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blue skies

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Posts posted by blue skies

  1. Ah yes. The land of the $1.20 Lime. Funnily enough:

    If you ask an Aussie why Limes are expensive, they look at you blankly and reply 'they just are'

    If you ask an Aussie why houses are so expensive, they look at you blankly and reply 'they just are'

    Iam a Aussie

    Limes are expensive because there are new to the diet of the Aussie, they have gained popularity with the increased popularity of Thai food. Lemons however are grown in every second back yard and one can offten see them placed in bags on the verge for poeple to take for free. :P

    Houses are expensive because of cheap finance finance and Government policy (first home buyers grant, negitive gearing for investors, city infill ) :rolleyes: It is a Great Australian Dream to have home ownership at any cost, however this will soon become a nightmare.

  2. I'm a rail engineer heading to Brisbane in 4 weeks and I have to say it worries me as well. Could any of our resident Aussies give an opinion on what would happen should Australia suffer an economic downturn, what industries are likely to suffer first?

    Looking at Brisbane alone, the population is forecast to increase by hundreds of thousands in the next twenty years, they're all going to need infrastructure and jobs, on this basis alone surely the crash can't be that bad?

    Economic downturn: Service industry is the first to suffer you know the pool cleaners, lawn mower men, resterants, Pubs start to lay of there workers as less tourists and locals can afford these expences. People react to possible ressesion by not spending.

    As unemployment goes up the large companies make survival plans which mean a reduced workforce paying down debt, further adding to the correction.

    Before the 1930 Depression my ancestor was growing potatoes to sell in town when it hit there was still demand for the potatoes but no one had money to pay for them.

    This time it may be that every one has money but there are no potatoes.

  3. Australia's "Tulip Mania" About to Crash; 44% Jump in Property Listings Proves the Proposed Housing Shortage is Gargantuan Myth; Playable Actions

    For years I have been hearing about a housing "shortage" in Australia. That myth has been shattered by latest stats that show a 44% jump in property listings.

    The property market could be set for early-year price falls due to a build up of unsold properties, with new figures by property research company SQM Research showing the number of listings swelled 44% over 2010.

    Managing director Louis Christopher says overall the huge number of listings means prices are now hanging by a thread and a market downturn is imminent.

    "It's still very clear to us that they are now at levels that would suggest a downturn in the housing market, although the stock levels have fallen seasonally. The overall number is up now by 44% across the nation."

    "I wouldn't like to see another interest rate rise anytime soon – it will accelerate the downturn."

    The new figures suggest that the shortage has been overblown. Residential property listings were 328,270 during December, representing an increase of 44.9% over the year.

    "In Surfer's Paradise, for instance, I know there are now over 2,000 properties on the market in one postcode – just one. That area is really struggling at the moment, and it is now the equivalent of Florida in the United States."

    Christopher also says he is concerned about Darwin, which recorded the largest increase out of all capital cities at 57.3%. Listings increased in Brisbane by 59.4% and Perth by 54.8%. Melbourne followed closely with a 42.7% rise, although Canberra recorded a rise of 46.5% as well.

    The region with the highest growth in stock levels was North Queensland, with an increase of 216.3%. The region with the highest month-on-month stock growth was Launceston, with 18.1%.

    Australia Heads For Economic Crunch

    The Daily Telegraph reports Australians sinking under debt burden

    AUSTRALIA is heading for an economic crunch as family finances collapse under the burden of record debts, rising interest rates and utility bills.

    With banks warning they will be forced to raise mortgage rates by 0.50 per cent in 2011 and Sydney rents forecast to rise by between $160 and $190 a month, according to analysts Residex, householders look set to suffer.

    Repossessions and tenant evictions are expected to rise sharply. "It's going to be tough" said Shane Oliver, chief economist at AMP Capital.

    According to the Reserve Bank, Australians have added almost $220 billion to household debt levels since the beginning of 2008, taking our borrowings to a record $1.3 trillion.

    "Unlike the rest of the world, Australia has slipped back into its old habits," said Steve Keen, professor of economics at the University of Western Sydney.

    "We're spending ourselves right back into trouble. With so much extra debt to service, we don't need interest rates to reach anything like the 9.6 per cent they hit in 2008.

    Mr Oliver has estimated that debt will become unmanageable for many households when mortgage rates rise from 7.80 per cent to about 8.50 per cent.

    "At that stage homeowners could hit a wall," he said.

    Economists are forecasting three 0.25 per cent rate hikes for 2011, taking the typical mortgage rate to 8.55 per cent.

    Australia's Tulip Mania

    I rather doubt those interest rate hike are coming. I would guess there is one more hike at most. Then at some point there will be panic cuts by the Reserve Bank of Australia.

    History suggests it will not matter one bit once.

    Remember the housing "shortage" in Florida? People stood in lines overnight and entered lotteries for the right to buy condos. Others were going door to door making offers on homes that were not even for sale.

    From that aspect, it sure looked like there was a shortage. There wasn't. It was nothing more than a speculative mirage much akin to the shortage of quality tulip bulbs in the year 1635 during Holland Tulipmania.

    So anxious were the speculators to obtain them that one person offered twelve acres of building ground for the Harlaem tulip. That of Amsterdam was bought for 4600 florins, a new carriage, two grey horses, and a complete suit of harness.

    Housing mania did not get as far out of hand as tulip mania. Nonetheless, many lives were ruined in Florida, Las Vegas, Phoenix, and dozens of places in California and elsewhere in the US.

    Until the bubble pops, speculative manias always make it appear as if there are shortages and infinite demand.

    Playable Actions

    The day of reckoning has finally arrived for Australia. A day of reckoning awaits Canada, China, and the UK as well. It's too late now to do much of anything except

    * Exit the Australian stock market

    * Get out of the Australian dollar

    * Pick up some popcorn

    * Stay on the sidelines and watch the collapse unfold


    Steve Keen added this comment to the blog.

    Spot on as always Mish. One factor that I'm following closely in all this is what Biggs, Meyer, and Pick called "The Credit Impulse".

    This is the change in the change in debt, expressed as a percentage of GDP, something I've covered in a couple of recent posts:

    A Fork in the Road?

    Deleveraging, Deceleration and the Double Dip

    It follows from my argument that aggregate demand in a credit-driven economy is the sum of GDP plus the change in debt, since it also follows that change in aggregate demand is the sum of the change in GDP plus the acceleration of debt.

    Australia got out of the crisis in 2009 by exploiting the upside of this factor: if you can encourage people into debt, then aggregate demand grows as debt accelerates--so even slowing down the rate of deleveraging gives a positive boost to demand (this stuff is a bit hard to get one's head around, but it's correct and aligns with the impact of inventories on aggregate demand).

    That's how the USA looked a bit better in recent months--you slowed down deleveraging. But since Australia went from marginal deleveraging to releveraging, the acceleration in debt was all the more extreme--and we had a apparent boom.

    That appears to be ending now, since though the Credit Impulse is still positive on a yearly basis, it's turned negative in the last few months. So this should be a leading indicator of an "unexpected" (don't you love that word from the mainstream?) slowdown in Australia.

  4. And on the happiness front it all starts in your own head and it cannot be found in external things.

    True wealth is enjoying what you have now.

    Hmmmmmmmm that is why you have a string of rental properties that you are paying off! Blue skys shakes his head.

    It will be a challange for you to remain happy when you find your self in negitive equity and struggle to pay the high interest repayments

    :D how do I know ? I have bein in that very situation.

  5. ABC no more balanced on housing issue than Fairfax

    January 1, 2011 – 8:23 am, by Jeremy Sear

    Fact: Applications for the first home buyers’ grant have fallen dramatically:

    Australian Bureau of Statistics figures reportedly show nearly 7,500 buyers a month applied for the First Home Owners Scheme in 2010 compared to 19,000 a month the year before.

    Not fact, but reported as fact by lazy ABC:

    Rate rises scaring off first homebuyers

    …The threat of further interest rate rises is slowing the first homebuyers market.

    Clearly, from the drop in applications, first home buyers have given up – and it wouldn’t take a huge leap to conclude that it might have something to do with the ridiculously inflated house prices.

    So who says it’s really to do with potential interest rate rises and not the more obvious fact that the market is now almost impossible to enter? Ah, the Real Estate Institute:

    The Real Estate Institute of Australia blames the threat of rising interest rates for a fall in the first homebuyers market during 2010…

    “But how flat it is, we don’t need any more interest rate rises to really harm the first homebuyers market and the construction industry for new homes any further.”

    Yup, it’s the people who profit from the high prices using the national broadcaster to lobby for government to do what it can to keep those prices high. And that’s the only source for the ABC story – the (unnamed) journalist didn’t go and talk to any advocacy groups representing first home buyers (who would presumably have given some quite different answers to the real estate lobby that benefits from prices being so high), or anyone else who might have some concerns about the high prices. Nope, they just report the self-interested claims of one side of the issue as if they’re fact.

    This follows a story a few weeks ago (just as lazy as the Fairfax one) where the ABC reported repeated the self-interested claims of BankWest – another company that profits from prices being high – that it was “stamp duty” that was causing first homebuyers “pain”. In that article, the only people quoted were from the bank, the Real Estate Institute of Victoria, and the new Liberal government – all people with an interest in keeping the market inflated for investors.

    Seriously, is it impossible for a news organisation to report on the housing issue with some integrity and balance? They’re being shamelessly used as mouthpieces by one side, over and over again.

  6. Why is superannuation going up to 12%?

    Because people allow it!

    In all reality it is nothing more than a nother tax to fund the growing cost of retirement.

    All this super money is invested in equities and property.

    The end result is that prices are driven higher thus making it harder for the wage earner to get on finantualy.

    In 25 years from now the fabric of Australia will be so very different the money saved will have bein embezeled and inflated away.

    And so a generation will have bein ripped off.

  7. House prices fall in November

    Published 10:30 AM, 31 Dec 2010 Last update 10:30 AM, 31 Dec 2010


    By a staff reporter

    House prices in Australian capital cities fell in November on the back of rising interest rates, according to a leading survey.

    RP Data-Rismark's hedonic home value index showed a 0.2 per cent fall for capital cities, seasonally-adjusted, and a raw price fall of 0.6 per cent.

    Outside capital cities, prices edged down 0.1 per cent, or 0.8 per cent on an unadjusted basis.

    For the November quarter, Darwin was the best performing capital, posting a seaonally-adjusted 1.9 per cent rise. Perth was the weakest performer, with prices slumping three per cent.

    RP Data research director Tim Lawless said the decline in house prices had been "reasonable modest".

    "Since their peak in May 2010, capital city home values have fallen by 1.0 per cent in raw terms. The rest of state areas peaked in April 2010, and have suffered a similar 0 9 per cent fall," Mr Lawless said.

    "In the broader scheme of things, these are fairly modest adjustments in value."

    In 2011, prices are expected to remain fairly flat as the prospect of future rate hikes weighs on sentiment, Mr Lawless added.

    Financial markets are pricing in two 25 basis point hikes in the cash rate by the Reserve Bank over the coming year, while economists have tipped between three to four.

    "The expectation of higher mortgage rates will be enough to keep a lid on capital gains across most parts of the country [in 2011]," Mr Lawless said.

    Rismark managing director Christopher Joye said he believed there was a risk of at least three cash rate rises next year.

    "In this event, our central case is that there will be little-to-no nominal dwelling price growth over 2011, with a chance of small nominal declines," Mr Joye said.

    "This is no bad thing, and will only further improve asset-class valuations. Indeed, Rismark has recorded an improvement in Australia’s dwelling price-to-disposable household income ratio, which has fallen from a peak of 4.7 times to 4.4 times in the third quarter of 2010.

    "We believe that the likelihood of substantial national house price falls is remote."

    Darwin leads market, Perth slumps

    In the three months to November, price movements were mixed across capital cities, with gains in Darwin (up 1.9 per cent), Melbourne (up 1.2 per cent), Canberra (also up 1.2 per cent) and Sydney (up 0.3 per cent).

    However, prices dropped sharply in Perth (down three per cent), with Hobart (down 1.1 per cent), Brisbane (down one per cent) and Adelaide (down 0.5 per cent) posting smaller losses.

    Darwin also saw the highest gross rental yields of any capital, with 5.2 per cent for houses and 5.7 per cent for units, while Melbourne recorded the lowest yields, of 3.4 per cent for houses and 4.1 per cent for units.

    Hmmmmmmmmmmm first time Joye has bein negitive about house prices

  8. Loan standards drop to keep the bubble afloat

    Posted on December 23, 2010 by Steve Keen

    I’ve just been alerted by Banking Day (a subscriber-only service) that Westpac–via its subsidiary St George–is now allowing potential borrowers to treat their rental payments as “evidence of genuine savings” when applying for a home loan.

    This is of course portrayed as good thing in the press release that announced the development–issued by the broker Loan Market (see the press release at the end of this post). It will, they state, enable Australians who currently can’t afford to buy a home–because they can’t save a deposit–to do so. All good news.

    The more cynical interpretation is that this is a way to let banks increase their maximum LVR (loan to valuation ratio) without actually saying so, and to expand their pool of potential borrowers as a consequence. At present, you need a $30,000 deposit to bid $1 million for a property if you get a loan from the Commonwealth Bank, which currently has one of the highest maximum LVRs of 97%: “The maximum we will lend you is 95% of the valuation amount. We also add the Lenders Mortgage Insurance or a Low Deposit Premium to your loan (up to a maximum of 97%), so it doesn’t cost you anything upfront”.

    This press release implies that you could approach St George with $20,000 in savings, be given a $1 million loan, and have it recorded as a 95% LVR loan (since St George probably has the same maximum published LVR as Westpac of 95%) where $20,000 was your actual deposit and the effective LVR was actually 98%.

    The effect of this trick is to expand the pool of potential borrowers to whom St George can extend a loan, while appearing not to alter its lending standards.

    There’s at least one line that I agree with in the following press release: “This is a major step forward which will also boost activity in the struggling home finance sector and we expect other lenders to follow suit.” It will enable the banks to meet their loan sale targets, by expanding the number of applicants who qualify for a loan.

    To me, this move smacks of desperation. The house price bubble has made entry into the market impossible without sky-high LVRs, and this in turn has undercut the banks’ business model. Increasing their maximum LVRs by around 5% back at the end of August apparently wasn’t enough to secure the level of loans business they wanted, and St George’s response is this ruse that gives a higher LVR without calling it such.

    It will be interesting to see how regulators treat this: will they allow rent that you’ve already paid to a landlord to be recorded as “evidence of genuine savings” and pretend that St George hasn’t increased its maximum LVR?

    The Loan Market Press Release


    December 22, 2010

    Call For Banks To Recognise Rent Answered

    Repeated calls by Australia’s largest independently owned mortgage broker Loan Market for banks to allow people applying for a home loan to use rental payments as evidence of genuine savings has been answered by one of the nation’s major lenders.

    Loan Market Chief Operating Officer Dean Rushton said St George had become the first Australian bank to change its requirements in regards to rental payments, in a move which will provide much needed assistance to first home buyers.

    Mr Rushton said St George will accept rent as a form of savings for a home deposit if there is evidence of a minimum of 12 months’ continuous, satisfactory rental history and the property is leased through a licensed property manager.

    “This is a significant breakthrough for first homebuyers and a move which could be a major boost to the home finance industry,” Mr Rushton said.

    “Higher interest rates, tougher lending conditions and the end of the boosted federal government grant at the end of last year have driven first time buyers out of the market.

    “Another major restriction for them has been the difficulty in saving a deposit for a home loan, particularly in this economic climate with people having to cope with massive cost of living increases including rental payments.

    “Australian lenders require a percentage of the purchase price – normally five per cent minimum – to be saved for all loans but it is extremely difficult for people paying the exorbitant rents customary these days to save money.

    “But if rental payments were taken into consideration as a factor in assessing genuine savings that would enable many people to pursue the dream of home ownership.

    “St George has now moved to accept rental history as a form of genuine savings and they should be applauded for this decision as it will enable a lot more people to realise the great Australian dream of home ownership.

    “This is a major step forward which will also boost activity in the struggling home finance sector and we expect other lenders to follow suit.”


    For further information:

    Dean Rushton

    Mb: 0411 555 850

    Paul Smith

    Mb: 0406 679 821

    The spin on this

  9. Living on borrowed time

    Steve Keen

    Published 6:53 AM, 14 Dec 2010 Last update 10:09 AM, 14 Dec 2010

    The RBA and most conventional market economists see 2011 as the year in which our biggest challenge will be “managing prosperity”. The mining boom will keep the money flowing, and the economy will just have to cope with the structural change that results. There’s no doubt that China’s demand for our minerals has generated enormous revenue for the country, by giving us the best terms of trade in the last half century, and turning our trade balance into surplus.

    [Click to enlarge the image]

    click the image to enlarge

    If these were the only forces determining our future, then the expectation that our major economic problem in the future will be inflation driven by supply constraints (mainly labour shortages leading to a wages breakout) could well be correct.

    But there are also the forces of credit.

    The “managing prosperity” crowd failed to consider these prior to the global financial crisis, which is why they didn’t see it coming while a handful of non-orthodox economists did – including yours truly.

    If these forces had been tamed, then good times could well lie ahead. Equally, if they had turned decidedly positive again – so that credit growth was boosting the economy rather than slowing it down – then boom times could be in the offing, though with an inevitable day or reckoning still in the future as our debt to GDP level mounted.

    When I predicted the GFC, I was relying on the ratio of private debt to GDP and its growth rate as indicators of a looming economic crisis. In both Australia and most of the OECD, debt to GDP levels had been rising exponentially, turbo-charging aggregate demand; it was to me (and many other non-neoclassical economists) all too evident that, at some stage, this growth of private debt would have to cease. When it did the mere fact that its rate of growth had slowed would cause a major recession.

    That turnaround in the private debt to GDP ratio that I first predicted in 2006 commenced in 2008, and the slowdown in the rate of growth of debt that preceded the peak was the key force behind the financial crisis that began in late 2007.

    [Click to enlarge the image]

    click the image to enlarge

    The economic crisis that ensued was as big as I expected, though its severity has been attenuated by the largest government stimulus programs in human history. However, the Australian economy performed far better than I expected, and it could be argued – and has been argued to my face – that I got it wrong about Australia.

    I certainly got the empirical predictions wrong. I expected that unemployment would hit double digits here, as it has elsewhere in the OECD (the US figure of below 10 percent reflects its peculiar unemployment scheme plus undercounting of discouraged workers). Instead, it peaked at 5.8 per cent and has since fallen to 5.2 per cent.

    It would appear that there are two possible interpretations of this: either Australia really was different, and economic principles that apply to the rest of the globe don’t apply here; or my underlying model of how a market economy works was wrong.

    The second option was unlikely since the credit-driven, Hyman Minsky grounded approach I’ve always taken to economics did predict the crisis, and in the rest of the OECD it remains a deep and seemingly intractable crisis. So was Australia just the exception that proves the rule?

    No. In fact, the data supports a third option: that Australia’s position as a minerals exporter to China does make it somewhat different, but the fundamental model of a credit-driven economic cycle applies here too. It’s just that a peculiarly Australian government policy – the First Home Vendors Scheme – turned the credit engine to our favour during the GFC. Whereas the rest of the developed world became mired in deleveraging, we leveraged our way back towards prosperity.

    Private debt has gone from rising by US$4.5 trillion in the USA – thus adding $4.5 trillion to aggregate demand – to falling by $2.5 trillion, and thus subtracting from aggregate demand there. This was the factor that drove the US from boom to near-Depression.

    [Click to enlarge the image]

    click the image to enlarge

    But though Australia began the deleveraging process, it stalled it just as the change in debt approached zero. The increase in debt since then has been a major factor in why our unemployment rate stopped increasing, and has since fallen.

    [Click to enlarge the image]

    click the image to enlarge

    The common factors driving the two economies (and therefore the difference in their economic outcomes to date) is starkly evident when one considers the “credit impulse” – or the rate of acceleration of debt. The turnaround from accelerating debt propelling the change in aggregate demand to decelerating – falling – debt subtracting from the change in aggregate demand was the greatest the US has ever experienced, since and including the Great Depression.

    [Click to enlarge the image]

    click the image to enlarge

    The reversal of this debt deceleration is also evident in that chart of course – and the commensurate slowdown in the rate of the increase in unemployment. Government policy clearly played a large role in this – the private sector was hell-bent on deleveraging before the US’s massive fiscal stimulus and QE1.

    Now check out Australia’s story over the same time period – and at the same scale. We got out of the crisis before we really got into it by reversing the private sector’s trend to deleveraging, and encouraging borrowing once more.

    [Click to enlarge the image]

    click the image to enlarge

    Can we keep on borrowing our way to prosperity? Here’s where I turn cynic once more: we could, if we didn’t already have an unprecedented level of private debt, with both households and businesses carrying more debt than they’ve ever sustainably carried in the past.

    [Click to enlarge the image]

    click the image to enlarge

    This implies a limit to the credit impulse (both in Australia and overseas). For the credit impulse to remain positive, then ultimately the debt to GDP ratio must start rising, and keep rising. But with the economy so heavily indebted already, the credit impulse is likely to peter out and give way to decelerating debt once more – with a negative impact upon aggregate demand.

    This is already starting to turn up in the data. The credit impulse graphs so far consider the change in the change in debt over a year; this next graph considers the acceleration in debt on a month by month basis as well. Though the monthly data is very volatile, only 3 of the last ten months’ credit impulses have been positive.

    [Click to enlarge the image]

    click the image to enlarge

    This indicator tends to lead changes unemployment by about three months. A sustained run of negatives could be enough to generate yet another “unexpected” increase in unemployment next year.

    This returns me to the bottom line of my credit-oriented analysis. Sustained recoveries from recessions in Australia and the whole OECD in the last 40 years have all been accompanied by rising levels of private debt to GDP. I simply don’t believe that’s possible now.

    When the Australian economy has hit the skids in the past, the recoveries that ensued – in 1975, 1983 and 1993 – were all accompanied by increases in borrowing. Credit growth boosts investment and job creation, and everyone's happy. Happiness of the debt-financed kind will be short-lived in 2011, because we’re already past the peak level of debt that we’ve ever had, or are likely to have.

    So I expect Australia to resume deleveraging during 2011, leading to recession-like conditions in sectors that are not major beneficiaries of the China Boom. We are already seeing the first casualty – retailers are discounting well before Christmas, rather than after it, and the “unexpected” drop in retail sales last month is something I expected to see when the First Home Vendors Boost wore off. Retailers’ pain will only increase through 2011.

    My advices to the optimists is to take their eyes of China for a few minutes and take a good hard look at the direction credit aggregate data is moving – it's down, and unfortunately that's where two thirds of the Australia’s “three-speed economy” will move next year.

    Lastly, let’s also take a slightly longer term look at the relationship between our exports and imports. We are certainly benefiting from positive net exports right now. But history’s lesson is that that boost can disappear very quickly.

  10. The high price of punting on property

    * Michael Stutchbury, Economics editor

    * From: The Australian

    * November 27, 2010 12:00AM


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    o What are these?

    THERE'S no bubble to burst but falling house prices provide cause for concern.

    The mix of rising mortgage interest rates, softening house prices, higher rents, worsening house shortages and a building slump could destabilise Canberra's minority politics further

    THE background noise at this weekend's housing auctions will be Australia's overpriced residential property market deflating. House and apartment prices across the nation have been easing since midyear and are tipped to fall further next year as they are squeezed by more rate hikes.

    The Weekend Australian last week revealed emails between federal Treasury officials as recently as June suggesting Australia was in danger of inflating a housing price bubble.

    The follow-up story is that, bubble or not, housing prices are now correcting.

    Home buyers and investors should take note. Australia was spared a painful residential property price slump in the wake of the global financial crisis as Rudd Labor quickly boosted its first-home buyers subsidy, the Reserve Bank slashed interest rates and the big four banks kept on lending when capital markets seized up.

    But Treasury and Reserve Bank documents obtained under Freedom of Information suggest the household borrowing spree of the past two decades has knocked Australia's $4 trillion housing market "out of equilibrium".

    Since 1990, capital city dwelling prices have jumped from three times annual household incomes to five times annual incomes. And household debt has soared from 45 per cent of income to nearly 160 per cent.

    Yet housing construction has not kept pace with our strong population growth, producing an estimated undersupply of nearly 180,000 houses by mid-2009.

    Now some combination of lower prices and higher rents is needed to move the market towards balance. Along with a budget surplus and low inflation, unwinding this household debt boom is critical to minimising Australia's mining boom risks.

    The trick will be to engineer a slow housing price leak rather than a pop. And the mining boom and vigorous job growth could cushion the correction by fuelling strong household income gains. This would partly reverse the blown-out price-to-income and debt-to-income ratios even if house prices merely stabilise.

    That could avoid the painful housing price corrections that have hit Ireland (down 50 per cent), the US (down nearly as much), Britain (down 20 per cent) and Spain (down 10 per cent). But the hoped-for orderly correction would mean that Australians should not count on any house price rises for the next five years.

    And the mix of rising mortgage interest rates, softening house prices, higher rents, worsening house shortages and a building slump could further destabilise Canberra's minority politics. "It's an affordability issue," Goldman Sachs chief Australian economist Tim Toohey says. "It is going to be the hottest political issue in the coming 12 to 18 months."

    Figures from RP Data-Rismark suggest the correction started taking hold in all capital cities a few months after Reserve Bank governor Glenn Stevens told morning television viewers in March they should not bank on geared property investment as a "riskless, easy, guaranteed way to prosperity".

    Perth's pumped-up mining boom prices are leading the way with a 4 per cent fall since the start of 2010. Other signs point to a harder landing in coastal investor favourites such as the Gold Coast and Noosa.

    Rismark International managing director Christopher Joye points to omens of "additional price tapering in 2011": properties taking longer to sell; vendors are discounting more; the number of sale listings and relistings has spiked; and auction clearing rates are falling.

    Critically, today's bigger household debt burden means further interest rate hikes could hurt even more than Paul Keating's 18 per cent rates in the late 1980s.

    Joye previously has criticised Stevens for suggesting that Australian housing is "expensive". But he now suggests a "material decline" in dwelling values would probably be "a good thing" because it would help puncture the myth that house prices always rise.

    House prices dipped quickly in expensive suburbs after the financial crisis hit in September 2008. But then lower interest rates, first-home buyer subsidies and "no recession" headlines pushed prices sharply higher. Even now, Australian house prices are 16 per cent higher than before the crisis and twice as high as eight years ago.

    That's forced Treasury and Reserve Bank officials to fight off claims from legendary US investor Jeremy Grantham and others that Australia's high housing prices are a "time bomb" akin to the speculative US-style housing price bubble. The International Monetary Fund has suggested that Australian housing is as much as 20 per cent overvalued. That could amount to more than $100,000 on a national median house price of about $515,000.

    As recently as September, Treasury emails concerning the IMF's looming World Economic Outlook suggested that "the reference to the potential house price collapse in the last paragraph should be deleted".

    In June last year, an internal Treasury email said: "It is a concern that the IMF is considering publishing a report that suggests Australian house prices are overvalued."

    The Reserve Bank has strongly argued that Australia's housing price rise since the 1990s is justified by "fundamentals" such as low inflation, low interest rates, strong economic growth prospects and easier access to finance.

    Australia's housing shortages contrast with overbuilding and excess supply in the US. Since 2006, Australia's population and immigration has outpaced the number of new dwellings, in part because of frustrating planning and council restrictions on development. This hasn't happened for at least half a century and also should cushion the correction.

    Nor has Australia matched the reckless American subprime housing lending to low-income borrowers. And strong job growth has helped households to comfortably service their mortgages.

    Yet the manager of Treasury's household and labour unit, Phil Garton, emailed colleagues in March that: "I think people may be taking too much comfort from population and supply constraints as an argument for why we can't have a house bubble here. The same argument was made in the UK and we know how that ended."

    Treasury colleague Steve Morling emailed Garton in June to suggest that "the elephant in the room is house prices or more specifically the risk of a precipitous drop in them".

    "And given what's happened elsewhere I'm far less sanguine about this - and in the interplay with debt - than in the past," Morling added.

    Perhaps ironically, the Organisation for Economic Co-operation and Development finally agreed two weeks ago Australia's rapid house price gains "largely reflect fundamentals rather than a bubble".

    However, the OECD also cautioned that house prices couldn't grow faster than household incomes forever. And the Reserve Bank now suggests that households remain "sensitive to possible future negative shocks to incomes, interest rates and housing prices". While there may be no bubble, that's code for saying that Australians have both borrowed too much and pushed housing prices too high for comfort.

    The problem is that the Reserve Bank's interest rate hikes initially make things worse. The rate-sensitive house building sector is being crunched as the central bank pushes up the price of money.

    Goldman Sachs' Toohey tips a further 15 per cent fall in house building approvals as the Reserve Bank lifts interest rates higher next year to keep inflation tamed amid the mining boom. Yet worsening housing shortages will push up rents, which in turn will feed into the consumer price index.

    But the Reserve Bank documents suggest this is part of correcting the problem that "purchasing a house" has become "more expensive than renting a house".

    That is, soaring house prices have way outpaced rents. That's depressed the yields on investing in housing; you can get more by just putting your money in the bank or even into Telstra shares.

    That didn't matter when investors could confidently punt on getting a capital gain. But now houses cost too much for buyers and rents are too low for investors, even with strong population demand.

    "It doesn't matter if two million people turn up next year," Toohey says. " If they can't afford it, they won't buy it. If an investor can't make a dollar, he won't build it."

    With excess housing demand worsening, rising rents and softening prices will allow the housing investment yield to recover. That eventually will encourage builders and investors to construct more dwellings, zoning and planning restrictions permitting.

    That's the theory. Treasury's Garton reckons high immigration means Australia's housing price correction is "more likely to occur through higher rents rather than lower prices", which would probably be the least painful option.

    But it still means Australians should shelve their favoured investment strategy of negatively gearing into residential property in expectation of a big capital gain. It won't be there.

  11. What a load of bs. Big John brought competition into the mortgage market, forced the big four to lower rates and fees and would have saved borrowers gazillions.

    But by all means keep on blaming him for all the troubles as you see them.

    Mr Stevens challenged claims that consumers were disadvantaged by a lack of competition in the banking sector.

    "In banking, more competition is good to a point, but, beyond a point, more competition is not good, because the bankers can be led to do things that ultimately cause a lot of subsequent damage," he said.

    Mr Stevens challenged claims that consumers were disadvantaged by a lack of competition in the banking sector.

    "In banking, more competition is good to a point, but, beyond a point, more competition is not good, because the bankers can be led to do things that ultimately cause a lot of subsequent damage," he said................................................. Glen Stevens you know the bloke who heads the RBA, But hey what would he know just more bs

  12. More competition or less debt?

    Posted on November 9, 2010 by Steve Keen

    As usual, I’ll be putting an argument that is contrary to popular opinion on the need for more competition I the banking sector. So to clarify the issue, here’s a quick poll: who thinks that Australia doesn’t have enough debt?

    Nobody? OK, now let’s discuss the “need” for more competition in the banking sector.

    The raging debate is missing the point–Hockey and the Coalition are right to go after the banks, but they’ve made a mistake in suggesting that the sector’s ills would be cured by more competition. In fact, we allowed too much competition in the 1980s, and again in the 1990s. The outcome, both times, was too much debt—firstly for businesses, and then for households. That’s the sector’s real problem, and adding a third dose of competition won’t fix it.

    One of Paul Keating’s monumental ‘achievements’ when he was playing the role of the ‘world’s greatest Treasurer’ was to let virtually unlimited competition into Australia in the form of foreign banks. The initial proposal was to let four in, but Keating’s ‘triumph’ was to successfully argue to allow sixteen to set up shop here. I thought nobody would forget what happened next, but since competition is once again being suggested as a panacea, maybe everyone has forgotten. Cut-throat competition for market share poured money into the hands of Ponzi merchants like Alan Bond and Christopher Skase. That “Bondy” went bust trying to sell beer to Queenslanders just about says it all about the people willing to lend him money.

    The end of that era of excess saw most of the foreign banking capacity in Australia collapse, leaving the market pretty much in the hands of the Big Four – not forgetting that one of the them, Westpac, came close to making it the ‘big three’ when it too nearly collapsed in 1992 with a then record $1.6 billion loss.

    After the collapse of Bond Corp, Qintex and others, Australia had virtually nothing to show for it beyond a string of expensive hotels along our shorelines and a mountain of business debt—the unwinding of which gave us “the recession we had to have”. The Business sector, which had gone from a debt ratio of 22% to 55% in just over a decade, began to rapidly delever to 40% of GDP by the mid-1990s.

    But that is starting to look like ancient history. The contemporary debate on banks is squarely focused on mortgage lending which, we are told, is uncompetitive.

    Give me a break. After the Wallis Inquiry in 1996, non-bank lenders were set free by their new ability to raise funds through the securitisation market. Aussie John Symonds and a throng of others began cutting margins on home loans to build volume, starting a race to the bottom that the banks, to a large extent, were forced to join.

    Back when “the recession we had to have” began, mortgage debt was a mere 17% of GDP. It began to rise right from that time—even though unemployment was exploding from under 6 to over 11 percent—and kept on rising to its pre-First Home Vendors Boost (FHVB) peak of 81% of GDP. Courtesy of the FHVB, it rose again to again to 87%, from where it is now falling.

    A large reason for this blowout was the competition for market share driven by the growth of the non-bank securitized lenders like Aussie Home Loans, Wizard, etc.

    I made a submission to the Wallis Committee in 1996, and walked away stunned when they told me that one of their key recommendations would be to allow securitized lenders into the Australian market. Shocked at how blithely the Committee was considering this, I wrote a supplementary letter to it the next day (July 12 1996), which in part stated that:

    The securitisation of debt documents such as residential mortgages does not alter the key issue, which is the ability of borrowers to commit themselves to debt on the basis of “euphoric” expectations during an asset price boom. The ability of such borrowers to repay their debt is dependent upon the maintenance of the boom…

    Should a substantial proportion of eligible assets (e.g., residential houses during a real estate boom like that of 87-89) be financed by securitised instruments, the inability of borrowers to pay their debts on a large scale… will be felt by those who purchased the securities, or by insurance firms who underwrote the repayment…

    there would obviously be a collapse in the tradeable price, and, potentially, the bankrupting of many of the investors…

    Of course, my warnings were ignored in the general euphoria for “more competition”, and the rest is history: lending standards dropped as the old and new competitors fought it out for market share, debt to households ballooned, the bust in lending arrived, the securitizers failed and these new competitors were taken over by the big Four once more.

    Yet here we are again with people arguing that more competition will improve things. The numbers from the past decade and a half tell a completely different story. Even if you accept the general economics mantra that more competition is always good thing in product markets—which I don’t—the usual basis for that is the belief that more competition will mean higher output at lower prices. But the output of the banking sector is debt-based money: we may want debt to have a lower price, but do we really want more debt?

    Be careful also about wanting a lower price—in terms of the margin between the RBA’s base rate and the variable mortgage rate. One way price can be driven down in competition is by offering a lower quality product, and that’s certainly what happened as competition in the post-Wallis Committee era. Lenders replaced careful valuations with drive-by checks to see that there was a building on the block, and careful assessment of capacity to pay with “liar loans” and 30-minute online loan applications (see page 34 of this report by the Home loan lending practices and processes House of Representatives hearing back in 2007):

    CHAIR—We will ask Mr Warner for a comment on that. Also we would be interested in knowing is there an issue with the valuations of properties.

    Mr WARNER: … We do not have valuers going out doing asset tests on all loans that are undertaken by financial institutions. Some banks get their own either ex-managers to drive by to see if the actual house exists or we have a lower form of valuation being undertaken.

    These days it is getting to the point where you actually have the valuer who would not actually even see if the house or asset existed in the first place. You have a drive-by which is at best a cursory glance to see if there is a property on the lot that has been purchased.

    With lower quality valuations and many other cost cutting measures like this, the interest rate margin dropped. RBA figures show that headline variable mortgage rates which in the 1980s had been 400 basis points over the RBA cash rate, came down to less than 200bps through the period 2000 to 2008.

    So the big paradox for the dominant “we need more competition” argument in the current debate is why, if the banks have lent on much tighter margins, are they so profitable? The answer is to be found the rising volumes of credit extended from the mid-1990s to the present.

    Lending volumes are now 400 per cent of what they were in 1992. That would make sense if the economy and population had increased in equal measure, but they have not. The banks kept lending through the GFC, and Australian homebuyers kept up their frenzy of borrowing until March of this year, when the mortgage debt to GDP ratio peaked at 87 per cent. That figure is now coming down as householders deleverage.

    You might think that the banks should turn next to business lending, where there have been valid complaints that money for working capital needs is too hard to obtain. However this is add odds with the aggregate lending data for business – it peaked at 63 per cent of GDP in 2008, and has been coming down quicker than homelending.

    This is why Joe Hockey’s attack on the lack of competition is flawed—what we need is not more lending but less, and not a lower price but a higher quality. This is where both the opposition and government should be looking. Instead, Treasurer Wayne Swan is trying to kick along more lending by buying up RMBS issues, thereby playing the game both the banks and the non-banks want – to keep volumes growing.

    Further cut throat completion to grow volumes would be madness—we are saturated with housing debt and the long delayed deleveraging cycle will go on, whatever Wayne Swan does to give it a boost.

    What we need are methods to regulate the volumes of debt offered by the banks to stop this happening again, without putting upward pressure on the cost of households have to pay for it. That may sound like an economic impossibility, and it would be if “free competition” between banks were expanded.

    In fact there is nothing ‘free market’ about banking in the first place. Our big four banks are raising covering their shortfall between loans and deposits by borrowing vast sums abroad—equivalent to 40 per cent of mortgages in Australia—exposing the economy to future credit shocks, and all on the back of actual, and implied deposit guarantees provided willingly by the government.

    That is massive regulation of a positive kind for banks. It’s time to balance that with some less positive regulation—policies that regulate and control the volumes these state-underwritten entities can lend.

  13. Is It Too Late To Sell Your

    House Before Prices Crash?

    Tuesday 23rd November, 2010 - Melbourne, Australia

    By Kris Sayce

    * Is It Too Late To Sell Your House Before Prices Crash?

    That means a couple of the subjects I wanted to bring up today will have to wait until tomorrow - the Irish bailout was one of them, and proof of Reserve Bank of Australia manipulation in housing markets was another.

    But, yesterday I did leave you with a promise:

    "One last note, in recent weeks we've also receive a number of questions from people asking whether they should sell their house and get out while they can before the housing slump really starts to bite.

    "Hold fire on that, I'll have something to say on that in tomorrow's Money Morning."

    I like to keep the promises I make, so I will cover that subject today.

    You wouldn't believe the number of letters we receive into the Money Morning mailbag from first time buyers who are absolutely petrified about the position they're in - especially about how a large mortgage and falling house prices could impact their lives.

    But by the same token we've received plenty of letters saying that we're causing unnecessary fear. That either there won't be a house price crash, or if there is it'll only be because we've caused it with all our down-talking antics.

    For starters, don't overestimate your editor's influence on anything. The Australian housing market is valued at $3.5 trillion. And on any given weekend well over $200 million worth of houses are bought and sold nationwide.

    And Money Morning has a readership of just 45,000 people.

    While that's quite a lot, it's peanuts compared to the combined efforts of the mainstream press who continue to pedal the same old tired lies about a housing shortage and house prices always going up.

    But it has struck us recently why the spruikers get so tetchy with your editor. Then we worked it out. Until Money Morning and our sibling publication Daily Reckoning came along, the spruikers had it all their own way.

    They could make the bogus claims about housing shortages and prices doubling every 7-10 years and no-one would question them.

    But now, with roughly 100,000 readers spread across the two publications, the population is wiser to the real story with Australian real estate.

    But that doesn't mean we have the influence to push housing prices up or down. All we can do is point out the spruiking scams and mainstream fibs and then leave it up to you to make up your own mind.

    If something is overpriced the market will eventually figure it out (the market being comprised of people like you). You can't buck the market. People try - such as the US Federal Reserve - but ultimately the market always wins out.

    The only possible influence we could have is to perhaps warn people about what will inevitably happen. Because house prices would have crashed regardless of whether your editor had written about it or not.

    That's just the way markets work.

    And based on the feedback we've received recently it seems to us that many potential buyers are glad they didn't burden themselves with a life-destroying massive mortgage.

    Anyway, many weren't so lucky. They bought in at the top of the market.

    They were suckered in by the spruiking spin and government bribes. And now they want to know whether they're better off selling up now while they can, or whether they're better off staying where they are.

    Here's my advice... of a general advice nature only. And no, just in case you're wondering we aren't suggesting you sell your house and then pour all the cash into small-cap stocks!

    The simple fact is, buying and selling houses and moving houses is extremely expensive. There's the cost of buying, the stamp duty, the cost of selling, real estate agents, removal charges, rental bonds, and gawd knows what else.

    But it's also expensive to stay where you are - what with interest charges that are tens of thousands of dollars a year.

    But while as I pointed out yesterday, a housing price slump could only be a matter of months away, the decision on what you do with the house you've bought with a mortgage really depends on how you view your house.

    What do I mean by that? I'll get to that in a moment. First one quick point...

    Several readers have kindly made the point that the housing slump in Australia didn't start last week when we said it did. For sellers in Western Australia and Queensland the slump has been going on for at least the past year, if not longer.

    Again, so much for the idea that house prices always go up.

    In fact last week we received an email from one reader - sorry for not mentioning you by name, but I've misplaced your letter! - who had received an email from a real estate spruiker saying something along the lines of, "Buy now, there's a housing shortage don't you know..."

    But then if you scroll down to the bottom of the email there's a big banner displaying a message to the effect of, "Mortgagee auctions, prices slashed!"

    The spruikers are obviously immune to their own spin.

    Back to our point. Whether you stay or sell depends on how you view your house.

    Remember that the main purpose for housing is that it's a place to live. That means any house that's bigger than the living requirements of the occupants is not just a dwelling but either a consumption item or an investment.

    For instance, if you're a single person living by yourself in a five-bedroom home, you can safely say that your home isn't just to provide a roof over your head. You've bought the large room for other reasons. Either because you believe the value of the bigger home will rise more than the value of a smaller home or because you just want the extra space.

    If it's the former then you've bought the home partially as an investment. If it's the latter then you've bought it partially as a consumption item.

    But, if you're living in a home which is roughly the size that you need, and you don't consider your home to be an investment, then providing you're able to service the mortgage comfortably then you should have little reason to sell up.

    But, if you borrowed more than you should have and it's giving you sleepless nights, and the main reason for buying the home was because you were fooled into believing that house prices always go up, then you should seriously consider selling.

    Look, I'll be honest, it's not rocket science. If a purchase is costing you more than the enjoyment you're getting from it, get rid of it. It really isn't worth it. That's the case not just for housing but for anything.

    Sure, buying a house rather than renting does have advantages. I won't deny that. But renting has advantages too. I'm not saying that one is definitely better than the other.

    But what I am saying is that if you really are struggling to meet the repayments then you're probably better off getting out before things get potentially worse.

    Of course many will tell you that once you get off the property ladder then it's hard to get back on. Yes that was true, in a way.

    It was true that during the 1980s, 1990s and early 2000s, house prices soared beyond all expectation. But as we pointed out last week, it was on the back of an easy-money inflationary boom that started in the 1970s.

    But just as house prices soared, the banks made it easier to borrow money, and that made it easier for you to get into a huge debt hole. As Business Spectator columnist Robert Gottliebsen admitted:

    "They [banks] are liberal in granting housing loans, so there is a strong consumer demand for houses."

    The willingness of the banks to lend as much money as possible to home buyers and loosen the lending standards, helped push house prices sky high. And remember, that for every dollar you are in debt, that equals a dollar of assets for the bank - now do you understand why they're so keen to foist credit card applications and limit increases on you?

    But like any Ponzi scheme, it works as long as there are suckers willing to pay ever-higher prices. As soon as they stop buying that's when the downward pressure starts to hit as over-leveraged recent buyers start to make for the exit, and those that bought in early equally look to get out and try to lock in their gains.

    The gist of what I'm trying to get across is that you shouldn't assume that the value of your home is going to double or even triple. If you believe that then I'm afraid you're likely to be sorely disappointed.

    But if you just view your home as a place to live and you prefer the convenience of buying rather than renting, then stay where you are.

    Because don't forget, you still need somewhere to live.

    Unfortunately, Aussie buyers don't have the same luxury that US buyers have. If they're in negative equity they can just hand in the keys and walk away. Imagine how good that would be if you'd been fooled into buying an over-priced home.

    You on the other hand will be hounded by the banks for years while they scrounge to get their money back.

    Buying a home is supposed to be a great Australian dream. But to use a well-worn cliché it has become a nightmare for many.

    I've gone on the record to say that house prices will crash, and they will, that's guaranteed. But you've got to consider your personal circumstances and your ability to cope with higher interest rates before you decide to sell or stay put.

    I hope that's helped. Because we're a bit rushed today we'll follow up on this if need be tomorrow...


    Kris Sayce

    For Money Morning Australia

  14. Australian Treasury Warns of Housing Bubble

    The Congo line of analysts and commentators calling Australia's housing bubble has been growing longer recently. Now the Australian Treasury - the main custodian of Australia's economic policy - appears to have joined the chorus.

    In what should ring alarm bells, and scare the heck out of anyone with a highly leveraged property position, this is what the Treasury has had to say about the matter (from the Australian newspaper):

    A SENIOR Treasury official has sounded the alarm over Australia's property market.

    He has warned that the prospect of a sudden and dramatic drop in prices is "the elephant in the room" and should not be ignored by the federal government.

    While the government and Reserve Bank insist Australia does not have a housing bubble - as some economists and the International Monetary Fund suggest - it remains such a worrying concept that Treasury has privately sought reassurance from its analysts that prices are not artificially high and that Australia does not face the kind of house price collapse that has hit Britain and the US.

    Documents obtained by The Weekend Australian under Freedom of Information laws show the Treasury officials preparing the so-called Red Book of briefs for the incoming government were as divided as private sector economists about the strength of the property market.

    Anyone seeking to understand the "fundamentals" that the Treasury is referring to in relation to Australia's house prices only has to look at the below Reserve Bank of Australia (RBA) chart:

    Sure looks like a bubble to me.

    Not surprisingly, the Government continues to reject the claim that Australia has a housing bubble, citing recent bubble-denying reports by the RBA and the banks:

    A spokesman for Wayne Swan said yesterday the Treasurer retained the view that Australia did not have a property bubble, citing recent reports and statements by Westpac and the RBA. "Of course, we expect our officials to test and debate policy within the department - it is an important and normal process of government," the spokesman said. "However, it is the considered position of the Treasurer and the Treasury that our housing market reflects the fundamentals of supply and demand and not a bubble - specifically that Australia is simply not building enough new houses."

    The RBA has gone to great lengths to pull apart claims of a housing bubble by the IMF, Morgan Stanley economist Gerard Minack, legendary US investor Jeremy Grantham and The Economist magazine, even comparing and contrasting their modelling.

    On Thursday, RBA deputy governor Ric Battellino sought to reassure the market that the slowing in growth of household debt would lessen the risks to the economy.

    "The current picture is one where borrowing for housing is broadly growing in line with income, house prices are stable and there is little appetite for other forms of debt," Mr Battellino said. "From the Reserve Bank's perspective, this seems to be a satisfactory state of affairs."

    The RBA believes demand was responsible for the early rise in property prices, and government restraint on housing supply prevented a US-style slump.

    This blogger is heartened that the Treasury acknowledges the risks posed to the Australian economy and society from a sustained housing bubble, and deplores the RBA for ignoring the obvious.

    It's just a shame the Treasury is five years too late in ringing the alarm. The horse has already bolted.

  15. Treasury official warns of property drop

    November 20, 2010 - 3:09AM

    A senior Treasury official has warned about the potential of a sudden price drop in Australia's property market.

    Earlier this year, Phil Garton, manager of Treasury's Macro Financial Linkages Unit, sent colleagues a draft paper on the rise in household debt.

    His email prompted an exchange with Steve Morling, general manager of the Domestic Economy Division, who warned of a potential price decline in the property market.

    The Australian newspaper, through a Freedom of Information request, acquired a copies of the exchange.

    "The elephant in the room is house prices, or more specifically the risk of a precipitous drop in them," he wrote on June 15.

    "Perhaps from an external shock or perhaps from their own internal dynamics when affordability constraints or capacity debt levels see prices and expectations of house prices start to move in the opposite direction.

    "(I) know there are very supportive fundamentals, but prices rose by 50-60 per cent in three to four years in the early part of this decade, with largely unchanged fundamentals, so they can have a life of their own.

    "And given what's happened elsewhere, I'm far less sanguine about this, and the interplay with debt, than in the past."

    Mr Garton agreed that there would be risks if the fundamentals of low interest rates, unemployment and financial deregulation "reversed significantly".

    :lol: how would have thought

  16. Aussie Banks "Unique System

    To Keep Dwelling Prices High"

    Saturday, 20 November 2010 – Melbourne, Australia

    By Kris Sayce


    You've got your eye on a stock - but you're not sure if it's the right time to buy it...

    You're holding another stock that just went up - or down - significantly... but you don't know whether it's time to sell...

    The solution to both of these dilemmas will become a lot clearer once you've watched this video (turn on your speakers)


    Well reader, I have to say it, today your editor read the most ridiculous article we've ever read on Australia's now-popped house price bubble.

    And believe me, that takes some doing. There's been a heck of a lot of rubbish written over the years, but the article we read today trumps the lot.

    What makes it worse is that it wasn't written by some half-baked real estate agent or a rabid property spruiker. No, it was written by someone who many believe is one of the most respected financial journalists in Australia - Robert Gottliebsen.

    As his biography on the Business Spectator website points out:

    "When it comes to Australian business media, one name is synonymous with trust, integrity and depth of knowledge that surpasses all others, that name is Robert Gottliebsen. Robert Gottliebsen is an Associate editor for Business Spectator and was the original AFR Chanticleer and founder of Business Review Weekly (BRW) Magazine."

    He's a commentator that many in the mainstream respect. Although based on the article he wrote yesterday, he looks to be past his sell-by date.

    In his article Mr. Gottliebsen expressed sympathy for a view put forward by Bendigo and Adelaide Bank chairman Rob Johanson. Mr. Johanson was commenting on proposals by the socialist Green Party to prevent Australia's banks from raising rates any higher than rate moves by the Reserve Bank of Australia (RBA).

    Mr. Johanson said:

    "None of us... who can remember trying to buy a house in the 1970s would want to have to go through or go back to that situation for funding.

    "With my wife I bought my first house in 1967 and I remember vividly what it was like in the 1970s. Getting a housing loan from the bank was extremely difficult and as a result house prices were very low because you had to assemble deposits many times current requirements."

    Mr. Gottliebsen then offers his opinion on what makes the current Australian housing market so special:

    "It might not be intentional, but in Australia banks have developed a unique system to keep dwelling prices high. They are liberal in granting housing loans, so there is a strong consumer demand for houses."

    We're dumbfounded, but we'll continue:

    "By restricting the supply and boosting the demand, banks keep dwelling prices high. If the Greens' proposal were enacted and we had further increases in the cost of funds overseas - which many are predicting - then the current high house price arrangement would be blown apart...

    "I am delighted that neither the government nor opposition are going down that path."

    At least we should be grateful for one thing from Mr. Gottliebsen's truly mind-blowingly dumb article, and that's the admission from a mainstream insider that the current housing and banking relationship would be "blown apart" if it wasn't for house price manipulation by the banks and government.

    But of course, it's too late to worry about that. As I wrote earlier this week, the house price bubble has already popped and it'll be blown apart regardless of whether the Greens' policy gets up or not.

    But quite frankly we find it extraordinary that not only would a banking executive claim it was terrible that people had to "assemble deposits" to buy a house, but it's equally bizarre that a so-called respected journalist would cheer the fact that Aussie banks have "a unique system to keep dwelling prices high."

    Clearly they prefer how the market is rigged right now. Where those - we'll assume - such as Mr. Johanson and Mr. Gottliebson who bought their homes in the 1960s and 1970s and who have benefited from two decades of loose bank lending and cheap credit feel weak at the knees at the thought of house prices returning back to their pre-boom levels.

    Much better for house prices to remain high, for banks to be "liberal in granting housing loans", and for current homebuyers to be paying 60% or 70% of their income in interest to the banks... banks such as Bendigo and Adelaide Bank.

    I mean think about it. Think about the difference. In the 1960s or 1970s buyers would have saved a deposit. They would have had money sitting in a bank account accumulating interest.

    Importantly, they would have been debt free. And, they would have had savings set aside for a rainy day or to put down as a deposit for a house.

    Today, buyers are bribed and suckered in to the market by banks such as Bendigo and Adelaide Bank thanks to artificially low interest rates and taxpayer funded giveaways such as the first home buyers bribe.

    And rather than having a healthy bank balance of savings for a rainy day or for a deposit, well, they've already got a house so they don't need a deposit, and with 60% or 70% of their income going on mortgage repayments they don't have a bean left to put towards savings anyway.

    They're living the life of a pauper, but at least they're doing it in style... if that's possible!

    But don't worry guys, because apparently in Australia "banks have developed a unique system to keep dwelling prices high."

    Don't you believe it. The market has cracked and the baby-boomers who thought they could profit at the expense of youngsters going deeply into debt will soon find the smile wiped off their faces.

    Perhaps Gottliebsen's name used to be synonymous with trust, integrity and depth of knowledge, but not after that article. We thinks it's time for Gottliebsen to hang his head in shame and hang up his boots to let someone with a bit of common sense take over.


    Kris Sayce

    For Money Money Australia

  17. And all that new money and leverage helped hoodwink Western consumers into believing that it was an age of new prosperity. Of course, it wasn’t though was it?

    The new wealth, the bigger houses, the fancy cars and consumer goods were all bought on credit. Credit which some day would have to be repaid.

    And here’s the thing. Early on the repayment of credit seems easy. As inflation takes hold incomes and asset prices go up, and therefore debt liabilities go down as inflation erodes the value of the debt.

    Everyone seems to be a winner. To the extent that inflation becomes the consumers’ best friend, “Yeah, I’m not worried about debt, because after five years inflation will take care of it and I’ll be fine.”

    The outcome is that this becomes a new form of personal financial management. Not only is debt good for you – the story goes – but the more the better. Hence the creation of asset price bubbles as we’ve seen in the recently popped Australian housing market.

    We’ve warned you time and again not to fall for the ruse that inflation is good for you. That inflation will pay off your debts and you’ll be better off.

    I’ve advised you to look no further than the experiences of people in Zimbabwe. They had hyperinflation. If normal inflation is a good way of paying off your debts then surely that means hyperinflation is even better, right?


    How many Zimbabweans did you see jumping for joy that they’ve experienced hyperinflation? None… apart from Mugabe of course. How many Zimbabweans are now proud owners of houses that they’ve paid off thanks to hyperinflation?


    No, the reality is, if you’re leveraged to the hilt, when the crunch comes, the rate of interest and the cost of living will far exceed any supposed benefits (there are none) that you’ll get from inflation.

    But, getting back to the Great Inflation, by the time the markets reached the year 2000, asset prices had peaked. Markets fell for the next three years as realisation set in that much of the new wealth was nothing more than, well, nothing.

    That brings us to the next phase:

    Source: Google Finance

    We’ll call it the Great Reflation. Here’s the close-up:

    Source: Google Finance

    Rather than accepting that asset prices had been pushed unrealistically high, the mainstream was intent on finding the next excuse to reflate the market.

    It didn’t take them long to find it – China.

    From 2003 until late 2007 investors the world over came to the conclusion that demand from China would help take the market back where it belonged, to the heights of the dot-com boom.

    Do you see a pattern emerging?

    That’s right, it’s the craving for an asset bubble. Governments and central bankers and vested interest groups are in search of the perpetual boom.

    They want stock markets and house prices to rise forever. In their world, “normal” is where the stock market was in 2000 and again in 2007. They want, at any cost, to do everything in their power to push markets back up there.

    Whether they realise it or not, that ain’t normal.

    Absent the meddling and interference from governments and central bankers, “normal” in stock market terms would see the Dow Jones closer to 2,000 points rather than 10,000.

    But chaps like Ben S. Bernanke and his Keynesian pals don’t see it that way. They believe that the last thirty years has produced untold prosperity for the West.

    And maybe it has – for some. But it’s all been achieved by borrowing from the future.

    Prosperity in the 1980s and 1990s has been achieved by denying prosperity from those that will live through the 2010s and 2020s. Look no further than budget deficits and household debt for evidence of that.

    What else can explain the shocking results from a survey by Rabo Bank, that according to The Age:

    “One in 20 said they’d be forced to sell, with baby boomers under the most stress – 15 per cent of borrowers aged 50 to 65 years say they’d have to sell.”

    Aren’t the baby boomers supposed to be the ones that have benefited the most from rising asset prices? How can 15% of them be in so much financial stress that they’ll have to sell their home if interest rates rise by another 1%?

    They’re in this bother because they’ve fallen for the inflation trick hook, line and sinker. They’ve cashed in the on the increase in house prices, but thinking that they’re geniuses rather than lucky, they’ve leveraged up and bought an even bigger home and gone further into debt.

    Just when they should be debt free, they’re lumbered with a whacking big mortgage going into retirement.

    The Great Reflation is where we are right now. The US Federal Reserve wants markets to rise. It wants asset bubbles because asset bubbles make people feel rich, and if you feel rich you’re more likely to take on more debt.

    And if you take on more debt, it prevents the banks from collapsing under the weight of dodgy and un-repayable loans. Furthermore, it postpones for a while longer the inevitable crash that will herald the next Great Depression.

    Make no mistake. Governments and central bankers are doing everything they can right now to entice you into taking on more debt to help create the next asset bubble.

  18. Savers told not to panic over state bailout speculation

    Central Bank says guarantee is enshrined in EU law

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    By Charlie Weston Personal Finance Editor

    Tuesday November 16 2010

    SAVERS were told not to panic last night. The Central Bank, economists and financial advisers all insisted that depositors' savings would be safe if the country was forced to sign up for an international bailout.

    Central Bank officials stress-ed that the State's €100,000 guarantee for depositors has since become part of European law, which means the guarantee is now underpinned by the European Union.

    "The €100,000 guarantee amount is now set out in European law, so that is a standard to which all European savers can get assurance of their cover," the Central Bank said.

    Worried savers with money in banks, building societies, the post office and credit unions have been contacting this newspaper over the past few days, concerned about the safety of their funds and whether their money might be seized following a bailout.


    Speculation has been mounting for days that Ireland would be forced to tap a fund put together by the European Union and the International Monetary Fund (IMF).

    But experts stressed that the idea of a bailout would be to bring stability to the financial system, which would include ensuring savers did not lose out.

    The Central Bank said: "Deposits in Irish banks, building societies and credit unions of up to €100,000 per person are covered by the Deposit Guarantee Scheme and, in addition, all deposits in participating Irish banks are covered under the Extended Liabilities Guarantee (the government guarantee) until June 2011."

    The Department of Finance insisted there was no risk to deposits. "The Government's priority throughout the banking crisis has been to safeguard deposits and this is a priority which is shared by governments across Europe and the European Commission," it added.

    Financial adviser John Lowe, also known as the Money Doctor, said any attempt to rob people of their savings as part of a bailout was highly unlikely as it would lead to anarchy and a total breakdown of society here.

    "Whoever comes in, whether it is the IMF or the EU, will honour the guarantee for deposits put in place by the State. People should not panic," he said.

    Economist Austin Hughes acknowledged that there was huge uncertainty for consumers at the moment, particularly those with savings.

    But he stressed that as long as the economy and the financial services sector existed in this country, the rights of savers would have to be protected.

    "It is highly improbable we will see any losses for savers," the KBC Bank economist said.

    The head of RaboDirect, a Dutch bank with a AAA credit rating, said his bank had seen a surge in deposits.

    Roel van Veggel said it was highly speculative and unlikely that savers would lose out through Ireland being forced to exit the euro currency union.

    Savers with amounts greater than €100,000 in six Irish banks (AIB, Anglo Irish Bank, Bank of Ireland/ICS, EBS, Irish Life and Permanent and Irish Nationwide) are covered by the Eligible Liabilities Guarantee.

    This scheme has been extended until next June and guarantees fixed-term deposits, ie money that the saver agreed to lock away for a fixed amount of time, for example, six months or three years.

    However, the term deposit account must be with an institution that is participating in the ELG scheme.

    The deposit must have been placed with the institution after it joined the scheme, but before September 29, 2010.

    - Charlie Weston Personal Finance Editor

    Irish Independent

  19. Aussie House Price Crash Has Begun

    Monday 15th November, 2010 – Melbourne, Australia

    By Kris Sayce

    • Aussie House Price Crash Has Begun

    • 60 Second Market Wrap


    You've got your eye on a stock - but you're not sure if it's the right time to buy it...

    You're holding another stock that just went up - or down - significantly... but you don't know whether it's time to sell...

    The solution to both of these dilemmas will become a lot clearer once you've watched this video (turn on your speakers)


    Seeing as we’re in the midst of witnessing the collapse of the Australian housing market, I thought it would be appropriate to stick with the subject for today.

    But before I do, a quick note about the G20 meeting over the last few days.

    You can read the full text of the Leaders’ Declaration here.

    We got part of the way through it, but quite frankly they couldn’t have made it more boring and clichéd if they tried.

    However, there was one point worthy of note. It was this rather long-winded passage:

    “Persistently large imbalances, assessed against indicative guidelines to be agree by our Finance Ministers and Central Bank Governors, warrant an assessment of their nature and the root causes of impediments to adjustment as part of the MAP, recognizing the need to take into account national or regional circumstances, including large commodity producers. These indicative guidelines composed of a range of indicators would serve as a mechanism to facilitate timely identification of large imbalances that require preventive and corrective actions to be taken.”

    Far out!

    It’s funny, but as we read that statement we had the image of the Fairy Ruddfather in our mind. We wonder why!

    Amongst the bureaucrat-speak, what the G20 is trying to say is this – it will devise some fancy indicators so it can identify and prevent the next financial meltdown.

    Yeah right… they’re gonna figure that one out amongst themselves are they. We wonder which brains-trusts they’ll have on the job – the finance ministers, the banks and the mainstream economists we dare say.

    But here’s some late breaking news for them. Some news that could save them the trouble of trying to create a fancy new indicator.

    You see, little do they realize it, but such an indicator already exists.

    That’s right, they don’t need to bash their half-a-dozen brain cells together to come up with a “range of indicators”. The one we’ve got is perfectly capable of identifying any problem you like in the market.

    If you’re a long time reader of Money Morning you’ll know exactly what I’m talking about. If you’re a new reader then let me give you a clue… actually, blow that, I’ll just give you the answer – interest rates.

    It’s the indicator that’s been used for at least hundreds, maybe even thousands of years to gauge risk. And it’s the best indicator there is to identify imbalances in an economy.

    The trouble is, the very same politicians and central bankers who are looking for a new indicator are the ones that have helped try and destroy the current one – the interest rate indicator.

    Rather than appreciating the purpose of interest rates as a measure of risk and the price of money, politicians and central bankers instead choose to use it as a way of expanding asset prices into asset bubbles.

    Remove the distortion of the interest rate by the pollies and bankers, and voila, you’ll simultaneously remove almost all of the so-called imbalances in the global economy.

    But, unfortunately, to do so would mean the pollies and bankers would have to admit that only the free market is best placed to set the level of interest rates. And for a breed of people whose sole purpose in life is to interfere and meddle, that would be impossible.

    Anyway, we look forward to what they come up with. Whatever it is, it will only result in even greater levels of interference in the markets, and therefore even greater damage to domestic and international economies.

    Now, back to our main subject…

    The Real Estate Institute of Victoria (REIV) announced today:

    “The Clearance rate this weekend is 61 per cent, compared to last weekends 59 per cent.

    “There were 836 auctions reported this weekend, of which a total of 508 sold and 328 were passed in, 210 of those on a vendors bid.”

    Funnily enough, last week the REIV said that “920 [auctions] expected next weekend…”

    Which tells you that roughly 10% of the auctions that were supposed to take place this weekend didn’t. Or if they did, the real estate agents don’t want to tell you about them.

    In other words, rather than a clearance rate of 61%, you’re looking at a clearance rate closer to 55%. And that’s for Melbourne which is supposed to be the housing auction capital of Australia.

    And if you look at the handy chronology of auction results and previews on the Castran Gilbert Real Estate website, you can see how the number of actual auctions taking place each weekend is becoming significantly less than the number predicted the week before.

    The trend is telling you that more and more properties are going up for sale, but fewer and fewer are being sold.

    You can expect this to get worse as sellers become ever more desperate to flog off their over-leveraged properties… and so much for the property shortage, the REIV says, “over 1000 auctions expected for each of the next three weekends and buyers are more cautious in light of the banks decisions to increase rates above the decision of the RBA.”

    The spruikers wouldn’t be worried would they? Of course they are. They’re petrified in fact.

    Our old pal Michael Pascoe over at The Age is clearly on edge at the number of housing bubble stories doing the rounds. For instance, he makes the typical mainstream mistake of assuming higher income earners are safe from mortgage stress. He writes:

    “As for the National Centre for Social and Economic Modelling’s ‘mortgage pressure tipping point’ of 30 per cent of disposable income going on repayments, it means little without consideration of how large that disposable income might be and the other demands on income. If a household takes home $150,000 and chooses to spend $50,000 of it on buying a roof, living on $100,000 is hardly any form of absolute ‘pressure’.”

    Really? Obviously Mr. Pascoe doesn’t appreciate that most people tend to live up to and even beyond their means. Which is rather the point about why excessive borrowing is having the impact it is.

    Those with $150,000 of disposable income are likely to have the lifestyle of someone with a $200,000 income, just as a $50,000 income lives the life of someone with a $70,000 income – hence the reliance on debt Michael!

    Besides, he shouldn’t forget that most of the newbie borrowers, sucked in by the first home buyers bribe are forking out 50%, 60% or more of their income on mortgage repayments.

    But perhaps the best way of showing the impact of what’s happening is a chart we came across when we were fiddling around on the Interweb at the weekend. We thought we’d pay a visit to the website of our old pal, Prof. Steve Keen.

    Last week the prof wrote an article saying that Australia has already experienced competition in the banking sector, and that further competition wasn’t necessary. Instead of competition:

    “What we need are methods to regulate the volumes of debt offered by the banks to stop this happening again, without putting upward pressure on the cost of households have to pay for it. That may sound like an economic impossibility, and it would be if ‘free competition’ between banks were expanded.”

    As you know, we believe regulating something is a waste of time. The banks are supposed to be regulated already, but that doesn’t stop them from issuing ever greater amounts of debt so that now the banks have little more than a few cents out of every dollar of depositors’ money on hand to meet their obligations.

    This has been the result of manipulation of interest rates which has kept the rate artificially low and encouraged more people to borrow. As Prof Keen notes:

    “Be careful also about wanting a lower price – in terms of the margin between the RBA’s base rate and the variable mortgage rate. One way price can be driven down in competition is by offering a lower quality product…”

    We couldn’t agree more. But we wouldn’t say that it’s competition that’s to blame. Competition in any part of an economy is always good for the consumer, even in banking.

    But it’s the manipulation of the interest rate plus other forms of government interference that is the main cause of excessive borrowing rather than competition.

    Anyway, here’s the chart from the Prof that caught our eye:

    Source: Debt Deflation

    As you can see, since the early 1990’s the value of mortgage debt as a percentage of gross domestic product (GDP) has gone through the roof.

    The Prof states:

    “Back when ‘the recession we had to have’ began, mortgage debt was a mere 17% of GDP.”

    Now, if you look at the chart, it’s hit almost 90% of GDP. In other words, over a four-fold increase in mortgage debt exposure during the last twenty years.

    But the thing that really interested us the most was the comparison with unemployment that the Prof used on the chart. If you put them in a ratio, then in 1990, the amount of mortgage debt against the unemployment rate was about 3:1.

    Today, the ratio is around 16:1.

    But what does that mean? Is it a valid ratio or is it just comparing two numbers that have no correlation?

    Well, for the period 1975 to 1995, the ratio fluctuated roughly between 1.5:1 and 3:1. In other words, it was in a fairly constant range. But again, that doesn’t mean to say there’s a connection between the two. So, just to check, we turned the unemployment number around to look at employment instead.

    We produced our own chart looking at the amount of household debt and compared it to the workforce participation rate. This is what we came up with:

    Source: RBA, ABS

    The red line charts the rise in household debt, and the blue line indicates the total workforce participation rate for males and females.

    The chart actually paints a broadly similar picture to the chart Steve Keen came up with.

    But two other things stand out. First, and most striking is the almost complete debunking of the myth that an increase in the number of females in the workforce has caused house prices to rise.

    We’re sure you’ve seen that argument time and time again, “Oh, didn’t you know there are more women working now, there are more two-income households therefore it’s reasonable to expect house prices have gone up by a gazillion per cent.”

    Well, according to the numbers from the Australian Bureau of Statistics (ABS), the workforce participation rate has remained remarkably steady over the last thirty-odd years. From 57.1% in 1978 to 62.5% today.

    Yeah sure, female participation has increased, but male participation has decreased. So that over that period the overall change is almost negligible – as you can see from the blue line on the chart.

    Yet, the household debt level has increased from 24% of disposable income in 1978 to a whopping 141% today!

    Got that? Total workforce participation has barely changed, yet household debt levels as a percentage of income has increase five-fold.

    The point is, you’ve got roughly the same proportion of the population in the workforce, yet the debt per person working has gone through the roof.

    The spruikers and our banking friends will naturally come out and say that interest rates are structurally lower and that explains it, well, we put that little theory to rest last week.

    We highlighted that with another chart from the RBA that showed household interest payments had more than doubled since the 1990s:

    Source: RBA

    It can’t be claimed that borrowers have just compensated for lower interest rates by borrowing more, because if that was the case then the proportion of interest payments to household income would have remained constant.

    The fact that interest payments have more than doubled tells you that borrowers are borrowing an even greater amount than the previous generation even when lower interest rates are factored in.

    So the argument that households were borrowing more because interest rates are lower is clearly false.

    Both charts show you clearly that high house prices are a result of high debt levels which has been stoked by a speculative boom in house prices.

    It’s a circular phenomenon. Higher house prices increases the amount of debt required to buy a house which increases the house prices which increases the debt required…

    And on it goes. Until… it pops.

    Make no mistake, the house price bubble has already popped. It’s no longer a case of when it will happen, because it already has. We’re now past that stage. What you’re watching now is the deflation of the house price bubble.

    And unfortunately, because the spruikers and bankers refuse to accept that the house price bubble existed to begin with, they’re way too late to do anything to prevent prices from crashing.

    Right now, we wouldn’t want to be on the wrong side of a bet against house prices plummeting.


    Kris Sayce

    For Money Morning Australia

  20. Ireland bailout: UK taxpayers could face £7bn bill

    Irish newspapers reported today that Ireland is considering asking for money for its banks via the EU's emergency fund


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    * Julia Kollewe

    * guardian.co.uk, Monday 15 November 2010 10.50 GMT

    * Article history

    Bank of Ireland headquarters, Dublin Bank of Ireland headquarters in Dublin. The country could be forced into a bailout today. Photograph: Peter Morrison/AP

    An emergency bailout of Ireland, which is looking increasingly likely today, could cost Britain billions of pounds.

    Although Ireland continues to deny that it has asked for help, many analysts believe the country will have to tap a €60bn rescue fund set up by the EU in May this year.

    Under the terms of a deal agreed by Alistair Darling in May, the UK is liable for 13.6% of this fund. This means taxpayers could contribute as much as €8bn (£6.8bn), depending how the rescue package was structured.

    The UK government declined to say how much an Irish rescue package could cost British taxpayers.

    "There has been no application [from the Irish government for emergency funding] and we won't speculate on it," said a spokesman for the Treasury this morning.

    Ireland's insistence that it can ride out the storm continued to trouble the financial markets this morning. The euro traded close to a seven-week low of 84.5p struck on Friday and the yield on Irish 10-year government bonds remained at crisis levels, trading around 8.1%.

    Fears that the financial crisis is entering a new phase also hit UK government debt, with British gilt futures tumbling against German bunds. The December gilt future was 26 basis points down at 122.11, around 10 points ahead of the equivalent bund.

    Irish newspapers reported today that Ireland is considering asking for money for its banks via the EU's emergency fund.

    While Ireland continues to deny reports it is negotiating a potential rescue from the EU emergency fund, it is locked in talks with other European governments over the strategy for tackling its debt crisis. Finance minister Brian Lenihan travels to Brussels for face-to-face negotiations with other EU finance ministers tomorrow.

    On Friday, the finance ministers from Europe's biggest economies, including Britain, pledged their support to the debt-laden country. David Cameron signed a joint statement giving assurance that the EU would step in to guarantee 100% of Irish debts if the country is unable to tap international money markets for extra funding.

    Dublin is resisting pressure to ask for help because the bailout terms would be punitive. Ireland would have to partially surrender sovereignty over its budget and could also be forced to increase its low corporation tax rate of 12.5%.

    European Union leaders have a total of €750bn at their disposal to shore up distressed members of the EU. As well as the €60bn "community facility" agreed in May, eurozone governments have guaranteed €440bn in a financial stability mechanism, while the International Monetary Fund has pledged €250bn. Any Irish bailout is likely to come from the €60bn community facility. As the UK is not a member of the euro, it is not part of the €440bn mechanism fund.

    Britain's support for the community facility is controversial as Darling took the decision on 10 May, four days after the general election and the day before David Cameron was invited to form the new government.

  21. A FORMER chief economist at the IMF has warned that Brian Lenihan must immediately ask the IMF for a bailout or risk bankrupting the Irish state.

    Simon Johnson, Professor of Entrepreneurship at Massachusetts Institute of Technology and a member of the Congressional Budget Office's Panel of Economic Advisers, has a stark message for the Irish Government.

    "For the sake of the Irish people, it's time to go to the IMF. If you go in now and if you go in with your partners, you will get a good deal. You may not get such a good deal next week. It would have been a much better deal if they'd gone in February because Ireland wouldn't have had to go through all this discretionary tightening along the route."

    While he agreed with the Governor of the Central Bank, Patrick Honohan that the IMF might not change the policies already being implemented by the Government, he warned that this situation would not last.

    "It's not untypical that countries wait too long and find themselves in more desperate straits. If you bring the IMF in this weekend, then Mr. Honohan is exactly on target, but the longer you wait, the longer the politicians prevaricate, the worse it's going to be for everyone."

    After spiking to 9.25 per cent on Thursday, the cost of borrowing fell sharply on Friday as German suggestions that bondholders should share the pain of defaults was clarified. Short sellers have targeted Irish debt, driving prices lower.

    However, fears over Irish banks holdings of debt continued to weigh heavily. The Government is thought to be actively promoting the sale of Irish banks to overseas interests, with Chinese and Canadian banks seen as potential buyers. However, analysts have indicated that this might be difficult given the uncertainty over the economy and housing markets.

    - Harry Leech and Nick Webb

    Sunday Independent

  22. Expect the worst: Property auctions slump


    Craig Binnie and Stephen McMahon

    13 November 2010

    PROPERTY owners have been told to lower expectations as the auction market hit its worst level in two years.

    Revised figures released by the Real Estate Institute of Victoria show the clearance rate last weekend was 59 per cent - two percentage points lower than initially published - because 76 estate agents failed to report properties that had passed in.

    This is the lowest level since December 2008, when the market was in the middle of a slump that knocked $67,000 off the median price of a Melbourne house.

    The REIV was forced to phone the agents, some of whom said they thought the properties would sell after the auction, to get the missing results during the week.

    Auction figures show the number of homes being passed in on vendor bids has doubled over the past year.

    Vendor bidding is a practice in which estate agents make up bids on the house they are trying to sell in an attempt to make potential bidders think the property is worth more than they might believe.

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