Comparing Australian and US housing

Please find below an interesting article by Philip Soos questioning the mainstream view that Australian housing values are built upon solid foundations. Philip is a Masters research student at the School of Humanities and Social Sciences, Deakin University.

As mainstream opinion would have it, Australia’s housing prices are solidly based upon fundamental valuations or intrinsic value. This position was repeated yet again by Terry Ryder, in a recent article on Property Observer, claiming “current prices are at sensible levels.” This view is the stance of the Australian government, central bank, Treasury, the FIRE (finance, insurance and real estate) sector, much of academia, and a legion of commentators, economists and analysts.

Ryder cites RBA governor Glenn Stevens, who is on the record saying the residential property market is not experiencing a bubble. For anyone who has followed the global property market over recent years, it is difficult not to notice that central bankers are possibly the least reliable and most incompetent of all economists when it comes to identifying asset bubbles. Their record is truly terrible, for not only completely missing trillion-dollar bubbles that formed in their own backyard but they have continually put effort into denying these bubbles exist.

Although Ryder believes Australia is different from the US in regards to the relative economic conditions and property markets (more on this below), in one aspect Australia is similar: central bankers at the RBA and Federal Reserve have gone on the record to deny that a housing bubble exists in their countries. In the US, concerns were continually raised before 2006 about the risk of a property bubble. Unfortunately, such concerns were dismissed as nonsense, with these dismissals emanating from all quarters.

This reached truly ludicrous proportions in the US with its two leading economists and central bankers, Ben Bernanke and Alan Greenspan. In October 2005, Bernanke, then chairman of the President’s Council of Economic Advisers, testified before the Congressional Joint Economic Committee, claiming “price increases largely reflect strong economic fundamentals, including robust growth in jobs and incomes, low mortgage rates, steady rates of household formation, and factors that limit the expansion of housing supply in some areas.”

A few months before Bernanke’s testimony, Alan Greenspan, the then chairman of the Fed, testified before the same Congressional committee, detailing a similar analysis to Bernanke. In his testimony, Greenspan noted “Although a ‘bubble’ in home prices for the nation as a whole does not appear likely, there do appear to be, at a minimum, signs of froth in some local markets where home prices seem to have risen to unsustainable levels. … Although we certainly cannot rule out home price declines, especially in some local markets, these declines, were they to occur, likely would not have substantial macroeconomic implications.”

As with the dot-com bubble, the vast majority of economists missed and/or denied the existence of a bubble on the stock market, and did it again with the housing bubble. 12 out of 15,000 professional economists in the US publicly warned of this $8 trillion-dollar Ponzi scheme. This was noted by Dirk Bezemer, a Dutch economist at the University of Groningen, identifying twelve economists who picked both the collapse of the housing bubble and GFC, in a study that is well worth reading (disappointingly, economist John Talbott who wrote two books in 2003 and 2006 predicting the eminent collapse of the bubble was explicitly not included).

Central bankers cannot identify these epic asset bubbles for two primary reasons: lousy economic theory and an unwillingness to take responsibility. The former revolves around a non-empirical form of economics that is taught in universities and practiced in government and industry. This is called “equilibrium economics” and is associated with the neoclassical school of economic thought. It teaches, using many unrealistic assumptions, that markets operate in equilibrium – a state in which economic resources are put to their most efficient use.

Many of these assumptions are patently absurd: all firms are the size of lemonade stands, people can see into the infinite future, know all information about all markets, firms borrow at the same rate of interest, that money, credit and debt does not exist, and so on. It is similar to an astronomer who constructs a model of the solar system without a sun, moons and gravity. If NASA were to attempt another moon landing using such a deficient model, the space shuttle would never leave the planet.

This worldview assumes, because markets operate efficiently, assets are almost always priced correctly – so bubbles cannot occur. Neoclassical theories of equilibrium price statics, rational expectations, efficient markets hypothesis, capital assets pricing model, utility, and so on are doctrines with slim to non-existent empirical backing.

This economic theory does not reflect reality, as has been accurately detailed by economist Steve Keen’s book Debunking Economics and numerous other sources. If it did, why are so many countries generating the largest asset bubbles in their respective histories after undergoing reforms of privatization and deregulation?

The latter reason is simple: if a central bank warned about a housing bubble as it was forming, the market would react by changing its attitude from greed to panic, typical of the pathology of boom bust mania. Economists in the central bank are considered the foremost authority on the economy, so when they speak, everyone listens. This institution’s most powerful influence upon the economy is not the ability to print money or adjust the interest rate, but its loudspeaker.

For instance, if the Fed had warned about a bubble forming in the housing market in 2002, and put time and effort into ensuring that everyone heard the message, the market would have collapsed then as property investors would act to protect themselves by selling assets (ensuring a collapse in capital values) and refusing to take up more debt (thus hurting bank profitability). This would have plunged the economy into a recession, though not of the severity the US is currently experiencing after letting the bubble run the course through to its peak in 2006.

Central bankers would have copped the blame for the financial and economic fallout, which would not endear them to political and economic elites, or the general population. Economists in the central bank are not going to put their substantial six-figure salaries and secure job placements on the line, including being subject to an immense amount of flak from the FIRE sector, for correctly stating the perfectly obvious that anyone with a modicum of knowledge of the financial and real estate markets would realize.

The majority of economists, especially those prominently placed in institutions like the RBA, Treasury, universities, the banking, financial and real estate industries, reject the notion that a bubble exists in the residential property market. This is unsurprising, given the poor track record of establishment economists in identifying asset bubbles and crises.

The Dot-Com bubble that formed in the stock market during the late 1990s and the GFC of 2008 are but two examples where the vast majority of economists missed the obvious, even though some did accurately predict these events and attempted to warn the public of impending danger. Thus, the analysis and commentary of mainstream economists, especially those within leading policy-making positions, tell us little about the future of the housing market and general economy, and their unwavering optimism should be greeted with a great deal of scepticism.

Ryder goes on to claim the US housing market was sunk by “a recessed economy, high unemployment, a major oversupply of dwellings and an unregulated lending sector (pretty much the opposite of Australia on every count).” The first two reasons are back to front. The bursting of the $8 trillion-dollar bubble caused the ‘Great Recession’ and subsequent high unemployment.

A collapse in demand from a formally strong private sector, combined with an external account deficit and the US government’s attempted austerity, pushed the US economy into recession. It is the bursting of asset bubbles that cause recessions and high rates of unemployment, not the other way round.

That the US had a major oversupply of dwellings was obvious to the mainstream only after the bubble had burst. Meanwhile vested interests constantly claimed there was a considerable shortage of dwellings. The shortage argument, however, is not new. Every country that has suffered through a housing boom and crash in recent years had so-called ‘experts’ claiming prices were based upon fundamental valuations due to dwelling shortages.

Take the US as a case study. Leading institutions such as the Federal Reserve, National Association of Realtors, California Building Industry Association and Harvard University’s Joint Center for Housing Studies produced sophisticated studies to show that the housing boom was caused, in part, by dwelling shortages. These studies were authored by professors, PhDs, and businesspeople, all with extensive knowledge and experience but with conflicts of interest that could fill a small book.

Their expertise was as illusory as the shortage when the housing market crashed. In this way, Australia is not different because there is no housing shortage here. High housing prices are not set by the forces of supply and demand but by banks’ willingness to lend, which leads to the next issue.

The leading cause of the US housing bubble was a privatized and deregulated financial system lending absurd amounts of credit to every Tom, Dick and Harry that would take it, regardless of their financial standing. This gave rise to the term ‘ninja’ loan, borrowers with no income, no job and no assets.

Loose credit was used to speculate on the property market, generating easy profits until the bubble peaked and then collapsed the financial sector in 2008. As early as 2004, the FBI testified before Congress that there was a significant amount of fraud taking place around the banks’ lending to borrowers. These concerns were dismissed by the Bush administration.

Similar to the US, Australia has a deregulated and liberalized financial sector, having undergone numerous reforms during the 1980s and 1990s, ending the government’s heavy involvement in ownership and management during the social democratic period of the 1950s to 1970s. Unsurprisingly, the amount of credit the banking sector extended to all parts of the private sector has increased dramatically. Mortgage debt has more than quadrupled from 19% of GDP in 1990 to 84% in 2012 to a higher level that of the US at its peak.

According to Denise Brailey, the President of the Banking & Finance Consumers Support Association, an organisation dedicated to protecting the public against predatory financiers, there is some evidence to suggest mortgage fraud is far more wide-spread than previously thought. Having worked in this field for the last twenty years, criminologist Brailey has seen first-hand the financial and social wreckage wrought by a multitude of scams and predatory lending.

Brailey provided testimony before the Senate Economics References Committee alleging wide-scale fraud from banks to brokers. While her testimony, which covers the period of 2008 to the present, was largely about low- and no-doc loans, her claims extend into the mainstream of full-doc mortgages.

Certainly, the public would know more if the ATO, ASIC and APRA bothered to look into these cases of fraud, but just like the US, regulators have been captured by the finance industry, unwilling to upset bankers and their allies in political office. Only time will reveal the extent of fraud that has taken place.

Ryder quotes Stevens about the apparent stability of the house price to income ratio for around a decade. I personally took an interest in the statistics used to construct this ratio, but my data request was refused by the RBA on the grounds of commercial confidentiality. Eventually, I managed to extract the household income part of the equation (denominator) through a Freedom of Information Act, as this had been constructed using ABS data (the numerator was constructed using data from APM).

It was easy to see why Stevens believed the ratio had not changed for ten years: the RBA measure of household income was severely inflated, to the point that the median household was ‘earning’ $97,000 in early 2010 (the last year that data was provided). This unrealistically high level of household income deflated the ratio.

ABS survey data estimates household income to be no higher than $74,000, a significant difference. Economists Leith van Onselen and Cameron Murray carefully backtracked through the National Accounts data to reveal the extra artefacts that the RBA had inserted into the household income figure to inflate it.

In summary, Australia does share some uncanny similarities with the US in the period before its housing market collapsed. Central bankers denied there was a bubble, the economy was apparently strong, there were never-ending reports of a dwelling shortage, bank lending is at historical levels, housing prices were also historically high, regulators were asleep at the wheel and reports of lending fraud surfaced. A weak economy and high unemployment only occurs after the housing market sinks.

Probably the only aspect of Ryder’s article that is accurate is when the question is asked of why a comparison between Australia and the US is considered legitimate. Ultimately, the most accurate assessment is based upon Australia’s current internal economic conditions. The second-best comparison is between Australia’s current and historical trends. Comparisons with other countries comprise an interesting academic exercise that can tell a useful story, but this is not needed to assess the health of Australia’s property markets.

Comments

      • I do love reading Terry Ryder when he writes about “vested interests” and “propaganda press releases”… The self-awareness is lacking in that one.

      • Hugh PavletichMEMBER

        The Patrician… thank you for your kind suggestion to respond to Terry Ryder, but I think it best to leave readers to assess the Demographia Survey ( http://www.demographia.com ) and Terry Ryders views …then draw their own conclusions.

        New Zealand Deputy Prime Minister Bill English Introduction to this year’s Survey may be of interest to many readers too. Wondering too, why their own Australian politicians have so little to say…in election year.

        This is the 9th Annual Survey of course and we get the usual chorus of special interest bellyachers every year.

        Following the 2011 7th Annual Survey, I covered these matters in the Sydney Morning Herald with “Report: Housing affordability out of sync with incomes”. I trust it is helpful to you and other MB readers –

        http://news.domain.com.au/domain/home-investor-centre/report-housing-affordability-out-of-sync-with-incomes-20110202-1ad3m.html

        And too … we are very busy in New Zealand currently working on solutions, as Leith has explained here on MB in numerous recent article.

        “Up to the minute” aggregated information is available at Cantabrians Unite facebook ( http://www.facebook.com/cantabriansunite ) and my archival website Performance Urban Planning ( http://www.PerformanceUrbanPlanning.org ).

        These are great resources for journalists reporting on these issues and the fast evolving political situation in New Zealand. They are as always most welcome to communicate and “grill” me anytime. I welcome it.

        Please tell me – where are the solutions to this serious housing problem currently being progressed in Australia ?

        Hugh Pavletich
        Co author – Demographia Survey

        • Q.”Please tell me – where are the solutions to this serious housing problem currently being progressed in Australia?”

          A. Macro Business

          Thanks Hugh. Fair enough on your decision not to respond to Ryder but after following your survey for a few years, this is the most aggressive I have seen the anti-Demographia attacks.

      • Yeah I like the comment down the bottom detailing Terry’s puffery so far this year.

        He’s hardly one to talk. And little better than the good Doc Yardney with his analysis.

  1. Great article.

    The last couple of weeks I have been reading David Einhorn’s excellent book “Fooling Some of the People All of the Time” about his short of Allied Capital and the endemic fraud at BDCs that the government agencies seemed totally uninterested in investigating.

    It really reinforces the point made in this article that government bureaucrats have an incredibly strong incentive to bury their heads in the sand and not rock the boat.

    The idea that a central banker would EVER admit to an asset bubble is patently absurd.

    Likewise, I have little or no confidence in regulators and authorities to discover or admit to predatory or fraudulent lending in Australia if it has occurred.

    The strategy is always deny, deny, deny until evidence becomes overwhelming and the opportunity to act has long since passed.

    • The idea that a central banker would EVER admit to an asset bubble is patently absurd.

      Likewise, I have little or no confidence in regulators and authorities to discover or admit to predatory or fraudulent lending in Australia if it has occurred.

      The strategy is always deny, deny, deny until evidence becomes overwhelming and the opportunity to act has long since passed.

      Because then when the S**T happens, they can all say that NOBODY saw it coming and no consequence required 😉

  2. Excellent article.

    The only gap I see is the implication that credit was looser in the US than it is in Aus. I’d love someone to figure out how this could be measured…

    Having lived in the US for a number of years, and through the GFC, I saw very little evidence of extreme leverage on the part of normal people. There was simply no need to, you could get a perfectly good house for well within your means. I think at the subprime margin, there was, but often people have the mistaken impression that Americans were living beyond their means much more so than Aussies today.

    I see the opposite. Living in Melb, I have lots of acquaintancies who have taken crazy debt, and recently I have been offered similar by the bank. In the US, noone I ever saw or met had taken 5-6 times their joint income or anything remotely approaching that.

    I feel this whole area of lending practices is badly misunderstood. Averages are used which dont capture the spread of risk.

    • I agree with you. I’m a New Yorker who moved to Melbourne in 2008. What I have witnessed here is far worse than NYC. Not only are people in debt up to their eyeballs, but living costs are so much higher in Melbourne now than when I moved here (not to mention how much more living costs are compared with Manhattan). How is there anything left to spend when so much disappears into mortgage payments and fixed household costs?

      Ryder should be flogged. The market will not bottom until the hubris is absolutely beaten out of the bulls – and we’re a long way from that.

    • Dravel,
      there was extremely loose credit in the US in the run up to the GFC, I can tell you about one person I know who was about to apply for bankruptcy when he was approached by a lender that would gladly lend him $220K for a new house (the house was probably only worth $170K IMHO) so for the next 4 years he basically paid nothing instead they revalued the house each year, so after 4 years he owed $320K. It was clear that house prices were no longer going up so the whole game came to an end. The house eventually sold for $120K in foreclosure. He reasoned that it was the best financial move he’d ever made, he got to live in a nice house for 4 years for free thanks to the monumental stupidity of some greedy bankers and mortgage agents.

      • The non-recourse mortgage loan laws they have in several States in the USA – particularly California, the bubble epicentre – made the downside more volatile. In Aussie you would actually have to be declared bankrupt to do the same as your example.

        • The non-recourse loan case is also overstated by the bulls. Florida has full recourse loans and it what I would consider to be the housing bubble epicenter.

        • BS. In California for instance, home loans are only non-recourse on initial mortgages. If you refi, you’re on the hook for full recourse.

          ‘Course, the problem becomes how do you get blood from a stone? That will be the issue with the banks down here. They have a big, scary stick to waive in the form of full recourse… but how do you get money from someone who is flat broke?

          There was a tipping point in the US when being bankrupt was no longer socially unacceptable. As stated above about the guy who lived for free in a nice home thanks to stupid bankers; that is now the socially acceptable explanation in the US. When that mindset gains currency here in Oz, watch out below!

      • Actually the guy was living in Texas, Arlington to be exact. He was about to declare bankruptcy when some scum-bag mortgage agent approached him with this scheme whereby he got the house, got to effectively take money out of the house and live there for free for 4 years and at the end of the whole thing he declared bankruptcy anyway. The only downside for him was delaying declaring bankruptcy, who knows maybe if values had gone to the moon (as in Aust) he would now be rich man, with $200K equity in a house.

        As Warren Buffet says you only know for sure whos swimming naked when the tide goes out.

    • “The only gap I see is the implication that credit was looser in the US than it is in Aus. I’d love someone to figure out how this could be measured…”

      Looking at how our household debt levels have grown at a much faster rate than the US gives me the answer to that one.

  3. Soos is just another dogmatic shortage-denier.

    Australia is not different because there is no housing shortage here. High housing prices are not set by the forces of supply and demand but by banks’ willingness to lend, which leads to the next issue.

    He clearly does not understand the basic theory of supply and demand. Demand is being willing and able to pay a price. Of course access to loans from a bank comes into this with housing. Soos really should study basic economics before writing any more articles.

    • Claw, we all know that your definition of “shortage of houses” is “shortage of cheap houses”.

      • So you agree that Soos doesn’t understand the term “demand” in the basic theory of “supply and demand”.

        Regarding your query about the shortage. I use the term “shortage” in one of its most common ways. It means “not enough”.

        In the case of Sydney housing there is not enough to maintain living standards and not enough to keep rents or prices at historical level. There is not enough. There is a shortage. What is so hard to understand about that? Why deny?

          • If there was a restriction in credit there would be less demand, hence supply would be sufficient. So of course there would be no shortage.

          • If there was a restriction in credit there’d be no shortage. Why deny?

            No shortage of what? Credit or housing? You are making no sense.

        • In the case of Sydney housing there is not enough to maintain living standards and not enough to keep rents or prices at historical level.

          This (high rent) shortage has nothing to do with credit, and everything to do with choked supply and too many immigrants.

          • But Claw, it IS possible to have inflated prices AND oversupply, look at Spain and Ireland.

            I certainly would not argue that Australia is in that category. However, it is perfectly possible to have a house PRICE BUBBLE and UNDERSUPPLY, in fact this is MORE likely than having a house price bubble and oversupply at the same time.

            Philip Soos is a very good analyst, but he is wrong about the USA as a whole having an oversupply of housing as a contributing factor to their bubble and crash. California, the epicentre of the crisis, had an undersupply, with the exception of a few counties where development was deflected away from BANANA* counties, which comprised “most of the rest of California”. Just because too many houses were built in Riverside – San Bernardino does NOT mean too many were built in California….!!!

            And just because too many houses were built in a few counties in California, Arizona and Nevada, does NOT mean that too many houses were built in the USA as a whole. The most amazing building effort occurred in Houston, where the population grew from 4 million people to 5 million people in the ten years from 2000 to 2010. WITHOUT a bubble, either in prices or oversupply. Consider that if you think a few thousand immigrants to Australia are the cause of a housing affordability crisis.

            Atlanta succeeded growing from 3.2 million people to 4.2 million in the same period without prices going up. In fact the supply “overshot” and prices went DOWN. The average size of a mortgage default in Atlanta is so piddly that the US economy would not have noticed anything. California and its absurd PRICES (a legacy of undersupply) is the MAIN problem.

            *BANANA = “Build Absolutely Nothing Anywhere Near Anybody”

          • Hi Claw,

            Its an issue people are grappling with here in Auckland, NZ, as well.

            House prices have increased 10% over the last 12 months, and rents are going up fast too. Anecdotally there appears to be a “shortage” as one would commonly understand it.

            And yet all around are massive blocks of green field land (including where i live, 25mins from cbd). The council claims there are 12,000 sections ready to build on, but only 2000 are being built on per year.

            And yet in theory any developer who builds a house now would make at least 10% more then they would’ve even 12 months ago, when we already had historically high prices. But so few are building.

            So massive developer profits + massive availability of land = low production … what gives?????

            I don’t know. But I’m guessing, whatever it is, the root cause is the same as whats causing the is-a-shortage/is-not-a-shortage dilemma in Sydney etc.

          • Philbest,
            Don’t tell me about BANANAS. I know all about NIMBYs BANANAs CAVE and NOPE.
            They created the shortage.

        • Claw, you are referring to “shortage” in the same way the NHSC does, which is fair enough. However Soos is referring to the physical quantity versus “need”.

          They are very different.

          The relationship between supply, demand for the NHSC’s interpretation/reporting factors in price. However it is common sense that the higher the price the greater the shortage (more accurately the “creation” of a shortage, where no physical shortage exists).

          • The higher the price goes, the more the phenomenon occurs, of empty houses and blighted properties (owned by speculators) at the same time as young people cannot afford to buy them and the average age of a first home buyer is rocketing and the proportion of non home owners is rising. This is a plague in the UK.

            Then the planners say, “there can’t be a shortage, look at all the empty houses there are already”.

      • I am pretty sure Soos does understand the term demand when compared to the “availability and supply of credit” though….

        When an asset class like housing gets treated as a speculative bet on future upward trends in price, then based on historical and current world wide evidence a boom becomes a bust.

        Shortage or no shortage.

        • +1.

          “….When an asset class like housing gets treated as a speculative bet on future upward trends in price, then based on historical and current world wide evidence a boom becomes a bust…..”

          That is exactly the crux of the problem. Philip Soos is absolutely right to criticise economists for assuming that markets, including urban land markets, merely “allocate resources (land) to the best uses”.

          This is rubbish when new problems with supply inelasticity allows prices to rise ahead of historical trends, creating speculative expectations that feeds a kind of nuclear chain reaction. Once this has started, I think it is impossible to stop it with increased supply, you have to prevent it from starting – just like with a nuclear meltdown. Once it has started, it is too late to flood the reactor with “moderator”.

          The worst defiance of economists assumptions about “efficient markets” concerns greenfields land in which land bankers hold a monopoly. Why would any of them sell the land “to be allocated to its best use”, when, like gold or shares, the price they might get is rising every year?

          This makes a mockery of planners statements that “there is X years supply of land” within our growth boundary. The fact that there is a growth boundary has REDUCED the chance that any land owner will SELL. He is behaving like a speculator in gold or shares, not like a vendor of land needed for an economically efficient use.

  4. Top stuff Philip Soos!

    “12 out of 15,000 professional economists in the US publicly warned of this $8 trillion-dollar Ponzi scheme.” is a damning indictment of the profession of economics. Imagine if meteorologists completely missed the biggest tropical cyclone in 50 years – they’d be strung up.

    Don’t Buy Now!

    • That figure sums up the degenerate nature of the system and the incompetence of the majority attempting to interpreting it.

    • There is hardly any better explanation of what is wrong with the training of mainstream economists when it comes to urban land markets, than the writings of Alan W. Evans, who was the director of the Spatial Economics Research Centre at the University of Reading for years. Interested people should get his 2 books published in 2004.

  5. So what are the real price to income ratios then?Have you got a time series for them?

    Thanks for the article and all but thats where your piece gets interesting.

  6. For those who are puzzled with demand and supply economics… you should look at demand as consisting off demand from (A) families looking for a house AND demand from house investors/speculators who are merely looking for capital gain of houses (B). so Demand=A + B.
    if B is significantly high, it will create a bubble. B can increase when loan is easy to get just like in US. In Australia, taking a 30 year loan is CRAZY! imagine paying the loan when you are in the 50s!! how about the kids education, etc ???

    • “In Australia, taking a 30 year loan is CRAZY! imagine paying the loan when you are in the 50s!! how about the kids education, etc ???”

      Aw shux, that’s nothing. In Australia we still take out 30yr loans when we’re IN our 50’s hee hee..

  7. There clearly was a housing bubble in many parts of the USA. Prices rushed up and then crashed down. The big moves up and down were over in a few years.
    However in Sydney prices did not rush up so fast. And prices have been fairly flat since 2003. It is a bit of a stretch to call this a bubble.

    • “However in Sydney prices did not rush up so fast.”

      False – from the 1990s till the GFC Australian house price growth very closely mirrored the US.

      How do you figure that a US-style house price crash does not mean there isn’t a bubble? Does the 20 year gradual decline in house prices in Japan mean there wasn’t a bubble there either? Tell that to property ‘investors’ in Japan in the late 1990s.

      • Bubbles pop. Did Japanese prices pop? If not, then not a bubble.
        In year 2000 was NASDAQ in a bubble? Yes it popped.
        Was the DOW? No. It was perhaps overvalued.

      • from the 1990s till the GFC Australian house price growth very closely mirrored the US.

        Do you have any evidence of this that you would care to share?

        • Your “evidence” is but a Google search away.

          Historical data for property prices in the US and Australia are hardly state secrets.

          “Bubbles pop. Did Japanese prices pop? If not, then not a bubble.”

          I think you are confusing asset bubbles with the dish-washing detergent variety.

          • I’ve seen the data and the USA has a clear bubble, whereas Sydney does not.
            In Sydney prices have reached a semi-permanently high plateau.

          • I disagree, Claw. A bubble does not have to “pop” before it can be termed a bubble. Otherwise how could anyone recognise one and warn about it? This is basically what this whole thread is ABOUT.

            A bubble can deflate slowly and still be a bubble. When one block of land in Tokyo is “worth more than the State of California”, you have a bubble, even if it takes 30 years for the price to revert to norm.

            A bubble is simply a class of assets “valued” way out of kilter with underlying incomes and production and GDP.

      • The Claw is correct – Sudney had a correction – 2003 I think was the start. Google for a chart.

        • this is a joke right? you guys are just having a go. a permanently high plateau? this is one of the most famous, ignorant and delusional statements in modern economics?

          irving fisher 1929…….

          Stock prices have reached what looks like a permanently high plateau

          http://www.gold-eagle.com/editorials_01/seymour062001.html

          keep sipping the kool aid peter and claw. its definately entertaining to see such patent cognitive bias/delusion.

    • Claw: “Market Tops Are a Process, Bottoms an Event”

      The fact that the real price peak in Sydney happened in 2003 doesn’t mean it’s not in a bubble.

      Strongly rising prices in other states stopped the bubble bursting in Sydney. Once the whole credit market of our banks peaks then Sydney will fall as well.

  8. The bull’s argument that “Australia is not exactly like the US therefore there must be no bubble” is a bizarre leap of logic.

        • Your definition of shortage for one.

          A shortage means when insufficient resources have been allocated.

          This is not the case with housing. Sufficient resources have been allocated.

          It is a case of the pricing mechanism, thus the market, is broken. The definition of the causation is; herding at best, and collusion at worst.

          More reources will fix the problem, as more reources would fix a shortage problem, but more resources to fix a problem does not mean a shortage exists.

          • This is not the case with housing. Sufficient resources have been allocated.
            I disagree. In Sydney there is a clear shortage of housing. Insufficient resources have been allocated to deal with locals + immigrants. Stop denying.

          • We didn’t isolate it to Sydney, in fact most have agreed with the assertion I make with a structural undersupply in Sydney.

            But considering the point of debate is ‘Australia is not like the U.S”.. and not ‘Sydney is not like the U.S” would indicate we have expanded the point of reference to be Australia.

            Thus, have sufficient resources been allocated in Australia to shelter its people, and that answer is yes.

          • The Claw – “I disagree. In Sydney there is a clear shortage of housing.”

            Heh… when they were saying this about Canberra every night on the local news a few years back, my response was: “So where are the stories of professionals on good wages living out of their cars because they can’t find a home/rental?”

            If there was truly a housing shortage, you would have stories of people making good money FORCED into group accommodation/long commutes/caravan parks because there was nothing else available. At the very least, you’d see rent outpacing inflation by a fair margin. Yet, we don’t see this because the specuvestors are happy to NG or even let the place sit unrented/empty.

            Rusty Penny is correct – “More reources will fix the problem, as more reources would fix a shortage problem, but more resources to fix a problem does not mean a shortage exists.”

    • The bull’s argument that “Australia is not exactly like the US therefore there must be no bubble” is a bizarre leap of logic.

      It certainly is bizarre. Which silly bull made that argument?

  9. I’m late to the party.

    You are looking in all the wrong place Phillip. The article is said to be about a comparison between the US housing market and the Australian housing market. That’s fine but you strain to find similarities, and like everyone else mistakenly believe that only debt levels and inflated asset prices were to blame.

    You do mention sub prime lending and then incorrectly assume that the lending practices in Australia were as bad as those in the USA. Sorry but that is incorrect, and I’m afraid that do-gooders like Denise Brailey are wasting their time trying to rehabilitate a dishonest broker, rather than face the cold hard realities of life. We just didn’t have exploding mortgages.

    The USA built sub prime mortgages that were designed to explode to allow the bank to profit on both sides of the trade – they were a dishonest instrument and why no one has gone to jail for their creation is beyond logic.

    To get a measure of the level of toxicity of these instruments, you can read this article based on the court documents disclosed in a current case in the USA –

    http://www.propublica.org/thetrade/item/explosive-charge-morgan-stanley-peddled-security-its-own-employee-called-nu

    The loan books of the large US banks contained so much of this toxic debt that banks refused to conduct normal interbank exchanges – they wouldn’t exchange paper. So the banking system froze and as a result credit completely dried up and all asset prices tumbled. I don’t think that you fully appreciate the implication of a frozen banking system, and how quickly it can bring a country to it’s knees.

    It wasn’t just residential housing that fell, but commercial, industrial, equities, and even sovereign debt lost it’s trusted position. Investors and banks only wanted US bonds, or other safe havens.

    Under a banking crisis like that, the economy had to buckle. But it wasn’t the debt level that was the root cause, the debt heightened the risk, but it was not the cause.

    I’m happy to accept that prices here are elevated, but no more so that they have been during other mining boom, be that gold in the 19th century, or coal, nickel, iron ore, or any other ore in demand by growing industrial nations. The mining income does rub off on the community.

    You haven’t looked at wages. Real wages in Australia have been growing strongly for decades, usually at or above the rate of inflation.

    By comparison real wages of US workers has not risen sine the seventies. Here is a long term chart for the AWE for a 25 Y/O male.

    http://www.aboutinflation.com/salary-and-inflation/average-earnings-us/us-earnings-inflation-adjusted-male-age-25-historical

    I’m not claiming that Australia is different, I’m claiming that the USA is different – it was the outlier that has then exposed other weak banking structures such as Ireland and Spain (in fact the whole EUZone structure).

    There is no doubt that mining has saved us from experiencing a large fall in property prices, but there is no evidence to show that the falls here would be of the same magnitude as the falls in the USA, or elsewhere – at best that is speculation.

    What will your narrative be when house prices in the USA regain much of their lost ground?

    Have you considered that the world has gone through a never before experienced period of peacetime lasting almost 70 years, as well as the largest social and technological change ever seen – no longer is a household income that of a sole breadwinner, and no longer are female partners restricted from having a voice because of greatly inferior earning power.

    The measure used in the last century, is not the yardstick of this century. The world has changed irreversibly, and you missed taking that change into account.

    • Peter,

      Fair points.

      I would add however that toxic loans are not required.

      There was no American style subprime in Ireland and yet…

      • Wow Barry, that was fast.

        The economist is undergoing maintenance at the moment, but when it is back, go into their interactive house price comparison “Location Location Location – you will need to Google that.

        Then plug in Ireland and Spain to get a comparison to both Australia and the USA – on memory I think it starts at 1975 so it’s over about 40 years.

        Both Ireland and Spain overbuilt – Spain for the expected arrival of UK villa buyers, and Ireland – well who knows what the reasons were for Ireland to build hotels and houses where no one wanted them.

        Both nations have no control over their currency, so when they tried to rescue the banking system, they lost control of government debt in an economy where that really matters. Hence the high bond rates.

        I’m not saying there were no elements of those problems here, in every decade there is some over production and loose lending, but generally it was contained here.

        I lay the blame for the GST squarely at the feet of the US bankers who wanted to make money on the lending, the packaging, and the other side via their trading arms, and then sell off the toxic debts to unsuspecting buyers, thus transferring the problems globally.

        It was a banking system crash that would have occurred regardless of debt levels, but accentuated because of the higher than traditional debt levels.

        If the banks stop exchanging each others *paper, the system will crash regardless of debt levels, or the cause, it starts to feed off itself.

        * the freeflow of cheques, drafts, warrants, promissory notes, interbank transfers etc.

        • Peter Fraser, there was nothing inherently wrong with the system of mortgage securitisation in the USA. Have you not read “The Big Short” by Michael Lewis?

          The only mortgage backed securities that the smart hedge funds were shorting, were the ones derived from mortgage markets where house prices were grossly over-valued. Then when the whole lot crashed in value due to mass ignorance (which still applies, BTW) some of the smartest hedge funds switched to BUYING as many as they could, of Mortgage Backed Securities derived from stable-house-price markets such as Texas, that were then grossly under-valued.

          The WHOLE crisis was caused by the total inability of mainstream analysts to see anything at all wrong with prices being inflated by distorted SUPPLY.

          I want to make this as an important point in its own right. Economists have failed dismally by analysing housing markets supply, demand, and prices, and saying, “everything is OK, prices are being derived from the fundamentals of supply and demand”. They are willfully ignorant about the fact that inelastic supply can be – in fact, IS – an inevitable CAUSE of a price bubble.

          They are further willfully ignorant about the fact that a major proportion of “demand” under these conditions, is speculative demand generated ENDOGENOUSLY to the supply elasticities. To them, a unit of demand is a unit of demand. A unit of supply is a unit of supply. (Supply excluded by regulations is immaterial). Equilibrium price is what results from their units of supply interacting with their units of demand. Everything is ALWAYS hunky-dory under this sort of analysis.

          • As a matter of fact Phil I haven’t yet read “The big short” by Lewis, but from discussions with friends who have it is very obvious that the USA was designing it’s own downfall with very dangerous derivitaves that no one understood.

            What you have said directly contradicts advice that I have received, and I’ll stick with my source thanks.

          • Are you SURE that your sources are not the current equivalent of the 99% of pundits pre-crash that were wrong, and mine are not the current equivalent of the 1% pre-crash that were right?

          • It is also telling that you regard the problem as

            “….dangerous derivatives that no one understood…..”

            but you accept the assessment today, of the people who did not understand them and still do not, against the assessment of someone who does understand them.

            Blaming the factor you do not understand, is a null hypothesis.

      • There was no American style subprime in Ireland and yet…

        Shortage-deniers will often flip-flop from one nonsense to another.

        If I explain the Irish situation will you switch to Spain?

        • Believe me, I understand what happened in Ireland chapter and verse.

          The only point I was making is that there was no subprime in Ireland. the loans were made in the main by the pillar banks. They were not NINJA or similar. Their fatal design flaw was that they contained the built in presumption that they could be repaid in the event of a) rising interest rates and b) a rising unemployment problem precipitated by a downturn in the real economy.

          The loans are now going delinquent due to the fact that Ireland has an effective unemployment rate of 15% + and the market was top heavy with speculative investors.

          In the end though, it was the loans to property developers that did the damage to the Irish banks.

          • A combination of price bubble AND oversupply is the most damaging to an economy. I think Spain and Ireland are stuffed for YEARS. I think their situations resemble that of the Great Depression of the 1930’s far more than in any other places.

            You are correct that lending to developers is an extra problem under this scenario. However, lending to developers explodes even in an undersupply-related house price bubble, because the developers are having to pay literally hundreds of times as much as they used to, for raw land.

            The major reason that a price bubble WITH oversupply as well is more damaging, is simply that the oversupply of homes makes the downside a lot more volatile. The reason why the bottom of the price crash in LA and SF has been much higher than in Phoenix and Las Vegas, is simply that LA and SF are plagued with under-supply.

            For the same reason, the UK’s many property price cycles over decades now, never “bottom out” at levels that could be described as “low”, even though the prices go higher on the upside every time. Propping up the downside, is a relentless and worsening outright shortage of homes, possibly now in the millions.

          • Barry I’ve not heard of any poor lending standards or sub-prime lending in Ireland, and that was not a point that I made about Ireland.

            Ireland gave up her right to print her own currency, and she was given very poor advice that brought significant austerity policies, which caused the high unemployment.

            If you increase unemployment to high levels you guarantee failure and high default rates.

            Problems were not unavoidable, but the magnitude of the problem was avoidable in Ireland, had she maintaind her own currency, or been granted the same priviledges as now enjoyed by Italy. Ireland was the test case and they got it wrong.

        • I submit that the whole lending food chain is sub-prime at these lofty multiples. Sub-prime is nomenclature specific to the US. The bad lending phenomenon is widespread and in my opinion it includes Australia. Sub-prime in the US took the finger out of the dam, but the bad loans went up to prime when unemployment went up.

        • GunnamattaMEMBER

          The difference between the US and Eire, Spain is that

          in the US the financial system was trading (via derivatives) on subprime (without realising what they were or the risks contained therein – and Michael Lewis has perfectly described the stupidity involved). One lot of bankers just wanted to shovel money down the throats of real estate buyers (regardless of quality), another lot just wanted derivatives to sell as investment insurance to risk averse investors and didnt look at what they were packaging as that. You couldn’t argue that there was spectacular oversupply over the US as a whole, although you could in certain sectors.

          in Eire the financial system was an integral part of a property development frenzy, sparked by low ECB rates and the then top quality Irish sovereign rating (easy access to funds for the Irish banking sector) which through some fairly overt corruption was encouraged to lend ridiculously to the property development sector, and where the general public was largely suckered in to thinking they needed to get in too, without ever dreaming they were getting in miles over their heads. That led to ridiculous oversupply (although you go back to Eire about then and the same undersupply spectre was regularly being bandied about by vested interests). I speak as the godfather to two Irish kids who see their father once a month because he works in Moscow to earn the dough to meet repayments on their mortgage for a place which is worth about 75% of what they paid for it. The net result was that when unemployment climbed, lots of people couldnt make repayments, or were caught with their pants down on properties they had paid too much for, and the banks exposed for disastrous lending. The hitherto ultra dry Irish budget was (in what many Irish consider a great political miscalculation in the face of EU bullying) put behind the banks to prevent international investors in those banks from being creamed (with the Irish people being creamed instead).

          in Spain a consistently weak budget and uncompetitive economy found itself overwhelmed with money coming into the country from elsewhere in the EU, dislocating government finances at federal and regional levels, in order to satisfy demand for property development catering initially largely for foreigners in Spain. This had the impact of sharply lifting Spanish property prices across the board, encouraging a great deal of consumer debt, budgetary laxity, and in the end loads of government debt, loads of uncompetitive spanish employees, and loads of apartments and villas which nobody really wants. The problem in Spain was that nobody was really in a position to say no to the money coming in, rather than spectacular amounts of corruption, as property development interests just waved loads of cash in front of governments, and the government thought the tide had risen forever (committing outlays on that basis), as spanish employees thought they should have German conditions etc.

          I tend to see Australia as a cross between Eire and Spain (overbuilding and banks too close to real estate sector, coupled with mania in housing and spectacular private debt levels – with the real fraud in the real estate sector), not the US (where money going into real estate was just one of many items on the speculation menu de jour – albeit the one that spectacularly highlighted how silly the banks had been, and brought confidence in the whole system down – and the fraud was essentially in a financial system which had lost touch with what it was gambling in, rather than real estate developers)

          • Really interesting comment, Gunnamatta.

            I think you are saying that it doesn’t really matter whether “financial instruments with fancy names” are part of the problem or not. I strongly believe this.

            At the end of the day, banks had to be lending money and they had to be raising the money from somewhere. Whether they called them mortgage backed securities or not does not matter.

            Credit default swaps are basically zero-sum bets. Someone wins, someone else pays. It is the “investment” in the property itself that is NOT zero-sum and that really matters whether “equity” is preserved in it or not. If a nation’s house price bubble bursts destroying MORE equity but with no credit default swaps at all, more damage will be done to that economy than one where less equity was destroyed but there was massive betting on the outcomes via CDS’s.

    • “You haven’t looked at wages. Real wages in Australia have been growing strongly for decades, usually at or above the rate of inflation.”

      I’ve personally seen no evidence of this. I work in IT and my salary has been going nowhere at all in recent years, and in fact they seem to be trending downwards due to massive outsourcing and high immigration, leaving more and more people competing for the same jobs. Perhaps it’s just this industry which could well be the case though but that’s still a pretty large segment.

      Regardless, I certainly haven’t been the kind of rises in national average salary necessary to make the average loan sizes people take out to buy property look like anything other than massive, bubbly, risky leverage.

      • seriously wasabinator – the world does not revolve around your wages. Wages in the IT industry are quite high. If you are not earning over $100K then there is either a problem with your employer or you.

        • You were making claims about wage growth, not absolute levels.

          There are plenty of – indeed, most – IT jobs that don’t pay $100k+ as well.

        • Wow, now I know why you’re a bull.

          Unless you have been in IT for 10+ years, an assuming on a manager level, 100K plus is not typical income salary.

          Have you spoken to IT graduates of the last 5-7 years?
          Salary can range between 65K and 85K.

          IT managers/specialists on 100K plus would be OK with current situation assuming they don’t have million dollar mortgages… But the majority of IT professionals looking for their first house are not earning 100K….I’m not in IT but I know friends in IT who are not earning as you claim.

          I do have 2 friends in real estate who earns 250K a year includi bonuses for selling over inflated houses. And the biggest opposition to the bear’s arguments.

          Maybe real solution is individual house prices to be ratio’d to the buyer’s income. With current prices and bull logic it seems they are selling houses to real estate workers and early 2000s investors.

          • Peter Fraser seems to object to other people using actual data against his wishful thinking…..

          • IT managers/specialists on 100K plus would be OK with current situation assuming they don’t have million dollar mortgages…

            I’m an IT specialist earning $100k+ (married to an Engineer on a similar income) and I can assure you I’m not even remotely OK with the situation. I’ve wanted to build a nice house on acreage since I was a teenager (came pretty close to pursuing a career in architecture), but to do it today, even if I were prepared to spend a couple of hours each day commuting, would cost me $750k or more, and we don’t believe we can (responsibly) afford that.

            Or, from another perspective, both my wife and I probably earn 50% more now than either of our parents did in real terms even at the peak of their careers, but we’d struggle mightily to afford either of their houses. It’s ridiculous.

          • @drS. That is exactly the shafting of the next generation and the total failure of the last 20 yrs of leadership that should see everyone under 35 reject completely the established parties (including the greens)

            Australia has been run as a property ponzi for the boomers and investors for the last 20+ years.

            I have friends in science and technology – some in research – that get very frustrated at the level of abandonment. The researchers in particular work hard and do great stuff and they are locked out of buying a nice place by wages that are not low but are just not astronomical.

            The only people I know that have really profited out of the last 20 yrs are financiers, rent seekers and property investors.

    • You do mention sub prime lending and then incorrectly assume that the lending practices in Australia were as bad as those in the USA. Sorry but that is incorrect, and I’m afraid that do-gooders like Denise Brailey are wasting their time trying to rehabilitate a dishonest broker, rather than face the cold hard realities of life. We just didn’t have exploding mortgages.

      Hmm, a self-certification by a mortgage broker that there was no hanky-panky going on here. If the criminal justice system worked on that basis, we wouldn’t need any jails!!

      I have my doubts though. Why did Aussie instruct its brokers to destroy loan application forms before the GFC?

      http://www.theaustralian.com.au/business/financial-services/aussie-home-loans-denies-involvement-as-low-doc-row-escalates/story-fn91wd6x-1226487701445

      • To me it appears that the lending practices are very similar and securitization and it’s effects are different.

        • I think the scale is different. Fraud was scaled up to an unimaginable level in the US. It was done at an industrial scale, with office buildings full of rubber stampers..oops.. mortgage underwriters approving anyone with a pulse. To what extent is it going on here in Aus, we will only know after the fact, if and when defaults start to rise.

          As Soos points out, FBI was warning about it all the time, but the political masters, both Democrats & Republicans decided to ignore it and continue to ignore it, preferring to keep the banks afloat by hook or crook.

          • +1

            “…..To what extent is it going on here in Aus, we will only know after the fact…..”

            Sad but true.

            Note that the problem you refer to, existed only in the price-bubble markets in the USA. I have always picked that the overall percentage of problems at a NATIONAL level has to be higher in a nation where there are NO “immune” urban markets at all, even if the scale of fraud etc was lower at the level of the individual market.

      • Not at all Mav – the broker at the centre of the issue that Brailey is involved SHOULD GO TO JAIL and probably will when Brailey stops defending her.
        Denise Brailey is not the solution, she is part of the problem.

        • Yeah, right. Jailing one scapegoat of a broker is all that is needed to fix the mortgage industry. /sarc.

          Brailey is asking for an industry wide investigation, a perfectly reasonable request. It seems your desire is to proclaim innocence before any authority conducts an investigation – smells desperately of a “nothing to see here, move along” approach.

          As expected, you have evaded the question on Aussie Home loan’s potential destruction of evidence. What about the smoking gun email from Maq bank telling its brokers that one day old ABNs are alright for no doc loans?

      • Bestinvestinproperty

        Mav

        Not sure what is wrong with the link to the Aussie story but it wont connect for some reason.

        If this article is correct and Aussie has advised brokers to destroy applications of clients prior to the GFC,I am unsure as to why they would bother as the banks retain an exact copy of those particular applications in their records so the applications can be accesed by any regulatory body that wants to access them.

        I have to chip in here regarding “Low Doc” / “No Doc ” loans that were issued in Australia.

        I could be incorrect on this front and am happy to be corrected by anyone who can provide references to their sources but to the best of my understanding the only “No Doc” loans that were offered to the Australian public were at a maximum LVR of 60% (Applicant was required to have 40% deposit) these were offered predominantly by ANZ. For the Lo doc loan the applicant was required to state their income level, sign the declaration and they were underway. There were “Lo Doc” loans issued also however some documentation was required for these loans and the maximum LVR for this type of loan was 80%.

        So to some extent the banks were not as irresponsible as US banks who were not only offering NINJA loans but NINJAND loans ( No Income, No Job, No Deposit)

        In fact I think that the focus needs to change because lo doc loans or no doc loans the bank actually holds some fairly substantial equity in these loans (20% minimum and up to 40%) so the marhet would really need to tank for the bank to be underwater on these loans.

        Regarding the lending for full doc loans (up to 95% + LMI) whilst these levels are high at the end of the day whilever the jobs remain it all will continue as per normal ( I am not saying that Australia will not experience Job losses and in the current cliemate that is almost a certainty which will of course play into the housing market)

        But at the end of the day US Banks were lending to people with no income and no job no deposit.

        Whilstever our market has employed people taking home loans and stumping up their hard earned deposits for some skin in the game it has to be a different psychology at play than in the US.

        • I agree with your proposition – the lending practices here don’t appear to be as bad as the US. Where I differ is that we cannot declare there are no dead bodies buried in the mortgage land without a proper investigation – maybe a sample of loan applications can be cross-checked by an independent party to ensure fraud did not take place.

          ASIC (and now Peter Fraser) seem to desperately want to stop people like Brailey from poking around and this behaviour raises some red flags for me.

          I am unsure as to why they would bother as the banks retain an exact copy of those particular applications in their records so the applications can be accesed by any regulatory body that wants to access them.

          As per Brailey, customers who ask for their l applications are being given the runaround by the banks and instructed to get it from the brokers.

          • “….the lending practices here don’t appear to be as bad as the US…..”

            Yes, but the overall percentage of problems at a NATIONAL level has to be higher in a nation where there are NO “immune” urban markets at all, even if the scale of fraud etc has been lower at the level of the individual market. The USA at least had 190 out of their 260 biggest cities, with no price bubble at all.

            Australia’s cities may all be “cleaner” in their mortgage lending practices than LA and San Fran were, but Australia as a whole HAS to have a worse problem than the USA as a whole.

    • Here we go Peter – Claw would probably call you “subprime denier” if you were not on the same side 🙂

      “You do mention sub prime lending and then incorrectly assume that the lending practices in Australia were as bad as those in the USA.”

      I claim that: Australian subprime is much worse than American and I have data to support my view. Huge percentage of mortgages in Australia are subprime by definition – repayments are high percentage of income and borrowers just few months away from default in case of wage income loss.

      Australia has more than a quarter of all mortgages in “interest only” morgages. All (every single one) of these are speculative, price increase bet mortgages. It’s hard to imagine the level of toxicity of these instruments given to “ordinary” wage people. They are designed to explode and “allow the bank to profit on both sides of the trade”.

      Almost two million speculators in a country 30% smaller than California alone. Most of them highly leveraged, middle class blokes just about to retire with no or very little savings. Huge LVRs based on inflated incomes many based on self reported amounts.

      just few months with elevated unemployment and your “nonexistent sub-prime” will become the largest sub-prime ever. USA, Ireland, Spain, … all had lower levels of bad loans before bubble burst, they had high employment … and than …

      The major difference between these countries and us is that these countries actually had decent economy, as opposed to our “house and holes” or in other terms “debt and debt” economy.

      • I have spent hours reading your views raves, but I don’t find them particularly relevant. You grossly exaggerate and use data selectively.

        But I’m sure that you will maintain your rage.

        Cheers…

        • Raveswei is correct.

          “…..Huge percentage of mortgages in Australia are subprime by definition – repayments are high percentage of income and borrowers just few months away from default in case of wage income loss…..”

          Australia simply does not have a technical term to CALL a mortgage that the US WOULD call “subprime”. I understood it simply means, “requires more than 45% of borrower’s income to service it. In this case probably 90% of all new Australian mortgages since about 2002 have been “subprime”.

      • Claw would probably call you “subprime denier” if you were not on the same side

        I am on the side of truth and decency. I am happy when Peter is with me. Why don’t you join me some time?

    • Not only “late” to party but arriving with severely inaccurate comments.(Again)

      Firstly to describe Denise Brailey as a “do-gooder” wasting her time trying to rehabilitate a dishonest broker, rather than face the cold hard realities of life
      is dispicable – She is a Hero!

      And this for a howler : “You haven’t looked at wages. Real wages in Australia have been growing strongly for decades, usually at or above the rate of inflation”
      What a load of rubbish. Inflation is understated by at least 100% of the official rate –and wage earners outside of Mining have been struggling for the last 10years+ !

      I must admit I take exception to a lot of your comments as they don’t reflect reality as I see it.

    • dumb_non_economist

      Peter,

      I think it’s you who seems to have a problem in making comparisons.

      The family home I bought in ’95 for 255k (built ’75) with an income of 100k as a 35 yo was valued by Hegney’s in ’08 for the Family Court at 910K, which I’m guessing now is at least 1m, would require a 35 yo today at the same place in life I was at that age to be earning 400k. If I was still employed in the same position today and averaged a 4% pay rise pa for 18 yrs I’d be earning 200k. Still half of what would be required.

      Housing prices aren’t elevated, they are plainly, stupidly and extremely over valued.

  10. If there is not Australian house bubble then why is there a Wikipedia page about it?

    Atheists: 1
    Czechoslovakians: 0

      • Far fewer people have “seen” a Yeti, so as to be able to argue whether it is a Yeti or not, than what have “seen” the Australian House Price Bubble.

      • Your post abusing me is as ridiculous as your previous posts which abuse statistics.

        I hope that Sydney house prices will fall. I have proposed sensible changes that would achieve this. Clowns like you have been predicting a bust for years, and it has not eventuated.

        Your so-called analysis is nothing more than wishful thinking.

    • Japan prices experience a steep drop for about two years in the early 90s… and then continued to gradually decline by about another 50% over the next two decades.

      If you bought in 1994 then you would have experienced no ‘pop’.. just a long slow decline and loss of 50% of your equity over the next 18 years (nominal).

      But by your definition you would not have been buying into an asset bubble.

      The huge difference between the US and Japanese asset price deflation should make it obvious to anyone that some narrow definition of what price movement constitutes a ‘bubble’ is just ridiculous.

      The only pre-requiste for a bubble is asset price inflation well above the intrinsic value of the asset. Does Australian housing meet that defintion? Take a look at rental yields and you have your answer.

      The unwinding can take many forms and follow different time scales but to argue that an absence of a ‘pop’ (yet) is proof there is no asset bubble is just silly.

  11. Check the definition in any dictionary, financial text (or Wikipedia for that matter) and then tell me who’s definition is ‘nonsense’.

    • Economic bubble, a situation where market prices are unsustainable.

      I just did. Your definition is nonsense. Mine is correct.

      Since Sydney prices have been sustained for 10 years, clearly there is no bubble

      • Hmmmm, interesting question. Can the unsustainable be sustained by artificial means for years, leading people to believe no unwinding or reversion to mean is ever going to occur?

        I have always been a skeptic along the lines of Ludwig Von Mises’ famous comment:

        “…..There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved……”

      • My definition of a bubble, given earlier on this thread: a bubble is simply a class of assets “valued” way out of kilter with the historically normal relationship between the asset prices and the underlying incomes and production and GDP.

        • A case can be made that Sydney housing is fairly valued relative to its rental yield and alternative investment returns.

          Have you heard of Bill Fleckenstein?

  12. The Claw, I’m not going to bother engaging with you any longer. All we’ve established is that we can add ‘unsustainable’ to the list of terms you don’t understand the meaning of.

    I don’t feel like we’re making any progress here.

    • Thats your problem right there “Claw” – you do not engage, you just posit your views and be damned if anyone doesn’t agree 100%.

      Hence, have the rest of the night and tomorrow off. I’ve deleted your “moron” and other personal attack comments as well, don’t bother complaining about it.

      • Chris,
        I don’t mind taking a break from commenting. However if you had actually read the “moron” comment you would have understood that I was admitting to being a moron myself. I wasn’t calling anyone else a moron.
        I’ll try to be a bit more engaging in future.