staringclown

Extreme predictions on house prices will continue to be wrong

56 posts in this topic

Extreme predictions on house prices will continue to be wrong

The summary

Keen was wrong

house price to incomes are 5:1 (or 1:5 in his case)

It's different here -Low unemployment, The rich owe all the money and can easily afford to pay it back.

High Immigration will ensure a shortage is maintained

Tough luck if your not already in the market

:yawn:

Share this post


Link to post
Share on other sites

As ever, Rory keeps missrepresenting Keen's prediction - 40% over 10-15 years - and that he (Rory) only won on the other side of the bet - house prices wouldn't breach their previous record - he can still lose and have to do the walk himself, and it was only govt intervention, not the fundamentals he cites in the article, that won him the bet.

These downshifts in inflation and interest rates are structural rather than cyclical. So don't expect the price-to-income ratio ever to return to three times, a level typical in Australia's long gone, bad old days of high inflation.

Hmm, didn't realise that the 50s & 60s were a high interest rate, high inflation environment like the 70s & 80s...:rolleyes:

Share this post


Link to post
Share on other sites

These six colonies have grown into our six state capitals and biggest cities, housing nearly two-thirds of our population of 22.4 million.

We cling to the well-watered coast, with our six coastal capitals each dominating a vast region.

Australian home prices are relatively high in part because, rather than "spreading out" across our continent, most of us choose to compete to live on the same best-located bits of ground near the beach.

But Ric Battellino told us to ignore this fact - only rural Australia is to be considered when judging relative housing affordability in Australia.

Message to Rory: go choke on a bucket of dicks.

Share this post


Link to post
Share on other sites

Message to Rory: go choke on a bucket of dicks.

Though I agree with your sentiment - I worry about how any bucket could become full of dicks:)

Share this post


Link to post
Share on other sites

Message to Rory: go choke on a bucket of dicks.

Hell...I just fell off my chair. I'm taking the dogs for a walk I can't type well when convulsing in laughter.

Share this post


Link to post
Share on other sites

Extreme predictions on house prices will continue to be wrong is an extreme prediction in itself. So if he is right he is wrong, but if he is wrong, he is right, and the whole fabric of the space time continuum will tear apart.

Share this post


Link to post
Share on other sites

Extreme predictions on house prices will continue to be wrong is an extreme prediction in itself. So if he is right he is wrong, but if he is wrong, he is right, and the whole fabric of the space time continuum will tear apart.

Yeah, well, 2012 looms:)

Share this post


Link to post
Share on other sites

By extreme, he means any prediction that says prices could fall.

On the other hand apparently there's nothing extreme about predicting median prices to hit 1,000,000 in a few years...

1 person likes this

Share this post


Link to post
Share on other sites

The bad news is that young people are finding it harder to buy where they want to live.

For a supposed economic pundit, that is all you can come up with on the negatives?

I notice also he's trying to slip-in the good old "young people are greedy" line, by way of "want to live". Well Rory, considering your faith in the high urbanisation in Australia, it is highly likely young people have little choice in where they want to live, assuming they want to work and remain near family or their origins. Oh that's right, if they don't want to move to some sh*thole mine in the desert, they are just lazy. Coming from a pen-pusher at MacBank no less...

Australia has about the highest youth suicide rate in the developed world. The greed and arrogance of Robertson, Joye, Batellino etc... is helping contribute to that appalling statistic.

Share this post


Link to post
Share on other sites

Australia has about the highest youth suicide rate in the developed world. The greed and arrogance of Robertson, Joye, Batellino etc... is helping contribute to that appalling statistic.

Well said sir.

Share this post


Link to post
Share on other sites

By extreme, he means any prediction that says prices could fall.

On the other hand apparently there's nothing extreme about predicting median prices to hit 1,000,000 in a few years...

good observation. You only realise how ludicrous it is when someone says it out loud.

Share this post


Link to post
Share on other sites

good observation. You only realise how ludicrous it is when someone says it out loud.

An 800K loan requires $67,000 a year to service, which is roughly the after tax income of someone on $90,000 a year. Anyone that actually believes in a 1M median needs a padded cell (and a maths lesson). :laugh:

EDIT: Looking at the performance of MQG in recent years maybe Mr Bucket-O'Dicks believes it.

Share this post


Link to post
Share on other sites

Extreme predictions on house prices will continue to be wrong

The summary

Keen was wrong

house price to incomes are 5:1 (or 1:5 in his case)

It's different here -Low unemployment, The rich owe all the money and can easily afford to pay it back.

High Immigration will ensure a shortage is maintained

Tough luck if your not already in the market

:yawn:

i am certainly no fan of Rory, but Keen was not exactly right, we clearly ARE different here, and what evidence do you have to refute his claim that (at least the majority of ) private debt is

indeed serviceable by the high income earners that own that debt.

Share this post


Link to post
Share on other sites

What a high income and how many are on it?

The Registered Nurse with the BSc on $65,000, with 17K left over for the whole year after servicing a $400k mortgage (thats $650 a fortnight left for food, utilities, transport, HAVING A LIFE etc).

The Pilot of the rescue chopper on $90K has $1300 left a fornight so he/she can probably eat some steak, have a meal out once a fornight, turn on the aircon when its 42C, save a small portion and drive a car less than 5 years old.

Share this post


Link to post
Share on other sites

i am certainly no fan of Rory, but Keen was not exactly right, we clearly ARE different here, and what evidence do you have to refute his claim that (at least the majority of ) private debt is

indeed serviceable by the high income earners that own that debt.

As soon as prices stop increases foreclosures start increasing. And alot of debt is not held by high income earners. 3 of my pals, a hairdresser, a teacher, and a receptionist, owe 1.2 million between them.

Share this post


Link to post
Share on other sites

i am certainly no fan of Rory, but Keen was not exactly right, we clearly ARE different here, and what evidence do you have to refute his claim that (at least the majority of ) private debt is

indeed serviceable by the high income earners that own that debt.

Who said I was refuting his claims? I am simply bored hearing them repeated ad nauseam.

I am concerned because Rory repeats arguments from three months ago.

This scares me though Borrowers face tougher mortgage test

In 2009 home hunters had to prove they could deal with an increase in repayments of $190 to $380 a month, based on the then average NSW home loan - $391,000.

With today's bigger buffer and higher average mortgage of $452,000, a borrower has to show they have as much as $800 a month extra.

With IR's looking like going up again in August it aint looking great for property...

Let alone if China stumbles. Reduction of commodities prices leading to reduction in earnings leading to higher unemployment leading to mortgage defaults leading to...

Actually, this might even save property as they slash IR to get in line with the rest of the world. It might all work out well if the government keep stumping up ever more cash to prop up housing. Which is an option that is still clearly on the table. We're only at 6% debt to GDP! OMG this boom has barely begun. Get me to an estate agent. :smoke:

And welcome to the forum Jacob. Recipe please :)

Share this post


Link to post
Share on other sites

And welcome to the forum Jacob. Recipe please :)

They go here. The thread is currently hidden from new arrival's eyes. Soon to be raised to the front with Jacob's submission...

Share this post


Link to post
Share on other sites

They go here. The thread is currently hidden from new arrival's eyes. Soon to be raised to the front with Jacob's submission...

New Recipes? awesome! last night I did curried sausages and tonight was curried chicken soup. Gotta get out of the rut.

Edit: should point out the concept of "tor does daffy"[1] has been raised and considered as a possibly acceptable thing, that is more of a series of meals (roast duck -> peking duck -> duck confit -> cassoulet) though and so an ambitious path to commence.

[1] Slightly more family friendly than Debbie doing Dallas.

Edited by tor

Share this post


Link to post
Share on other sites
what evidence do you have to refute his claim that (at least the majority of ) private debt is indeed serviceable by the high income earners that own that debt.
The onus is on Rory to provide evidence to support his claims. The problem is that when he tries it sounds superficially plausible but is in fact... well, just superficial. Here are a few examples:
Investment legend Jeremy Grantham sees a bubble based on his calculation that housing trades near 7.5 times family income today versus about 3.5 times in earlier times.

Prices supposedly are around twice what they "should be". And "sooner or later" they will return to the "normal" multiple of family income.

Don't bet on it.

For starters, the Reserve Bank estimates Australia's price-to-income ratio is near five times income, not seven times, removing any need for home prices to fall that first 30 per cent.

If you cherry pick this measure of multiple, you cannot compare it against a historical 3.5x or 4x. If you use this metric, it produces a historic norm of 2.5x-3x.

See here: http://www.simplesustainable.com/topic/2505-housingincome-multiples/

Category: Bullsh*t

The step up in Australian house prices and housing debt relative to incomes over the past decade and a half was largely a function of the sharp drops in average inflation and interest rates delivered by the early-1990s recession.

These downshifts in inflation and interest rates are structural rather than cyclical. So don't expect the price-to-income ratio ever to return to three times, a level typical in Australia's long gone, bad old days of high inflation.

Low inflation increases real costs which offsets the (intimately related) reduction in $ costs that lower interest rates provide.

Category: Superficial

Special Note: The last two points also apply/applied in the USA. Yet prices there are approaching historically normal levels in many former bubble markets there...

Australian and US housing and mortgage markets are like chalk and cheese.

The relative strength of our economy -- 5 per cent unemployment here versus near 10 per cent there -- is part of the story.

The US recession and resulting unemployment was CAUSED by the bursting housing market, not vice versa.

Category: Misleading

we have carefully supervised banks and mortgage markets that offer only "full recourse" loans. Australians know they cannot "walk away" from their mortgages without serious financial penalty.
Nor can most Americans. The impact and extent of non-recourse loans is repeatedly over-claimed by our local bubble-deniers. In the US, full-recourse loans were no impediment to people walking away.

Category: Misleading and Irrelevant

And our home lenders generally hold their loans for the full term, so take very seriously the need to assess whether any would-be borrower is a "good risk" or not.
What proportion of post-bubble (say, 2002->) mortgage debt is packaged? What proportion would need to fail to have an enormous impact? (hint: the latter is far smaller than the former)

We had 110% LVR and even 120% LVR lo-doc loans back only a few years. Don't pretend for a second that these were all "good risk" borrowers.

Category: Irrelevant and Ignoring The Elephant

For those who worry that the level of Australia's mortgage debt is simply "too high", the Reserve Bank has estimated that three-quarters of all mortgage debt is held by the top 40 per cent of income earners
This is true. But what neither the RBA nor Rory has done, is adjust these data for 'remaining earnings'. The fact is that a 30 year old on $50k will on average have a larger forward earnings prospect than a 53 year old on $150k. That much of our housing debt is held by boomers is no cause for comfort.

Category: Misleading

Home ownership has been steady near 70 per cent for decades, yet the home ownership rate for households with heads aged under 35 years is just 40 per cent, down from 50 per cent in the late 1980s.

The bad news is that young people are finding it harder to buy where they want to live.

The good news is that -- contrary to some claims -- not everyone is overgeared. Some 60 per cent of younger households -- many with steady jobs and good incomes -- do not have a mortgage at all.

This relates to the last claim. It should be no comfort that Baby Boomers have been bidding up home prices at the cost of reducing ownership in younger age groups. This is just a temporary temporal distortion to the housing cycle. At some point (reasonably soon) the BBs will have to sell these homes to younger generations. Either they pass the debt to these younger generations (making the above placations over few young indebted/older peak-earnings indebted absurd) or prices fall (making the statement that "Claims that there is a "bubble" in Australian housing markets don't stand up to serious scrutiny" wrong). One or the other.

"contrary to some claims -- not everyone is overgeared" = strawman.

Category: Silly

And it goes on and fugging on and on. Basically his piece all boils down to "it's different here". Sure, just like everywhere else, it's different here until it's not.

Share this post


Link to post
Share on other sites

Another take on Rory's farticle - Australia, the country where young hope goes to die.

I mean seriously - he basically says that young people are being relatively f*cked over (with stats to prove it), and all he can muster is "too bad". No put down is offensive enough for this chicken hawk.

Share this post


Link to post
Share on other sites
The good news is that -- contrary to some claims -- not everyone is overgeared. Some 60 per cent of younger households -- many with steady jobs and good incomes -- do not have a mortgage at all.

I assume that is because they are stuck renting, or at home, because they can't afford to buy, and that this figure used to be 50% before the bubble?

A good income isn't enough anymore, it needs to be a high income/combined income.

Share this post


Link to post
Share on other sites

As soon as prices stop increases foreclosures start increasing. And alot of debt is not held by high income earners. 3 of my pals, a hairdresser, a teacher, and a receptionist, owe 1.2 million between them.

huh i think i know what you are getting at but this is not exactly true, there is no condition that the mortgage will be foreclosed upon by the lender should prices drop. increased foreclosure rates would require a higher unemployment than we currently have.

Share this post


Link to post
Share on other sites

increased foreclosure rates would require a higher unemployment than we currently have.

Can you explain how you arrived at your conclusion? Did you, in forming your opinion consider that a close analogue (US) had sub-5% unemployment when their foreclosure rate began ascending rapidly? That their foreclosure rate led their unemployment rate?

Share this post


Link to post
Share on other sites

Who said I was refuting his claims? I am simply bored hearing them repeated ad nauseam.

I am concerned because Rory repeats arguments from three months ago.

This scares me though Borrowers face tougher mortgage test

With IR's looking like going up again in August it aint looking great for property...

Let alone if China stumbles. Reduction of commodities prices leading to reduction in earnings leading to higher unemployment leading to  mortgage defaults leading to...  

Actually, this might even save property as they slash IR to get in line with the rest of the world. It might all work out well if the government keep stumping up ever more cash to prop up housing. Which is an option that is still clearly on the table. We're only at 6% debt to GDP! OMG this boom has barely begun. Get me to an estate agent. :smoke:

And welcome to the forum Jacob.  Recipe please :)

yep. know what you mean. he annoys the hell out of me too.

12 months ago i had dinner with a friend of a friend the night they had just been approved for a loan ~8* their income, subsequently found out the same with a few others. "all" opted for new builds which are not even competed yet and they are all 1 IR raise away from the edge. they are all severley panicked. i have been assured on many fronts that these lending practices do not occur, which really has me questioning my sanity. in short, i am all for a realistic buffer zone, but the likes of Rory denied that we has a 'subprime' issue whilst in the same breath approving loans for 95% at 8 * income assessing abilityto repay at IRs that were JUST average IRs only.

Recipes will hae to wait a few days, sorry :)

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!


Register a new account

Sign in

Already have an account? Sign in here.


Sign In Now