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Solomon

Housing Affordability

20 posts in this topic

Well I am now convinced governments are incapable of changing the inevitable. They are grasping at any levers they think will work, without any clue what shifting those levers might actually do. I think they fully realise now that they have a runaway train on their hands and they have no means to control it. Is there a train wreck coming, or will it simply run out of puff before coming off the rails. That's what I think they are hoping.

First read this article from news.com.au

Second play the skynews.com.au video at the bottom of the article. Features Richardson at the National Press Club. (Sorry, I couldn't find a link to the video separately)

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5 hours ago, Solomon said:

Well I am now convinced governments are incapable of changing the inevitable. They are grasping at any levers they think will work, without any clue what shifting those levers might actually do. I think they fully realise now that they have a runaway train on their hands and they have no means to control it. Is there a train wreck coming, or will it simply run out of puff before coming off the rails. That's what I think they are hoping.

First read this article from news.com.au

Second play the skynews.com.au video at the bottom of the article. Features Richardson at the National Press Club. (Sorry, I couldn't find a link to the video separately)

I think Labor is more on the money regarding housing affordability than the Libs. They also need to reduce the demand via drastic cuts to immigration and also begin to raise rates.

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8 hours ago, cobran20 said:

I think Labor is more on the money regarding housing affordability than the Libs. They also need to reduce the demand via drastic cuts to immigration and also begin to raise rates.

 

Not hard for Labor to be ahead. The libs have no policy, just hand waving that changes daily.

Cuts to immigration would have an effect. Raising rates would have the biggest effect. But an increase in IRs is not justified outside the housing sector. 

 

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I don't care about housing affordability anymore, they can keep pumping heroin into the debt machine for all I care. I'd prefer a strong AUD policy... pump it back up to parity.

The free market will eventually sort things out - just it may be a more painful experience for many.

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16 hours ago, zaph said:

...But an increase in IRs is not justified outside the housing sector. 

 

Disagree. A substantial portion of the economy depends on fixed income (retirees, super funds invested in fixed income). The low interest rates are having a depressing effect on the economy due to reduced spending from that sector.

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10 hours ago, cobran20 said:

Disagree. A substantial portion of the economy depends on fixed income (retirees, super funds invested in fixed income). The low interest rates are having a depressing effect on the economy due to reduced spending from that sector.

 

Interesting point, and one that is never considered in IR policy. 

However, there are far more borrowers than savers so monetary policy is dictated by them. Almost all businesses use credit to invest. When rates are lower investment is cheaper and more likely.

RBA's focus is inflation. Inflation. Inflation. Keep rates as low as possible while limiting inflation.

Although that is not the actual RBA mandate. It's just what they use to 1. maintain the currency;s stability, 2. full employment, 3. economic prosperity of Australians. 

 

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24 minutes ago, zaph said:

Interesting point, and one that is never considered in IR policy. 

However, there are far more borrowers than savers so monetary policy is dictated by them. Almost all businesses use credit to invest. When rates are lower investment is cheaper and more likely.

RBA's focus is inflation. Inflation. Inflation. Keep rates as low as possible while limiting inflation.

Although that is not the actual RBA mandate. It's just what they use to 1. maintain the currency;s stability, 2. full employment, 3. economic prosperity of Australians. 

 

There is a point where lowering IR has no impact as witnessed by the ZIRP & NIRP that has been applied by various countries. It boils down to opportunities that offer a ROI, which would be best implemented by a competent fiscal policy. In the meantime, those on fixed income keep depressing the economy via reduced spending,

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53 minutes ago, cobran20 said:

There is a point where lowering IR has no impact as witnessed by the ZIRP & NIRP that has been applied by various countries.

 

I don't believe that.

ZIRP in some jurisdictions may not have lead to marvellous results. But without low IRs, the economy may have had a depression. What rate do you think has no effect?

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It boils down to opportunities that offer a ROI, which would be best implemented by a competent fiscal policy. In the meantime, those on fixed income keep depressing the economy via reduced spending,

1

The problem with fiscal policy is it's up to politicians. Bad times - spend up to stimulate. Good times spend more - we deserve it. 

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1 hour ago, zaph said:

What rate do you think has no effect?

A rate set by the market that correctly reflects the cost of money, instead of one artificially depressed by central banks, causing distortions that will only bite harder later.

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3 hours ago, cobran20 said:

A rate set by the market that correctly reflects the cost of money, instead of one artificially depressed by central banks, causing distortions that will only bite harder later.

 

What rate?

 

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56 minutes ago, zaph said:

What rate?

 

an interest rate set by market supply & demand. That applies to deposits, loans.

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1 hour ago, cobran20 said:

an interest rate set by market supply & demand. That applies to deposits, loans.

That currently happens. Although it is very influenced by the RBA OCR. 

Deposits are currently around 2.5% +/- tip and mortgage rates are around 5% +/-tip.

There's nothing stopping the Cobran bank from taking deposits at 5% and lending to Zaph at 8%. With that deal Cobran will take lots of deposits, but not lend anything. 

What do you think is an appropriate RBA OCR for Australia's present circumstances? 

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I believe the next RBA move will be a reduction in the OCR. Most likely to 1.25% - a 25 basis point reduction. Inflation is still below the bank's target. Let's see what CPI is in the next couple of days - if it's less than 2% then I predict the RBA will reduce the cash rate sometime in the next couple of months. Sorry savers.  

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31 minutes ago, zaph said:

That currently happens. Although it is very influenced by the RBA OCR. 

Deposits are currently around 2.5% +/- tip and mortgage rates are around 5% +/-tip.

There's nothing stopping the Cobran bank from taking deposits at 5% and lending to Zaph at 8%. With that deal Cobran will take lots of deposits, but not lend anything. 

What do you think is an appropriate RBA OCR for Australia's present circumstances? 

The RBA heavily influences the OCR, which is influenced based on a cooked CPI that only reflects about 50% of the true inflation rate. The RBA can take large blame for the RE speculation (the rest of the blame is due to the government's fiscal policy)

Traditionally officially interest rates would average around 6-8%.

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15 minutes ago, zaph said:

I believe the next RBA move will be a reduction in the OCR. Most likely to 1.25% - a 25 basis point reduction. Inflation is still below the bank's target. Let's see what CPI is in the next couple of days - if it's less than 2% then I predict the RBA will reduce the cash rate sometime in the next couple of months. Sorry savers.  

Would not surprise me. When the RE bubble pops, it would also not surprise me for ZIRP to be introduced to save mortgagees (and the banks). The $A should take a swan dive as well.

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4 minutes ago, cobran20 said:

Traditionally officially interest rates would average around 6-8%.

 

But that would not be appropriate for today.

The OCR has been as high as 17% or as low as 1.5% that it currently is. It's important that it's appropriate for the time. An OCR of 6-8% would mean a mortgage rate of 8-10% - that would cripple the economy ATM.

I get your point about grannies on fixed interest, but the RBA doesn't care. 

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11 minutes ago, cobran20 said:

When the RE bubble pops, it would also not surprise me for ZIRP to be introduced to save mortgagees (and the banks). The $A should take a swan dive as well.

1

A mortgagee is the bank, the lender. A borrower is a mortgagor. 

If the RE bubble pops I would guarantee ZIRP, possibly NIRP and other creative 'solutions' to the 'problem'. 

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37 minutes ago, zaph said:

But that would not be appropriate for today.

The OCR has been as high as 17% or as low as 1.5% that it currently is. It's important that it's appropriate for the time. An OCR of 6-8% would mean a mortgage rate of 8-10% - that would cripple the economy ATM.

I get your point about grannies on fixed interest, but the RBA doesn't care. 

It would not be appropriate because the RBA's loose policy exacerbated the problem. Eventually they will face the music due to some event that the government/RBA will not control. It could be Armstrong's expectation of bankrupt governments or some other event. The pendulum will eventually swing the other way.

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14 minutes ago, cobran20 said:

It would not be appropriate because the RBA's loose policy exacerbated the problem.

 

What problem? I presume the increase in the price of housing? That's only happened in Melbourne and Sydney in this low IR setting cycle. Why is that? 

Quote

It could be Armstrong's expectation of bankrupt governments or some other event. The pendulum will eventually swing the other way.

I don't read the Armstrong thread. Perhaps I should. The Australian government can not become bankrupt. It borrows in Australian dollars and can print more at will. 

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28 minutes ago, zaph said:

What problem? I presume the increase in the price of housing? That's only happened in Melbourne and Sydney in this low IR setting cycle. Why is that? 

I don't read the Armstrong thread. Perhaps I should. The Australian government can not become bankrupt. It borrows in Australian dollars and can print more at will. 

High house prices and record debt levels.

Governments can print all they like, but eventually like banana republics, but who will accept it. The US gets away with it because they have the world reserve currency. The rest are not so lucky. 

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