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House Price Crash Forum

Mmmm

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  1. Obviously I was talking about yields bombing for new entrants. The chart shows how the risk/reward profile is deteriorating. Like all assets on a good run, you will reach a point when it is no longer attractive for new investors to come in. This is a huge problem for you because when you look at the figures you can see that the price pressure in the Aussie market is created by an excess of investors (not population growth or "short supply"). When the music stops there's little chance of a soft landing. Anyhow, it is strangely prescient that you have been talking about bears leaving the site. I've decided not to post for a while. The debate here just seems to go around in circles, and sadly degenerates into abuse. I was guilty of crossing the line from humour into harshness on at least one occasion, which I regretted, and would like to apologise to Aussieboy for that. Sorry AB. I am going to have a sniff around the forums at talkfinance.net there seem to be a good range of topics discussed there - not just the price of houses! No doubt I may lurk and have a read here now and then, but I shall have to reisist the urge to get involved because posting here is a bit addictive, sometimes not very pleasant, and to be honest I have better things to do! I don't know how you manage to spend so much time here Bardon... Of course when the crash comes I'll be first back for the fun
  2. Well I'm happy that you found some solace when you looked through the rose tinted bull glasses. Even if it was only in the fact that the last ten years have not been deflationary. Funny though, cos when I looked at the chart without the benefit of "bull" glasses all I saw was 1. Yields bombing 2. House prices driven by debt 3. Crazy holding costs for IP's 4. A good reason to suspect the data on ultra tight vacancy rates is dodgy 5. Nothing to suggest "short supply" 1 + 2 + 3 = High risk and dubious future returns for investors And when enough people realise this the bubble is over.
  3. Informative actually. Tells you that it's safe to ignore the spruiking, and assume that rents will probably continue to increase in line with CPI. No need to rush in and buy that overpriced house after all.
  4. From The Washington Post . Oct 2005 Bernanke: There's No Housing Bubble to Go Bust Fed Nominee Has Said 'Cooling' Won't Hurt Ben S. Bernanke testified on Capitol Hill just before being nominated to succeed Fed Chairman Alan Greenspan. (By Ron Edmonds -- Associated Press) By Nell Henderson Washington Post Staff Writer Thursday, October 27, 2005 Ben S. Bernanke does not think the national housing boom is a bubble that is about to burst, he indicated to Congress last week, just a few days before President Bush nominated him to become the next chairman of the Federal Reserve. U.S. house prices have risen by nearly 25 percent over the past two years, noted Bernanke, currently chairman of the president's Council of Economic Advisers, in testimony to Congress's Joint Economic Committee. But these increases, he said, "largely reflect strong economic fundamentals," such as strong growth in jobs, incomes and the number of new households. Bernanke's thinking on the housing market did not attract much attention before Bush tapped him for the Fed job Monday but will likely be among the key topics explored by members of the Senate Banking Committee during upcoming hearings on his nomination. Many economists argue that house prices have risen too far too fast in many markets, forming a bubble that could rapidly collapse and trigger an economic downturn, as overinflated stock prices did at the turn of the century. Some analysts have warned that even a flattening of house prices might cause a slump -- posing the first serious challenge to whoever succeeds Fed Chairman Alan Greenspan after he steps down Jan. 31. Bernanke's testimony suggests that he does not share such concerns, and that he believes the economy could weather a housing slowdown. "House prices are unlikely to continue rising at current rates," said Bernanke, who served on the Fed board from 2002 until June. However, he added, "a moderate cooling in the housing market, should one occur, would not be inconsistent with the economy continuing to grow at or near its potential next year." Greenspan has said recently that he sees no national bubble in home prices, but rather "froth" in some local markets. Prices may fall in some areas, he indicated. And he warned in a speech last month that some borrowers and lenders may suffer "significant losses" if cooling house prices make it difficult to repay new types of riskier home loans -- such as interest-only adjustable-rate mortgages. Bernanke did not address the possibility of local housing bubbles or the risks faced by individual borrowers or lenders in a slowing market. But if Bernanke is confirmed as Fed chief, and if the housing market slows more than he expects, he would be unlikely to use the central bank's power over short-term interest rates to prop up falling housing prices for the sake of individual homeowners, according to comments he has made in numerous speeches and statements in academic papers. Rather, he has argued for many years that the Fed should respond to rising or falling prices for stocks, real estate or other assets only if they are affecting inflation or economic growth in an undesirable way. Thus, he would advocate cutting interest rates if a reversal in the housing market sharply dampened consumer spending, triggering job losses or a fall in inflation to very low levels. Lower interest rates encourage consumers and businesses to borrow and spend, spurring economic growth and hiring. That would also make it less likely that very low inflation could turn into deflation, an economically harmful drop in the overall price level. Bernanke believes "the Fed's job is to protect the economy, not to protect individual asset prices," said William Dudley, chief economist for Goldman Sachs U.S. Economics Research.
  5. And then of course, there's all those mania crazed investors overextending themselves
  6. Australian household debt to GDP is now higher than US at the peak of their bubble "Between September 1990 and September 2008, the ratio of total household debt to assets held by households rose from 9% to 19%. In other words, debt grew twice as fast as the total value of assets held by households". Autralian Bureau of Statistics March 09 Over the past decade, household debt grew much faster than income. The ratio of household debt to annual disposable household income peaked at 160% in December 2007 and March 2008. The ratio decreased over the last three quarters, reaching 153% in December 2008. Autralian Bureau of Statistics March 09 ..but went up again as soon as interest rates began returning to normal More nice charts here ABS report on Household Debt March 2009
  7. Handing out 90-100% mortgages so people can spend over 40% of their income financing the loan, doesn't seem like conservative lending to me....
  8. Now where was that bubble? It such a tiny little thing I can't seem to spot it anywhere. Maybe a couple of months of credit tightening and a drop in home loans have made it go away? Oh no, here it is.after all... Phew, thought I must have just been imagining it for a moment
  9. Would be interested to know the source for this Blue Skies. The first three points are spot on. It's hard to see a way out for the US and it makes a very compelling argument for housing being doomed as an asset class this decade. I'm not entirely sold on point four. I think the jury's still out on whether you're going to get huge inflation. Yes they're pumping money like crazy but that's a response to MASSIVE deflationary forces, and I don't think anybody knows how its going to come out. No matter, you will get rising interest rates anyway, maybe with inflation, maybe with deflation. I couldn't see point 5, is that in part II?
  10. click on the word "Here's" for the link
  11. Here's a good graph showing home loan approvals and house prices. Approvals are a reliable leading indicator. It looks like it takes about 6-7 months before a drop in loans filters through into prices. So the mismatch between reported sales and loans could be due to foreign buyers or the time lag.
  12. Could happen quite soon.... From Today's SMH Loans slump may point to house price fall CHRIS ZAPPONE April 12, 2010 .Home loans fell in February, slumping for the fifth straight month, prompting analysts to suggest the extended decline may herald weaker house price gains, or even falls over the next year. The number of home loans dropped 1.8 per cent in February to 50,287, after January's slide was revised upward to a 7.3 per cent drop. Analysts had tipped a 1 per cent fall in February home loans, according to Bloomberg. The picture of a lacklustre housing finance comes as the Reserve Bank embarks on a series of interest rate hikes and house prices continue to rise. Moody's Analytics' economist Matt Robinson said based on the trends over the past three years, there was a high correlation of loan growth over 2 per cent a month and house price appreciation about 3 per cent quarter on quarter. ''Because we're seeing five months now of declining housing finance, based on those trends, we would likely see slowing house price appreciation if not some kind of plateau or decline in house prices in a couple of months' time.'' Mr Robinson cautioned that the rule held over the past two and a half years but the last six months could be different because there is considerable buoyancy in the housing market, along with strong confidence. If enough buyers step into the market in coming months, the correlation could break down, he said. ''We might still see steady house price growth but...Watch this space,'' he said. A drop in housing loans may discourage developers from starting new projects, analysts say, limiting the number of new homes available to accommodate the nation's swelling population. RBA moves The RBA last week lifted interest rates to 4.25 per cent from 4 per cent, as it seeks to contain both surging house prices and the inflation threat arising from the mining boom. Today in parliamentary testimony RBA assistant governor Guy Debelle hinted that interest rates may not have too much further to increase in the current cycle, because the central bank didn't want to crush demand in the economy. Each rate rise adds another $46 onto the average monthly repayment cost on a 25-year, $300,000 loan, making the prospect of entering the home market less attractive to would-be buyers. Moody's Mr Robinson said that although rate rise may stall home prices, it also makes the ability to pay debts harder. So in terms of housing affordability, it depends whether lower prices or higher debt servicing factors are the biggest issue. Since July, when home loans began to fall, the weighted median house price of all capital cities has risen by 12.7 per cent, according to Australian Property Monitors. Markets are currently tipping a one-in-four chance of a 25 basis point rise in May, according to data from Credit Suisse. The dollar eased to 93.4 US cents from 93.5 US cents before the data was released. Investment loans decline Investment loans fell 1.1 per cent, from a revised 0.9 per cent rise in January, while the value of loans slumped 4.4 per cent to $14.08 billion, seasonally adjusted. "Investor finance minus-1.1 per cent will go some way in stemming RBA concerns about rampant speculation and leverage in the housing market for now," said 4Cast Ltd economic economist Michael Turner." Other economists also draw direct links between the RBA's resumption of interest rate rises in October and weakness in the market for housing finance. ''Those housing finance figures can't lie,'' said Arab Bank Australia treasury dealer David Scutt. ''For five months they have now fallen. The exact period of time since the RBA began ratcheting up rates.'' ''Given housing prices are elevated and mortgage rates are on the increase (let alone no more extended First House Buyers Grant), there is only one way the survey can go in the months ahead.'' Mr Scutt said home prices have risen so much over last nine months they could be swaying people away from buying - and if they continue to rise, based on this data, there will be more questions about the impact of foreign buyers in the local market. The Foreign Investment Review Board currently has 50 investigations under way into suspicious purchases of local property, the government said last week. Other economists said home prices will likely continue to rise, but possibly not at the paces seen over the past year. ''This data suggests that with sustained demand for housing through population growth and a weakening outlook for housing supply there is increased risk of house prices showing solid growth in 2010, although not at the growth levels seen in 2009,'' said ANZ global markets economist David Cannington. The RBA has recently warned Australians not to bet on constantly raising home prices as a path to economic prosperity. Home prices have increased 12.7 per cent in the year to February, according to research group RP Data-Rismark. Only the number of loans for new dwellings rose in February to 0.7 per cent in February, seasonally adjusted. First-home buyers continued to decline as a percentage of all borrowings, dropping to 18.1 per cent in February from 20.5 per cent in January, according to results that are not adjusted for seasonal trends. Puzzle ''It’s a bit of a puzzle,'' Macquarie senior economist Brian Redican said. He said first home buyers were leaving the market while investor demand had also dropped. ''You wonder how auction clearance rates remain very high along with house prices themselves,'' he said. Over the weekend, auction clearance rates remained above 70 per cent in Sydney and Melbourne. Looking at the year ahead, Mr Redican said, ''I do think we’ll see some moderation in house price growth.'' ''Affordability will continue to restrict the number of potential first home buyers looking into the market and that will mean simply less demand there bidding up the prices at auctions.'' Home prices may increase by as little as one per cent a month in the second half of the year, posting high single digits for 2010 as a whole, he said. czappone@fairfax.com.au
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