When Housing Hijacks an Economy

Reddit

–There is absolutely nothing we can add today to your understanding of what is happening on the Korean Peninsula. But it sure has prompted a mini “flight to safety” rally. The gold price was up nearly 1.6% up in U.S. dollar terms. That in itself was an achievement because the greenback rallied against its arch-rival the Euro at the same time.

–Before we delve even further into the sub-basement of the world economy, a quick note about yesterday’s reckoning. A reader wrote in asking us if we went to bed at night dreaming/fantasizing about the collapse of the banking system in the developed world, implying that there was something both perverted and off-putting about such a desire.

–But don’t worry. That’s not our desire. Our main point was that there is already a system for dealing with bad loans made by bank officers: it’s called bankruptcy. The EU/IMF solution to Ireland’s problem is to borrow from someone else to pay for the mistakes made by the Irish banks. The people who should really lose money, as Jim Rogers pointed out overnight, the shareholders and bondholders in the banks. This is not a risk free world we live in.

–Rogers pointed out that Ireland’s banks borrowed up to 80% of Irish GDP to fund that country’s property boom. A lot of the loans went to developers as well as individual borrowers. When the property market went bust after the banks soon turned to the European Central Bank for repeated helpings of credit to delay the inevitable. This week, the inevitable arrived.

–Could such a thing happen here? Well, according to the June issue of APRA’s always-scintillating “Quarterly Bank Performance,” Aussie banks have a combined $1.45 trillion in housing loans. The report says, “The banks showed a 4.0 per cent decrease in total assets over the year to 30 June 2010, driven predominantly by falls in other assets. Total housing loans increased by 12.3 per cent to $1,145.0 billion over the year.”

–Hmm. So total housing loans (assets) for banks are about equal to total GDP. Now keep in mind Aussie banks have not borrowed all that money from abroad. Just some of it (quite a lot of it). This is one reason why Australia’s net foreign debt is around $670 billion. The housing boom has been financed with foreign money.

–That’s not a problem, unless foreign money gets expensive or is no longer as forthcoming. As long as you can sell bonds to foreign borrowers you’re alright. But it’s a bit of a worry for the major banks, based on the charts below from the RBA, that foreigners may not be as keen to buy bonds issued by Aussie banks, although keep in mind the banks might not be keen to sell debt right now either when they can raise money through equity financing.


–All three charts show that conventional and unconventional debt instruments have all declined as a source of funding since the GFC.  The government has stepped in the Residential Mortgage Backed Securities (RMBS) market to support non-bank lenders and offer other sources of competition for bank lending. But for the most part, the unconventional sources of asset securitisation haven’t recovered to their pre-crisis highs.

–Which brings us to covered bonds. No, it’s not a new type of underwear. It’s a source of funding for banks which uses deposits as collateral against default. In other words, the bank sells a security and the buyer of the security is first in line to be paid from bank deposits in the event that the bank is wound up.

–You might wonder why a lender would have first access to bank deposits ahead of, say the depositor himself (you). And that’s a fair question. It’s also why covered bonds are a bit controversial. Putting creditors ahead of depositors in line for the distribution of assets would be a public relations disaster.

–But it would only be a disaster if the bank is actually wound up and creditors (the buyers of covered bonds) get your money while you (the depositor) get nothing. And of course, if a bank sources just a small portion of its funding from covered bonds, it doesn’t represent a mortal threat to depositors and their deposits (you and your money in the bank).

–Yet it’s telling that the Gillard government and Treasurer Wayne Swan are considering the introduction of covered bonds in Australia. Joe Hockey likes this idea, which should scare you even more. It’s a bi-partisan agreement on how to put housing even more at the epi-centre of Australia’s economy. Anytime politicians from the major parties agree on something, it’s bound to be bad for you.

–The Big Four would claim that covered bonds are an additional source of funding for the housing boom that allows banks to lower borrowing costs to Australians because it lowers their aggregate cost of funding. But remember, the collateral for the bonds is your money in the bank.

–What could possibly go wrong?

–Well, hypothetically, a fall in bank asset values (housing crash) would raise concerns about bank liquidity and lead to doubts about the likelihood of a bank paying out on its covered bonds. This is what has happened in Ireland.

–When Anglo-Irish Bank had ratings on its covered bonds cut by Moody’s, it showed that the Irish banks increasingly at the mercy of the ECB for continuous funding and that alternate sources of funding were tapped out. It also meant that the collateral for the bonds was in doubt, and forced the Irish government to try to make it good.

–This last point is really the most important. Covered bonds were just the last in a long-line of ideas to keep Ireland’s housing boom going beyond all bounds of normality. Once the money ran out to keep prices inflating, the housing market collapsed and took the entire banking sector with it. This is how housing hijacks an economy.

–So what does all this have to do with Australia? Well, in our view, Australia’s market has been partially hijacked by housing. Covered bonds would only make the bubble bigger, which would make housing even more unaffordable and lead to bigger losses down the track.

–The recourse to covered bonds is being sought to keep the housing bubble from deflating. The banks, having exhausted the supply of first buyers, need to find new sources of funding to offer new mortgage products. And they might be worried that the traditional sources of funding are getting more expensive and more reluctant to feed Australia’s bubble.

–The big risk with covered bonds is that they get abused as cheap of way of sourcing funding for reckless lending. It works as long as house prices go up and up. But if house prices fall, then not only are depositors imperilled, but the government will be asked to help the banks with more cash to pay off investors. And when the value of bank loans exceeds GDP, not even the government can make that good.

–Of course that could never happen here.

–By the way, covered bonds are legal now in New Zealand. In fact, kiwi banks are selling the bonds denominated in foreign currency, which you think would expose them to massive currency risk. Incidentally, Aussie banks have a heaping helping of assets. We’ll get the figures for you tomorrow.

— And finally, get a load of this from Dow Jones Newswires overnight: Standard & Poor’s Monday shifted its outlook on New Zealand’s foreign currency credit rating to negative from stable, warning on the country’s dependence on offshore markets to fund its banking network and putting a spotlight on the its tepid economic recovery.

–Hmmn.

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.
Reddit

Comments

  1. “sell debt right now either when they can raise money through equity financing”. You don’t have to have a long memory to recall boards calling equity finance as being prohibitively expensive compared to debt and you can go back through the history of the boom and bust cycle economic cycle to see the same thing over and over.

    But if you have bodgy balance sheets and pay big dividends you can report higher equity with ratios that look on the surface reasonably in line and then you can borrow more money. This was the story of the 1960 era consumer credit companies that all went bust as just one example. Read about it in Trevor Sykes’ Two Centuries of Panic on the economic and market history of Australia. Then we consider just how light all those cronies and the regulators got off time and again, even the 70’s developers that rose again like Lazarus, or more appropriately like Phoenixes.

    This time however they must all go to gaol. Maybe thats why South Korea keeps to its promise of live firing into disputed territorial waters even when the North had warned them the week before that it would be unacceptable, that they would consider it an act of war, and that they would retaliate against shelling of
    “its” territory.

    Put it together with the Cheonan b/s where the Russians say even before they tested it that the said North korean torpedo had been in (exposed to) sea water for well over a year, and possibly a few years; and the Gates and Rudd declaration (spin) accelarating the reports from a US scientist invited by the North Koreans to inspect a nuclear power control room into a weapons enrichment threat and add in a few rammings by South Korea of North Korean patrol boats in the same disputed ocean area, one that looks awfully close to North Korea on a map declared unilaterally by the USA and not approved on the armistice document and you might think that there are a lot of executive, political, and crony fraudsters that want a big diversion and that ultimately that big diversion increasingly looks like being a nightmare meat grinder war brought about by a broke US upon China because their military assets is the last card in the deck that they have to play to try to avoid being lynched at home even if their own war gaming says they eventually will lose the fight in a fully mobilised offensive war with 5 million US led combatants alone dead. (If it sounds familiar think of Japan and their circumstances before Pearl Harbour!).

  2. I think the case for including Reserve Bank Treasury Bonds in the portfolio is getting stronger by the day!

    Richo (the Second)
    November 24, 2010
  3. If I recall correctly, the DJIA turned around nicely right about the time GWB announced the Marines were off to have a really stern chat to Saddam Hussein too Ross? Read a bit of history and one gets thoroughly sick of seeing the same nonsense games played again and again.

  4. This covered bond business disturbs me a lot – some irresponsible politicians are presenting it as some panacea to lower funding costs. But basically it is transferring risk away from bondholders (who therefore demand a lower interest rate) towards depositors (who are in a much weaker position to force compensation for the increased risk they are exposed to).

    If this is introduced, I’d expect that the Australian dollar would become (even) more volatile, as capital fled on any negative sentiment.

  5. Spanish bonds hit record. Non PIIGS Belgium dragged into contagion. Euro takes a big dip in past 12 hours.

    http://www.businessspectator.com.au/bs.nsf/Article/UPDATE-2-Spain-tries-to-calm-markets-warns-Germany-BHM8J?OpenDocument&src=hp13

    Separately Irish bailout talk by Dutch now including haircuts for bank shareholders and “subordinated bondholders”. Aussie banks have $4 billion in bonds according to Jacqueline Maley. NAB was biggest in Ireland offhand by my dodgy memory. Issue though is that any announcement of a haircut or political backdown on sovereign guarantee of new funding will have a positive feedback raising spreads even higher.

    A 250 basis point spike for AU-NZ wholesale funding like the Spanish premium over the bunds is not implausible as bondholders start looking for the next domino in the line.

  6. Recycling of the USD also getting the chop in 3rd party trades.

    http://www.chinadaily.com.cn/china/2010-11/24/content_11599087.htm

    Just provides USDs to slop around in asset price ramping in places like Australia and for the Chinese buying our future production with recycled funny money by way of equity.

  7. spot Ross on re Korean imbroglio. I can see through it all these days. who drew first blood?

    Dire Straights song Industrial Disease “they want to have a war to keep you on your knees, they want to have a war to stop the Japa(Chia)ese, they wanna have a war to stop Industrial Disease”.

  8. http://www.theage.com.au/business/property/brisbane-still-a-buyers-paradise-20101126-18ag3.html

    A property spruiker acknowledges that the property market (Brisbane) may crash and burn..(whilst he does not think so he at least acknowledges that it might)

    Stillgotshoeson
    November 28, 2010
  9. The content of that article (as opposed to its title!) lines up quite closely with what I’ve been thinking Shoes.

    While neither are specifically mentioned in the article, the Gold Coast is in a fair bit of trouble apparently. And I’d also be feeling awfully twitchy if I had an investment on the Sunshine Coast.

  10. Have we ever considered that realtors aren’t getting much action, while potential sellers are: a.) holding b.) insisting on their asking prices (?)

    In that scenario we hear from them that sellers must ask ‘realistic’ prices. Realtors aren’t getting the action they’ve enjoyed for years. The most successful _are_ still getting volume, with some sellers accepting silly offers. That’s not to say that some of the asking prices aren’t silly.
    They are… . ;)

  11. I’m still punting that it’s correction time in Brissie Biker. I’ll be a serious looker after a 15% drop IF the mining boom is still looking ‘safe as houses’! ;)

    No really significant correction here yet though. Despite the fact we’ve been under pressure for maybe 10 months now. Bank interest rate on my cash is looking OK for now given the expectation of no housing price growth. And quite possibly a correction in it. Just take it as it comes for at least 6 more months I’m thinking.

    “potential sellers are: a.) holding b.) insisting on their asking prices” – At some point those sellers will pull their stock and rent it out I guess. Which will reduce market volume, affect rents, but probably put a floor under prices.

    A lot of it’s just going to come back to a) how many over leveraged sellers there are that ‘blink’ at the thought of holding through any down turn; b) whether there really is a shortage; and c) the strength of our mining boom. (Plus the guv intervention factor.)

  12. Comment by Ned S on 28 November 2010:

    I’m still punting that it’s correction time in Brissie Biker. I’ll be a serious looker after a 15% drop

    15% drop is around my expectations for Melbourne next year as well.

    A lot of it’s just going to come back to a) how many over leveraged sellers there are that ‘blink’ at the thought of holding through any down turn

    Enough in Melbourne to have a definitive effect on the housing market.

    b) whether there really is a shortage

    A shortage of quality homes in quality locations… for sure.. the shortage of buyers next year is of more concern for my way of reckoning.

    and c) the strength of our mining boom.

    Long term future for Australia through mining is good.. How deep/long the coming dip will be is the unknown.

    (Plus the guv intervention factor.)

    All government intervention scares me when it comes to housing

    Stillgotshoeson
    November 29, 2010
  13. Noosa’s Hotel California

    Robert Gottliebsen

    Published 7:42 AM, 29 Nov 2010 Last update 10:35 AM, 29 Nov 2010

    Noosa Heads, Australia, is a long way from Ireland and California but it has experienced a similar real estate shock – a 70 per cent fall in the value of a major property. It’s a long time since Australia has seen prime property fall by that much.

    In all Resort Corporation spent $210 million on the Noosa Sanctuary resort and clearly believed that the market value of what they were creating was much higher than that.

    The project went into receivership and it was generally thought that the very worst case scenario was a 50 per cent drop in value to $105 million. That would have gone close to covering the HBOS first mortgage debt which was in the vicinity of $120 million. But no. The highest and winning bid was just $60 million, payable in 21 days. HBOS lost half their money on a 60 per cent first mortgage security. Second and third mortgage holders plus the equity funds were wiped out.

    OUCH!!!!

    Stillgotshoeson
    November 29, 2010
  14. Similar situation in Mandurah, a resort town south of Perth. Developer has dropped his asking price of units by 40%. Still start around $720K+ for small, bottom-floor units… .

    Ir has ever been thus. Some of the major players spend too much on expectation of ludicrous gains. They’re now having to be more realistic…

  15. I was reading on the Victorian opposition now governments website it said they want to make housing more affordable.

    It looks like the WA government is starting to come good on its promise too

  16. Just keep doing what you’ve been doing now is my general thought Steve. And don’t buy anything for at least 6 months maybe – And quite possibly longer after reviewing in 6 months? Though in truth I don’t actually know anything much at all about the Sydney market and don’t want to except as in so far as it might affect the Brissie market.

  17. Not taking anything away from losses in the “minor” capital cities.. I do however feel that it is Sydney and Melbourne that are of the most concern.

    1/2 the countries population (or as near enough) are in these 2 cities..
    Ramifications for the economy are greatest if these 2 cities correct in any sort of major way.

    Stillgotshoeson
    November 29, 2010
  18. One of the reasons I keep a general eye on Sydney and Melbourne Shoes, is that providing they don’t get too severely challenged, I doubt interest rate drops or stimulus aimed specifically at housing are too likely to be forthcoming. So agree they are good to watch generally. But not specifically (for me) being in Brissie.

  19. Steve: “It looks like the WA government is starting to come good on its promise too”

    Surprised to hear that, Steve. Property rose over 9% in WA October ’09 to October 2010. What’s your source?

  20. I heard that it is starting to fall there and in qld.
    No source just what I have heard.

  21. Must be true then.

    What did you hear about Gillard’s third proposition on our ageing demographic?

  22. I have read that Perth property market has declined around 2.4%

    Not hear about in drop in “WA”

    Stillgotshoeson
    November 30, 2010
  23. I see Big Red reckons she wants to actually achieve something over the next 2 yrs??? Not sure why? But anyway, her suggestions:

    * Legalise same sex marriages – Yeah; On the proviso the Sydney Mardis Gras ceases forthwith and no-one ever has to hear anything about gays ever again. (They really have gotten to be a seriously tiresome, tedious and annoying little self interest group that no-one could possibly give a toss about anymore surely? Except for the hope they’ll cease and desist from their attention seeking and self aggrandising ways.)

    * Carbon Tax – Yeah; As a concerned citizen of the world, I reckon it’s our ‘duty’ as a developed nation to buy carbon credits off developing nations as a form of foreign aid so they can continue to out-compete us. Might even mean I ultimately need to personally send a bit less money ‘home’ each month! (Besides which, if we don’t do it, we’ll just get nagged to bloody death over it by the the tree huggers like the GLTs have nagged us to death over their particular thing – I’m getting older – A bit of peace and quiet is nice. :) )

    * NBN – Nay; Best saved up for a rainy day when our mining boom goes leg up and our construction workers desperately need some alternative tax payer funded employment just maybe? – IMO.

    Apart from that, if our pollies can shut up (and if they can’t, then if they can drop dead!), I’ll try to continue to tolerate seeing them (or their estates) paid their salaries and benefits.

    Too easy Jules – The less you do, the better off we’ll all be!

  24. I see Big Red reckons she wants to actually achieve something over the next 2 yrs??? Not sure why? But anyway, her suggestions:

    * Legalise same seks (it’s DRA’s required spelling) marriages – Yeah; On the proviso the Sydney Mardis Gras ceases forthwith and no-one ever has to hear anything about gays ever again. (They really have gotten to be a seriously tiresome, tedious and annoying little self interest group that no-one could possibly give a toss about anymore surely? Except for the hope they’ll cease and desist from their attention seeking and self aggrandising ways.)

    * Carbon Tax – Yeah; As a concerned citizen of the world, I reckon it’s our ‘duty’ as a developed nation to buy carbon credits off developing nations as a form of foreign aid so they can continue to out-compete us. Might even mean I ultimately need to personally send a bit less money ‘home’ each month! (Besides which, if we don’t do it, we’ll just get nagged to bloody death over it by the the tree huggers like the GLTs have nagged us to death over their particular thing – I’m getting older – A bit of peace and quiet is nice. :) )

    * NBN – Nay; Best saved up for a rainy day when our mining boom goes leg up and our construction workers desperately need some alternative tax payer funded employment just maybe? – IMO.

    Apart from that, if our pollies can shut up (and if they can’t, then if they can drop dead!), I’ll try to continue to tolerate seeing them (or their estates) paid their salaries and benefits.

    Too easy Jules – The less you do, the better off we’ll all be!

  25. And there’s another proviso on the LGBT thing – If it all turns to poo in 40 yrs time and kiddies who’ve been adopted/raised by such couples reckon they were badly done by in comparison to what just might have otherwise been, then as opposed the “Stolen Generation”, as their daddies and daddies and their mummies and mummies or whateveries, please do be aware that this was totally your demand and choice as their whateveries. So no-one else can possibly be expected to be accountable in any way at all this time round. Your call, your demand, your choice, your problem!!! – Should it turn out that way.

  26. I’m getting to know human nature just a bit more than I like I think. The baskets by and large always seem to want what they reckon will make them happy now. Providing they can ultimately say I didn’t know; I didn’t fully understand; Someone else should have told me – So it really WAS all someone else’s fault! Those sorts of human beings are ones the species very well could be genetically better off without – Is my thought.

  27. Certainly a ‘soft’ realty market here; so ABS 9.4% lift in house prices in the last twelve months is possibly off the back of very poor ’08 – ’09 Perth figures.

    Our population grew 3.6% in the same period, the most in any capital.
    We expect even higher figures 2011 – 2012.

    Very large volume of homes for sale, so home construction is stalling.
    Some of the current stimulus building (public housing) is just coming to fruition. Much of it seems to be retirement complexes. Once that ends, mid-2011, it could be interesting.

    No idea what’s happening on the east coast, but more people versus reduced construction figures in WA does suggest we’ll be insulated from any hard landing here.

    Watch for new immigration policy announcements soon. WA is already experiencing skilled labour shortages, statewide, as northern mining towns pull workers from the south.

    Canadian visitors commented on the volume of activity and industry here.
    If they’d seen the residential construction 2005 – 2007, they’d never have believed it… .

  28. http://www.perthnow.com.au/business/perth-property-crash-continues/story-e6frg2ru-1225963274108

    Article says Perth is the worst performing capital city….

    Stillgotshoeson
    November 30, 2010
  29. Very, very mixed data. I’ve stopped paying much heed to PerthNow*. Once I realised whose links are consistently prominent on all their property blogs, I lost interest in anything they print… :D

    The figures I gave are the most recent from the ABS. They’re from Debra Goostrey, UDIA WA. (The West Australian, p. 20, 27th-28th November 2010.)

    * PerthNow was once a reputable source. Pity it now puts income before accuracy… .

  30. I have read other newspaper articles that say Perth property has declined, so whilst the figures may vary (wildly) The fact is probably true that Perth has suffered a decline in values over the year.

    Melbourne property figures vary from a little over $500000 to mid $400000’s for the median price

    Stillgotshoeson
    November 30, 2010
  31. Where a blogsite permits an advertiser six simultaneous, consecutive detailed comments, excluding views to the contrary, we’d have to question their bias, wouldn’t we… particularly when their links infest the site(?)

    You’ll recall I suggested WA is experiencing a soft market, with an unusually high number of homes for sale.

    Despite that, many good areas are up 18% or more. Others, Kwinana, for example ( ;) ) are way down. Rental demand in good areas is very, very high. Longest vacancy we’ve had in eighteen months was three days… .
    We were pleased and surprised. The rental glut is over… .

    You should note that I have (always) presented both sides of the property debate. When we realised blocks were being released very cheaply a while back, we jumped in immediately and bought two. This was also a period when one we held ‘dropped in (paper) value’ by 20%. There are still bargains around. The general population doesn’t think so. That’s OK with us.
    It means great demand for high quality rentals… . :D

  32. Here’s WAToday’s report:

    http://www.watoday.com.au/wa-news/perth-property-price-plummet-continues-20101130-18en9.html

    Hardly proves Keen’s thesis… . :D

  33. “Where a blogsite permits an advertiser six simultaneous, consecutive detailed comments, excluding views to the contrary …”

    You mean like when you and “Ned” bang on continuously and drown out any contrary views? Hypocrite.

  34. Auction Clearance Rates

    http://reiv.com.au/home/inside.asp?ID=162&nav1=1226&nav2=162

    Saturday 11th December 2010

    The clearance rate from the 1019 auctions reported today was 61 per cent, a good outcome in light of the record number of homes on the market this weekend

    On this weekend last year there was 1065 auctions and a clearance rate of 81 per cent recorded

    Similiar number of “supply” big difference in demand….

    Was supposed to be around 1200 homes for Auction this weekend in Melbourne so stats are incomplete or all results not in (getting common for agents to not report non sales)

    Dress it any way you like.. put a tuxedo on a pig and it is still a pig.

    Stillgotshoeson
    December 11, 2010
  35. Certain skeptics have on occasion been known to suggest that the REIV fudge their figures Shoes?

    Anyway, Brissie is still being chewed on by a bearish market with no looming prospects of a respite that I can see.

  36. A pig farmer would know… .

    Never try to teach a pig to spell. It wastes your time and annoys the pig. ;)

  37. I’ve never met a pig I genuinely disliked – Though an awful lot of humans have failed my ‘compatibility’ tests! :D

  38. Boaring commentary these daze, mate.

    Looks like Collier will push Gillard for more 457s. We need 15,000 more workers annually for the next ten years. Construction has slowed considerably.

    Just less than 18,000 houses on the market, but that number may increase as things fire up here. :D

  39. Terry Ryder cites Brissie and Perth as all go in 2011, Ned. If you’re going to do something, might be worth having a good look now.

    Alan Bourke, REIWA’s man, is offering Premier Barnett a tempting alternative to Victoria’s $20K FHOG. The Vic plan appears to offer land sellers a bonus, as would Buswell’s WA $20K plan; but Bourke’s alternative, $15K, would apply equally to new and existing homes.

    I’d be surprised if Colin Barnett passed up the REIWA plan, considering the population increases (2011 – 2012) predicted here.

  40. I’ll check out the Ryder Report then Biker – Ta.

    He’s certainly going to be at odds with Matusik in that call though.
    Truth be told, it seems we have an oversupply in SE QLD at least for now. Any more upward movements in interest rates could really rock this market – Is my punt?

    Depending what happens I’ll start sniffing around for another buy mid 2011 maybe – But will be continuing to watch closely in the interim regardless.

  41. Interest rates are predicted by some (the usual suspects!~ ;) ) to be on hold for six months, Ned.

    Mid-2011 puts you right on the date exit fees are to be abolished.
    May be a psychological effect there… or not(?) FHBs _may_ think
    that’s important… .

    Two lib state governments (Vic, WA) are almost certain to intervene in the market, meantime.

    Ryder also predicted rises in some key regional centres, particularly in WA. He lists those centres… .

    So much money whizzing about here, I can’t believe it. While some of our stuff appreciated just 7% last year, two of our major holdings rose 30%+,
    according to the data. We’ve seen no anecdotal evidence to support that, so we’re a little skeptical… .

  42. “We’ve seen no anecdotal evidence to support that, so we’re a little skeptical.” – One surely does have to do their own research mate. It’s all a bit crazy – Here we have a $3.5 t or just maybe $4 t market that that majority of Aussies hold the majority of their wealth in and if Ric Battellino of the RBA (I think it was him?) is asked how come do you reckon 10% of Oz housing isn’t occupied on census night, he replies Maybe because it’s mainly holiday homes???

    God help them if anyone was to ask any difficult questions like What five year age brackets do property investors fall into and just how highly (or lowly :) ) are they or aren’t they leveraged within each bracket? Plus how many IPs (on average) are held by said age brackets? And what are the total average values of same and current average rental returns? With such questions just maybe being of interest as boomers approach retirement.

    It’s quite silly really – Just how little real info of any real relevance is collected and kept on what is unquestionably the major asset class that Aussies invest in?

  43. Interest rates – Curious one Biker – US Treasuries took a bit of a hit last week as I understand it? – Lower prices and higher interest rates if I understand it correct???

    Wait and see – But if Bill Bonner’s long awaited ‘Revolt of the Bond Vigilantes’ just should be coming to pass, Mr Bernanke could find himself caught between the ultimate rock and a hard place in such a circumstance?

    Monetarise the debt? (Whatever the hell that means? Though I suspect it means that Ben buys it himself in the absence of any other willing purchasers???) Not me says Ben!

    Can he be trusted? Precisely to the degree that Mr Obama can be trusted to balance his budget I suspect??? … :D

  44. Ned: “What five year age brackets do property investors fall into?”

    Strange but true, nearly all of our tenants own homes, in some cases multiple investment homes. In the two best examples, the youngest would be around 33 and the oldest in his mid-forties. The latter fella has three worth around a million each.

    Although I’d had three properties by the time I was thirty, it was only in my mid-thirties that I/we got serious about property.

    Rates? Hard to know. You can currently lock in three years at 7.1% with either of two banks. (Our own two banks are giving us 7.24% and 7.1% at present. Offsets pull that down to almost zero in a few cases… .
    We’re about to pay out all loans carrying the higher rate. )

  45. Yes, it’s gotten ‘boaring’ as you say Biker … Chrissy coming up soon though – Time for a rest maybe? (Not bloody likely with tenants on the move soon and a leaky roof in another house! But it’s nice to dream sometimes … :) )

  46. Pete says they’ve blocked him again, Ned! Only a very temporary censorship, mate!

  47. Blokt agin, mate. Just temporary!~ :D

  48. Let’s see if I understand this:

    In Australia, about 1% of depositors’ money is ‘reserved’ as Non-callable deposits. The remainder is [or may be] loaned to borrowers.

    If covered bonds are ‘covered’ by depositors’ funds, do these funds include those no longer available to the ‘banks’ without calling in the loans they have made, or only the 1% held by the Reserve Bank?

    Either way, if the government is proposing to shield depositors through the Financial Claims Scheme, doesn’t this actually mean that the government [taxpayers] is in fact underwriting the covered bonds?

  49. “Our colleague’s house in Melbourne has risen 200% in price since we sent her there four years ago. And it’s still going up.” Delightful!~

  50. Wellllll…. that took a little time. Your techies are getting smarter… . :D

  51. First Home buyers have abandoned the housing market …. This is what REIA said …. The number of loans to first home buyers decreased 2.8% to 22,823 over the quarter and 52.9% over the year – the September quarter saw the lowest quarterly participation of first home buyers for six years….. W*O* FHB down by 52.9% in the last year . I thought Dogman said they were back??? & this is what they said about A*L*L home loans … Over the year, the total number of loans fell 28.3% – the largest annual decline in Australia since March 2001….. Ouch a decline of almost 30% … they went on to say … “These all-time lows are extremely concerning, not only is affordability on the decline but loans being issued are down and first home buyer participation in the market is the lowest it has been in six years,” …. as usual happy to supply a link to support what I say …. http://www.reia.com.au/userfiles/MEDIARELEASE_1291765327.pdf ….. You would need to be one of the biggest optimists to enter the housing market today …… fancy bumping into Biker who blogs on Perth now Site under the Tag of Travs/ RTW/Dogman/Mark of Vivc Park etc etc always prepared to puff more air into Perth Housing Bubble?

    Not Fooled By property Spruikers Hype
    December 14, 2010
  52. Some reasons to stay out of the Perth Housing Market: 1)7.1% loan today is = to a 22.5% loan in 1990 in comparative % of salary going to service mortgage , 2) Perth Wages 2000-2010 up only 38% in 10 years yet house prices up 170% ? income will restrict future growth, 3) REIWA / RP Data / APm all forecasting little or no capital growth without it property SPECULATORS lose money thats why they are listing houses for sale increasing listings by 70% in the past 10 months alone, 4) Rental yields have been going backward for the last 30 years 1980 yield over 10% today it has halved to under 5%, 5) Rate of construction is reflection of demand that is why it is falling {OVERSUPPLY} 6) Overseas student numbers to drop by 30% or close to 15,000 next year in WA Alone due to high exchange rate increasing AU Edu costs by 50% oversupply of rentals as a result will cause prices to stagnate if not fall & listings to blow out as they all go home at the end of this year 7)Migrant numbers by 150,000 due to visa changes plus additional 50,000 fall forecast due to high costs as a result of exchange rates, 8) Property prices rose due to FHB dropping out of market & activity increasing in upper market 9) Employment numbers in minigng sector yet to get back to pre GFC numbers 10) Kwinanna Sheetmetal factories have cut staff by 30-40% since the GFC …. 11) We have a Drought cutting employment & income in WA by $4 billion next year.

    Not Fooled By property Spruikers Hype
    December 14, 2010
  53. Property Speculators will look at the great mining projects up north & talk of the 15,000 new jobs that they will need to get the projects but they ignore the following very conveniently. … 1) WA is in a drought thousands of jobs have been lost as there are no crops to harvest slashing incomes , plus job losses in support industries { most of these surplus farm workers then go & work on the mines driving trucks & graders etc to pay the mortgage on the farm result = ZERO NEW WORKERS ADD TO STATE} … 2) The high AU dollar has caused a crash in Overseas Tourist arrivals & a rush in internal tourists now holidaying overseas because their dollar goes further. These workers are taking up the jobs up North feeding miners cleaning rooms etc… 3) Over 40% of mining employees live in the East or NZ & commute to WA for work {They are not going to buy a house} 4) 457 Visa holders are not interested (& in most cases not able) in buying a property in Perth as the contract is only Temp they will not relocate family A) Kids schooling B) High cost of ownership due to exchange rates (up 50% since 2009) All this is academic as property has already started its slide down!

    Not Fooled By property Spruikers Hype
    December 14, 2010
  54. In Saturdays West Australian 11th Dec (Page #4 Real Estate Section) REIWA president Alan Bourke states … €” With the exception of the Pilbara there is no housing shortage in WA… ” & without a shortage to drive demand the prospect of strong capital gains is very unlikely.Property SPECULATORS need property to double for their Negative Geared speculative investments to work {Without it property speculation will not work} Faced with years of inadequate capital growth these speculators are starting to flood todays housing markets as they race each other to exit the markets…… How bad is the market when even REIWA are saying that *** With the exception of the Pilbara there is no housing shortage in WA ***… Alan Bourke really say that? …. YES HE DID it is on page #4 in the Real Estate section… So after years implying that there was a ” HOUSING SHORTAGE ” & this is what will S*T*O*P* house prices from IMPLODING they now say that there is ” NO SHORTAGE ” so what do you think will keep prices from crashing? listings back up this week to over 17303 a jump in listings of over 70% since the start of the year. Oct 2008 the GFC Hit & the RBA reduced official rates to 3% by Jan 2009. Interest Rates went from 9.5% in Aug 2008 to under 4.75% in Jan 2009 … Banks were offering Fixed 2 year loans @ 5% – 5.5% many New home Buyers (Plus existing home owners) took advantage of this & locked in these rates. Now 2 years have lapsed & these loans are going to revert to a 7.1% or 7.8% rate. An increase around 50% or around $750 PM on a typical home loan. Now bear in mind most of these FHB could not get a loan because they could not save enough for a deposit whilst renting at only half the cost of ownership. The only way they got the deposit together was with a boost to the FHOG & $900 per child handouts x 2 {Remember these GIFTS ? }Now all these home owners that could not even save for a deposit prior to 2008 have been paying an additional $10K PA in costs for home ownership (Gap between Renting & Buying) & in 2011 they can ALL look forward to extra payments around $9000 PA. ($20K all up) Next year they will flood the market with listings.

    Not Fooled By property Spruikers Hype
    December 14, 2010
  55. And _why_ did Alan Bourke say that? What’s his, erm, angle?

    Troy Buswell’s proposal is a $20K FHOG for WA. This gives REIWA _nothing_ except land sales commissions. Much of those will go to developers (several of whom have direct partnerships with state governments, anyway.) Yes, it does mean developers and those who hold land will get an ongoing windfall. :D Yes, land prices _will_ rise under that proposal.

    Alan Bourke’s counter-offer, on behalf of REIWA, promises realtors far more. His $15K FHOG proposal is for new AND existing homes. Realtors get commissions on land sold for new homes… and commissions for existing homes… far more lucrative. It also offers state premier Colin Barnett a cheaper olive branch, to appease a much larger group of voters.

    Despite his inability to see the Big Picture, NFBPSH is absolutely correct about sellers flooding the market with listings in 2011 and 2012. Property activity is pretty flat at present. _Any_ kind of state government intervention will spark the WA boom we’re going to experience during the next few years.

  56. Hey, c’mon! Just one Thumbs Down? Where are the bears this morning?
    Hibernatin’ ?!~ :D

  57. Perth property market SOFT??
    Thats like saying the USA housing market is experiencing a quite period!
    I went to a Perth “AUCTION Spectacular” on the weekend. Out of 23 homes for sale only 3 sold and OH BOY did they have to WORK those poor suckers…errr i mean buyers to bid up! They tried every possible trick in the book and still no sales but 3. Thats not a soft market BIKER (sre you aka Travs by the way?), thats a disaster. Then factor in the realty agents of Perth are experiencing there worst sales numbers in 10 years, throw in all the massive industry going under and broke in our engineering sector(what boom?) and there you have it. PERTH is a basket case and is heading back to the way it should be – IE the cheapest housing in the country because of its isolation and limited job prospects(unless you want to live in a minesite).
    Invest in Perth and you are setting yourself up for the biggest LOSS of your life. The music stopped ages ago and the no brains, done a property course bogans are the only ones stupid enough to not see the out of control Train Wreck coming……. Tick tick tick BOOOOOOOOM
    AVOID WA property at all cost, if you own an investment property in Perth you better hope you can sell the thing to the remaining blind lemmings still cueing up at the cliff.

    John of Dullsville
    December 14, 2010
  58. Forgot to mention the enormous amount of unsold stinky housing stock that has been SLASHED in places like MANDURAH – 40%(train wreck capital) and North Beach( -30%) and just look at the whole coast for properties being on the market for 120 days plus only to be taken off and relisted with another agent.
    You could SLASH the price of Perth Property by 25% and it will still need t fall a further 15 to 25% before its anywhere near good buying for a rental yield.
    Pheeeeew Weeeeee……. You poor Btards who invested in Perth in this last 5 years are heading for one huge Shalacking. It wont happen overnight but it will happen……

    John of Dullsville
    December 14, 2010
  59. NFBPSH, do you also post on PerthNow as Not Foold By Property Spruikers Hype of Perth, Not Fooled By Property Spruikers Hype of Perth, and Not Fooled by Property Spruikers; as well as Punter of Mindarie, The Punter of Mindarie, john of dullsville perth, John, Aaron, HaHa, We Love HaHa, Louise Hendix, Toys Will Be Played and a host of other bogus online identities? (Or are these your legitimate, medically-verified multiple personalities?) :D

    Is it true that when you post as Not Foold you’ve simply delegated to the office girl, who copy-and-pastes your stuff, but hasn’t the common sense to get your tag right? Does the boss know you’re golfing on his time?

    Is it true that you frequently post six, large _consecutive_ blocks of print; that you lie about being at an auction in Perth, when bloggers proved you weren’t?

  60. Hi all this from Bloomberg

    Seized U.S. Home Sellers Luring Currency-Rich Australians

    http://www.bloomberg.com/news/2010-12-13/seized-u-s-home-sellers-seek-to-lure-currency-rich-australians.html

    interesting read are you in biker ?

  61. “I do hate roof leaks in old houses…”

    We had to get our builder to modify his roof plumbing Ned. One place needed three more downpipes added. We’ve added an additional downpipe to every plan since. We like Colorbond, but I’d put its effective life at 20 years.
    Delamination is the issue… .

    Surprised the filter let your suggestion, advising SteveN to launch a rodent up his smokehole, get through, Ned. I’ll have to launch a few more URLs at the other DH, if it pops up again… . :D

  62. Hmmm, I see two of my very recent comments that initially got through quite OK have now been consigned to the “Your comment is awaiting moderation” basket – Some sook who is all too keen to dish it out but can’t take it SQUEALED did they?

  63. “…are you in biker ?”

    We looked at it, Rick. Very good article offered by Shoes, some time back, helped convince us it’s not for us.* Returns of 20% are pretty impressive.

    Standard of construction is so variable… and annual maintenance is unbelievable. I’d want to see tax returns for two years, but it’s possible that overseas investors are making good money. A friend has bought two in Tucson. Don’t think he’s making anything like that.

    I’ll try to find that link. I can confirm quite a lot of what the author wrote about the lack of drains in bathroom floors, winterizing, stucco walls, etc. We tend to take our own construction standards here a little for granted… .

    * Could never get the missus to spend any real length of time in the US.
    Trying to talk her into a SF – Vancouver ride at present… .

  64. They’ve put their opinion regarding that comment (and another perfectly innocuous one) on hold now Biker – As indicated above – It’s bye bye Ned maybe as I’m not clever on doing work arounds like you – As you know from the last period of three months or so I got trashed off the site. But telling SteveNG precisely where he could forcibly position what, felt very well worth it! :D

  65. “Seized U.S. Home Sellers Luring Currency-Rich Australians…are you in biker ?”

    Looked at it, Rick. Very good article offered by Shoes, some time back, helped convince us it’s not for us.* Returns of 20% are pretty impressive.

    Standard of construction is so variable… and annual maintenance is unbelievable. I’d want to see tax returns for two years, but it’s possible that overseas investors are making good money. A friend has bought two in Tucson. Don’t think he’s making anything like that.

    I’ll try to find that link. I can confirm quite a lot of what the author wrote about the lack of drains in bathroom floors, winterizing, stucco walls, etc. We tend to take our own construction standards here a little for granted… .

    * Could never get the missus to spend any real length of time in the US.
    Trying to talk her into a SF – Vancouver ride at present… .

  66. Well, you can see I was just blocked… removed the cookies… and had two immediate scores.

    Trick is to go to your browsers’ preferences, find any that look ‘sus’ and block them. Problem is that techies often modify the names of their poisoned apples slightly.

    I erase _any_ I don’t recognise… blocking them in every browser.

    Very timely expired rodent remedy, I thought!

    Off to dinner…

  67. You are perfectly correct on the down pipe routine I reckon Biker. I’ve got another place that periodically lets in a bit of water up the top of one internal wall. No damn way that roof can be leaking that I can see. But the other obvious possibility is that water backing up in a section of guttering is overflowing out of the gutter back into the house.

    Geez, the last one I fixed was actually from some mug who overlapped a couple of valley sections the wrong way up back in about 1958 when the house was originally constructed I’d say – With all being well until the solder on the joins finally threw it in! :D

  68. HaHa, We Love HaHa
    he is my favourite, Michael of Sydney is a looser

  69. A looser – Yes I gave an especially strong cough a few days ago and had that problem too … It’s just part of getting old I’m told? ;) :(

  70. But just to keep SteveNG happy (who sure AIN’T “Steve” in my best assessment!), HERE is where “Not Fooled By property Spruikers Hype” starts his “Property IS Doomed Saga” …

    http://www.dailyreckoning.com.au/when-housing-hijacks-an-economy/2010/11/24/comment-page-2/#comment-194297

    Happy now NG???

  71. Back from a really good restaurant. Hard to resist when yer youngest, (on holiday from Montreal) offers to pay for a great night out… .

    The ‘wiinners’ really don’t get it, do they, Ned? Looser and looser… .

    Time moves on. Years pass by without Keen’s fabled crash… . The faithful wait… and wait… well, faithfully, for A Second Coming. Consider Bill’s recent comment: “Our colleague’s house in Melbourne has risen 200% in price since we sent her there four years ago. And it’s still going up.” Did you ever read a more _honest_ appraisal of the Australian situation? Thanks for your honesty, Bill. (And the few hundred kay you saved us, pre-GFC… .)

    Property doubles every _four_ years??!!~

    I imagine HaHa is indeed your hero, Steve. Semi-literate, uses CAPITALS profusely in the same way as our ‘new’ friend resurrected from Prozak Daze. Gotta have something to, erm, believe in, son. Hang on to that thing… . ;)

  72. I’ve bookmarked the spot – As “AAA – Not Fooled By property Spruikers Hype” – And PROMISE to try to remember to include the link http://www.dailyreckoning.com.au/when-housing-hijacks-an-economy/2010/11/24/comment-page-2/#comment-194297 at the bottom of EVERY DRA post I ever make in future – ARE YOU EFFING HAPPY NOW STEVENG?????? :D

    Geez, I’ll EVEN write down the bottom after the link on separate lines “Oz Property Sucks”, “Oz Property is in a Bubble”, “Only Pudden Pullers Buy Oz Property” – So say NOT FOOLED BY PROPERTY SPRUIKERS HYPE and his vocal backup band STEVENG! – ARE you HAPPY not SteveN Effing G???

  73. HaHaHaHa… Laffing my arse off. You’ve blistered the paint off his single-bedroom unit, mate!~

    They’re both wondering about the loud snorts of mirth upstairs!~ :D :D :D

  74. Hope you enjoyed the feed mate … I’m just about to spread a couple of rissoles and some veg on two slices of bread! :D

    “Oz Property Sucks”
    “Oz Property is in a Bubble”
    “Only Pudden Pullers Buy Oz Property”
    So say NOT FOOLED BY PROPERTY SPRUIKERS HYPE and his vocal backup band STEVENG:

    http://www.dailyreckoning.com.au/when-housing-hijacks-an-economy/2010/11/24/comment-page-2/#comment-194297

    I reckon my new customised sign off looks kinda spiffy? What say you??? :)

  75. Faint echo of laughter all the way from the West, mate….

    Figure I’ll _wake up_ grinning, but it may just be the port… . :D

  76. Hey Biker Pete . On the Perth Now Property Site you are the biggest critic of “Money Morning” saying that all they are are Melbourne Money men talking property down so that they can sell you shares….. But here you are on their Sister site trying to talk property up? … Strange both sites are Port Phillip Publishing. No doubt Kris is desk is just down the passage. But why two different names Why not Biker Pete on Perth Now Site? Why so many names?

    Not Fooled By property Spruikers Hype
    December 15, 2010
  77. PORT??? … Local BWS – $7.78 a bottle for Wolf Blass Red Label Reserve Tawny! I grabbed a box! Then they threw in some sort of unexpected discount to bring it down to $7 a bottle? God Bless Santa Claus! – There’ll be some some Prancing and Dancing here this Chrissy – Unless I drink it all before then? – Damn; Best I grab two more boxes ASAP! :D

    “Oz Property Sucks”
    “Oz Property is in a Bubble”
    “Only Pudden Pullers Buy Oz Property”
    So say NOT FOOLED BY PROPERTY SPRUIKERS HYPE and his vocal backup band STEVENG:

    http://www.dailyreckoning.com.au/when-housing-hijacks-an-economy/2010/11/24/comment-page-2/#comment-194297

    Yee ha ha! :D

  78. Biker Pete Still got the first dollar you made I see? … You claim be be a Builder with a basket of investment houses worth millions … yet when your Youngest travels all the way from Canada to see you you make him pay for dinner ….then brag … “Hard to resist when yer youngest, (on holiday from Montreal) offers to pay for a great night out…” … You have my vote for Father of the Year next year (NOT) … Geez might pop out & give my old man a hug never knew how good I had it till now!

    Not Fooled By property Spruikers Hype
    December 15, 2010
  79. “…six simultaneous, consecutive detailed comments…”

    Why so many l-o-n-g, repetitive posts, N Fool?

    And why set up such a team of aliases?: Not Foold By Property Spruikers Hype of Perth, Not Fooled By Property Spruikers Hype of Perth, Not Fooled by Property Spruikers, Punter of Mindarie, The Punter of Mindarie, john of dullsville perth, John, Aaron, HaHa, We Love HaHa, Louise Hendix, Toys Will Be Played and all your other bogus online ventriloquist’s dummies?

    Just explain the Not Foold / Not Fooled situation, for a start. Half your posts are one, half the other. Which of you can’t spell FOOLED, son?:

    http://www.moneymorning.com.au/money-morning-team

  80. A word of advice Not Fooled By property Spruikers Hype – Play the ball; Not the man. We’ve had way TOO much of that here in the past. Biker’s bullish. I’m bearish. Others here are more bearish than me. Some like bullion. Some don’t. Some like stocks. Some don’t.

    But when your first comment on this site includes the accusation “Biker who blogs on Perth now Site under the Tag of Travs/ RTW/Dogman/Mark of Vivc Park etc etc”, you aren’t doing yourself any favours – IMO.

    PS: If you should ALSO turn out to be a hater of everyone over the age of 50, you can really seriously “Drop Dead” for mine! Though I guess we’ll get to find out about that as you slowly choose to reveal a bit more of yourself to us hey?

    And in accordance with my ‘PROMISE’:

    “Oz Property Sucks”
    “Oz Property is in a Bubble”
    “Only Pudden Pullers Buy Oz Property”
    So say NOT FOOLED BY PROPERTY SPRUIKERS HYPE and his vocal backup band STEVENG:

    http://www.dailyreckoning.com.au/when-housing-hijacks-an-economy/2010/11/24/comment-page-2/#comment-194297

    Yee ha ha! :D

  81. Ned S .. You certainly are a piece of work? … Very lucky this site has a easy going moderator? … You add so little to a sensible debate yet manage to get published .. oh well the price we pay for free speech!

    Not Fooled By property Spruikers Hype
    December 15, 2010
Comments are closed.
Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.
If you would prefer to email the editor, you can do so by sending an email to letters@dailyreckoning.com.au