The RBA is expecting a property correction

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Cross-posted from Martin North’s DFA blog.

In an address yesterday to the CITI Residential Housing Conference in Sydney, Luci Ellis, Head of Financial Stability Department at the Reserve Bank spoke about housing in the context of the financial system. Quite a bit of the speech covered aspects of relative population density, demand and supply. However, to towards the end of the speech, she spoke more broadly. I highlight some of the statements in bold.

“Our low-density cities have developed out of a postwar vision of Australian cities, of detached houses on quarter-acre blocks. State and Federal War Service Homes programs were designed on that vision; planning regulation enforced it. As a mode of living, low-density suburbia has its advantages. But it does mean that distances are greater and almost every trip requires a car. The only alternative offered at the time of our first mass suburbanisation seemed to be the ‘tower in the park’, Le Corbusier’s utopian dream of apartment living. But the reality turned out to be a nightmare of social isolation for the public housing tenants in those developments.

Let me be clear that I am not saying that the low-density, detached housing option should be phased out. It is the preferred choice of many households, but it is not for everyone. In the end, the aim should be to provide better choices, and a wider range of choices. I’m hopeful that the future brings Australians a wider range of places they would be happy to move to; different housing types for different family sizes and life stages; and a greater confidence that centres outside state capitals can offer the strong job markets and scope for entrepreneurship people need, and housing at a price they can better afford. That way, people can see an upswing in housing prices in the larger centres and say, ‘I don’t have to buy into that. I don’t have to stretch my finances’. Australian household finances are not looking that stretched at the moment, and we’d like to see it stay that way.

As we have said many times in the past, the 15 years or so to about 2005 saw housing prices rise noticeably faster than incomes. This was in large part a transition to a new equilibrium of lower inflation and interest rates, and thus higher debt and housing prices relative to incomes. That transition is over now. Housing prices are therefore going to be cycling around a slower trend than they did in the past. There will be more periods where prices are falling a little in absolute terms.

At an individual level, this means that there is less scope for rising markets to cover over your mistake if you fall in love with a property and overpay for it. At an aggregate level, it means there is little room for another round of property exuberance of the type we saw just over a decade ago, in 2002 and 2003. Australia managed to have its housing boom end without a major disaster. Plenty of other countries weren’t so lucky. Usually it’s the property developers that are the source of loan defaults and financial instability, not the households with mortgages. But an overstretched household sector is hardly a good environment to have if something should go wrong elsewhere in the economy.

That is why the Reserve Bank and the Australian Prudential Regulation Authority (APRA) have emphasised loan serviceability so much of late. Lenders have become more sophisticated in the ways they assess households’ capacity to repay mortgage loans. Most of them have moved beyond a crude approach of applying a blanket repayment-to-income test (APRA 2013). They are now more likely to take people’s actual living expenses into account, not just some version of the Henderson Poverty Line. After all, it doesn’t seem reasonable to expect people to have a poverty-level lifestyle to pay off a million-dollar home. Importantly, lenders are now more likely to apply an add-on to current interest rates when calculating the repayment they use in their serviceability tests. So as interest rates fall, the maximum size of loan that borrowers are offered does not increase as much, if at all. This is a prudent practice and, at the margin, it has probably reduced the risk in the mortgage book.

It’s fair to say that serviceability calculations are binding for first home buyers and less binding for trade-up buyers and investors. So it’s no surprise that as interest rates have fallen, it’s the trade-up buyers and investors whose demand has increased. Meanwhile first home buyers will feel squeezed out. This is probably more a cyclical phenomenon than a structural one. It is still probably quite disheartening for potential first home buyers. As such, it would not be a good outcome if they responded by overstretching themselves to try to get into the market during upswings. As well as being against first home buyers’ own long-run interests, that would increase risk in the financial system. As experience overseas has shown, you do nobody a favour by trying to solve an affordability issue by making it easier for people to borrow more than they can reasonably service.”

We highlighted the issues around affordability buffers recently, in the light of changes in the UK. We also made the link between income levels and low growth in housing credit.

I find it interesting that the speech made no reference to the hot investment sector, as highlighted in the bank’s recent Financial Stability Review.

“the investor segment is one area where some banks are growing their lending at a relatively strong pace. Even though banks’ lending to investors has historically performed broadly in line with their lending to owner-occupiers, it cannot be assumed that this will always be the case. Furthermore, strong investor lending may contribute to a build-up in risk in banks’ mortgage portfolios by funding additional speculative demand that increases the chance of a sharp housing market downturn in the future.”

So, recent warnings now about investment lending and first time buyer lending. The RBA appears to be expecting a potential correction in house prices, and a consequential impact on financial stability. As one of the drivers has been too low interest rates, and an attempt to stoke the property market, it seems to me they continue to be stuck in the middle.  If a correction does occur, and I think it will, I suppose the RBA will be able to cite their recent statements as evidence we were warned. But they have the keys to the car, so is warning of hazards ahead enough?

Comments

  1. The Coalition better figure out how to blame Labor for any future housing crash/slump, otherwise they’ll be cactus. Australians will put up with a lot, but they won’t stand for house price falls. It doesn’t matter if they themselves, along with the RBA and consecutive state and federal governments, are to blame.

  2. Here we go again with RBA’s weak jawboning and lettuce-leaf whipping.

    2005 was almost a decade ago, how do they explain the phenomenal price rises since then?

    It was only last may they were warning of price drops in Melbourne: http://www.macrobusiness.com.au/2013/03/rba-highlights-melbourne-housing-risks/
    The increase in the stock of housing is consistent with Melbourne dwelling prices declining further and recovering less of their earlier decline than prices in most other capital cities have done.

    What happened? About a couple of weeks later, house prices started moving very quickly in Melbourne, have grown 9-30% in all suburbs and have only started to slow down now.

    Even if this release is going to get to the regular consumer, will they read it? Will they even believe it?!?

    The banks don’t need to disclose FHB’s, and are no longer doing to the unwinding of grants – it’s a tickbox that’s no longer ticked.

    You can’t jawbone consumers, it’s not working.

    • sydboy007MEMBER

      Shame the head of the RBA isn’t called Renee. They could use the sick of limp celery instead. Ello Ello.

  3. “Australian household finances are not looking that stretched at the moment, and we’d like to see it stay that way.”
    How wrong is that!!

  4. migtronixMEMBER

    And we’re expecting rates rises… Wake me up when Resua is eating pie humbly

    • surfbeach2536

      from the article above…

      Importantly, lenders are now more likely to apply an add-on to current interest rates when calculating the repayment they use in their serviceability tests. SO AS INTEREST RATES FALL, the maximum size of loan that borrowers are offered does not increase as much, if at all. ”

      Am I imagining things or does the RBA anticipate a need to reduce interest rates?

  5. Past fails aside, it doesn’t matter much what the RBA says. Without balanced fiscal policy designed to achieve sane outcomes, it is all speculation.

  6. ozziecoin.com

    I blame Ken Henry and Glenn Stevens for not having the foresight to see that today would come, five years ago.

    • migtronixMEMBER

      Hey how bout a co payment in OZC? The govt could give away OZC (a la the little frozen island that could) and if you could find a doc that accepts them… Problem solved!

  7. In melbourne at least, i strongly believed the supply of apartments hitting the market would have had a much larger impact on rents and in turn values. Whilst i have seen a decrease in rents in the South Yarra ,Prahran, Windsor (inner south east) locations, the excess stock was quickly absorbed and the vacancy levels have quickly recovered.

    On that basis, its hard to see a major correction occurring in the property market in Melbourne. Outside a major credit event overseas (US, China or Europe) i dont see any major crash at worst, lacklustre growth for an extended period of time.

    I dont see rates increasing anytime soon (reduction is more likely) and I dont see unemployment increasing much further.

    Could it be likely that the property market continues on like this for another decade or so ?

    • I’ve noticed that Real Estates play an active role in increasing rental prices, and will prefer a property remain vacant rather than reduce the rent – landlords don’t notice because they are only looking for capital appreciation.

      So this has muted impact on falling apartment rent prices, particularly advertised prices, which do not reflect the negotiated prices.

      How long can this last? It can take awhile for the market to appreciate the divergence between advertised and market price – when mark-down becomes the norm, then it will squeeze.

    • “Could it be likely that the property market continues on like this for another decade or so ?”

      NO ! — Units that we inspected in & around central Melbourne in Feb/ March of this year were not only small & substandard -they were also HIGHLY over priced.

      The reason: Overseas marketing -mainly Chinese buyers -not locals! The head floggers were Chinese & had almost no interest in us as lookers.

      Hopefully sometime soon this will all Implode with a gut wrenching bang. Hopefully I won’t be the only one happy with that outcome.

      Yes Abbott & his motley crew will take the blame
      and it will be good riddance. Perhaps Clive can replace him 🙂

      • “Perhaps Clive can replace him.” I don’t know whether Clive is in favour of popping the bubble. In fact, I don’t know what Clive’s policies are at all. But wouldn’t it be great to at least be able to have the option of a government whose aim is NOT to keep propping a stupid Ponzi scheme at any cost?

    • I’m growing increasingly concerned with the state of both Sydney and Melbourne house markets, to the extent that I am backing my judgement and my Newport Vic IP is about to go on the market and my Caringbah Sydney IP wont be far behind.

      I’ve enjoyed good price appreciation on both properties (held for 10 years or more) and while both markets may have a little more to go (particularly Sydney) I’d rather cash out now than regret it later.

      Hopefully there will be a lot of Gen X and Gen Y buyers looking to buy an IP for their SMSF fund.

    • migtronixMEMBER

      Agree even, or especially, down to Southbank. Rental rates have only been moving sideways or down for 2 years. Still ridiculously over priced though! $2k + a month for 2 bedrooms!

    • kinda don’t even know where to start. Always good to have differing views on here but hard to see how asset prices, particularly those over valued such as property in Australia can just ‘go sideways’.

      I have a few Asian friends who bought and are not getting the rents they feel are required so they will sit on the property rather than lowering rents. I would suggest the true vacancy rates in Melbourne are much higher than those reported and can only get worse as the very large backlog of apartments come to completion. Yes, the banks will generally only fund if around 80% pre-sold, but again these are mainly being sold to investors. Remember also borrowing rates in China have only fairly recently been de-regulated so on-shore rates in China (and the formerly ever appreciating RMB cross) was a one way bet into Australian property. This of course is now starting to unwind as the credit bubble in China is being unwound and the PBoC put the shot across the bow of the RMB one way carry a few months back.

      If you need to see more proof of how the Asian investors don’t care about the rent / not rent story consider how much the Chinese have invested in gold bullion over recent years, making China the largest buyer of bullion currently. Bullion makes zero rent / interest and is a pure historical (recall the KMT stole most of the gold before fleeing to Formosa) / emotional (try getting any true property ownership rights in China – unlike Australia all you can ever do is rent the land under you from the Government) capital appreciation play.

      This is not ‘investing on fundamentals’ – instead a culmination of many unique factors mentioned above which are also starting to unwind, and unwind quite fast. Just about the time the big shiny new dog boxes (oops sorry I mean high quality apartments) flood into the market.

      – Commodities, particularly iron, steel, plate glass, solar panels, concrete and coal all under immense price pressure due to Chinese government action. Unfortunately for Australia, which has now just had the ’employment boost’ from building the mines coming to an end with the CAPEX cliff, steel / iron ore / coal commodities will continue to get crushed (no pun intended)

      – Apartment building coming on song perfectly, with the RBA encouraging even more supply, just as the Aus economy shifts the other way as commodities crumble

      – China credit bubble creaks and possibly breaks, likely to take the excess credit flow into the Austalian property market back out

      Its a beautiful, beautiful thing to watch. All those years, 22+ years of zero recession p’d up against the wall and all we have to show for it is the most expensive housing in the world (yes.. easy to prove on price to rent, price to income, the highest private debt levels in the developed world.. the list goes on). Manufacturing destroyed by high wages and currency (both directly caused by the housing market / interest rates / asset inflation rates). Services destroyed and moving offshore due to high wages and an oligopolistic banking market.

      But we have great shows on how to renovate and ‘add value’ to our houses.

      Sorry but this has to end and will end, quite badly. Dear old Luci and Glenn should be lynched when all this is done. To speak of how the Henderson Poverty Index for housing affordability is ‘no longer appropriate’ is a direct admission that the government knew and promoted the fact that banks lent and continue to lend on the basis of being able to afford a 2% interest rate rise and afford to live off the HPI. And this is meant to be the regulator who promotes financials stability? Didn’t she just also say that people could take on bigger mortgages now they have cut interest rates???? Effectively encouraging speculation, in writing propping up this ponzi scheme.

      Australia is THE asset bubble. Not even Canada or NZ can compete anymore now the have introduced MP.

      Australia, luck can only last so long.

  8. The RBA is actually in a fairly simple position at the fudamentals level.

    They have a charter to abide by.

    If inflation driven by wages claims is above range: tighten rates irespective.

    If inflation is above range but driven by externalities like oil prices, look through it.

    If inflation is within range and employment/unemployment is broadly acceptable (basd on NAIRU), leave rates alone.

    If inflation is within range but unemployment is increasing, cut rates.

    If inflation is below range, cut rates.

    So simple. RBA simply has a mandate to ameliorate extreme effects of fiscal policy.

    • No shit???

      So then, a simple 5 line program can do their job!
      What are they getting the 7 figure salary for?
      What a waste of taxpayers cash!
      We must alert the Treasurer of the potential savings.

    • The RBA is at the most complex cross roads of its simple history. Cut interest rates and make the property bubble even greater, but maybe move the currency down a few pegs and try and flog the dead manufacturing horse. Of course any currency move down will be met with an equal rise in inflation given we import everything now (how can Australia still have large bouts of current account deficit?). Promoting even higher levels of speculation is of course against their financial stability mandate.

      Raise interest rates and most likely tip the bubble over the edge, see mortgage stress, then default rates, then bank NPL’s rocket, in turn causing investors to dump.

      Poor ole Glenn is sitting there in his very big office behind his important desk and simply sitting on his hands. He doesn’t dare touch the interest rate. He has the best paid research job and the biggest team of researchers doing nothing but spurious research and bad jawboning.

      Actually he should be called ‘golden jaw’ like Beckham and his golden balls. Glenn just jaws the currency, tries to jaw property speculators, but at the end of the day sits on his useless hands and does absolutely nothing. We might as well have one of those wooden ducks tapping at the keyboard.

  9. “There will be more periods where prices are falling a little in absolute terms.”
    Only statement in the entire article that mentions prices even remotely falling.
    Price stagnation and/or an unsustained downward trend is more likely the correction the fear mongers don’t want to admit.
    You’ll be looking at a couple thou in saving at best waiting it out, but at what cost? I rather pay a slight premium to buy into a location I want now then scramble for scraps when I realise there’s no property price cliff to fall off.

      • Meh….Those that see the world differently are often labelled crazy. However only time will tell who jumps of what…

    • The Patrician

      Agree

      There is no bust

      There is no slow melt

      There is double digit house price inflation fuelled by the most extreme financial repression we have ever experienced.

  10. Most of you guys need to take a long bloody holiday. You have fallen in love with the bearish view on housing, keep focusing on the minutiae and forgetting the bigger picture – what really matters!

    It’s as if you have your thoughts set in stone and are looking for and small reason to justify that bearish position. Picture a mountain. The path on the way up is pro-cyclical. Each time the path dips 2% on the way up, I hear everyone say “see I told you so”. But in 18 months as you have climbed higher, that 2% dip was overshadowed by a 10% rally.

    At no point in the speech did Luci suggest the housing market will crash. This was a lame attempt at jawboning if I have ever seen one!

    And for the record, Luci is no housing expert. She is head of financial stability. In that capacity, if you read the speech correctly, you will notice that the RBA is comfortable with household debt levels and lending standards in the mortgage market.

    The RBA is wrong in believing that the market has reached a new equilibrium. House prices rose aggressively through to 2005 because of a cultural change whereby households moved from one person servicing a home lone to two people servicing the loan. This trend has not completely played out yet.

    So why will house prices continue to grow faster than incomes over the next 10-15 years I hear you asking? 1. Baby boomers only only know how to invest in property (generally speaking). 2. As the baby boomers pass away, financial inheritance will see beneficiaries bid up properties in their desired location. 3. population growth. 4. New capital inflow from offshore. 5. The trend toward double serviced mortgages will continue.

    And the fact that all of you are waiting for this crash to buy property suggests the crash may never arrive, and if it does, it will be a lot shallower than everyone expects.

    The heard mentality around here really surprises me.

    • Big Note, you sound like you’re a real estate agent, or at least someone who makes their living out of promoting real estate.

      Now I’m not saying you’re wrong about the direction of real estate prices – but I will say that prices are way out of whack with fundamentals – those fundamentals being wages and rental returns.

      There is no doubt that we are in a housing bubble, and there is also no doubt that government policies are all directed at keeping the bubble going.

      I used to think that the bubble was about to pop, and during the last GFC, we “bears” were proved correct as prices started to tumble. But then we underestimated Rudd’s determination to reinflate the bubble, and we saw him pull out all stops to achieve this aim. His policies are still in place now – very high immigration, very lax foreign investment laws and SMSFs being leveraged into property, and along with very low interest rates and the ever-persistent negative gearing, prices continue to rise.

      But I get back to the fact that we are in a bubble. Sure, it’s propped up by rich baby boomers who bought their properties at a fraction of their values now, SMSF investors, foreign investors who seem to be able to get away with buying multiples of established properties, and the massive influx of immigrants, being brought in specifically to buy up properties and make our economy look as it it’s growing.

      And if we are in a bubble, then it has to pop at some stage. It might take a few generations, or something might happen in another country which sets off a chain reaction. The bigger our bubble stretches, the louder the pop will be.

      At the moment, many long-established businesses are either shutting down, being sold off or sending jobs offshore. If the unemployed number grows bigger, how are mortgages going to be paid? And yes, while mortgages here require two incomes, how much higher can prices go? Three income families? Several families in a dwelling?

      I can see why prices will keep rising, but I also know that the market is irrational. Maybe if there are less jobs here, people might leave. Maybe the Chinese will have to pull their funds out of Australian real estate for some reason – not that it’s likely to be our government who do anything there. Maybe the children of baby boomers who inherit property portfolios might realise there is a better return elsewhere.

      And if and when the bubble does pop, there will be a whole bunch of people who will say, “I told you so” because the market is already way past affordability and there is going to have to be a point at some stage that buying property and becoming a slave to a mortgage just isn’t going to be worth it. In the meantime, you’ll be right until you’re wrong.

      • @md

        Let me start by saying that a dead clock is right twice a day. You should write that down.

        And your ability to pick my profession appears about as good as your ability to objectively analyse the housing market, or any asset class for that matter.

        Let me guess, you live in a house so you are therefore an expert at picking the cycle and housing bubbles. Or maybe you read about it in the daily telegraph. Whatever the case, your views are pedestrian at best.

        You think house prices are “out of whack with fundamentals”. That’s what your text book published in 1990 says so you must be right. Wrong. You choose to look backwards, whereas I prefer to look forwards. Fundamentals change, the market is dynamic and a number of different exogenous factors drive housing demand.

        Do yourself a favour and take a look at property prices in New York, London, Hong Kong, Singapore (or any other global/international city). Then go and compare the prices to “fundamentals”. Your welcome.

        A lack of affordability was one of your arguments. Well let me remind you that housing IS affordable. Maybe not the waterfront house on Sydney harbour or your “preferred” suburb. But keep searching away from the city centre and I will GUARANTEE you will eventually find something in your price range. It may only be an apartment and you may have to travel an extra 30 minutes to work, but bad luck!! It’s a roof over your head so stop bloody whinging. The sense of entitlement from not only you, but a stack of other people is a joke!

        You see housing as a bubble and “it has to pop at some stage”. I would like to know why? Whats the catalyst? The RBA is comfortable with household debt levels and lending standards are prudent. Not to mention the household saving rate and serviceability is high by historic standards.

        In any case, I see “bubbles” (if that’s what you want to call it) in housing, and any asset class for that matter, as opportunities. Just because reality doesn’t stack up with traditional fundamentals doesn’t mean the asset value will crash. But lets say that some exogenous factor leads to a correction of some sort. Recent history suggests that central banks and governments will do whatever it takes to create stability as you correctly pointed out. They have shown their cards. If as a minimum you took the view of moral hazard, you would not be here whinging.

        In your words, this pop “might take a few generations”. I probably won’t be around at that time, but I will make sure that if I have grand kids one day I will tell them to sell my house to you at that time.

      • GunnamattaMEMBER

        ….if it takes a few generations Australia is going to really screw the economy.

        At the moment Australia runs off iron ore, coal, gas and gold. Thats what earns us money as a nation, all the rest is just spreading that money around.

        Real estate policies over the last generation have essentially spread it all into the hands of the boomer/specufestor set. That generation saw Australians reasonably competitive internationally – although still running thumping CADs, indulging in a massive debt bubble [mainly ploughed into residential RE], and distorting the taxation system to encourage debt/spending while government receipts were spiked though the debt/consumer binge and then the mining investment binge.

        So at the moment you have private debt out nearly as far as anyone would really want to take it.
        Government within sight of not having a plausible balanced budget over a cycle (which having backed the worlds only banking system lending 60% mortgages and the rest productive)
        The mining capex downturn about to kick in
        The worlds most uncompetitive economy
        and the worlds most overpriced real estate (comparing with London New York Singapore etc isnt really a goer Sydney doesnt rank with those cities and Melbourne Brisbane Perth etc dont go within a bulls roar of them – I deal with people in those cities and the first thing they identify when they come here to see me is that Australia has an absolutely crazy real estate bubble)

        …I dont reckon it will take a couple of generations. Sure we can be sure that all the usual vested interests (and RE spruikers to the fore) will look after RE. But at the end of the day what Australia is sailing into doesnt get squared with RE where it is – and it is just a matter of time before everyone cottons on.

      • @Gunna Well put. I never understood the comparison to New York, London, Singapore and Hong Kong. They are the world’s largest economic and financial centers. Two (three if you count Manhattan only) are land restricted. All have vast amounts of money from overseas pouring in.

        What do Sydney and Melbourne have? A nice habour and the world’s best coffee (assuming you agree with that label) don’t quite cut it.

    • @ BN: ..Picture a mountain…” Yep. Got it. It’s that pointy thing that has an upside and a downside. Picturing, picturing… mountaineers climbing; ascending against adversity; A few steps back – a few more further up;”You’ll never make it! It hasn’t been climbed yet, Edmund”; picturing, picturing…and then remembering ( from my mountain climbing friends). Most mountaineers get killed on the descent, not the climb. Getting to The Top takes so much out of them, that when it’s time for the decent, they’re stuffed and their “0% QE Aero-climb!” oxygen tank is empty, and if they are going to die on the expedition, it’s most likely to be then……That…is what is going to kill, or pop if you like, the residential property market. Exhaustion. Financial exhaustion….And I reckon, the markets, all of them, are looking a mite tiered….

      • Sydney is an emerging global city. The point was not made to compare the cities side by side, but more to highlight the resultant impact on property prices (in those cities) relative to “fundamentals”. I deal with people in those cities on a daily basis too. And let me tell you, they all look at the same “fundamentals” you all hang your hat on – house price to wage. No shit. Everyone has seen the chart and its a consensus view. If it surprises you, go back to sleep. Nothing beats local knowledge.

        So gannamatta your saying the impending capex cliff, post 3Q 2014, will be the catalyst for the “crash”. But where is this debt binge you talk of? All the data I have seen so far tells me that’s its way too premature to be ringing that bell.

        I get the argument that NG and various tax concessions have funnelled a disproportionate amount of capital into real estate. Yeah it’s bad govt policy, but it’s as if you all have misconstrued this as a reason for the market to fall. And with such vested interests, ask yourself now: will the govt and central bank allow this crash to happen? If your answer is yes, then why?

        Sure, there is a disconnect between conventional fundaments, but that does not mean it can’t stay that way for an extend period of time.

        And Janet, for someone that professes to write with such authority, you walked right into that one. Talk about having a conclusion in mind and twisting the analogy to support the view. You are exactly the type of people i was referring to. What I was actually saying, simplistically, is that you miss the ride up, and when it falls you claim victory. Well done. You will be right one day, I have no doubt. But it will be a long time before you see that day. And don’t worry, I will tell everyone you were first to call the crash ten years earlier!

        Don’t get me wrong people, I am not a perennial bull or sprinkler. I will make money in this market on the way up and I indeed on making money on the way down. Conventional wisdom is not something to rely on – all my indicators tell me this cycle has more to go before it rolls. And when it does, I can’t see it “crashing”. If anyone can see this catalyst or thinks otherwise please share the knowledge.

  11. Sydney is an emerging global city. The point was not made to compare the cities side by side, but more to highlight the resultant impact on property prices (in those cities) relative to “fundamentals”. I deal with people in those cities on a daily basis too. And let me tell you, they all look at the same “fundamentals” you all hang your hat on – house price to wage. No shit. Everyone has seen the chart and its a consensus view. If it surprises you, go back to sleep. Nothing beats local knowledge.

    So gannamatta your saying the impending capex cliff, post 3Q 2014, will be the catalyst for the “crash”. But where is this debt binge you talk of? All the data I have seen so far tells me that’s its way too premature to be ringing that bell.

    I get the argument that NG and various tax concessions have funnelled a disproportionate amount of capital into real estate. Yeah it’s bad govt policy, but it’s as if you all have misconstrued this as a reason for the market to fall. And with such vested interests, ask yourself now: will the govt and central bank allow this crash to happen? If your answer is yes, then why?

    Sure, there is a disconnect between conventional fundaments, but that does not mean it can’t stay that way for an extend period of time.

    And Janet, for someone that professes to write with such authority, you walked right into that one. Talk about having a conclusion in mind and twisting the analogy to support the view. You are exactly the type of people i was referring to. What I was actually saying, simplistically, is that you miss the ride up, and when it falls you claim victory. Well done. You will be right one day, I have no doubt. But it will be a long time before you see that day. And don’t worry, I will tell everyone you were first to call the crash ten years earlier!

    Don’t get me wrong people, I am not a perennial bull or sprinkler. I will make money in this market on the way up and I indeed on making money on the way down. Conventional wisdom is not something to rely on – all my indicators tell me this cycle has more to go before it rolls. And when it does, I can’t see it “crashing”. If anyone can see this catalyst or thinks otherwise please share the knowledge.

    • So gannamatta your saying the impending capex cliff, post 3Q 2014, will be the catalyst for the “crash”. But where is this debt binge you talk of? All the data I have seen so far tells me that’s its way too premature to be ringing that bell.

      Huh? Our households are some of the most indebted in the world.

      And old but still valid comparison
      http://snbchf.snbchfcom.netdna-cdn.com/wp-content/uploads/2012/09/Decomposition-of-Debt-worldwide.jpg

      A more recent one.

      http://www.abc.net.au/news/2014-05-07/household-debt-the-big-threat-to-australian-economy/5435844

      • Please tell me you are joking flyingfox!!

        All this time I thought you guys were bona fide and had some idea about what you were talking about – I don’t often say this, but clearly I was wrong!

        Your view is based on an ABC press article – really? This is the bloody heard mentality I was talking about in my initial post. Sensationalist doom and gloom headlines have been swallowed hook line and sinker. And the sad thing about this is that you are spruiking a view as if you have some credibility, but you don’t.

        If you actually did some work you would realise that household debt is based on the gross value of all debt – mortgages in particular. Ever heard of an offset account? They don’t teach you that in your text book from 1990 so probably not. Ask the ABS how they account for funds held in offset against a mortgage. The answer is they ignore it. So the hight household debt / disposable income ratio quoted is wrong. And wrong by a significant margin.

        This is why the RBA keeps telling everyone they are comfortable with debt levels. But you all chose to ignore that piece of critical information. As I said earlier, your conclusion is set in stone and you do what ever you can to justify it. Even if it means selective analysis.

        See you all at the top of the mountain!

      • @Big Note and what no offset account exist in other countries? How far off are they? 5%, 10%, 20%? Is everyone a millionaire with money in offset but big loans? Or just a temporarily embarrassed millionaire.

        These are just examples. I am happy to keep piling references.

        What else is the RBA going to say? Oh no, don’t borrow? What do you think happens to banks after that?

        As for the herd mentality. Dude you are the one regurgitating MSM and spruiker bylines. Nothing to see here, all good.

        I invest where I see returns and opportunity. In the process of finalizing a small commercial property transaction overseas returning > 8% net.

  12. Referencing the daily telegraph doesn’t count grasshopper.

    Im not going to give you the answer to this one. I’ve given you enough today so you can look good in front of your colleagues tomorrow. But if you actually do the work, i guarantee it will surprise you.

    And best of luck with your investment – perhaps it’s worth getting a second opinion on those numbers because I certainly wouldn’t rely on your analysis.