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staringclown

House price boom could be our biggest economic problem

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House price boom could be our biggest economic problem

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Will a China 'recovery' continue to support iron ore prices with increasing export volumes?

A surging Australian dollar to near three-month highs overnight will help to bring a big dose of realism to all this talk of expectations and confidence driving a weak Australian economy higher. As US economist Paul Krugman said, the “fairies of confidence” and the “imps of expectations” are nothing but ephemera in the greater scheme of things, there to wave their wands when all else fails. We saw this yesterday when the sharp rise in business confidence in the National Australia Bank’s August business survey, but little or no impact on weak trading conditions.

Today it was a big rise, to a three-year high, in the Westpac/Melbourne Institute Consumer Sentiment survey for September, the highest level since late 2010 (when which government was in power? Why the Gillard government).

All agree the economy is waiting for the confidence fairy to emerge and convince consumers to spend, business to invest and jobs to be created. Just a sprinkle of confidence dust and the economy will be surging. If you were in the UK in 1992 after John Major unexpectedly won, you would have seen Rupert’s papers pushing this line — “Cash Happy Shoppers Celebrate Tory Win” was one Sun headline. Before, of course, Black Wednesday arrived in September that year. Before the bad times.

Much of this “confidence” stuff is economic gobbledygook — like Tony Abbott’s line that Australia is now “open for business”. Improving expectations and confidence among business and consumers is imprecise and hard to formalise, and has minimal correlation with real-world outcomes.

The RBA believes in confidence and expectations that flow from consumers feeling more wealthy as asset prices rise, but members also know that contains the seeds of the next, unwanted crisis if left alone for too long. This could very well emerge as a flash point between the new government and the regulators. House-price booms always end in tears in Australia.

Revenue-pressed states want the boom (for higher stamp duty revenues) and News Corp Australia and Fairfax media want the house price boom to continue because their online real estate businesses are the only area of growth for their troubled empires — that’s why newspapers have been talking up house price movements, auction results and other fluff for the past six months. As the ABS data shows, there’s a recovery underway, but it is not doing as much to stimulate demand for new house construction as it is for existing homes and apartments.

If anything this home-price — rather than new-home — boom may become the most pressing problem for the economy, rather than the value of the dollar.

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Though no sign of faltering (yet) from where I observe...if anything it looks to be on again and I am closer to capitulating than ever...

The ox is slow but the earth is patient.

I watched an auction on the weekend for a 50/60's-era 3BR house on about 650sqm. The place went for almost 900k. I rent around the corner for 1500/month (18k/year). Buying still doesn't make sense.

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I am getting all giddy. An unemployment rate of 6.5%, a cash rate of 1.50% and a property rise of 20% by mid-2014 has got to be the worst scenario for the RBA: "We are doing everything we can and it is not working."

We'll end up with cities nobody can afford or would want to live in. Welcome to the real SimCity.

Edited by sydney3000

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I am getting all giddy. An unemployment rate of 6.5%.

Hi guys!

You can add me to that... Well in 24 weeks assuming I cannot find a job in that time. I should be so lucky.

I so far have taken the opportunity while off work to travel Malaysia, Europe and the a short break in Bali for a change in pace. I'm now back and looking for a job. Will be interesting to see if this mining boom still has jobs. Certainly a few openings around but will know more about the competition in the coming weeks I guess.

Anyway

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Hi guys!

You can add me to that... Well in 24 weeks assuming I cannot find a job in that time. I should be so lucky.

I so far have taken the opportunity while off work to travel Malaysia, Europe and the a short break in Bali for a change in pace. I'm now back and looking for a job. Will be interesting to see if this mining boom still has jobs. Certainly a few openings around but will know more about the competition in the coming weeks I guess.

Anyway

I'm sure you'll find another job soon. Especially since you can relocate easily.

All the best!

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Hi guys!

You can add me to that... Well in 24 weeks assuming I cannot find a job in that time. I should be so lucky.

I so far have taken the opportunity while off work to travel Malaysia, Europe and the a short break in Bali for a change in pace. I'm now back and looking for a job. Will be interesting to see if this mining boom still has jobs. Certainly a few openings around but will know more about the competition in the coming weeks I guess.

Anyway

All of my immediate family that were working in WA in mining construction are back in Queensland. Abbott has claimed he will reboot the mining boom so you should be OK. :huh: That could be made more difficult with a higher dollar.

Good to hear from you Tom. The holiday sounds great. Be good to hear some more about it on the S&S world tour thread! All the best in getting a new job. :)

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'could be' 'may become'

rolleyes.gif

lol

Though no sign of faltering (yet) from where I observe...if anything it looks to be on again and I am closer to capitulating than ever...

Even when CJ is turning bearish? :D

Seriously, I wouldn't try to dissuade anyone from buying. It is kicking off again at least in Sydney. Canberra however will fall and my own plans haven't changed. I'm lucky that I have an extremely patient other half and no spousal pressure to buy. Personally, I still think the market is expensive by just about every measure though. All the best with whatever decision you make.

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Peter Schiff predicted the GFC

http://www.zerohedge.com/news/2013-09-19/peter-schiff-taper-wasnt

But the current asset price bubbles have nothing to do with the real economy. To the contrary, they are setting up for a painful correction that will likely be worse than the one we experienced five years ago.

Thats the USA. We inflated the bubble and KRudd lured more victims.

We are different according to Auntie's resident tosser.

http://www.abc.net.au/news/2013-09-20/schulte-house-bubble/4969228

overall level of aggregate debt is exceptionally high in Australia," he said in an interview on Business Spectator.

"It is one of the highest in the world, in terms of the loan-to-deposit ratio for the banks being about 120 per cent.

"That would be one of the highest in the world. And when you want to slow down credit growth and slow down the aggregates and you want to put a damper on prices, higher interest rates usually are better off than lower interest rates."

No says tosser

The verdict

Historically, it has been difficult to get exact details of the way banks overseas measure and collate their deposits and loans.

Based on the latest publicly available data from the RBA, Mr Shulte's claim that Australia's loan to deposit ratio is high checks out.

However, it is falling and assessing whether lending is high by international standards should take into account that a large part of the business of Australia's banks is lending and that Australia measures bank deposits conservatively.

Mr Shulte's claim is overblown.

While Mr Schulte's claim that Australia's loan-to-deposit ratio is high checks out, it doesn't take into account the stable nature of Australia's banking system and the fact that our loan-to-deposit ratio is getting better. The claim is overblown.

...All backed by a housing bubble

housepricerentindex_australia_jun2013.png

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Peter Schiff predicted the GFC

http://www.zerohedge.com/news/2013-09-19/peter-schiff-taper-wasnt

Thats the USA. We inflated the bubble and KRudd lured more victims.

We are different according to Auntie's resident tosser.

http://www.abc.net.au/news/2013-09-20/schulte-house-bubble/4969228

No says tosser

...All backed by a housing bubble

housepricerentindex_australia_jun2013.png

I like the fact checker concept in general. This one however diminished the concept as the data provided is way too scant.

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I like the fact checker concept in general. This one however diminished the concept as the data provided is way too scant.

Indeed

9 news Brisbane just told me amongst one of its lead items that house prices are going to boom with 37% (big RED numbers across screen)of auction visitors feeling that the economy is on the up and 46% (big RED numbers across screen)of auction enquiries being first home buyers. An interviewed real estate agent confirmed the truth. Just 10 minutes ago its all good boom, boom, boom.

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Indeed

9 news Brisbane just told me amongst one of its lead items that house prices are going to boom with 37% (big RED numbers across screen)of auction visitors feeling that the economy is on the up and 46% (big RED numbers across screen)of auction enquiries being first home buyers. An interviewed real estate agent confirmed the truth. Just 10 minutes ago its all good boom, boom, boom.

Gotta trust those big red numbers. I'd expect it from nine. Even the ABC spruik down here. They cheer every rise and don't mention the falls. Disgraceful. If I didn't know better I'd say someones trying to engineer a property boom.

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Gotta trust those big red numbers. I'd expect it from nine. Even the ABC spruik down here. They cheer every rise and don't mention the falls. Disgraceful. If I didn't know better I'd say someones trying to engineer a property boom.

This headline caught me this morning for being so obvious and logical

The Trouble With Asset Bubbles: If You Stop Pumping, They Pop

They all do. Pop, that is.

Census 2011. Median Aussie household weekly income is $1,234

http://www.censusdata.abs.gov.au/census_services/getproduct/census/2011/quickstat/0

A $400,000 loan takes half of that. So do we spend the rest on a bigger mortgage? Food? If we don't spend on retail, unemployment rises and the snake eats its tail. Wages growth is stalling so if mortgages grow by 20% to feed the beast (boom, boom) what gets cut in spending?

Its over. No blood from stone and the boomers will panic. Burn baby burn. I have no sympathy anymore. :vampire:

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This headline caught me this morning for being so obvious and logical

The Trouble With Asset Bubbles: If You Stop Pumping, They Pop

They all do. Pop, that is.

Census 2011. Median Aussie household weekly income is $1,234

http://www.censusdata.abs.gov.au/census_services/getproduct/census/2011/quickstat/0

A $400,000 loan takes half of that. So do we spend the rest on a bigger mortgage? Food? If we don't spend on retail, unemployment rises and the snake eats its tail. Wages growth is stalling so if mortgages grow by 20% to feed the beast (boom, boom) what gets cut in spending?

Its over. No blood from stone and the boomers will panic. Burn baby burn. I have no sympathy anymore. :vampire:/>

From the commentary you read it seems the powers that be can't understand why people aren't spending.

First home buyers - saving not spending

Mortgage holders - paying down debt not spending

Retirees - not getting enough returns on investments not spending

Solution - pump the bubble (again)

Not an original thought among the lot of them.

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