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Australia's "tulip Mania" About To Crash, As Housing Shortage Proves A Massive Myth

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No idea how the floods will affect this.

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.

"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."

Surfer's Paradise, a friend tells me, is a place he would love to live.

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 Resides, 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.

Read more: http://www.businessinsider.com/australia-housing-shortage-bubble-2011-1#ixzz1As8nT2dt

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I have lived in and around Surfers, yep, its true, its Australias Florida, but do not forget Australia is two years behind the US. Australians, i have many real Australian friends not expats, they have been struggling since 06, its just you do not hear about it. Many pay 50% of take home pay on rents and mortgage, without immigration, without tourism, they are f00ked.

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I have lived in and around Surfers, yep, its true, its Australias Florida, but do not forget Australia is two years behind the US. Australians, i have many real Australian friends not expats, they have been struggling since 06, its just you do not hear about it. Many pay 50% of take home pay on rents and mortgage, without immigration, without tourism, they are f00ked.

Regardless of what Bardon will say, median Australians are struggling. This is reflected in all sorts of businesses. As an example, the local farm shop, which has been running for over 35 years has had a couple of very bad years in a row. They are as busy as ever but people are just buying the staples, wihch have low margins.

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Unfortunately for most Aussie's, they will find out the hard way what their property is really worth.

The upcoming insurance payout to the many who've suffered from the flooding will be roughly a handful of beans in exchange for their ridiculously expensive mortgages, er, houses.

Too bad the debt remains after these things.

It's going to be hard lesson to learn, but things like this can sometimes cast a small amount of light for a short time on those pulling your strings.

But, serves people right for being stupid and greedy. We in the west have all had a good go at fvcking each over with houses etc..., probably due to the fact that their are no third world colonies to extort in the old school way.

Stupid money begats stupid people. That goes for the entire western world at we've all been awful to our neighbours and kin.

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Yes, people are being stretched in Australia as higher prices and lowish wage inflation continues, and the addiction to credit is massive (I have seen more lower wage working classes with expensive cars than in the UK, for example). However, I reckon there will be no housing collapse here until the Chinese engine driving the country has a problem. Then the shift could be rapid and quite scary. You've seen what the UK government has done to keep the plates spinning - imagine a government with virtually no debt and massive tax windfalls, looking for it's next election. That's Australian. Do you really think they will allow a housing market collapse?

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Have you ever considered that the business owners model might be outdated rather than every single customer having become impoverished?

Yep, downloading food is the new model.

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I have lived in and around Surfers, yep, its true, its Australias Florida, but do not forget Australia is two years behind the US. Australians, i have many real Australian friends not expats, they have been struggling since 06, its just you do not hear about it. Many pay 50% of take home pay on rents and mortgage, without immigration, without tourism, they are f00ked.

Seems to be a common trend - even when there isn't a massive economic problem and the country has been going through 'good times' for long enough, overall costs will rise faster than wages and people will get themselves into trouble by borrowing up to the hilt.

As long as the good times roll they can keep on top of their debts, just. A sharp economic jolt however and ...

Wonder what effect these floods are going to have on their economy? They might not necessarily be negative.

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Unfortunately for most Aussie's, they will find out the hard way what their property is really worth.

The upcoming insurance payout to the many who've suffered from the flooding will be roughly a handful of beans in exchange for their ridiculously expensive mortgages, er, houses.

Too bad the debt remains after these things.

It's going to be hard lesson to learn, but things like this can sometimes cast a small amount of light for a short time on those pulling your strings.

But, serves people right for being stupid and greedy. We in the west have all had a good go at fvcking each over with houses etc..., probably due to the fact that their are no third world colonies to extort in the old school way.

Stupid money begats stupid people. That goes for the entire western world at we've all been awful to our neighbours and kin.

Dont worry, as per first post in this thread, 'Gold coast falling apart' theme. Well the best paid workers in this part of the world are building tradesmen, when the house mania cooled down due to less people moving to the area along with tourism taking it up the bum, the local well paid tradesmen were running out of work, thus the locals that were buying into the market were trimmed down flnancialy speaking.

Right now these tradesmen will be rubbing their hands together, opening up their wallets for free insurance money and whatever the government will be handing out in emergency funds, they will rake it in. And for those not in the know, when you meet a building tradesman in Aus, you bow down to him, its the custom and the law. Espec plumbers and electricians who wont get out of bed for less than $100Kpa. There are no competing imports to kill their monopoly, foreigners are not clever enough to pass the exams, besides by and large they dont let them, you have to do a local (superior) apprenticship. If you want to be a plumber, your daddy should have been one, its a 100% closed loop with a legal licence to print money. Did you know also that in Oz you cant legaly even change a tap washer, no you have to call one of these gods and he will charge you $100 to turn up and do 5 mins work.

I almost suspect this disaster will 'save' the Gold coast and similar regions.

Edited by steve99

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Have you ever considered that the business owners model might be outdated rather than every single customer having become impoverished?

So, it wasn't outdated in 2008, but suddenly became very outdated in 2009? And their analysis of the change of customers purchasing patterns is mistaken? Where did I say all their customers became impoverished? All that has happened is that as a whole people are buying fewer apricots, mangoes and lady fingers, and buying more apples, oranges, and cavendish bananas.

It is a perfect business to gauge changing spending patterns and they have changed.

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Yes, people are being stretched in Australia as higher prices and lowish wage inflation continues, and the addiction to credit is massive (I have seen more lower wage working classes with expensive cars than in the UK, for example). However, I reckon there will be no housing collapse here until the Chinese engine driving the country has a problem. Then the shift could be rapid and quite scary. You've seen what the UK government has done to keep the plates spinning - imagine a government with virtually no debt and massive tax windfalls, looking for it's next election. That's Australian. Do you really think they will allow a housing market collapse?

Tend to agree with this.

Aus is getting very expensive. Bought a small pack of peanuts in an Adelaide pub last night - $4.50 (3 quid) :blink:

Nearly had a heart attack.

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Tend to agree with this.

Aus is getting very expensive. Bought a small pack of peanuts in an Adelaide pub last night - $4.50 (3 quid) :blink:

Nearly had a heart attack.

Relative price levels are a bit of Aus inflation and a lot of sterling devaluation:

- Pint of Carlton Draught, Melbourne airport (domestic), New Years Eve - A$10 = c. £6.50 !!!

- Virtually every item on Tesco weekly shop is double in sterling terms in IGA supermarket, from bread to yoghurt to ketchup, and so on.

- Average/modest brekkie for 3 in Surry Hills cafe (sydney) - scrambled eggs plus juice - c. A$70, call it £45 or £15/head

- Copy of Economist magazine (UK £3.95) = A$11, call it £7.10

- don't get me started on property prices converted to sterling. Lots of marginal renovations taking/have taken place (on credit) - polishing turds - when starting from scratch would be a far better idea (and allow higher densities to reduce urban sprawl)...

Barmy army peeps will have spent an absolute fortune this winter, particularly converting at tourist rates.

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Did you know also that in Oz you cant legaly even change a tap washer,

Crap.

"Relative price levels are a bit of Aus inflation and a lot of sterling devaluation', true but more to do with sterling devaluation (it's looking good for my trip to UK though).

When assessing Australian cost of living it should always be done against Australian wages and of course lifestyle/quality of life etc, life here on Australian wages and cost of living is pretty good.

It would be interesting to see which way the flow would be if the Aus/UK governments had a reciprocal open immigration policy .

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For an interesting perspective:

http://seekingalpha.com/article/246486-australia-the-last-epic-bubble-formulating-a-coherent-investment-strategy

Today we're going to have some fun. We're going to play a game. The game is called “Mystery Country.” It was adapted from our Predictions for 2011 newsletter and it's an easy game to play.

What if I told you about a country…

…that is still at the peak of a housing bubble, perhaps the last housing bubble on earth? It’s a country where the median home price in its major metropolitan areas is about eight times the median income.

…that has an economy heavily leveraged to the commodity boom, with upwards of 30% of GDP driven by commodity exports to growing, resource-hungry nations like China and thus highly susceptible to deflationary shocks or slowdowns.

…with a private sector debt-to-GDP among the highest of all nations?

…that is currently rocking a planet-leading 160% household debt-to-income ratio from people using their homes as ATMs exactly the way that we did in the United States.

…where many of the largest banks are once again trading near all-time highs? Where these banks have been actively pushing for higher leverage ratios and looser mortgage standards?

Yes Bob, that does sound like something I would be interested in. Interested in shorting!

The answer to Mystery Country is “Australia.”

If you’re looking for a prediction that is waaay outside consensus, then I think that Australia is a disaster waiting to happen. It is a bubble in search of a pin, in modern parlance.

And nobody — I mean nobody — is talking about this right now. The reason, of course, is that Australia is booming. They are digging very valuable stuff up out of the ground as fast as they can and selling it for ever-higher prices. Unemployment is low and their currency is strong.

When you’re looking for assets to short, you don’t go looking for the ones that have already fallen like a rock. You find the ones that have legitimate fundamental concerns and are trading well above where they should be. Shorting the U.S. housing and stock markets in 2006 or 2007 seemed totally nuts; but that was the time to gear up for that trade. There were major problems afoot but everyone thought the strength would continue forever.

Have a look at this chart in case you object to the claim they’re in a housing bubble:

That’s a bubble.

And if we’ve learned one thing from housing bubbles in the last couple decades it’s that they are nasty. I mean, nasty!

Japan is still mopping up the bloodshed from its epic real estate collapse twenty years ago. In the U.S. the housing bubble catalyzed a little financial crisis. Several years after the fact, we’re still coming to terms with the knowledge that we’ll be struggling with the fallout from our real estate bubble for some time to come. Spain had an even bigger housing bubble than we did and they’re paying the price with 20% unemployment right now. The United Kingdom is still on the way down and everybody knows it will be ugly over there for a while. Iceland, of course, blew up in spectacular fashion, erasing generations of wealth in the blink of an eye. The housing bubble and bad banking standards were the primary reasons why.

So to find a country that’s still locked in the irrational throes of real estate ecstasy is something of a treat. It’s a movie we’ve seen many times before. We know the ending.

Another Trade for the Decade

The Chinese real estate bubble gets all the publicity now, but theirs is concentrated in a handful of major cities. Australia’s housing bubble is centered in the major metropolitan areas too, but the problem is that this represents most of the population. The five largest cities (Sydney, Melbourne, Brisbane, Perth, and Adelaide) account for 61% of the entire country’s population! When you add Canberra, Hobart, and the Gold Coast, which have also seen stratospheric increases in home prices as well, that number gets closer to 70%. Basically, this is a bubble that affects the entire nation.

Today the story with Australia is that it’s a roundabout way to play China. I think that playing China directly is a better way to play China. But if you’re one of those China nonbelievers, then I think that shorting Australia might be a better way to short China than shorting China directly.

I know that was a little confusing, so let’s try this: in absolute terms, the probability of Australia wiping out because of their housing bubble is high. I think it’s much higher than China cooling off for any significant length of time. So Australia has a long-term, near-inevitable risk going against it (housing bubble) plus a variety of short-term cyclical risks (China slowdown or other economic hiccup).

Here’s another awesome Trade-of-the-Decade: short Australia and get long China. You can implement that with each countries’ assets and companies — get long something like the iShares China 25 Index Fund (FXI) or S&P Asia 50 Index Fund (AIA) over the MSCI Australia Index Fund (EWA).

You can also try specifically shorting the banks, National Australia Bank (NABZY.PK), Australia & New Zealand Banking Group (ANZBY.PK), or Westpac Banking Corporation (WBK). We all know that banks feel it most in the aftermath of a housing bubble and it’s possible that Australia may not have the political will or economic capacity to bail them out and zombify them the way that Japan did and we have done in the U.S. There’s a good chance that many of their banks just fail.

Seriously, go look at their bank’s webpages and compare them with the ones in this country. There’s an “investment property” section featured prominently on every Australian bank’s website. Investment properties! Remember those? In Australia you can get special “introductory rates” and “lines of credit” as well as the “60 minute home loan” and “customized mortgages to meet the needs of the self employed.” It’s madness!! I haven’t seen anything like that from Bank of America (BAC) or Wells Fargo (WFC) since 2005. Over here we have the 60 day home loan application and good luck getting a mortgage in this country if you're self-employed.

Look, I’m not a bank analyst. I’m just a guy with a barely-above-average knack for identifying large scale patterns and cycles and who has spent more time than any sensible individual should have at the Australian Bureau of Statistics. I have no idea if these Australian banks are technically insolvent or not. All I know is that they’re doing exactly what U.S. banks were during the peak of our own real estate boom (and Japan’s, and Europe’s, for that matter). And I know how that ended up for those banks. I’ll let someone else get hung up on the details.

So do with this suggestion what you will. Personally, I have nothing against Australia.

Other ways to play it

Incidentally, this long China / short Australia trade also works for the currencies. The Aussie Dollar is way strong right now with high interest rates demand for their exports as robust as ever, and everybody knows the Chinese RMB is artificially undervalued.

The best way to execute this is in the Forex markets but you can try the ETF route too and buy the CYB over the FXA.

There’s an added bonus with this trade too. Since these two markets are somewhat tightly linked, this trade probably won’t have the volatility that other global relative value trades will. Shorting Australia is a semi-hedge for getting long China. The correlation between FXI and EWA is at around 0.8 right now. At some point that linkage will erode. Long-term, China has a lot more going for it than Australia and there are countless scenarios where China does well and Australia doesn’t. I have a much harder time coming up with scenarios in which Australia wins and China doesn’t.

This isn’t necessarily something that plays out in 2011. I’m a terrible market timer. But it’s time to start talking about it. The Australia real estate bubble won’t officially end until greater fools stop paying ever-higher prices and who knows when that happens.

Humans are funny creatures. Like moths to a flame, we not only ignore the danger but are drawn even closer to it.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

About the author: Jeffrey Dow Jones The Draconian features market commentary and research from Draco Capital Management. Its directors have been active in the world of alternative investments for two decades and currently manage roughly $100 million in the space. The firm’s trading heritage extends back to the mid 1960’s and... More Company: Draco Capital Management Blog: The Draconian122

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24Comments on this article Add a comment Register or Login to rate comments » pegasus33 Comments (5) This would be a disastrous short. Jan 13 03:59 PM Reply +1-2 Shonkypom Comments (119) The AUD bubble is in the process of bursting. It dropped 4 cents in a week recently. Those long carry traders must be hurting. Jan 13 04:04 PM Reply 00 Loopit Comments (27) Great article and heads up. I agree with you on the housing thingy......but as with all bubbles, you never know how absurdly high they go before they pop. I like the idea of shorting the aussie banks, CBA has the most RE exposure I think and everyone owns it. With regard to the currency, I would be very careful....remember people long AUD have been winning for over 10 years now, and that is likely to continue IMO. Jan 13 06:00 PM Reply +20 Paulo Comments (195) Uhm, who insures all those properties now underwater in Brisbane? Jan 13 06:32 PM Reply 00 Roger Nusbaum Comments (807) Australia has a lot going for and also some serious risk factors that you point out but I've been reading about the risk factors you cite (generally speaking) for a long time, I've also mentioned them before. Australia could be in for a serious problem, or not, but the story is not new and not a secret for anyone following the country.

FWIW I do draw a less pessimistic conclusion as the loan quality is superior to the US (there is no subprime) and the employment situation has been very good (of course the flooding might have a negative impact here) so the risk is more focused on overvaluation which is unquestionably a serious issue. Jan 13 07:29 PM Reply +10 carltond Comments (2) Roger...I live in Australia and the loan quality is not that Superior. The true definition of "Prime" is "20%" down 3.5 times income. The majority of FTBs in Australia are on LTVs 90% or above. There is nothing prime about a FTB on 70K a year buying a 500K property with a 95% LTV. I know of people who fall in this category.Also have you heard about the new St George Loan that allows Renters to use 12 months rent paid as a substitute for a deposit? Yeah No subprime in Australia. Right?

check it out people

www.adelaidenow.com.au... Jan 14 05:32 AM Reply +50 flash9 Comments (531) Housing and RE are the MacDaddy of economic indicators, everything else is a function of it. That chart looks like they could go a lot further down ending the Bubble Era (like the Gilded Age and the Roaring 20's) with a POP heard round the world - happy New Year. I wish China was included on that chart. I've been trying to be bullish.

Great Article!

To Nusbaum, how about if commodities are at a double top like a small but smart minority think is probable. Jan 13 09:27 PM Reply 00 Jeffrey Dow Jones Comments (11) Roger & carltond, thanks for balancing the perspective out with a little more granularity. Those are both good points.

As I recall, in the U.S. "subprime" didn't really enter the lexicon until around 2007 when we figured out these things might be a problem. Back when those loans were actually being written they had all sorts of fun, euphemistic names.

Quite honestly, though, I have no idea about the loan quality. I looked at those banks' websites -- Commonwealth (CBA) in particular -- and was shocked at what I found. Their loan quality may indeed be superior to the U.S. but I wonder if it's by an amount that's really meaningful. Jan 14 09:53 AM Reply +10 Roger Nusbaum Comments (807) i seem to remember the sub prime chatter in the US taking hold in 2006. HSBC had an earning warning or bad report attributed to its Household Finance unit then New Century blew up in what I think was Feb 2007 after much discussion about this in late 2006. Jan 14 10:03 AM Reply +10 sircorp Comments (3) Well Written

Australia have 5% unemployment.

10% super is compulsory. It is massive money which US did not have. Jan 14 10:20 AM Reply 0-1 GeaGea Comment (1) And of curse there is a massive land shortage (only 10m of cost line per person), thousands of extremely rich emigrants are coming every day, buying what ever is available for sale, because they are scared that they're gonna miss the opportunity to enter real estate market, right? Jan 14 12:30 PM Reply +20 PPPP Comment (1) thats not true, there is migrants in the states buying house as well, overall australian house is indeed extremely irrationally expensive comparing to the similar ones in the states Jan 14 10:30 PM Reply 00 AussieBlogger Comment (1) "In the U.S. the housing bubble catalyzed a little financial crisis. Several years after the fact, we’re still coming to terms with the knowledge that we’ll be struggling with the fallout from our real estate bubble for some time to come"

That's a kind way of saying America is screwed for the next 90 years or so is it? Jan 15 06:07 AM Reply +10 Not Fooled By Property Spru... Comment (1) You may be interested to know a little about Australian Housing Loan interest rates & how it compares historical .....

A 7% home loan interest rates in 2010 is equal to over 22.5% interest rate in 1990 ....

In Jan 1990 housing interest rates in Australia hit a record high of 17% & people managed to keep their homes then so how would this compare in todays housing market?...

The 1990 Median house price Iin Australia was $100K with a 20% deposit & a loan of $80K payments @17% interest over 30 yrs would be $1140 pm or 32% of wages with average family wage of $42K pa...so in 1990 @ 17% the worst interest rates in Aust history payments only ever got to 32% of average family income...

Fast Fwd to 2010 Australian Median price is $500K { No TYPO thats right $500K Median} less 20% deposit & a loan of $400K payments @ 7% interest over 30 years are $2661 pm or 43% of wages with average family wage of $75K... In 2008 interest rates were 9.5% this would work out to payments of $3365 or 54% of current wages ....

Now historically for the last 30 years interest rates for housing in Australia have averaged 10.11% this would works out to payments of $3545 pm or 57% of wages going to mortgage payments ....

So summing up current housing mortgage payments @ 7% is still worse than when rates were at 17% but just imagine what will happen when rates rise?

I think your article understates the size of our housing bubble? Jan 15 09:48 AM Reply +10 Nexusone Comment (1) Although all the figures/indicators point to a bubble the establishment is in denial - those that have conspired to produce a potential financial calamity - these include the Rudd Federal Government via the injection of taxpayer monies into the property market, State Governments that gain tax revenue from property taxes (higher the property the high the tax take), constructors, the parasitic real estate industry via commissions, politicians (many have property portfolios) and of course the banks - more loans more commissions, more bonuses. It is starting to end as we are running out of 'greater fools', Jan 15 07:02 PM Reply +10 TKline Comments (4) A year ago there was total denial the Australian real estate market was in any bother. Now the recognition is beginning to dawn on the smarter folks that something terribly serious is happening to the property market, but as normal their blind faith is that they will have the oft spoken about 'soft landing'. Ha! No way hose! The bigger the boom, the bigger the bust. The property boom that began here in the late 90s started slowly and snowballed into the biggest property bubble the planet has ever experienced. This crash that's now underway will be absolutely the same. My advice to real estate speculators is panic, NOW! As this year pans out you'll finally recognize property in Australia is dead for generations. This crash is going to be a big one!

Tom Kline

Aussie & ********** Blog Jan 15 10:23 PM Reply +10 TKline Comments (4) A year ago there was total denial the Australian real estate market was in any bother. Now the recognition is beginning to dawn on the smarter folks that something terribly serious is happening to the property market, but as normal their blind faith is that they will have the oft spoken about 'soft landing'. Ha! No way hose! The bigger the boom, the bigger the bust. The property boom that began here in the late 90s started slowly and snowballed into the biggest property bubble the planet has ever experienced. This crash that's now underway will be absolutely the same. My advice to real estate speculators is panic, NOW! As this year pans out you'll finally recognize property in Australia is dead for generations. This crash is going to be a big one!

Tom Kline

Aussie & ********** Blog

s4.zetaboards.com/Aust... Jan 15 10:25 PM Reply 00 demografix Comment (1) There is a bubble and there is a bubble killer. It is called migration and ours has fallen off a cliff as we go from 2.2% in 2008 to 1.4% now and falling.

Our Ageing economy and society begins, fueled by the 4.5 million Baby Boomers over the next 16 years due to retire. We are only 22 million people now so Ageing is major factor in our economy.

1.1 million extra people in Australia become older than 65 in the next 5 years alone.

Our immigration is stalling and falling quickly while our emigration is reaching record levels, that's us leaving permanently and so it is likely that the next official abs population growth percentage will be down to 1.1% to 1.3% continuing it's fall from a high of 2.1% in 2008.

Aproximately 160,000 babies and approx 54,000 net immigratnts minus emigrants. That's it for last year excluding short term visitors, which in November was also a negative number meaning more left than came. The international students are returning home due to policy changes and this will continue, so the existing students who are not counted in our population growth percentage as long term visitors, will return. In November this category was also a negative. More left than came.

So property speculators better only count on approximately 80,000 net immigrants over emigrants each year for the whole of Australia, as babies do not buy houses. They will have to wait until the bubble deflates. Note our first home buyers have halved from last year down to only 90,000. Our kids get it.

Bubble up = Ageing + available credit + speculation (1970 to 2010)

Bubble down = Ageing + population growth decline + unaffordability (2011 to 2020)

The Baby boomers are now at youngest 48 and the cohort is now in saving, not spending mode.

Comment (1) I'll bet you none of the big 4 banks you mentioned will fail - they are too systematically important to fail. Small lenders like Bank of SA, Bendigo, Bank of Queensland etc might (despite the huge political cost associated with it), but a big 4 failure will leave 20% of Australia completely un-banked - won't happen... Jan 16 06:11 AM Reply 00 Aussie Renter Comment (1) This article would be an eye-opener for many Aussies who are so used to ridiculous prices for real estate that it seems to be firmly entrenched that "high prices are here to stay." We sold our house in 2009 when prices dipped thinking they would fall a lot further, but we under-estimated the government's willingness to do anything to keep the bubble afloat, whether it be handouts, not releasing enough land, encouraging overseas investors to buy the properties Australians can't afford or are unwilling to pay for, or increasing immigration. Since we sold, properties started booming again and only now things are starting to taper off as we enter our "soft-landing" before the predicted boom starts again. There's no telling what the govt will do to keep housing prices aloft. Negative gearing is something that keeps prices climb ever higher but it's something that the government won't dare even mention, because they know that if this was altered in any way, the bubble would deflate, people would feel poorer because their homes wouldn't be worth as much, therefore they wouldn't spend as much, causing unemployment to rise and recession would ensue, and nobody wants to be the one in power when this happens, so it just keeps going on and on. Jan 16 07:31 AM Reply +20Load More CommentsAdd Your CommentCancel

please excuse the cut and paste, it did not copy nicely. Best read from link, also for charts

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And for those not in the know, when you meet a building tradesman in Aus, you bow down to him, its the custom and the law. Espec plumbers and electricians who wont get out of bed for less than $100Kpa. There are no competing imports to kill their monopoly, foreigners are not clever enough to pass the exams, besides by and large they dont let them, you have to do a local (superior) apprenticship. If you want to be a plumber, your daddy should have been one, its a 100% closed loop with a legal licence to print money. Did you know also that in Oz you cant legaly even change a tap washer, no you have to call one of these gods and he will charge you $100 to turn up and do 5 mins work.

I almost suspect this disaster will 'save' the Gold coast and similar regions.

You should have seen the plumber's face when Mrs Woods stripped the UK plug from our dishwasher and replaced it with an Australian one before he could autodial his sparky mate. Priceless!!! :lol:

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Guest The Relaxation Suite

Australia is getting ruined by inflation, but they are trying to cool it with rate rises, and also certain items like fuel and council tax and so on are often much cheaper but rarely get mentioned, as focus seems to stay on food and drink. Drinking out is expensive in Australia, but you can buy a bottle of wine from Dan Murphy's for $3 if you have to. Also, houses are over-valued dangerously in my view, but still, even now, offer more value than British houses in terms of $ per sqm and location, etc. Depends on Aus location of course. No good comparing expensive parts of Sydney with South Wales, etc.

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Tend to agree with this.

Aus is getting very expensive. Bought a small pack of peanuts in an Adelaide pub last night - $4.50 (3 quid) :blink:

Nearly had a heart attack.

Nothing beats the lord Dudley in woollahra - six dollar bags of twisties.

There was something odd about the woollies in Bondi junction today; random missing stock, e,g, looking for some apples there were only two granny smiths in the entire shop.

Trades did it fough to six months in 2008. 100k a year is standard for those who are competent (and why not).

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You should have seen the plumber's face when Mrs Woods stripped the UK plug from our dishwasher and replaced it with an Australian one before he could autodial his sparky mate. Priceless!!! :lol:

I've had to switch plugs back a forth a few times over the years due to multiple relocations... Must say I'm not a fan of the Australian plugs - too easy to pull a wire free.

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Hey guys heard on the radio whilst driving home , some reserve bank bloke was on , said it was likely there will be 3 more interest rate rises this year because the floods in Queensland and Victoria will lead to a 'flurry' of economic activity with people needing to buy more plasterboard , carpets , gardens , appliances , cars etc because of the disaster.

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Hey guys heard on the radio whilst driving home , some reserve bank bloke was on , said it was likely there will be 3 more interest rate rises this year because the floods in Queensland and Victoria will lead to a 'flurry' of economic activity with people needing to buy more plasterboard , carpets , gardens , appliances , cars etc because of the disaster.

At least he wasn't claiming that clearing up the floods will be good for the local economy. Just a matter of time before someone does...

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Nothing beats the lord Dudley in woollahra - six dollar bags of twisties.

There was something odd about the woollies in Bondi junction today; random missing stock, e,g, looking for some apples there were only two granny smiths in the entire shop.

Trades did it fough to six months in 2008. 100k a year is standard for those who are competent (and why not).

Funny that you mention apples. Apple supplies seem to be one of the things that have been hit by the floods. I would have thought they would all be in low O2 storage, and hence the supply wouldn't be interrupted, but we had some trouble finding apples for making pies recently, whilst most other stuff was well supplied.

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Aussie House Prices Set to Collapse

Tuesday, 18th January 2011

Melbourne, Australia

By Kris Sayce

* Aussie House Prices Set to Collapse

.............................................................................................................................................................................

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-- Diggers and Diggers reader Max

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If you’re worried we’ve forgotten the National Australia Bank [ASX: NAB] and Westpac’s [ASX: WBC] secret loans from the United States Federal Reserve – don’t. We’re still on the case.

We’ve still got them in our sights… Oops! Apparently we shouldn’t use that imagery. Sorry… how about this then:

That’ll do it.

No harm with that image. After all, going by mainstream logic, although it’s clearly inappropriate for individuals to have the right to self-defence with a small firearm, it’s OK for governments to threaten to destroy the lives of millions of people at the flick of a switch with something much deadlier.

No double standards there.

Anyway, if we get our gnashers into any more of the banks’ grubby secrets we’ll be sure to let you know.

But before tucking into today’s Money Morning, we couldn’t resist showing you this from the Financial Times:

“Europe’s bail-out fund is expected this week to announce the banks that will market the first Eurozone bond amid hopes that demand from the world’s biggest sovereign wealth funds and private investors will ease the continent’s crisis.

“A number of European banks are expected to underwrite the deal, billed as a test of investor sentiment at a critical time.

“Bankers say they have rarely seen such demand for debt with some of the wealthiest sovereign and private funds eager to snap up the bond designed to help fund the Irish bail-out.”

As it happens, last night the banks were named. Those in charge for handling the bond sale are Citigroup, HSBC and Société Générale.

That would be American bank Citigroup which secretly borrowed $89 billion from the US Federal Reserve… and needed $25 billion from the US government – a stake that resulted in Uncle Sam owning 36% of the company.

That would be UK headquartered bank HSBC. It secretly borrowed $4 billion from the US Federal Reserve.

And that would be French bank Société Générale which secretly borrowed $124 billion from the US Federal Reserve. The same Société Générale where Jerome Kerviel racked up trading losses of €4.9 billion in 2008.

But all that aside, it’s more evidence of how messed up financial markets are.

What you’ve got are banks that made a bunch of bad investments – thanks in part to government influence. Banks that needed a bail-out from national governments.

Those bail-outs were so huge the national governments were at risk of going bust. The solution? Banks that were bailed out by national governments are now underwriting an issue of government bonds that will be used to help the governments pay for the bail out of the banks!

Confused yet? You should be… because we are.

The whole thing looks like Escher’s Waterfall:

How the bail-outs work

You can’t figure out which way is up or which way is down. Which way the money flows? Does it even matter?

All we know is the banking system is corrupt. And those in government who support the system are equally corrupt – that goes for Australia’s banks and politicians too.

Meanwhile…

“Floods tipped to hit house prices”, says today’s The Age.

The mainstream press has got it spot on for once.

Of course, the mainstream still denies the existence of an Aussie housing bubble. The floods will be a scapegoat. We can picture their argument now: “Oh, if it wasn’t for all the flooding, Aussie house prices would be up 10% this year – that’s the normal growth rate you know.”

In fact, we speak too soon. The Age quotes Andrew Wilson from Australian Property Monitors:

“Mr Wilson expects a recovery in Brisbane property by the end of the year, providing there’s no downturn in the economy or additional severe natural disasters.

“’We’re expecting a pick-up in the Brisbane market around about the third quarter this year,’ he said. ‘That’s probably been postponed a little bit – but only by a quarter.’”

Ha, ha, ha… Is he kidding? Postponed by a quarter! It’s more likely that house price growth will be postponed for five years. Or even ten years… perhaps longer.

According to the same article, “28,000 homes would need to be completely rebuilt, while many houses would be uninhabitable for weeks, months or even years.”

We’ve even seen some comments that suggest house prices could surge because of the floods. That a diminished supply coupled with a new and unexpected increase in demand will force prices higher.

“It’s supply and demand” they say. No it’s not, it’s wishful thinking.

The Queensland floods will decimate house prices. No doubt about it.

Think about it this way. The spruikers are always keen to point out that roughly one-third of people own their home outright. Another third have a mortgage on their home. The remaining third rent.

So, out of 28,000 homes, that’s just about 9,333 homes in each category. And we’re not factoring in the homes with less damage. So you can more than double that number.

Now let’s work through it and figure out where the boom will come from. Remember it’s likely less than half these households will be insured for flooding.

For those that own their home outright, you’ve got between 4,500 and 9,333 people who have seen the value of their “asset” drop by a significant amount. I mean, let’s be honest. Who wants to buy a home or land that’s flooded – ducks… geese… fish?

If – and granted most won’t – they tried to sell the land today, they’d be lucky to get one-third the pre-flood value…

But we’ll guess most probably won’t want to sell up. Mainly because despite the floods they probably like where they live. And besides, they’ll get nowhere near the price they’d like if they put their property on the market.

These debt free householders will need to borrow a stack of cash to build a new home on their now empty block of land. Most likely a much smaller home in order to keep the costs down.

Next, what about the folks with a mortgage? These guys and gals are the ones in even big trouble. Most likely at least 4,500 of these mortgages will be in negative equity. That’s where the size of the loan exceeds the value of the property.

Thanks to recourse loans, even if these guys could sell, odds are they’ll still have a massive loan to pay off. It’s not like the New Orleans floods where home owners could walk away debt free.

These folks will still have the burden of a loan. A loan that, even if it’s refinanced, would become an unsecured loan and would involve a huge increase in the interest rate being charged.

And what would be the chances of these folks getting a new housing loan if they wanted to buy something else? Our guess is they wouldn’t have much luck. Besides, there’s the small matter of needing to save for a deposit as well.

Not forgetting whether they’ve still got a job. With thousands of businesses shut down temporarily or even permanently, many could find themselves homeless and jobless too. Try getting a loan with those credentials.

Finally, there’s the renters… ah, the much-ridiculed renters. Those who have been scoffed at for missing out on the property boom. Well, aside from losing their home and their possessions, the upside is that unlike those with a mortgage, renters won’t walk away with a debt hanging over them.

The same can’t be said for the landlords, who – thanks to the tax breaks – are likely to be maxed out on their investment mortgage. But then again, isn’t property investing all about making losses? We’re sure that’s how it works. They must be delighted with the losses they’ll make from the floods… mugs.

Back to the renters. Sure, they may still face issues such as not having a place to live and not having a job, but at least they won’t have to fork out monthly repayments for a loan on a house that no longer exists.

And at least they haven’t seen the value of their biggest asset drop by 40%, 50%, 60% or more overnight. And in the case of the landlords, the income against the property drop by 100%.

But surely the floods will cause a migration of people to other parts of Queensland and the rest of Australia… maybe. But it won’t lead to a rise in house prices. There’s not even a guarantee it’ll lead to a rise in demand for housing.

Remember, the vast majority of these people won’t be cashed up. Even those without a mortgage and who have cash to spend are unlikely to consider hocking themselves up to the eyeballs with a brand new mortgage…

Not after it’s taken them twenty-odd years to pay off the old one. And not after the experience they’ve just gone through of seeing their primary asset slump in value.

Also don’t forget, many consider their home to be their retirement savings. How often have you heard that? “Oh, we don’t worry about superannuation or investing, our retirement fund is our house.”

Good luck with that.

The simple fact is, from a house price perspective there’s no silver lining to the floods. The decimation of the supply won’t lead to increased demand.

In fact it’s more likely to result in prices across Queensland softening further.

Aussie house prices were already destined to fall off a cliff this year and next as the credit bubble reached breaking point.

The destruction of paper housing wealth and the burden of non-asset backed debt could be the trigger that finally sends Queensland and Australian property values tumbling.

Regards,

Kris Sayce

For Money Morning Australia

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They also have a better housing and education system and the government actually spends money on things.

The only thing is the public transport is no where near as good as London so you need to get a car.

But what about the funnel web spiders lurking underneath every toilet seat? laugh.gif

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  • 285 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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