Charles Bukowski

Steve Keen: 2010 will be a dangerous year for house prices

40 posts in this topic

http://www.switzer.c...eo/keen20100204

Good interview

4/2/10

He also addresses the undersupply/oversupply (and demand) issue.

I like Steve, he's one of the very few people in the spotlight who isn't high on euphoric IP madness, but the media certainly does it's best to cast him in a poor light which is utterly ridiculous. Instead of 'doom and gloom' he should be painted in a light that speaks of sensibility and living within your means.

I am liking the way he's not only sticking to his guns, but also outlining the government's role in the mess as well. We need a BIG spotlight cast on the government so when the sh*t hits the fan, the idiot public know who to blame (because SURE as hell they won't look in the mirror!). He also did well pointing the finger at the banks' role in propegating prices through ridiculous leverage.

But I hope he's right... I really hope this is the year the market starts it's slippery slide back down into oblivion... I certainly won't cry for those who fall under the truck of falling house prices and rising rates.

The interviewer was funny though "I hope you're wrong" he finished with.

WHY?

Vested Interest much?!

I hope it CRASHES and CRASHES BADLY! The result - in the end - will actually benefit everyone, not just those with land holdings like the interviewer...

Pfft!

Edited by Firefly

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I'm also chatting with Steve at the moment on his site about this... nice to know some people in the loop are not so far removed as to speak with the little folk...

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The interviewer was funny though "I hope you're wrong" he finished with.

WHY?

Vested Interest much?!

I hope it CRASHES and CRASHES BADLY! The result - in the end - will actually benefit everyone, not just those with land holdings like the interviewer...

Vested interest? No doubt at all. This country is crawling with slime who didn't earned about a half or a third of what they have. THe rest is STOLEN from the younger generations and renters and so on.

I hope it crashes like a motherf*cker too. I don't want to wait 10-15 years for fair prices for houses. I'll be bloody 50 by then. It didn't take the US to crash that bad. Although I must say NY and LA don't really seem to have particularly good prices, they seem only a little bit cheaper than Sydney. But I can't say I've looked too hard or know them well enough to say. Maybe some half decent areas have crashed. Maybe that will happen in the future.

Anyway I won't be holding my breath Keen got it severely wrong in stage one it's as simple as that. Now the poor bastard has to go on his long walk and he's going to look like a twat.

I hope he renegs on it. He's an economist it's not like he needs to have honour or credibility or anything.

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One problem though, Steve's credibility and public perception of what he has to say has been shattered from his last big prediction about property prices. He needs a 'win', let's see if he is right.

I hate watching those videos, anybody know where to find a transcript?

Edited by tux

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Vested interest? No doubt at all. This country is crawling with slime who didn't earned about a half or a third of what they have. THe rest is STOLEN from the younger generations and renters and so on.

I hope it crashes like a motherf*cker too. I don't want to wait 10-15 years for fair prices for houses. I'll be bloody 50 by then. It didn't take the US to crash that bad. Although I must say NY and LA don't really seem to have particularly good prices, they seem only a little bit cheaper than Sydney. But I can't say I've looked too hard or know them well enough to say. Maybe some half decent areas have crashed. Maybe that will happen in the future.

Anyway I won't be holding my breath Keen got it severely wrong in stage one it's as simple as that. Now the poor bastard has to go on his long walk and he's going to look like a twat.

I hope he renegs on it. He's an economist it's not like he needs to have honour or credibility or anything.

Steve would have been correct if the government didn't spend our entire national surplus and 50 billion besides on keeping it afloat.

Our market didn't crash because lending standards in Aus are still a joke and the government is ripping every cent out of the tax payer's piggy bank to keep it afloat.

Steve comments on the market unto itself, he didn't account for the lengths that the government would go to in manipulating it for their own agenda.

In retrospect, this might actually create an even worse crash for us down the line when the government has no money to bail us out or spend on future projects to bring us back into profitability.

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Steve would have been correct if the government didn't spend our entire national surplus and 50 billion besides on keeping it afloat.

Yeah I know. It was a bit daft to overlook it. Well he admitted that in the video.

Well now that an extra 10-15% has been added on to house prices I see it as only fair that they drop 50%, even 60%+ for pissing me off so badly.

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Yeah I know. It was a bit daft to overlook it. Well he admitted that in the video.

Well now that an extra 10-15% has been added on to house prices I see it as only fair that they drop 50%, even 60%+ for pissing me off so badly.

More than that, I'd rather see all those with a stake be forced to file for bankruptcy and their assets stripped to cover the difference.

That will send a clearer message than dropping house prices.

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More than that, I'd rather see all those with a stake be forced to file for bankruptcy and their assets stripped to cover the difference.

+1. And forced to rent in some sh*t hole.

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+1. And forced to rent in some sh*t hole.

I'll go one better - forced to rent THEIR OWN investment property.

From my experience, most land lords are neglectful of maintenance of IPs over their own homes.

Let's see how they feel paying full market rental prices for the sh*t they forced upon others....?

Edited by Firefly

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I'll go one better - forced to rent THEIR OWN investment property.

I'd rather live in mine than rent it. Much cheaper. Its a damn nice house, we just moved because there were better opportunities elsewhere. Kind of a shame I couldn't take the house with me. We'll be building one much the same size and layout, but with more bathrooms and lower ceilings.

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I'd rather live in mine than rent it. Much cheaper. Its a damn nice house, we just moved because there were better opportunities elsewhere. Kind of a shame I couldn't take the house with me. We'll be building one much the same size and layout, but with more bathrooms and lower ceilings.

RE, I'd love to have you as a LL.

Sadly, you're the exception... not the rule concerning LLs - especially in Sydney.

hmm losing crap load of money on a devALULED ASST CLASS THAT CRASHED ISNT ENOUGH?

[MOD: SORRY, NOT A FORUM FOR LOONY MUSINGS]

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Comment #43

42Steve Keen

February 8th, 2010 at 11:22 pm Re #41. Hi Toni,

And thanks for a good initial rant!

I’ve found the same problem–you can go round and round in circles debating this issue, with one side throwing a set of stats and “special circumstances” while the other throws different stats and general arguments.

I think I may have cottoned on to an explanation that cuts across this though–certainly as regards your second buying point above, the “Money Tree”.

If a house is to be a “Money Tree”–a source of unearned income–then there are two sources of that unearned income:

(1) Somebody else’s income; or

(2) An increase in debt.

If everyone in the country is trying to exploit the same money tree–and that is the consequence of everyone expecting house prices to rise faster than incomes forever–then that narrows it down a bit. The sources that make that possible are then:

(1) Overseas income; or

(2) An increase in debt.

Chinese (and other foreign land purchases) make up (1), but this is minor compared to (2), the rise in debt. So rising house prices relative to incomes require debt to rise even faster, relative to incomes.

So house prices will continue rising faster than incomes if (and virtually only if) debt also continues to rise faster than incomes.

The problem with this is that debt servicing also has to rise–you ultimately have to pay debt off as well as pay interest on it. So at some stage debt will stop rising faster than incomes–it will at best stabilise and at worst start to fall. Then the prop that is providing the unearned income people are expecting from owning houses will disappear, and house prices will stop rising faster than incomes and may even fall.

I think we’re at such a point now–the fact that Westpac has unilaterally decided to reduce its maximum LVR from 92 to 87 percent is reasonable evidence. This reduction in leverage–on top of the ending of the First Home Vendors Boost–presages a sharp fall in sales volume, followed by a slower decline in prices this year.

In any event, I think you’ve made the right call to wait a year.

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Comment #43

Yeah, I read this too.

Seems like the entire process is more about shifting attitudes and bringing mindsets forward into a more educated environment.

The Ponzi more or less preys on not only the greedy, but also the uneducated and we have plenty of those locally as well.

The crime is though that not only does the government of the day not police it, but they actually aid the process as well.

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Only dangerous for those who have bought a house!

That's a little simplistic isn't it? Anyone that bought a house in Sydney at ~2 times annual wages as little as 2 years back is doing fairly well. It was the height of the real interest rates and the end of 3 years of stagnation.

Add a 20% deposit and they are probably in a situation where (after 2 years of dropping interest rates) it would take more than a 50% crash today to cause any issues.

So it is probably only dangerous for those that have not played safe. That would probably apply to any leveraged situation.

Have houses ever gone down when the stock market went up?

I have reserved myself for never owning (at current prices).

Are you doing anything to be ready or just waiting?

I'd recommend planning. Actually I'd recommend planning or all 3 scenarios (crash, stagnant and boom) best not to be completely without a plan whatever happens.

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I'd recommend planning. Actually I'd recommend planning or all 3 scenarios (crash, stagnant and boom) best not to be completely without a plan whatever happens.

Planning for those 3 scenarios is fairly straightforward. Our plans are:

1) Crash: buy for cash, or close to it.

2) Stagnant: rent until it becomes financially prudent to buy.

3) Boom: rent until we die.

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Planning for those 3 scenarios is fairly straightforward. Our plans are:

1) Crash: buy for cash, or close to it.

2) Stagnant: rent until it becomes financially prudent to buy.

3) Boom: rent until we die.

I actually meant more along the lines of make plans now rather than wait and see what happens then act accordingly :)

Like making up a list of housing types by going out and checking them out so that you know what you actually want in a house, what you need in a house and so on.

Work out how to detect when it is financially prudent to buy, lots of people say they are prudent and then without it being written down feel free to fly in the face of it for a "good" reason. When it is written down you can't change it on the fly, you have to admit to yourself that you are changing it, that little moment often gives enough time to realise when you are being stupid.

Work out retirement plans based on various scenarios and then work backwards to now to see what you have to do now to achieve those various scenarios, then re evaluate those retirement plans. I work with so many people that crap on about retiring early but most of the have no idea what they need to retire or when they are likely to achieve that.

Things like that.

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I actually meant more along the lines of make plans now rather than wait and see what happens then act accordingly :)

Oh... in that case, our plan is to continuing saving :)

Like making up a list of housing types by going out and checking them out so that you know what you actually want in a house, what you need in a house and so on.

I'm not even interested in buying at the moment. So many factors could change between now and when we buy that I couldn't be arsed with all this. Unlike many people on this forum and the old GHPC, I'm not all that concerned with property; just its effect on the rest of the economy.

Work out how to detect when it is financially prudent to buy, lots of people say they are prudent and then without it being written down feel free to fly in the face of it for a "good" reason. When it is written down you can't change it on the fly, you have to admit to yourself that you are changing it, that little moment often gives enough time to realise when you are being stupid.

Yes, very good advice. It is important to not try and let emotion sway the financial aspects of your decisions. I do actually have a spreadsheet with exactly that information in it. I worked it up a couple of years ago to show my missus how crazy it is to buy a house at bubble prices. Worked a treat too :)

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Like making up a list of housing types by going out and checking them out so that you know what you actually want in a house, what you need in a house and so on.

Want and need are different. Most people just need a roof over their heads with somewhere to cook and wash in it. What people *want* is a bedroom for every member of the house, plus study, plus guest room, several bathrooms, rumpus room, family room, dining room, meals room, games room, formal lounge ...

My mother keeps telling me how people survived very well thank you in a 3 bedroom 1 bathroom 1 living area place like ours, back in the day. This is not stopping me building a 4br 2 bathroom 2 living area house, since in this modern day and age kiddies spend a lot more time at home, and of course we work from home and having somewhere to put a large pile of computers is kind of nice. But being a cheapskate opportunist, I'm paying around $150k less than 'retail' for it - so for us it is perfectly affordable :) There's a lot to be said for buying what you can actually afford, rather than taking every penny the bank lets you.

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Yes, very good advice. It is important to not try and let emotion sway the financial aspects of your decisions. I do actually have a spreadsheet with exactly that information in it. I worked it up a couple of years ago to show my missus how crazy it is to buy a house at bubble prices. Worked a treat too

Care to share the format/details of your spreadsheet, gibber_blot?

Not your personal financial details, of course: more the sort of data you incorporated, and the manner in which you calculated/displayed your thoughts on 'buy now' vs 'don't be silly'.

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Care to share the format/details of your spreadsheet, gibber_blot?

Not your personal financial details, of course: more the sort of data you incorporated, and the manner in which you calculated/displayed your thoughts on 'buy now' vs 'don't be silly'.

Yep same here. not like I'm not smart enough to think of it on me own but a bit of guidance can help :) 

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