A day in the life of the politico-housing complex

I consider the colour black to be…well…the colour black. It’s a rather simple test of my sanity in that what I see with my eyes matches how I interpret it with my brain. But there are some days when the whole world points to the same colour swatch and screams “it’s white”. These are the days when I shake my head and wonder if Australia is insane.

Today is such a day. And the colour patch at issue is housing.

The day began with a wall-to-wall barrage of headlines about rocketing house prices. The headlines were derived from a QBE LMI report, prepared by BIS Shrapnel (find it below). The report itself has some good data but its conclusions about house price growth were deeply contradicted by another prediction: that mortgage rates will be above 9% plus over the same time frame. You’ll forgive me for pointing out that this is a juxtaposition of incompatibles. The media offered no analysis of this and breathlessly reported the boom ahead.

Also widely reported this morning was the Business Council of Australia’s campaign to solve the Australian productivity crisis by boosting population growth. Rumplestatskin has already exposed that for the farce that it is. Of course, such a measure would, among other things, put upward pressure on house prices.

By the time you were driving to work, or riding the train, MB comments were under assault from an unknown group of trolls that seemed to have some affinity with the Australian Property Forum (judging by continual references to it). The fraudulent comments were singularly aimed at discrediting MB bloggers who, as we know, have differing views, but in general are not bullish on housing.

By morning tea, the ABS had released its housing finance data. The results were very interesting, showing a boom in refinancing but no evidence of increased borrowing for buying more existing dwellings. Yet the results were comprehensively misinterpreted in the media. Here are some of the headlines:

Various cardboard cutout economists were wheeled out to proclaim that housing is stabilising.

I have been expecting a bounce back in housing finance. The flattening of rate expectations should unleash some pent up demand after nearly a year of suffering, but the fact is there was none of it in today’s data. You can say that falling rates are doing something – enabling borrowers to pay down debt even faster through refinancing – but so far, that’s it. The same is clear in the RBA credit aggregates.

The weirdest thing about all of this is that the prudent response by the population is entirely appropriate. In the world of debt-revulsion that we are witnessing unfold, this is precisely what we, as a nation, should be doing. Most especially since we have been uniquely GIFTED the opportunity to do so by the Chinese. Every other country on earth with a debt bubble of our size is doing the same but has 10% plus unemployment to boot.

But none of this registers with politico-housing complex. Its bulls and bullies have no respect for sanity or the truth. They simply want to make more money by creating ever greater numbers of greater fools. I don’t like the idea that my children will have to confront these same price and moral pressures.

Yesterday Michael Pascoe wrote one of his better pieces on:

…why housing affordability is the summit we really have to have. Yes, another talkfest to kick and prod the elephant and each other until there’s enough consensus to move the beast and the excrement it’s building up.

I agree, except, after today, I can’t help feeling that the system is broken. It can’t change by itself. It is hopelessly and utterly addicted to house price growth and dominated by psuedo-elites that masquerade as nation builders. How does a broken system fix itself?

QBE LMI Australian Housing Outlook

Comments

  1. Fantastic article!!!

    The time is near for a special interest, lobby group, or single issue political party to shake this country up.

    i am watching a wonderful doco on prohibition here in the US. Silliest policy ever, but it shows the power of focussed political action in a democracy.

    Keep up the good fight, and don’t despair there is much more sanity out there than it seems (I think!)

    • i dont know if the sytems broken just majorly flawed.

      what people cant see they need to feel to understand. the stupider they are the more pain they need to feel. but once they understand they usually come around to the idea the system isnt working and needs an overhaul.

      • Nah its broken. We just had a tax forum where negative gearing was highlighted as a joke. Even koshie called it as something that has to have a limit. But we have exactly noone prepared to even consider changing what is really an insidious policy.

        A crash, followed by pitch forks and recriminations on people such as Kevin rudd, john howard and debt pushers and vampire squids of all kinds in some reawakening of the masses is the only way this is being set straight

      • it takes along time to turn these things around though denny. like trying to turn the titanic. probably a bad analogy as that ship sunk killing almost everyone on board. but think about the change so far. you wouldnt have kochie and eslake even mentioning the blatantly obvious a year or 2 ago. if you did they would be shot down straight away by the vested interest groups, but those groups are losing power and now their veiws are actually getting airtime and support. once more people realise that the ridiculously high cost of housing is killing the entire economy they will start to wake up but at the moment they just dont understand. when it becomes a choice between high house prices or a strong economy common sense will eventually prevail. if not, the economy will weaken to such an extent that it will take care of the high house prices itself. thats the beauty of economics, you can distort it for a while but not forever.

  2. I read that very article in The Age (Melbourne’s SMH if you will) and thought exactly the same thing.

    It is like the ‘churn’alist (a journalist who only repeats the press release by churning the data into a story) never even read, or more likely understood, the content of the report. How on earth do they get away with this sort of thing?

    Kudos to Pascoe as well. Normally I find him bit of a duffer, but I think his last piece on the call for a ‘housing summit’ was pretty good. Credit where it is due.

    Thanks for a great article and keep up the great work guys. I agree with Critical Influence that there is more sanity out there than the MSM seem to realise. Partly explains when some commentators keep being surprised at the published figures. Seems the public are way ahead on them on some fronts.

    • I like that term “Churnalist” and its definition DD. Its very appropriate. No questions asked, just regurgitate the release summary.

      Can we put that in the MB lexicon?

      Great summary of the day’s silliness and “churnalism” HnH.

      • hahaha, Yep, grab it and use it I say. Nicely sums up the style of much of the reporting you get these days. “Press Release? No problem, just print it ‘as is'”… Story done, go home early.

        In fairness to the folks who work in the media, they are under considerable time and financial pressures to get the job done, whatever it takes. Not too many newsrooms allow journalists the time and budget to analyse much these days.

        And of course it never pays to bite the hand the feeds you. These are commerical enterprises paid for by advertising after all.

  3. It’s a bit worrying actually …

    Either the economic editors of Fairfax, News or even The Business Spectator are a little bit lazy, incompetent (or a combination of both), or …. these are cases or wilful incorrect spin on the finance figures with the intent to keep the bubble afloat.

    Generally I’m not really into conspiracies but sometimes … 🙂

    • in the context of their standards of reporting on other matters it is easy to conclude laziness/incompetence rather than conspiracy.

  4. Hence why I don’t advocate for a “soft landing” in housing but rather a smashing and devastating crash – as big as possible. It needs to occur so that lessons are learned, a sort of mega-crash we have to have. None of this rubbish would be tolerated after that.

    • Thats a 100% representation of my POV as well. As an offshoot hopefully we can do a uturn on our collective road to perdition and become more social and community minded like we used to be.

    • I agree with you there, but the crash won’t guarantee change. In the US, the same Wall Street lobbyists that fought regulation on so called black-box derivatives a decade ago are now mongering more fear and even worse outcomes if the government’s proposed bank regulations are implemented – and in light of this, politicians are now ‘reviewing’ the extent of the proposed reforms. So unfortunately one big crash may not even cut it – even given the post-crash conditions in the US, the “complex” still battles for its own vested interests.

  5. Thanks H&H what can we say…

    The quote “If you tell a lie big enough and keep repeating it, people will eventually come to believe it” comes to mind, but they are loosing the battle so I expect them to lie more often and louder…

    All I see is lower prices in my suburb, and “willing to negotiate”.

  6. Yes – Pascoe’s article was a good read.

    Sites like MB are critical as they encourage debate around public policy and economic issues based on evidence and reasoning.

    There has been too little of that in recent years as the political parties now lack the wit or the will to talk about economics rationally.

    Sites like this help influence the debate simply because they provide a contrast to the established industrial media outlets and even emperors dont like it when their absence of clothing is made obvious.

    Good luck with trolls and keep up the good work – and that goes for all the contributors who make thoughtful and challenging contributions.

    • Perspective_Please

      “and that goes for all the contributors who make thoughtful and challenging contributions”

      I come to MB knowing that it represents the bear view, which is usually refreshing.

      Characterising the comments section as thoughtful, maybe, but “challenging”…c’mon. Its closer to cheerleading. 50 comments on this story, and I don’t think there’s one “challenging” one.

  7. I don’t know why anyone is surprised by this. The amount of vested interest in property/finance/government will mean that along with our banks, it is considered TBTF. A good old unwind is what we need, but I fear that every trick in the book will be used to keep things propped up

    • That’s true. Except they’re not pulling out the tricks at the moment. I think we’ve reached the point where the government can’t throw more money at house prices without it looking like a blatant attempt at keeping the bubble inflated. They’ve tried it too many times in the past and now the public knows what’s going on.

      The government also needs a surplus to retain any credibility. State governments are broke and looking to make deep cuts to their budget. In some cases (i.e. Tas) they are slashing elective surgery budgets.

      Are covered bonds the emergency stimulus that the gov’t is using to save the bubble?

      The only other thing I can think of that might occur is that the ALP realises they’re going to lose the next election and decides to spend up big on keeping house prices afloat on their way out the door.

  8. It’s always darkest before the dawn, HnH. Today in NZ we had similar, “Compared with September 2010, September 2011 house sales volumes rose…21.1%” but this was a total of…43, yes 43, more houses sold in Sept than August this year, or 921 more than last year. So chin up, you are right, you know 🙂

    • I feel like e-mailing this to my local high school Economics teacher, but I don’t think he will understand it – and there’s NO CHANCE it will be covered by the curriculum any time in the next 15 years.

  9. Yup – the coalition of vested interests is clearly trying to light the fire under a new real estate rally, fuelled by a November rate-cut. I’ll give them a 50%+ chance of pulling it off.

  10. To quote a blogger from a housing-related blog a year ago:

    “Ah, good old BIS Shrapnel. I recall their forecast at the start of 2008 that said prices in capital cities would rise 22% over the period 2008-2010. I’ve not kept much of an eye on house prices, but I’d wager that are roughly the same as they were at the start of 2008, so they’ve got about 6 months to gain 22% for BIS Shrapnel to be right.

    My guess is that they will be wrong, both on their 2008 forecast and their 2010 forecast. I wouldn’t expect them to release any press releases analysing their own actual performance over the past few years.”

    What more can you say. We await the MSM’s analysis of BIS shrapnel’s past performance with bated breath …..

  11. In the end, economic actors respond to prices signals, both from the current environment and from expectations about the future.

    So, no matter that some are urging a rally in the housing market. The demand/supply volume balance still points to a market that is over-priced. Even if the fine details of lending statistics are not elaborated as they should be, buyers cannot be wholly ignorant of the macro circumstances.

    The general behaviour of households shows they are paying down existing loans, avoiding taking on new debts and/or increasing their savings, and moderating their spending. Most people paying interest on a housing loan (say 7.5%) will also be aware that the value of their house has probably at best stagnated and has likely fallen. In some markets, prices have fallen or 6-8% pa for getting on to two years now. So the effective real cost of borrowing is in the 12-14-16% range for many home-buyers.

    At the same time, real rental yields are not enough to induce much investment demand. Unless capital gains, rental yields and real interest rates all move positively, there is very little chance that investment demand will bounce back. In many cases, investors will be waiting to get back above water on their existing properties before blundering into the market again.

    Those who have made their fortunes in property in the last 20-30 years doubtless are hoping the good times will soon return. But the reality is the bubble has been pierced and is now deflating under its own weight. There is nothing much that anyone can do to arrest this.

  12. Great article.

    They’re not going to get 20% rises with a 1% increase in borrowing.

    It certainly feels as if they are trying to spur on a lacklustre spring season with some good old fashioned spruik. I strongly doubt the RBA would be so short sighted as to lower rates to help them out, but stranger things have happened.

  13. Good article, keep on the case.

    Sadly I think the only way we will get any reform is after a crash has occurred. So, despite the pain it will cause, bring it on.

  14. It would be great to create a section on MB that names and shames this so called “experts” providing forecasts for a fee. I would love to see a chart where XXXX consulting firm has a 10% in forecasts accuracy, then we know we don’t have to worry when MSM reports their findings

  15. It’s stuff like this (i read this in the fin review today) that makes me ill.

    BIS managing director Robert Mellor even concludes that “If anything, we are being too conservative”

    A 20% rise in Perth by 2014 with 9% interest rates is too conservative??

  16. Greater fool?

    This potential new entrant to the housing market resembles that remark! I agree that median house prices are at crazy levels, but if i can afford a sub $300,000 mortgage to buy a modest 4 bedroom house for me and my family to live in, am i really a fool? I’ve been waiting for years for house prices to ease but time is running out for me as i am getting old.

    At that price, it is still only 4 times our household income, so not necessarily massively overpriced considering our circumstances (okay, not 4X *my* annual income as in times past, i admit). If prices keep deflating (as i think likely) we won’t care about the declining value of our ‘asset’. As mentioned elsewhere, you can’t put a price on some aspects of home ownership.

    I think the term churnalism has been around for years, and the concept has certainly been around since newspapers started i think.
    http://en.wikipedia.org/wiki/Churnalism

    Thanks for your great website and thoughtful discussion, and the opportunity to comment and share my perspective.