009
    Reply
  6. Dan, I think you need to get away from your keyboard a bit and just walk the streets and look at the very thing you are talking about.

    Plunging Aussie housing market? I don’t think so. In fact the biggest risk right now is hyper-inflation. We are about to have the perfect tsunami of a new and bigger resources boom combined with reckless stimulus spending that until now hasn’t really even started to take effect. In fact the only thing likely to have a meltdown will be our cash because there will be so much of it flying around in all sorts of directions.

    And as we know, more cash spent freely, lowers its value which makes asset values rise. Combine this with a shortage of housing, high immigration (which will go higher once the resources boom gathers momentum), and subdued property developers who cannot get funding as readily thanks to the GCC meaning that the numbers of properties built will not match demand, then there is only one way prices can go.

    I try to avoid reading newpaper sites because they are too general. So I come to sites like this for some intelligent analysis. So I was dissapointed to find a doom and gloom story like this without facts to back up the opinion. There are many bloggers on newspaper sites that are out of the property markets and blog doom and gloom for their own purposes but I did not expect to find that over-the-top sky-is-falling opinion here also.

    Reply
  7. Brian, I agree with the risk of inflation, even hyper, but that doesn’t mean already overvalued property will be the prime beneficiary.

    A shortage of housing? I don’t think so, and property developers have been the beneficiaries of the governments ‘stimulus’. Funding is not a problem for them when the government buys their ‘bills of exchange’.

    High immigration may create housing demand but changes the social fabric of the nation in a short period of time, potentially leading to other problems, particularly in a hyper inflationary scenario.

    Reply
  8. Justin I am not sure many property developers are doing very well at the moment and most of the listed property developers (Australand, Sunland etc) are having a hard time. The reason there might be a supply problem in the future is that investment in residential property has actually fallen as developers simply cannot get the funds to start up a lot of projects that they have in the pipeline.

    If there were truly an oversupply of homes in Australia then I would expect rental yields to have dropped off significantly but that has not happened. I am aware rents have weakened in some locations but this has been more to do with the GFC rather than over supply. The GFC has also hit prices for houses in the high end range and I guess there is probably an oversupply of homes in some of these areas at the moment.

    This does not mean the property market is bullish, but I can see no evidence/hard data that supports the view that the housing market will “meltdown”. There might be a correction in some areas (already has been) but Steve Keens prediction for example of nationwide falls of 40% seems to be more and more off the mark as each day passes.

    Greg Atkinson
    August 29, 2009
    Reply
  9. But Greg, where would these property developers be if the government was not using yours, mine and everyone else’s ‘money’ to prop up the market for mortgage securities and thus the real property market?

    The price of everything else hasn’t gone down so why should rents? And don’t say petrol cause it’s still way more expensive than it was a few years ago.

    Reply
  10. Justin I am not fan of the first home buyers grant and I agree the property market is being supported. As for rents, they would go down if there were an over supply of homes just as prices food food go down if there is a bumper harvest. If you want to see a good example of supply and demand in action then have a look at the wine industry…a glut in wine production has seen prices plummet and many wine producers have gone under. I just don’t think we are anywhere near a property glut in Australia yet.

    Greg Atkinson
    August 29, 2009
    Reply
  11. I haven’t noticed the price of bread, milk or meat going down. As for wine, it’s a speculative bubble if I’ve ever seen one.

    Reply
  12. A good article about the housing shortages myth can be found here:
    http://cij.inspiriting.com/?p=706

    Reply
  13. Many myths are perpetuated on this site. Checking that material is correct just _isn’t_ happening. Take Bill’s parable about the ‘clever’ parking attendant at the Bristol Zoo:

    Here’s the true story:

    http://www.thisisbristol.co.uk/homepage/Urban-myth-Bristol-Zoo-parking-attendant/article-1073841-detail/article.html

    Now, after a couple of years predicting the meltdown of the Australian property market, Dan has, at last given us something specific. It will begin next Wednesday. Dan you’ve never written anything more true than your opening sentence, above… . ;)

    Biker Pete, Digby, NS, Canada
    August 30, 2009
    Reply
  14. Hello

    I have looked at the “housing shortage”.

    According to Wikipedia, Australia’s population grows about 330,000 people per year.

    The ABS publishes “New Dwelling Commencements”, and this shows approx 150,000 per year, except 2009. 2009 looks like it will be significantly less, maybe 100,000.

    150,000 new dwellings for 330,000 people would indicate there is definitely no shortage of new housing for Australia’s population growth. On the other hand 2009 may change the story….

    Reply
  15. NAB predicts RBA int rise in November
    higher interest rates = downward pressure on house prices and upward pressure on all other consumables
    higher interest rates = wage rise pressure and unemployment pressure which also hinder house price growth
    Massive stimulus spending = upward pressure on interest rates. Don’t pin your hopes on Gorgon saving the day. I’m more certain of Steve Keen’s forecast with every mention of the words rate rise. In case Greg’s not sure what this means I’ll extend myself.
    higher interest rates = higher foreclosures and lower demand, simple isn’t it?
    Higher interest rates = higher supply and lower demand.
    Is it possible that wages can rise fast enough to outpace foreclosures? I don’t think so and I don’t think Steve Keen would either – the logical outcome will be stagnant house prices, high inflation and high interest rates until we’ve learnt our lesson and our errors are corrected. Who knows though, (logic and governments…?)perhaps we can borrow some more money from the future and everyone with a financial hangover can start drinking and partying again…

    Claytonator
    August 30, 2009
    Reply
  16. Claytonator, I guess you figure rents will fall, too(?) I’m sure you can also create an argument for this outcome! We’ve been hearing this ‘simple’ (your word) logic for a couple of years now. It is just that, simplistic… . ;)

    The most likely outcome of falling house prices, if it happens in _some_ areas, as property bulls and others have conceded, is that those with the wherewithal will snap up any bargains. Since you’re unlikely to “…borrow some money from the future…” (hard to borrow it from anywhere else, mate!) I can’t see you getting much out of this.
    Of course you could dip into your considerable deposits of cash, or sell off a few kilos of gold, but for some reason, I really can’t see you doing that… . The McMansion _you_ want will still be made of unobtainium… :)

    Biker Pete, Digby, NS, Canada
    August 30, 2009
    Reply
  17. Tom, as I mentioned elsewhere we need to know what the total capacity of the new dwellings were/are to work out if there is a shortage or not. 150,000 one bedroom inner city pads are not going to house 330,000 people. I agree there might be have been an oversupply at times but with the number of developers that have gone under recently I would suggest that any oversupply will be worked out of the system.

    Even in recessions babies are born, people move out of home, get married etc. Life goes on..it really does.

    Greg Atkinson
    August 30, 2009
    Reply
  18. Biker:
    You still argue that rents will rise forever and ever?

    Talk about trying to will the future into existence.

    Claytonators post is spot on. The problem with your posts is that they don’t actually show any logic whatsoever. I don’t see how you can argue with logic if you cannot supply any yourself.

    Saying that house prices will go up and up forever because “i’ve seen it” and “this strategy is working for me and my family” doesn’t actually mean anything.

    Let’s consider what kind of economic forces would push rents higher:
    – high demand (including high wages)
    – low population density per dwelling (eg people living alone in 4 bedroom houses), means more dwellings required
    – less houses available for rent
    – rent price rise expectation (only a slight factor)
    – less ‘need’ for landlords to have occupants (they can wait longer for the ideal rental price agreement)

    Now let’s consider what kind of economic forces would push rents downwards:
    – lower demand (generally lower wages)
    – shift from low population density per dwelling, to higher density per dwelling
    – more houses available for rent (* I will explain further below)
    – rent price drop expectation (only a slight factor)
    – higher ‘need’ for landlords to have occupants (they cannot afford to miss even a few weeks worth of rent due to mortgage stress)

    * – so why would there be more dwellings available for rent? This can be partly due to the density per dwelling point above, and also due to unemployment. For instance, mortgagees who have either lost their job or are under mortgage stress can choose to either sell, or to rent instead.
    The economic forces causing this are a shift in the unemployment levels, wage levels, interest rates and density per dwelling.

    So when we look at what is required for higher rents, and then lower rents, it is clear which way they are headed, given that we are experiencing:
    – higher unemployment (mortgage stress and landlord stress)
    – population per dwelling density shift (including kids staying at home longer, people sharing houses, etc)
    – increasing interest rates (mortgage stress and landlord stress)

    But what happens when landlords who are under mortgage stress can’t handle it anymore, even with rental income? Surely the renters will get kicked out and need somewhere to stay?
    Every property that is sold, requires a buyer. Those buyers will be either the new landlords, or the new occupants.

    And again I notice you having a dig at someone (Claytonator) for things beyond the scope of their comment. Clearly it is for your own satisfaction, so keep it to yourself.

    Reply
  19. Greg Atkinson

    I am no expert, but I don’t think there is a major shortage of housing. The figures I quoted seem to show that residential building is meeting the demand caused by population growth (assuming 2.2 people per dwelling).

    I agree with other comments that a vague prediction of a house crash is useless.

    A prediction MUST have a timeline and specific amount eg 25% drop by 2012.

    My prediction is there will be a property crash….. in 2030. Thats when all the baby boomers are moving into nursing homes (or cemetaries). Property will drop by 25%.

    You can wait until 2030 for a bargain property if you want hahah.

    Reply
  20. TOTAL MELTDOWN OF THE AUSSIE HOUSING MARKET is the headline, Pete. As a tenant, your hopes are built of wishalloy (look it up… similar to unobtainium). This element of flawed logic colours your thinking, even when it’s apparent your reasoning has been failing you for years now. Long-winded essays to defend a belief _because you wish it to be so… _. Hasn’t happened. Here’s a short response: If interest goes up, rents will go up. It’s cause and effect. While ADR perpetuates myths like this ‘Total Meltdown’, I’ll pick up the precious metals theme. Buy unobtainium and wishalloy, Pete. You’re totally into handwavium (look it up, son… ;) )

    Biker Pete, Mahone Bay, NS, Canada
    August 30, 2009
    Reply
  21. Tom your 2030 call sounds about right unless of course something changes :) That is always the problem with trying to look ahead, something always changes.

    I don’t think there is an overall shortage of housing either, rather I suspect there is a shortage of housing in good locations at reasonable prices. But that is another story….

    Greg Atkinson
    August 30, 2009
    Reply
  22. I can only comment about the WA property market and it has definately picked up in the last 2 months. Boards are going up and getting under offer stickers within a week. The number of properties for sale is down to 12,000 from approx 20,000 in November last year (when nobody was buying). 15,000 is considered normal. So with the momentum from 20,000 back to 12,000 within 10 months its about to take off.

    Us West Aussies live in a different environment to you Easterners. Ours is a small boom and bust town that ebbs and flows with the mining industry. Mining is taking off once again. It seems those Chinese just can’t get enough of our Iron Ore, Gas, LNG etc. The flow on from these projects create very high paid jobs for many many many people. Our premier Colin Barnett recently made 2 seperate comments, one is that we are the Saudi Arabia of LNG (such is the size of our projects) and that the Gorgon project will fill every fabrication workshop in the state for a decade. The boom facing us over the next decade at least is incredible. Get over here if you want to earn big $$. Real Estate will be the most expensive in Australia by this time next year. It has to be, we earn the most. Suprising it isn’t now but we nearly did overtake Sydney a couple of years ago, next year it will be permanently.
    Therefore look to Perth prices moving upwards to create some kind of foot-up for other states. High immigration levels coming to Perth each week and this is about to increase even further over the next 12 months. We are definately not building enough homes.

    I must say I do have a laugh a bit where I see comments about an impending property price crash. These are people who have probably sold and are renting and are determined to buy back in at a lower price. Big mistake. Saw a couple of people do that in Perth in 2003 and unfortunately they will be lifelong renters. The only thing about to tank is the value of our cash thanks to Rudd’s crazy spend-a-thon. Just don’t be in cash when it tanks.

    There are some people here saying there is no property shortage. Perhaps by looking at the total Australia wide numbers this may be true – don’t know, but perhaps they are holiday homes in remote areas where people don’t want to live? What about our CBD’s? How many houses are vacant in your street? I don’t think there are any vacant in my whole suburb.

    Reply
  23. ” I must say I do have a laugh a bit where I see comments about an impending property price crash. ”
    Spot on, Brian. :)

    Biker Pete, Mahone Bay, NS, Canada
    August 31, 2009
    Reply
  24. In the past I’ve tended to think in terms of recessions leading to housing price declines. But what I’ve also seen is that sub-prime lending followed by interest rate rises can lead to housing price declines. Which then lead to recessions.

    I’m really not getting the feeling we have huge sub-prime issues in Australia – Yet. Or that the RBA wouldn’t do a quick about face (again) to prop up house prices here by dropping interest rates if necessary. With inflation being only a very secondary consideration.

    So that pretty much leaves me to consider the possibility of whether Australia is likely to have a recession due to external economic factors any time soon. Specifically, will Asia go into recession.

    Reply
  25. I sold my investment property in 2006. Outlaw bikies were increasingly frequenting the suburb. I sold on (at the time) a peak in property prices.
    It was a 3 small bedroom house, perfect for a first home buyer.
    If I had hung onto and sold a few months ago I may have got the same sort of price (dependant on how the biker situation was going). But I would have been much more nervous about the bottom falling out of the market if I didn’t sell quickly.
    So I have no regrets about selling when I did.
    I am certainly not worried about missing out on capital gains in the near future.
    The only resaon I’m not considering sell my home it that is run down but has just been rezoned to commercial property. I would be best off developing it when the economy picks up from the huge bust it is about to experience.

    Reply
  26. Biker:
    I choose to ignore your jibes, they are pretty pathetic.

    “Here’s a short response: If interest goes up, rents will go up. It’s cause and effect.”

    I have responded to that in the past too. And I am happy to do it again:

    Rents correlate to wages, not interest rates.

    Have a look at what happened to rents throughout the 80’s and 90’s:
    http://img91.imageshack.us/img91/4893/realrentsvsrealinterestax1.png

    Pretty flat. Why? Because rents are paid fortnightly. You don’t pay rent using credit. Rents have to be a portion of a person’s wage.
    On the other hand, mortgages are vulnerable to interest rate changes. Get a mortgage at 6% interest just to find that a few years later the rate has doubled.

    Landlords who try to pass on interest rate hikes to their tenants in times of decreasing employment levels and stagnant wages will find themselves without tenants.

    How long can landlords hold out for tenants?
    Every single week that a landlord is not receiving rent they is losing one 50th of their yearly income. A $400 a week rental will cost $1600 of lost income over a single month.

    When higher interest rates put extra squeeze on landlords, will they risk losing $1600 or more for a gain of $1000 ($20 per week increase)? How about if losing $1600 means the difference between staying in the black or moving into the red?

    Although if we go by what Brian is saying, it looks like you might be safe for a while yet Biker, being that you are from WA. Then again, if we purely went on environmental observations we’d never even know anything was wrong with the economy would we. If we choose to ignore leading economic indicators then we are no better than the grasshopper in that story.

    Reply
  27. Biker Pete, why is that you seem to do nothing but post asinine comments on this website. Read the article and move on. And if you don’t like what Mr. Denning writes, leave. Leave your condescension and pompous negativity behind, ‘mate’.

    As for you, Mr. Denning, keep writing about what you know, and believe in, sir. You provide an extremely valuable perspective in a mainstream world where, unfortunately, one argument – the official propaganda – is often the ‘only’ perspective. Keep up the good work, Dan.

    Reply
  28. Rents rising?
    In my little corner of the city (6 k from the city centre rail & bus connections, local shopping etc) rents have remained stable or gone down over the past 12 months. It is an area of mostly older (well kept up) houses and brick six packs. While houses, particularily on the better streets, are around the $1 million mark, units are obviously cheaper, but they are not renting and not selling that well either. for lease signs have been known to hang around for 6 months. A whole flurry of ” investment” properties have suddenly gone up for sale, and not sold. One has “sold” 3 times but each time the sticker has come off a week later.

    As a renter it is entertaining (not planning to buy, better things to do with my money & time) to see the ebb & flow- when my lease comes up I will be going for a nicer, but cheaper place. There are a lot more around now

    Reply
  29. Well, here’s something to brighten ya day, Peter & Paul:

    http://www.realtor.ca/propertyDetails.aspx?propertyId=8260606

    As for posting asinine statements, Paul, whenever DRA feels my comments are too close to the mark, they simply don’t print ’em… . ;)

    Biker Pete, Little River, NS, Canada
    September 1, 2009
    Reply
  30. Biker Pete, hi
    Sometimes when you change your name or title it might be like a new post so it gets edited.
    Maybe it is the timing of name change and content you write or the length of your post.
    Just a thought.

    Reply
  31. Thanks for the suggestion, Rick. I’ll admit anything’s possible. Length isn’t the issue. Even Pete will admit that his is bigger than mine! ;) How about it, Dan? Am I being ‘edited’?

    Learning a great deal about property and the application of stimulus programs to maintain the Canadian and US economies. Investigating ‘renovation grants’ right now. Seems like a whole raft of different programs exist across the Canadian provinces and down into the states.

    Perhaps it’s time for the Australian government to look at these ‘bigger impact’ programs. We’ll give credit where it’s due: subsidies for solar HWS, rainwater tanks (state plus federal), solar panels, water recycling, insulation, etc., are a good start, but we’ve been stunned to learn of $100K provincial grants for turning very large family homes into B&Bs… ; and numerous other lesser, but still significant, grants for home renovations and first home builders. We had no idea that North America had such a variety of grant options… and this has coloured our decision-making about just where to create a NA summer base.

    There are some brilliant bargains here. It’s not that the GFC has affected prices. The Maritimes haven’t ever had a boom (maybe 80 -100 years ago) so there are beautiful three and four storey homes with water views, for around a fifth or sixth of Aussie prices. There’s a catch, of course… one that aligns with our views on location. You’d need to be able to work from home, or be a SFR. With high-speed internet, that’s a breeze… .

    Biker Pete, Lunenburg, NS, Canada
    September 1, 2009
    Reply
  32. Hey Biker Pete,
    Just thought I’d clear up a few assumptions you’ve made about me and indulge myself in making some regarding you.. I am paying off a mortgage at the moment and last time I checked my house wasn’t made from “unobtainium”. I have nominal cash savings and 1 free gram of gold with bullionvault. My LVR is about 85% so my interest in property prices regards myself and family. You seem to have portrayed me as some sort of uberpessimistic doomsday conpiracy subscriber. This is typical from someone living in the wonderful world of “Egophoria” where property, rents and shares always go up, everybody is happy and optimistic and we trust that government decisions always better eveyone’s circumstances. Have you removed the hazard lights off your bike Pete? It would seem that by wearing your helmet between internet cafes perhaps you are invincible to negative energies. Seeing as we are both aware that this forum lacks moderation perhaps I should indulge myself further. Alot of transient creatures bouncing between internet cafes are child porn addicts and paedophiles – maybe this is not you – maybe you have to shift towns regularly (several in one day) because you saturate your ego and profound intellect onto the locals and within hours you are riding your bike (I think it runs on optimisium – a form of positive willpower) on out of there. I can see it – “Pete, I don’t agree with what you’ve said”. On goes the helmet and Biker Pete doesn’t have to listen to all the fools who dare question his wisdom. Please feel free to correct me though sage Peter.

    Reply
  33. Nah, you’re easy game, Claytonator. Accusing me of child porn and paedophilia is fairly typical of a small crew out there who would do _anything_ to see Australia’s property market fail. I suspect that if your mind is right down there in the gutter, you’re possibly involved in that kind of activity yourself.

    For your benefit, we’ve used past interest falls to install air-conditioning in all our properties which lacked that inconvenience… and to have heat reducing film fitted to all windows affected by the morning and afternoon sun. We’ve also maintained the current rental rates, rather than increasing them, while the rates are low. I see, BTW, that we’ve survived yet another “Total Meltdown’ predicted in the headline above.
    No rate rise… no need to raise rents… and the end-of-the-world didn’t occur… . ;)

    I suspect that your rabid overreaction has been caused by me calling you the one thing that you _are_… that really, really irks you: a tenant. (I’m on a wireless laptop, you visionary… !!~ :) )

    Biker Pete, Lunenburg, NS, Canada
    September 1, 2009
    Reply
  34. As always, it’s great to see some lively discussion! (But taking things too personally isn’t nice to see) It’s a very curious thing indeed that there hasn’t been the predicted crash in Australia. I myself am not sure who to thank for that yet, or whether the lack of catastrophe will inevitably lead to catastrophe. Pessimism can become quite tiresome after a while. But how this fits into the big picture is most interesting, and I suspect we’ll get the answer to the riddle in the next couple of months.

    I, like everyone else, am always watching the house prices, and they haven’t really been falling by much, and turnover has been climbing here and there, suggesting that at least for the time being the markets have found a sweet spot. Governments are crying ‘crisis’ and using this as a reason to cut wages and reduce spending, but very few shops are closing, and my friends who work in retail are still employed – they met their sales targets.

    I think the analysis by most people on the GFC and everything else is flawed, though, because they are consuming and digesting BS dressed up as truth. To digress, take for example drug company research. In the past year there have been at least two very important scandals in the research arena, whereby drug companies have been implicated in funding phantom research, non-existent studies showing glowing benefits of expensive drugs which, it’s since been shown, do more harm than good. People _believed_ this stuff as infallible science. Doctors, of high intelligence and education, religiously prescribe and recommend the stuff on the basis of small-print papers with complex graphs and statistical analysis, all based on BS. It casts doubt on the entire body of scientific research conducted (mainly out of the US) for the past two or three decades. You just can’t trust any of it anymore. That’s a big deal!

    Medical research is fairly clean, really, compared with the crap that exists everywhere else. So how much do you want to believe the statistics coming out of biased organizations that, by and large, evade auditing and scrutiny, such as China, or the Federal Reserve, or our own beloved Government? How much do you want to believe this or that talking head? They are paid shills, most of them.

    With medical research, the idea of ‘evidence based medicine’ is now turned on its head, where personal experience and the opinion of people you personally respect has been shown to count for more than a purported study of 10,000 patients (that may have never happened). So it is with all of this stuff – you are better off trusting hard facts and corroborated evidence than the pie charts and waffle.

    That all being said, I feel that there are some big pieces missing in my understanding of the GFC. I think that Australia is taking a big gamble on China’s recovery and that big questions, such as how Iran will be dealt with, remain unanswered (in the public arena). It’s an eerie calm.

    Financially, though, the way forward for me is to tread lightly, avoiding a reliance on debt where possible in investing, and using cash for what it was designed for – exchanging value from one good to another – not storing and hoarding. Houses are still a reasonable investment, but no longer as a speculative item IMHO – they are really there as a way to own a tangible asset which generates a modest income (which usually barely manages to meet ongoing costs of ownership).

    Reply
  35. Hey Biker Pete,
    – I’m not a tenant –
    Do you – a) Engage in WAR driving (hard on a pushbike I’d imagine) or
    b) Take tenancy in motels with wireless along your travels or
    c) Already own a house in every suburb?

    Reply
  36. Thanks for your response, Dan. What we’re learning here is that the need to keep the construction business rolling, through stimulus programs, is fairly universal. The diversity of programs is astonishing. What seems common is government emphasis on creating and maintaining employment in a variety of housing and accommodation spheres… across different continents.

    We both felt rather guilty accepting our stimulus payments initially, considering the number of incomes we draw, five in all; but quickly realised that putting this money into construction was maintaining employment.

    Y’know talk is cheap… in one case above, very cheap. Theory is fine… and going back through the posts, we note that 95% of what we read here is theory… just theory. In practice, just since this debate began, we’ve built five more houses, started a sixth, bought another at reasonable value and purchased another lot. And we’re travelling abroad for seventh months while managing quite a number of rentals. So theory, while it can be an interesting read, seems a poor substitute for actually _doing_ something: assisting employment and providing great accommodation, for example. The ‘modest income’ theory is an interesting perspective, too.

    Meanwhile: http://www.tradewindsrealty.com/cgi-bin/listings.cgi?key=4164l

    Biker Pete, Lunenburg, NS, Canada
    September 2, 2009
    Reply
  37. Thanks for your thoughts on housing and bogus drug research Dan. My view on the matter is that with the twin supports of low interest rates and low unemployment house prices will remain stable and may even rise a bit however we will not see the double digit returns of the last decade for the forseeable future. It will be interesting to see what the effect of an aging population will have on this amongst other things.

    As for myself I own a property in Melbourne which I am furiously paying off at the moment and this should be done in a couple of years. After that we shall see but I share your sentiments in that I am not going back into that level of debt again, too much stress which along with the stuff from work I really don’t need.

    In regards to the discussions, I am a regular reader of DR and really appreciate and enjoy the articles from the regular contributors. Yes they could be wrong or they could be right, we shall know in the next few months/years about that. If you don’t agree then by all means post your reasons and generate a discussion about why not as that makes this site doubly interesting. Flinging poo at each other achieves nothing and just dirties the place up meaning that DR may start to moderate comments or just shut them down altogether which would be a real shame. This is not an issue of “who started it” rather one of keep it civil and if you can’t then exchange email addresses or find another forum because I can go and read people abusing eachother practically anywhere on the internet but DR is a rarity.

    Reply
  38. This whole mindset of spending money as a charitable act to create employment concerns me.
    Surely this is proof that capitalism is broken.
    Shouldn’t an economy be self sustaining without consumers and governments having to borrow to spend just to prop up the economy?

    Reply
  39. Stimulus spending does not just creates jobs, it enriches senior managers and shareholders who may have made bad investment decisions leading to the businesses shedding jobs or closing down.
    If companies saved the profit they made in the good times instead of distributing it to their executives, many would not be in such bad shape now IMO.
    And for those who didn’t do anything wrong directly, its still important to undertake long term strategic planning and risk management. Many companies just paid this lip service over the last 10 years. How have those excutives justified their rewards when they have not be diligent with this part of the business?

    Reply
  40. My apologies Rob, Biker Pete and others – DR is a rarity and should stay that way – If I were able I would edit my post – so sorry again and I will keep my shots above the belt in future.

    Reply
  41. Try a simple search of residential rentals in Domaine.com.au. Everything with these post codes: 2011, 2018, 2019, 2021, 2022, 2023, 2024, 2025, 2026, 2027, 2028, 2029, 2030, 2031, 2032, 2033, 2034, 2035, 2036, which is sharply defined tract of land in coastal Sydney, east of Southern Cross Drive and the Eastern distributor. It includes a good spread of desirable properties from the extremely wealthy, to industrial, to working class and housing commission.

    Today; 2 Sept 09, there are 1793 properties listed for rent in that space. Let’s see how that goes over time. The change over time of the sum value all weekly rents on offer would be interesting, but too much work.

    Perhaps a sample tract of Melbourne post codes, (eg; SW of Westgate-Monash-Eastlink Freeways, from Port Melbourne to Frankston, – and taking in St Kilda) could be worthwhile to follow to back up claims of a “Meltdown” or “boom”??

    Reply
  42. Apology accepted, Claytonator. To answer your second question: We hold properties in just three suburbs. Common features of all three locations: high(er) incomes; 1% rental vacancy rates; close to ocean; high employment rate; great tenants (by application); one-year renewable leases.

    Downside: Repair costs high (tax claim); longish wait for some tradespeople (so I do some myself); travel 105 km to third location (around 65c/km tax claim).

    Latest ‘find”: 4.5 acres dual 160 m waterfront(s), own harbour. One D/S house. Subdivision likely… ie., two houses each on two acres plus, each with waterfront. I could provide the URL, but we very much want to buy this property (now), to put a mooring down.

    Biker Pete, Lunenburg, NS, Canada
    September 3, 2009
    Reply
  43. Fred: The guys at Bubblepedia did the similar such surveys using Domain.com in the past too. They often compared the figures from Domain with the information they were getting from the Real Estate Institute of Australia (and other such biased entities). Turns out the REIA was waaay off with some of their figures they published in papers (very hard to get a reprint out of people like that too, even when you can get them to admit the figures were wrong).

    Things to keep in mind:
    – re-listings. Eg, people who take the property off the market and then put it back on again. Don’t confuse this with a ‘sale’. Some of the dodgier ones claim a sale, and then re-list later on.

    – old listings. Eg, listings that haven’t been updated for a while, which may have actually been sold.

    I guess there aren’t really many (any?) people out there willing to do the hard-yards or ground work to get this kind of first-hand information. And it is unfortunately sad that we even need to in this day and age of technology and reporting capability. But the problem is that we are trusting the likes of used car salesman to tell us the value of a car.

    Reply
  44. Any major collapse of the Aussie housing market (say -30% in capital cities) will result in major aftershocks elsewhere. So called retail investors will pull their horns in on all fronts — equity investment —- retail expenditure — holidays etc.etc. Unemployment will jolt upwards for a while.

    If you beleive the property market will tank, it may be wise to rebalance your investment portfolios to aviod exposure to Aussie consumer discretionaries (in my narrow & possibly ill informed view). Such an economic shock would also hit my small portfolio of Aussie based energy, gold and mining service stocks BUT these have an international value which would mitigate a lot of the risk.

    On the upside, once the bottleneck in land values drops to sustainable levels, people may actually be able to afford to build. Long term constuction activity could actually increase as a consequence.

    Cheers

    Coffee Addict
    September 4, 2009
    Reply
  45. Here is a scary article about banks giving people mortgage holidays:
    http://www.news.com.au/business/money/story/0,28323,26001514-5013952,00.html

    I wonder how long they can afford to holiday?

    It is also interesting how banks could use these ‘holidays’ to avoid having to realise losses on their books – which means healthy reporting for July (just gone) and somewhat deceived investors.

    Reply
  46. Keep up the good work Dan.
    Time is coming near when Credit will dry up, Interest Rates go up. That will be the day of reckoning.

    Reply
  47. oh my gosh, so many brainwashed ppl here too…

    you guys in aussie have the worse housing ive seen. poor quality and you pay huge amounts of money for those brick temples.

    when do you all wake up that you cant be the only country who can beat a bubble?

    dubai got fukced this year, property down by 50%…

    your housing doubled within the last 5yrs but the income didnt even go up by 20% !!!! and now u talking about another doubling in next 10yrs?

    but the mop is so brainwashed by the main stream media, so no point even in educating them.
    housing will fall, inflation will kick in, stock market will go up and gold will be manipulated and not go up by much….

    interest rates will go up too and than the trouble will start: it called NEGATIVE ASSET VALUE!!! i would bet that 50% of those FHBG idiots will fall into negative asset value in the next 2-3years.

    buy a brick temple and become a slave of the bank!!! after 30yrs you paid it of and it will fall apart due to poor quality- poor stupidity

    Reply
  48. i took a long walk on st.kilda rd in melbourne last week.

    there where so many for lease/for rent signs on this road alone that i stopped counting…

    and this is going on every where.

    the big kaboom is waiting around the corner guys… it always takes a few years until things arriving here from the USA…

    latest 2012-2013 you can buy property here for 30-40% less than it is now!!!

    i bet my ass on this!!

    Reply
  49. Fred factor this in (this could be true) that 70 % of ozzys rent only, 30% own homes.
    This makes property investing high. How long would it take for these people to succumb and lose there investment houses?

    Is this any different to the UK and USA % wise to oz?

    Reply
  50. rick, 70% of aussies rent? where do you get this number from?

    all the people i know are wannabee home owners… cos the bank owns the home not them!!

    i would say that 65% are wannabee home owners and 35% are renters here.

    aussi is very simular to the usa in many ways. they adopted their system years ago , this also applies to the banking industry.

    main stream will not tell you …

    Reply
  51. rick e – I suspect your percentages are probably back to front with more like 70% of Aussies being home owners? Personally I suspect that high rates of home ownership can be part of the cause of comparatively high prices. But have no current figures on home ownership rates from different countries to support that.

    Reply
  52. Thanks pardon my mix up

    Reply
  53. The Australian property market is an overvalued powderkeg just waiting for a trigger. If all this confetti money being printed to bailout those that are most foolish with money triggers a decent interest rate rise I think it will be time to take shelter.

    Reply
  54. Fred said:

    I agree totally with your comments on ‘For Lease’, signs in Melbourne, Fred. I was in Northcote on the weekend and I couldn’t believe just how many ‘For Lease’, signs I saw. This reality is in total opposition to the upbeat propaganda that I’m reading in the newspapers.

    For example, ABC Online (http://www.abc.net.au/news/stories/2009/09/14/2685143.htm?section=justin) also just quoted ‘Home Building to Recover’. Recover from what? Massive – and unprecedented – growth in construction and general prices? It’s funny to see that it was the HIA (surprised?) that made this giddy statement. I can’t think of any reason for the HIA to have a vested interest in housing approval rates. Can you? The HIA certainly wouldn’t be preempting a looming rate rise. Would they? Of course not, the HIA claim that, ‘Australia is set for a large rebound, driven by low interest rates and government grants’, is a totally objective forecast. Right? Right.

    The sad, sad truth is that this bunk BECOMES reality. Propagandists like the REIA and HIA use public relations strategizing (brainwashing and manipulating consumer sentiment) to manipulate the decision making of the masses. The truth is the bubble is growing beyond anything I ever expected. And nobody’s looking at it. Nobody’s looking at it because everyone takes the press releases (that’s what they are) in the mainstream media as objective news. And it’s nothing but well-designed advertising. Of course, I realize the equation is more complex than this (government intervention, bla bla bla), but the brainwashing of the poor masses is fundamental to the bubbling process.

    Happy bidding.

    Reply
  55. Paul – it is a complex machine that stems beyond the media release. I am actually looking for new commercial premises in Melbourne as I wanted to take the opportunity considering all of the for lease signs. The realestate agent I briefed, I was very clear that I would be negotiating a very good price considering the climate… he stated, “there are no bargains around, the market is very strong and there is hardly any room to negotiate” – I give him 3 more months and I will call him back and see where he stands. North Melbourne, Collingwood, Fitzroy – inner Melbourne, boutique warehouses (mixed services and retail – SMB) are pouring onto the market.

    Reply
  56. Tonight’s 6:00pm CTV news: Canadian real estate up 18% in the last year. One province (BC) up over 100%. No rise in two provinces: Quebec and Alberta. We’ll be interested in more specific details in the Globe & Mail tomorrow. While Canada’s and Australia’s economies are both resource-based, it would almost as simplistic to infer any correlation as comparing Australia to either the US or UK, wouldn’t it? ;)

    Biker Pete, Niagara Falls, Canada
    September 16, 2009
    Reply
  57. The difference between Canada and Australia biker is that Canada has got rid of its current account deficit while we have expanded ours. Nearly every dollar of our current account deficit has been lent into either real estate or to fund the expansion of the services economy. This has produced the capital gains in the Austrial residential and commercial real estate markets. Look at the CAD vs USD and compare to the AUD vs USD over the past year. Both commodity currencies but Viterra buying ABB is symptomatic of the current account situation. We have the silent hand of govt flogging off our assets to fund your real estate capital base and all that offshore and now govt guaranteed bond funding that underwrites the bloated unsustainable on a debt income ratio basis capital bubble of real estate loans rather than more productive investment. In other words we are in debt to foreigners for overvalued or upside down assets and we must flog off good assets like ABB to Canadians to fund your personal party. But have fun over there, nothing is personal in investment.

    Reply
  58. Well, we’ve heard of some major rorts in Canadian property stimulus, Ross. Here’s a classic example: The Canadian government has given $100K grants to owners or buyers of very large homes, to convert them to B&Bs. According to an Aussie who is now running a legit B&B in Nova Scotia, some happy scammers took the money, renovated their homes or new investments… then put up NO VACANCY signs on the houses(!) I defy you to give us one example of such largesse in Australian property stimulus programs. The fact is that most governments around the world have funded property stimulus, in numerous forms. Shelter is a basic necessity, construction is major business… and stock markets are affected adversely when building resources lie idle. I’m not one to knock another fella’s choice of asset class, but the houses we build provide a service. While your gold brick may (or may not) keep its value, securely buried for fifty years, a house provides the essential shelter and comfort to raise a family or two… it serves a purpose. As other respondents have noted, the majority of gold stocks languish in vaults and storage facilities. But it’s pretty stuff and we wear it, party or no party…!~ :)

    Biker Pete, Niagara Falls, Canada
    September 16, 2009
    Reply
  59. biker what are the rates there?
    I can see it now, in 10 years time we will say how did those ozzies pay 9% interest rates. The new norm interest rates will be 3%, 4.5% will be high and 1% will be low. Who needs interest from the bank when you can buy government bonds at better rate? Banks will borrow off RBA or government at whole sale and make there profits that way when they lend there money out.

    Keep stimulating even if we are not in a recession (just in case) we fall back in one that we never were,were we?

    Reply
  60. Rates are lower here, Rick. Easy to get 4% for housing. (We’re paying 5.11% in Oz.) Checked on the current account deficits of both Australia and Canada, Ross. They’re about the same. I figure that Canada may have more difficulty erasing theirs, as US demand for Canadian timber has dried up, due to American housing construction having stalled… .

    Biker Pete, Niagara Falls, Canada
    September 16, 2009
    Reply
  61. Biker, you might want to check the long term statistics for Canada. Last time I checked their trade performance was much better than Oz over the last decade or so. They also have quite a significant manufacturing sector, hence one reason they are having it a little tougher than Australia at the moment. But I reckon looking at the Canadian housing market does make more sense for Oz than looking at the U.K, so keep the information coming! BTW: Do they have non-recourse type loans there?

    Reply
  62. Biker if in doubt ask the CIA I daily reckon.

    https://www.cia.gov/library/publications/the-world-factbook/rankorder/2187rank.html

    So out of 190 countries with smallest to largest we rank down at 184 while Canada ranks up at 27

    Reply
  63. But Ross..now they know who you are :)

    Reply
  64. Impressive stuff, Ross. Maybe things have changed since 2008…?
    Both countries may be having some kind of property resurgence.
    Looks like we may have picked a winner or two, if today’s PerthNews can be believed:
    http://www.news.com.au/perthnow/story/0,21598,26077963-948,00.html?referrer=email&source=PN_email_nl

    Biker Pete, Niagara Falls, Canada
    September 16, 2009
    Reply
  65. Greg, it appears the ‘Buy American’ policy is having a major impact on Canada. Their PM Stephen Harper is flying to Washington today, to try to reduce the impact. Apparently _energy_ is a major Canadian export to the US. It’s weird to travel the Canadian highways and see the US so close much of the time, across the river(s).
    Loans? Brokers appear to manage this for most buyers. We’ll use cash from our super, so it’s not a real issue for us. I’ll ask our NS realtor… .

    Biker Pete, Niagara Falls, Canada
    September 17, 2009
    Reply
  66. Biker

    The CAD changed TO 2008. We were running in the 60 to 70 Billion dollar deficit range so the recession reduced the CAD to some extent. Notably it is starting to expand again under the influence of Govt stimulus packages etc. Foreign debt is currently $700B and roughly 80% of our mining resources are foreign owned. This figure is no longer published by the Govt. The 80% comes from 2 sources. The first from Stephen Mayne who last year did a company by company analysis. The second is my own back of the envelope estimation with a starting point of 68% published by teh Govt some 6 or 7 years ago.
    I’m guessing you are right about housing, in that, the stupidity of basing the whole economy on housing and covering the negative aspects through foreign borrowing and resources sales to foreign interests will continue. Barring some ‘black swan’ event (like the Chinese renegging on a few trillion dollars of derivatives!)Real Estate In Aus looks OK for the next few years.
    Note in contrast Canada has generally run a Current Account surplus.
    Don’t ask what I think the end game looks like!
    Cheers
    Flawse

    Reply
  67. Hi Ross

    Sorry I did not see your eminently sensible post on the CAD before posting my comment! Spot on!
    As per most people around DR I see that housing is way overvalued. However what will change the situation and cause a substantial readjustment to realistic levels
    1. A crisis in the economy. Govt stimulus seems to have kicked that can down the road while massive infusions of foreign capital into equities (aka selling off every damned room of the house)have covered most of the immediate negative effects of the stimulus
    2. A Foreign Exchange crisis as access to foreign capital dries up. USA UK etc are going to print print print. So I think we will be able to bnorrow for the time being.
    3. Risisng interest rates. Again the Western World (YES INCLUDING AUSTRALIA), because of its debt levels cannot allow this to happen…so again print print print. So interest rates may go up a bit but not much.
    Further the Aus Govt cannot allow housing to tumble because of looses of revenues involved…so it will also print print print.
    4. Changes to the tax laws favouring investment in housing….It ain’t gonna happen!!

    In summary, I see nothing on the horizon (other than the Black Swan) that is going to collapse the market.
    My son, who is much wiser than me, always tells me “Dad! You have to invest according to what IS GOING to happen! Not on what OUGHT to happen!”

    Right now i haven’t a clue!!!

    Cheers

    Flawse

    Reply
  68. Flawse: “My son, who is much wiser than me, always tells me “Dad! You have to invest according to what IS GOING to happen! Not on what OUGHT to happen!” There must be one in every family, I guess. But no-one calls it right every time, even our cleverer wealthy sons!

    None of us can predict what will happen right now, but your analyses are probably spot-on, Flawse. I think we’re better placed than much of the world to survive even a second or third hit, but Canada may suffer major collateral damage if the US falters, stumbles and/or falls.

    Some notes of interest: We’re now paying under 90c/litre for petrol here in Ontario. Chinese goods are even more prevalent than in Australia. They seem better quality than much of the stuff exported to Australia… and cheaper by far. I picked up seven Rapala-type lures (for salmon and trout) yesterday. Perfect copies. Total price $8.00. Material used in Chinese clothing here is also better quality than at home, perhaps to compete with US products just over the border… (?)

    Biker Pete, Brighton, Ont., Canada
    September 18, 2009
    Reply
  69. Aus is going to have its Commonwealth relegated to say the size of Qld and NSW in order to allow Japan and China to take up more land, they will not survive otherwise and it can be seen the Aus is basically hogging the land, and doing nothing with it. Viz Terra Nullius

    Aus borrows the equivalent of $12000/ann from China to pay the Aus dole recipients to go to the beach. China’s workers get 6,000/ann and their middle class get 12,000/ann. (stuff India its a criminal culture the way they treat their people…..).

    Aus cannot defend its borders, the biggest sea border in the world has a navy that is sub-standard. We have no manufacturing and our population is employed in BS jobs. We are slowly loosing the capacity to feed ourselves. The Govt are going to tax the air we breath, we recycle our garbage with pride and toss out our skilled aged preventing them from working and continue to tax their assets.

    The employment industry is a rort, we should just data base employers and employees so they can talk to each other via email. Tell me someone how much would it save us if we put GPs and specialists into hospital clinics 24 X 7 and under-right their negligence insurance. The Govt instead is taking capital from health care.

    Aus is a joke we teach our kids about aboriginal culture and beat ourselves up over their own negligence and bad behaviour giving them land so they can sell it to developers. But anyone can come here and bag the crap out of us because we have no sovereignty. Just don’t put crap on our illustrious sportsmen and hack pollies and other mediocrity.

    Being an Aus citizen is just a money spinner for the spivs and corrupt Government, the people come here for mainly economic reasons. Look up S51 Aus Constitution which our Parliaments ignores.

    I have access to my parents old Australian Encyclopaedia, 10 Volumes, which is unavailable at Aus libraries and out of print (of course).
    Modern housing and any other from of building should be treated like any other manufacturing, and built in factories and export the surplus……years ago land used to be allotted by ballot to needy families for a basic price by the Government who would build the roads and schools and install all the utility infrastructure.

    And most of you people think you want to sit around and make money from doing nothing through exponential house and land valuation, sounds like a game of monopoly. Get real its all a bubble. Read Harry S Dent’s “The Great Depression Ahead” as US centric as it is.

    Charles Norville
    September 18, 2009
    Reply
  70. Jeez, Charles, I’d buy ya a beer, but I’d hate to watch ya cry in it…! ;)

    Biker Pete, Brighton, Ont., Canada
    September 18, 2009
    Reply
  71. I think it is recognised that Oz will never be able to defend itself against a large and determined aggressor – However, the last I read on it was that the feeling went along the lines that we should have sufficient military capacity to be able to “tear off an arm” – As a deterent.

    If I was China and considering where I might be able to tap into some really useful land someday, Siberia would have lots more attractions than Oz:
    http://www.americanthinker.com/2005/06/chinas_manifest_destiny.html

    Something I was reading a while back gave me the impression Putin saw merit in Russia being part of a European defense alliance. He just isn’t so keen on NATO I guess.

    Reply
  72. Flawse, is this some kind of silly joke? Printing money is NOT going to result in low interest rates. Given our banks borrow large amounts of capital from overseas, they have to offer a competitive interest rate or decent collateral. If I was a foreign creditor I wouldn’t be that interested in Aussie houses as collateral.

    Printing by other countries will be accepted as long as their (Asian) creditors are tolerant. Once that tolerance runs out, interest rates will either go up or the value of the currency will sink like a stone. I suspect a combination of the two.

    Printing by OUR government will not result in lower Aussie interest rates, quite the reverse. There is no such thing as a free lunch, more money in the system makes each unit worth less, and increases the difficulty our banks and companies will have in paying their foreign debts.

    Reply
  73. Hi Dan

    Yes I agree. However, and I am in no way wedded to this idea, Aus, in the face of chronic CAD’s masive borrowings and equity sales, has remained flavour of the month. So I think we will get away with it a while longer. I think UK, USA will continue to massively print for the moment. No politician will make any hard choices. Witness Aus response to the GFC. Insane! But that is a good i9ndicator they will always, for as long as possible, take the immediately easier path.
    I suppose we are also talking time frame. So my scenario is US and UK will print. So we can borrow and source more funds for the meantime. Also China will be pouring dollars in taking over resources. So for the moment, I see no massive increase in interest rates. Keep in mind that even small rises (like 2%)will smash the economy If given a stark choice this Govt will print rather than make the hard choice. At some stage? we will all, as you point out, run into trouble with our creditors, then ????….it all turns really nasty. Australia will be amongst the last of the debtor nations to feel the squeeze because of the fact we live in a country massively rich in resources per head of population and our attitudes to selling off the nation to anyone who has a penny in their pocket.
    Note again I am not wedded to this. I know what OUGHT to be done and on that I am sure we are on the same page. I’m just trying to figure what a bunch of psychopaths, who care about nothing but their own ego and welfare, will do.

    The Outback Oracle
    September 18, 2009
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  74. I too agree that equities and the AUD can spike in the interim before the event. We could just sail through the nominal US Sep black Friday quadrupal witching hour tommorrow. As long as there is funny money they can ride higher. The Economist’s global debt clock will keep whizzing out of control, moreover it is now uncontrollable in terms of the choice of either hyperinflation or hyperdeflation. Forget stagflation, that is an option lost to us because uncle Ben was determined to keep doing Greenspan’s and reinflating through every economic cycle til bust. Bearing in mind that US credit is now expanding by 14% but US bank domestic lending is shrinking it means that the difference is finding its way into foreign assets using that funny money base, built of USTs taking junk securities onto its balance sheet at par and allowing those that exchanged them to releverage at the same rates as they did with the off balance sheet vehicles, and running “the last great carry trade”. And it is a Mad Max ending we are looking at.

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  75. Ok Dan foreign payback is not interested in residential equity but as Rudd was saying its the commercial stuff that’s in danger of the unwind along with the business it generates. That’s essentially how the Chinese control other Asian commerce. But really the approach of a country forfeiting on their loans is one of cap in hand to the creditor. Sovereignty is simply not a goer.

    The World is propping up the US$ no one really wants it except when borrowing you have to accept it, the Chinese and Co will have to be paid in Aus$ or hard equity. The US will inevitably become introverted with a currency that only they can use. That will leave a geopolitical power vacuum, the US may want to broker any dividing up of Aus.

    We can look at the dividing up of Aus (not the Commonwealth per say) as a World economic stimulus. Its the large tracts of land that the world requires of us. Not a shot will be fired if Aus citizens have the choice of being bailed out of debt and we can certainly do some coercion. Japan could lift its title over Mongolia etc, stop whaling and China could also be coerced into committing to freeing Tibet and other human right processes.

    China and Japan are essentially homogeneous cultures and can adapt to a new land, with strings attached. We could combine our efforts to create a huge inland sea that would Terra form our Continent…….this takes more than imagination I know.

    Aus could become a sovereign undivided nation, currently we are adapting to adverse cultures, we are loosing our history and our Rule of Law – a Bill of Rights will not work for Aus citizens, it doesn’t work any where else.

    It will become more obvious that we have quasi control of this massive continent by weak Parliaments and multi tiered Government and as a dislocated society, it will continue to make us weaker, our Commonwealth will collapse we cannot control this land in world that can better use it and make us more solidly competitive in the bargain.

    In the game of “Monopoly” there is one winner and all the rest are losers, analogous of credit squeeze when the throw of the dice ends each successive player. Aus has essentially only property monopoly it is an open looped economy, and it will fail.

    Charles Norville
    September 18, 2009
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  76. Apology to everyone – Flawse and The Outback oracle are one and the same – I was on a different computer and had forgotten the log-in

    The Outback Oracle
    September 18, 2009
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  77. I have knocked up a political critique & a manifesto of types that runs 1400 words, should I post it here? Low votes and low stars is a no.

    Reply
  78. Ross

    what enjoy a good political manifesto to read over the weekend – hope you dont live in the back woods in a small out-of-the way cottage,

    Reply
  79. Ross, I am happy to post on the shareswatch.com.au site if you get the thumbs down here. BTW..I just gave you 5 stars :)

    Reply
  80. Ross I dont know that you’ll get great numbers of votes regardless of what people really want. Thats because few people vote here full stop (on the forum postings that is). I would like to read your stuff anyhow…my ten cents.

    Lachlan Scanlan
    September 18, 2009
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  81. OK & thanks Greg. We’ll see how it goes. There is some interest and I think Dan reviews/moderates longer posts. I still have to prune a bit and insert some anti-trust elements.

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  82. The Australian socialist government knows real estate is dangerously overvalued and is madly diverting taxes and flooding the country with third world immigrants is a doomed attempt to prop up the house of cards.
    Australian real estate is overvalued no matter what criteria you use.

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  83. Bargearse is correct. (That’s how we spell your tag in Australia, son!) :) Investment in Australian housing construction should cease, today! We’re declining new tenants*, _at the moment._ We can only imagine the queues in the future. * That’s what we call ‘renters’ in Oz, BTW, US bloggers… . ;)

    Biker Pete, Montreal, Que., Canada
    September 22, 2009
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  84. “Australian real estate is overvalued no matter what criteria you use.” BargeaRsE, 20/09/09.
    Headline in today’s ‘Globe & Mail’: “A Year After the World ‘Ended’, the Bid Wars Are Back”. One example they’ve cited shows a tiny wooden house in a very middle-class suburb (Kits) which has just sold for $1.14 mil (nearly $200K over the asking price less than a month ago. Toronto is experiencing similar pressure on demand. Low interest rates are a factor. The Bank of Montreal is offering a five year rate at 2.25%. Unemployment is 3% higher than in Australia (and expected to go higher) so that bogeyman clearly isn’t a threat.

    Biker Pete, Vancouver, B.C., Canada
    September 27, 2009
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  85. Got that biker, what about the renaults with the bad foot pedals, it’s Sunday … need it light.

    Reply
  86. Uh… OK, Ross. Sunday morning here in BC. Cars here are dirt cheap. I guess everyone has a new one… or two. A few Renaults, but a lot of high-end Europeans nonetheless. Oh… and Japan and Korea are well-represented, as you’d expect. Very little American stuff, it seems. We were going to pick up another rental (our fourth, after NS said NO to bike purchase) but the inlaws have kindly given us one of their extra cars, so for the next month we’ll explore BC and down into Washington. We’ll be interested to see how Seattle is faring. Last time I was there (’95) there were more beggars than in Bangkok… .

    Biker Pete, Vancouver, B.C., Canada
    September 28, 2009
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  87. Biker, Seattle will be faring wet as usual. NS’s win banning the bike may prove to save you much grief. An unhappy NS on tour is not a pleasant thing I’m sure.

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  88. A report with everything follows, Canada, commodities, the US, FDR – it has it all. I don’t agree with the USD devaluation bit at all -especially as some sort of salvation – imagine how much debt & foreign capital goes bad in a microsecond! But I believe the Canadians are doing the best they can with their fundamentals and controllables. http://www.zerohedge.com/sites/default/files/Special_Report_TripleC_092509.pdf

    Reply
  89. Spoke to Halifax mayor Peter Kelly about it, Ross. He empathised. We agreed that the NS rule requiring residency for three months prior to purchase unfairly restricts the mobility of Aussie bikers and others… and he agreed to appeal/repeal this on behalf of future bikologists. Vancouver is humming. (But it _knows_ the words.)

    Biker Pete, Vancouver, B.C., Canada
    September 28, 2009
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  90. Very interesting stats on Canada, Ross. Thanks. I was interested to learn recently that China controls about 12% of the world’s current economy… and India 5%… and the link you sent confirms major growth for both. Not much difference between the Canadian and Australian bank stats, was there?! Our hosts sold their Chinese company (aircon manufacturing) prior to the US crash (Canadians manufacturing high spec ACs to sell to the US(!) but they’re now in process for a new start-up in China. A lot of serious Canadian money seems to be heading to China… .

    Biker Pete, Vancouver, B.C., Canada
    September 28, 2009
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  91. Looks like Aussie interest rates are going to rise dramatically from their crisis lows just as the Australian Socialist Workers Party winds down it’s policy of bribing the nation’s most economically naive and successful into propping up overpriced property in order to shore up the vote from those already in over their heads.
    It looks like the tax paying suckers have been tapped dry.
    Negative equity here we come.

    Reply
  92. I think it is all a wasted exericse. House prices will not fall in Australia and trust me i have held off for the last5 years hoping for a correction and have seen rise after rise after rise. I am now priced out of the markett indefinately. My wife and i have a 56k deposit but can’t even afford to buy a one bedroom withstudy 12km out of the city.

    My cousin sold her house in moonee ponds, (what 10 years ago would have been considered a very average suburb) for $880,000. With a $1 Mil budget she has been unable to buy a replacement house 1 suburb over it is just insanity.

    My advice is if you have the chance jump inhead first, websites like this will not come to you in 10 years time and give you the $200,000 depsoit that will be required to buy a home nor will they be there to assist you when you retire as a renter.

    Reply
  93. Neverown, i feel what you do as i am also a person who wishes to buy and have watched the prices just keep going but, i do think that there will have to be a way to correction. The social imbalances (term covers alot of problematic issues) that comes from stripping hard working important citizens of ever owning/ buying a home will have to have an impact.

    questions: Why does someone need to have 3+ investment properties?
    – why is it that i see P platers driving BMW’s and Merc’s and not but 2 feet away i see someone on the footpath walking with their no frills groceries and opshop clothes?

    It’s so sad that this is our nature “to want more want more want more”

    There needs to be a balance, and if it continues the millionare that gets robbed at knife point shouldnt have to ask himself “why me”.

    cannot belive it
    November 30, 2009
    Reply
  94. That is very interesting, You are a very professional blogger.
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    Free Gillette Razor
    September 2, 2012
    Reply

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