Sell Sydney property

Are you enjoying this ride in Sydney property and thinking it can go on forever with the RBA snookered by a high dollar?

ScreenHunter_3294 Jul. 14 11.51
ScreenHunter_3293 Jul. 14 11.50

Then a word of warning. The RBA is alarmed and telling you to cool it and it has now endorsed macroprudential tools to slow you down without raising interest rates. Similar tools have already sent house prices into reverse in New Zealand.

These things move with the pace a glacier but they do move. Could it go higher? Yep. But if you think you can ride this moon rocket right to the top and get out in time you may find the exit is jammed with like-minded folk.

David Llewellyn-Smith
Latest posts by David Llewellyn-Smith (see all)

Comments

  1. It is the responsibility of every citizen to question authority.

    —Benjamin Franklin

    • GunnamattaMEMBER

      I dont think it will be the citizens (in general) who question here……

      It will be the specufestor set who question whether the RBA or Australia’s body politic have the cojones to do anything serious about RE (Particularly Sydney and inner Melbourne) – and keep buying as the general awareness dawns that either they do (and introduce MP or lift rates or do something about the taxation underpinnings of the speculation system – and Australia experiences some RE and economic pain) or they dont (and the loin cloth comes off about who actually controls things here).

      • The RBA likes its salami sliced thin, a number of modest moves that collectively add to change.

        * Yesterday an RBA paper showing renting is likely the better option for FHBs.

        * Stevens asserting macroprudential controls to limit mortgage borrowing are available and under active consideration.

        * Stevens musing Australia has abandoned a natural advantage in plentiful inexpensive land.

        * Steven calling for a substantially lower dollar, which will force currency losses on overseas lenders to our banks. Somebody somewhere is holding a great deal of $A currency risk.

        So many individuals have giant mortgages that the fortunes of the entire nation turn on land prices. Sydney’s magnificent investor debt parabola graphed above can only be reconciled in one way.

        Good luck to Specufestors planning to exit inner Sydney and Melbourne at the nub of the turn. This tidal race will get crowded and jam very very quickly. Not only will supply rise abruptly, but buyers will discover caution just as fast – they are exquisitely attuned to monitor price movements by the FIRE sector, and cannot help notice its reversal.

        Don’t Buy Now!

      • JohnsonMMEMBER

        It’s a line trotted off by the pompous fortunate to alleviate them of guilt and allow them to bask in their ego david.

        There are so many atrocities that happen in this world that no one deserves. We’re all just *lucky* to even be in a country such as this.

      • @dc interesting points – let’s see if they translate to action.

        @pf true, and sometimes this takes time. All Australians deserve affordable housing.

      • “You get what you deserve in life David. No more and no less” – Peter Fraser

        Profound.

      • That was to H’n’H for cutting my piece out today …spent 3 hours researching it through the night

      • @ Peter Fraser”You get what you deserve in life David. No more and no less.”

        Sorry Peter, but you get in life what comes from the heritable, environmental and developmental factors your parents provide to you.

        It is about 80% these factors to which you contribute very little.

        Unless you believe this life is the reward/punishment for the last life, no one deserves to be born in a remote aboriginal community with limited intellectual capacity, foetal alcohol syndrome and violent parents who don’t enforce education.

        Similalry no one deserves to be born into a compfortable upper quintile income home on Sydney’s North shore with caring graddate parents in good jobs delivering you in a BMW to a private school after the holidays in the beach house.

        Income and wealth distribution in Australia are largely a factor of who your parents and grandparents were.

        Remember there is no effective death duty/estate taxes in Australia.

        Heritability (of IQ) measures in infancy are as low as 0.2, around 0.4 in middle childhood, and as high as 0.8 in adulthood.

        http://en.wikipedia.org/wiki/Heritability_of_IQ

    • Benjamin Franklin must have been referring to a time when the entire electorate wasn’t distracted with other things.

      Thousands shafted by financial advisers, the very people they paid to look after and protect them….

      Introduce FOFA….

      Reverse FOFA, WHILE DEFENDING inaction on the grubs that did it.

      Our politicians are criminals whose authority is never questioned because the media suppress it with manipulation, cover ups and lies…The experts on the television everyone listens to, are in on all the scams. It’s beyond a fking joke….

      • Seriously.

        And ‘strayans are such sheep that can be so easily programmed.

        Was watching “Have you been paying attention” for a bit of a laugh.

        One of the first questions – “what did PUP do this week in the senate?” ……. “That’s right a backflip”…. ha ha ha let’s all imagine Clive Palmer doing a backflip …. ha ha ha …. audience loving it.

        Very next question. .. “Why did he walk out of the interview” ….. cue another fat joke …. ha ha ha.

        Then the sheep go out and continue to elect major parties in the next election.

        This is North Korea. .. just more successful and less obvious.

        All threats are either monitored… I’m thinking Bob Day who isn’t that powerful …. or viciously attacked.

      • “This is North Korea”

        Yep…

        I can’t watch QandA or The Project…I want to punch them….It’s not good for my relationship or my blood pressure..

        Especially those tools Charlie, Tony Jones, and Waheed….Those tools are on mega bucks dictating to the public how we should live our lives that just coincidentally make them more money as celebrities…I’d lovce to go on QandA and ask real questions and demand real answers from the disgracefully selected panel.

        Home viewer….China’s buying Aust prop whole gen renting…..

        Lisa Wilkinson…..I’m wondering why the Q refers only to Chinese…..

        Answer was discussed for 5 min….NO ANSWER….Just left wing fwits scamming us….They are a disgrace. Call them out. They are liars, they are smart and they know exactly what they’re doing. CALL THEM OUT ON IT.

        https://www.youtube.com/watch?v=qH8VC3CrTYw

        QandA should be wound up. Sell it.

      • Why do you blame the left? I would say this is all done by the right and left together. It is so bias to blame just one political end, because of your political ideological short-sightness. Is the government now lefty? Is it doing something to solve any of the housing problems? Be more realistic.

    • Constitution of New Hampshire: “Whenever the ends of government are perverted, and public liberty manifestly endangered, and all other means of redress are ineffectual, the people may, and of right ought to reform the old, or establish a new government. The doctrine of nonresistance against arbitrary power, and oppression, is absurd, slavish, and destructive of the good and happiness of mankind.”

      • Good one…I’d love to see some intelligent young people go to Canberra under their own banner and take over the direction of our country… But I guess they have a life too.

      • ‘But I guess they have a life too.’

        Yes, most are on the treadmill and its been engineered that way. People too busy rowing the boat seldom have time to rock it.

      • @jimbo

        “People too busy rowing the boat seldom have time to rock it.”
        —jimbo

        That goes straight into my book of sayings.

  2. Darth Stevens turning to the light side, housing inquiry to report soon, banking inquiry to report soon, tax white paper promised soon.

    Not only is the mood changing, there are opportunities for policy change coming, as well.

    Still, rather than policy change, I maintain hope for continuation of the moonshot, so we reach the level of total speculation and subsequently get rewarded with total annihilation. That way, there will not be anything the government can “undo” (think negative gearing in the 1980s) to stop the correction.

    • We have well passed the point where anything can be done. This is like trying to pull out of a ski jump 10 meters from the edge. Dearth Stevens is just covering his million dollar backside and those of the other lottery winners at the RBA.

  3. How much effect will MP have? After all, aren’t many of these investors quite well capitalised by their previous equity gains? I am skeptical that Stevens will actually do anything; chinwagging doesn’t change the hand-ball game that RBA/APRA play over regulation.

      • I am not saying LVR requirements are a bad thing, if anything they further encourage young families to think twice before becoming a bigger fool. I just don’t think it’s going to be the ‘pin’ to prick the Sydney/Melbourne bubble. Many of those newly written loans could be purely for tax purposes, with the (possibly foreign?) investor choosing to sit on equity rather than use it to grow his/her deposit as he/she climbs the ‘property ladder’.

        I think further analysis into the security arrangements of the average new IP in those cities is worth looking into, if that’s even possible for an ‘outsider’ to do.

      • It can’t be let run ? Who are you, the Housing Gestapo ?
        Cheap houses for all comrades ?

      • HnH, the RBA encouraged and facilitated the “run” of house prices tripling since the late 90’s – this is what they do so well. Actions speak louder than words or papers, so let’s see what this translates to. My guess is they will lower interest rates and move that meaningless jawbone – that is, more of the same.

    • I agree, the RBNZ put a speed limit on high-LVR lending- i’m not sure “investors” in Sydney are in this lending category. Furthermore, the RBNZ has used the tool as an adjunct to cash rate hikes, not in place of.
      I’m not arguing that the RBA should raise rates, merely that NZ has a few structural tailwinds behind it and an activist CB Governor which has seized an oppurtunity to “normalise” interest rates. Australia would seem to have the opposite dynamic at work i.e. outside of housing only headwinds.

  4. moderate mouse

    Oh silly HnH…..haven’t you heard: there’s a SUPPLY SHORTAGE! Prices are high for GOOD REASON. There’s no ‘bubble’…this is about fundamentals!

    As long as they are not building enough to satisfy me and my investor mates (and let’s face it, how do you satiate the insatiable?), prices will continue to boom.

    I sleep well at night….don’t you???

    Don’t look down Australia!!

    • there’s a SUPPLY SHORTAGE! Prices are high for GOOD REASON.

      Well the shortages are extremely obvious. A primary school boy should be able to understand you cannot have such high prices without some form of shortage.
      But I question your claim that this is a “good” reason. Clearly the shortage is a major fundamental cause. Combined with easy credit and keen investors we get the current action. Mine is a good explanation of the situation. The situation is good for investors who bought earlier, but bad for young Australian families who desire shelter at a fair price.

      • moderate mouse

        You got one thing right Claw….the supply-side theory belongs in primary school.

        UE is digging his own grave professionally by clinging so tightly to it, and takes comfort from numbnuts like Sydney Morning Domain supporting it. Good luck explaining your ‘change of heart’ when things turn ugly.

      • moderate mouse,

        When things “turn ugly” there may well be plenty of instances of unemployed people sharing houses or living in garages. Of kids moving back in with parents when they can’t find jobs and graduate.

        There may be instances of empty houses because the owners will prefer to leave them empty than to sell them at a loss (real or paper) or even to rent them.

        There may be empty houses because lots of 457 visa holders and overseas students leave and head back home.

        But that does not mean there is no shortage of housing available for purchase or rent NOW.

        You can have all the empty bedrooms you like and lots of empty holiday houses up and down the coast and that means NOTHING unless the properties are actually on the market for purchase or rent.

        No doubt you have some grand plans for teams of empty room inspectors to walk the streets and force the empties onto the market – but until that happens you are talking about a state of affairs that does not exist.

        The vacancy rates and the prices of houses make the point perfectly clear – there is a major shortage of housing to buy and rent.

        Our rental vacancy rates remain at rock bottom despite the so-called Melbourne building boom constructing ghost apartment blocks.

        You should spend your time on Saturdays going to rental inspections and telling the prospective tenants that they are looking in the wrong place.

        They should be knocking on the doors of old people and asking to move into their spare rooms or commuting to holiday villages and climbing in the windows to set up shop or squatting in the empties that you believe are filling the suburbs.

        You may find they look at you a bit strangely.

      • There wasn’t a shortage of tulips…

        Just like there isn’t a shortage of houses. We’ve built more than population growth, houses have got bigger and the average number of bedrooms has gone up. The Census listed 800,000 unoccupied.

        The problem is, as Pfh puts it above, a shortage of houses available for sale or rent.

        There is, however, an excess of speculators…for now.

      • moderate mouse, lets get a few things straight.
        The shortage is causing young families to miss-out and is also causing high prices.
        IF the shortage is solved (more houses and/or fewer people) then all young families will obtain independant housing and prices will be lower.

        If this happens I will consider the housing disaster to be over. I will not describe it as “turning ugly” and I will not have a change of heart that requires an explanation. I will consider the situation to have turned beautiful and I will be delighted.

      • Pfh007,

        With respect to houses available for squatting, give me their details and I’ll give them some leads half an hour walk from Melbourne CBD.

        BYO hard hat though – some of them have been left for a while, and bits falling off is a near certainty.

      • moderate mouse

        All real bubbles are facilitated by a narrative that sounds plausible – and ideally one that can neither be proven nor disproven until after the fact. For the dot.com bubble this was ‘the old metrics no longer apply’. For the resources boom now ending it was ‘infinite China’. And so too with housing, we have the supply shortage.

        Some spruik the narrative to their own ends, some believe the hype and get suckered, and others believe their own BS.

        Choose your own adventure.

      • flyingfoxMEMBER

        Shortage or not, one this that does get discounted, as was the case in Ireland is the number of temporary visa holders here. There are more than a million of them, the majority being Kiwis, followed by students but ~ 5% of our population is a temporary resident. Add to this the people (oz citizens) that returned post GFC but have have roots overseas and we can have atleast 1-2% of the population leaving in the event of downturn. As a proportion of the working, tax paying, house buying demographic, it is more like 5%.

      • FF,

        Nah, that couldn’t happen, at least not unless Australia’s unemployment rate rose to levels approaching some of our major two -way migration partners (and competitors for skilled immigrant labour!), like the USA or the UK for example.

  5. Sydney will cool soon anyway, but I think advising people to sell is irresponsible advice.

    • GunnamattaMEMBER

      Irresponsibility may swing both ways Peter…

      and exist at a lot of different levels more influential than here – starting with the RBA, Treasury, our politicians etc (of course the RE lobby would be in on that too).

      That spike one sees in the investor share of Sydney RE – is it responsible or irresponsible to have cultivated that?

      is it irresponsible to have married Australia’s ability to weather a mining downturn to that spike?

      • I think it’s responsible as long as PF and his mates get a piece of the cream floating on top.

    • Frankly, Mad Adam is a good barometer. “The Wealth Effect should have helped the wider economy by now. It hasn’t, so God help us” or sentiment similar. Interest rates should never have been cut, isolated from companion measures ( The RBA was right the first time around when it had the sense to push them up into the teeth of the downturn). But that’s all history now. The history about to be written was avoidable. And many, like Mad Adam and “Born Again’ Joye are just beginning to understand that the folly of their previous hopes is about to be dashed on the rocks of reality.

      • Interest rates should never have been cut, isolated from companion measures

        Indeed, leaving interest rates high while introducing stricter foreign currency controls (Tobin tax anyone?) could’ve been a semi-decent idea.

      • Perhaps each RBA meeting should include a dice roll to determine whether to raise/cut/hold (equal weighting to all). The randomness, volatility and associated risks should breed some great resilient culture into debt decision making.

        Edit: Yes I would prefer a dice roll to RBA explicit decision making, given they frequently do not conform to their charter.

    • Of course it is irresponsible to advise people to sell when you believe that any fall in house prices is temporary, but if you think the game of endless speculation is coming to an end then sell becomes a wise option.

      It’s all about belief, and the faith in house prices ever rising is beyond religious; it will take immense carnage to shake this, and that as an outcome remains.to be seen.

      .

  6. Isnt this exactly what MB was saying a couple years back?

    How did that prediction work out?

    If Interest rates go down as you yourself say they will, then leverage will increase and foreign buying will escalate as the dollar decreases.

    Asset price inflation has further to run

    Also, why are you restricting this call only to Sydney? Melbourne has the same manic investors

    • Here’s the wonderful thing about market reversals; they can be instant. I recall many rational voices being mocked from about July 1986 onwards, then Black Monday, 19th October 1987 arrived, and all the irrational exuberance and confidence of several years of excess, were wiped away in the space of a week…..(And, no, property is no different. When it turns it will be obvious and vicious, as it was in the USA all so recently, and will be again)

      • Janet, house prices in Australia have been elevated to the point they are by low interest rates and poor elasticity of supply.

        For house prices to drop materially, interest rates need to increase or supply needs to dramatically increase or wages need to fall dramatically. The first and last will be manipulated to offset one another.

        Of course anything CAN happen, but prices are not particularly irrational at the moment given the input costs associated

        It seems to me that there is a lot of wishful thinking that takes place on this website. People (including me) are angry that they have missed out on affordable housing, and this site and the common thinking makes us feel better

        What do you suggest will be the catalyst for price falls?

      • @coming
        Agree 100%, you only need to look at the Sydney RE supply side problem that developed in the wake of the 2000-2003 price rises to see that supply disappeared because it was not profitable, developers simply couldn’t make a profit, their basic inputs land labor etc were too high. We’ve only had supply reinvigorated in Sydney because of the recent price hikes remove them (price hikes) and you will remove supply. This suggests the market is functioning where it is allowed to function however the dysfunction of labor costs, work conditions, land use regulation, safety, nimbyism etc…..all prevent any solution other then the present “high price”. Only with a major depression will Australia have reason to reset these other factors and create a broad functioning RE market. Of course this is never going to happen while everyone (that counts) profits from the status quo.

        I dont think this is different to what Janet is saying, because Mr Market will work his magic we just dont know when or how.

        Unfortunately based on my own casual observations Sydney RE has a long way to go before we collectively decide that its time to hit the reset button.

    • Add to the above, what’s MB’s expectation in regards to how much value will property loose? Are we talking 10%, 20%, 30%?!! If the market normalises or drops by 10%, people who bought a few years back are still cheering due to the above normal yields from the past few years!
      I do believe property value will not be creeping up like the last few years, more or so normalise or even go down a little but it won’t crash. Banks, RBA, GOV, FIRE sector will simply not let this happen and the only losers will be idealists who don’t go with the flow. Hope i’m wrong though…

      • Do you reckon the Irish Central Bank/Government wanted, or allowed, their market to fall 70% at its worst, without trying to stop it? I don’t! When a market ‘goes’ there’s nothing much any of the bodies you mention can do except wait to pick up whatever pieces are left – as Ireland found out. Now we aren’t Ireland. But neither were they, until they were….
        (Thought: Remember back to when everyone wanted to be “The Celtic Tiger” economy, just like they look at doing “as well as the Aussie economy is” today?)

      • Thanks Janet and Tea Merchant.Great points!
        PS: Comments/Views like these are what makes MB a great site(Add to the great content form the MB team) It really helps give one’s mind more perspective/ideas on what’s really going around…

      • Mining BoganMEMBER

        PaulF, I have an Irish acquaintance who repeatedly likes to tell me he’s seen this movie before. He reckons the language is exactly the same as it was before their bust.

        And that the speed of change in sentiment and prices was breathtaking…

      • Mining BoganMEMBER

        Andy, don’t. He waited for years before he was right…then he couldn’t find work.

        The non-indebted will still lose. Just not as badly. Stay out of the game and enjoy life.

    • Coming

      “….foreign buying will escalate as the dollar decreases…..”

      The politics of foreign buying is already rumbling. That is why the government and the RBA are muttering and running inquiries etc.

      There will be no escalation.

      If anything the government will tighten the rules before that large centrist rump that determines who gets the keys to government gets snarky on the issue.

      In any event, foreigners are rushing to buy now because the $AUS is strong and stable. They will not be so interested in holding $AUS assets while it is sliding.

      Other than that I agree – if the govts across the land choose to take no action on land use restrictions and the first user pays all principle and the RBA runs hard to ZIRP and migration is pumped, prices will remain strong for the near term.

      Hardly sustainable but unsustainable has surprising persistence.

      • @paulF the stigmata will come from overseas and will not be domestic. Domesticall the real estate institutes are artificially manipulating the market in collusion with government and banks.

        My tip, the Australian $AUS FX carry trade will unwind violently. The RBA will be faced with a money printing scenario and hideous inflation aka ‘the banana republic’ again:)

      • +1 on the carry trade unwind, Tea Merchant. The FX market will not hold a losing trend and abrupt, violent moves are ahead.

        Bogans, fill up your car cos petrol is about to get dearer.

      • @Tea Merchant

        What will precipitate the carry trade unwinding? Do you believe that the US federal reserve rate will increase?

      • Your comment further up – there is no vacancy ?

        Every single graph on here shows increasing, or sky rocketing vacancy rates.

        Canberra in particular is going ballistic.

        http://www.sqmresearch.com.au/graph_vacancy.php?sfx=&region=vic%3A%3AMelbourne+City&t=1

        How is it that there a shortage when vacancy rates are going up everywhere ?

        Melbourne is between 5 and 10% in most places – that’s 2-3 houses on every single squared block in Melbourne – that is astonishing.

        I think you might want to check your presumptions.

      • Leviathan,

        Skyrockets?

        If only.

        http://www.propertyobserver.com.au/forward-planning/investment-strategy/market-trends/32496-no-rent-hikes-any-time-soon-as-vacancies-stay-above-2-sqm-research.html

        Even Canberra – with Abbott going Viking on the PS is only 2.3%.

        So called glut boom town Melb is only at 2.4%.

        That is certainly an improvement but is still very tight.

        When it cracks 4 or 5 % in every city it will be time to crack the champagne and fire off a few skyrockets.

        As at that point supply will be in balance with demand and rents will be much more reasonable and consistent with a sustainable proportion of average disposable incomes.

    • Because Sydney is much farther out of control and the dangers of reversion obviously greater.

      Why are you so upset about it, Coming?

      I’m simply saying that the RBA’s patience with Sydney specualtors is running out. The last time that happened it didn’t grow for 10 years.

      I haven’t even said prices will fall though it’s obviously very possible.

      And no, it’s the same thing MB said two years agao at all.

      Why don’t you tell us all why everyone should go long into that wild blowoff in the charts?

  7. Hugh Pavletich

    China’s Property Market Past Tipping Point … JL Warren Capital … Forbes

    http://www.forbes.com/sites/junhli/2014/07/14/chinas-property-market-past-tipping-point/

    “Based on our recent industry survey, we are now expecting a 5-10% decline in average sales prices in China’s housing market in the second half of 2014 and a 30% decline in 2015. Developers are selling an increasing proportion of smaller homes while also discounting larger ones.”

    A Turning Point in Sight — Beijing Review

    http://www.bjreview.com.cn/business/txt/2014-07/14/content_629351.htm

    China’s corruption crackdown could deliver a blow to Australia’s property market | Business Spectator

    http://www.businessspectator.com.au/article/2014/7/14/property/chinas-corruption-crackdown-could-deliver-blow-australias-property-market

    • From the Forbes article:

      “Hard demand driven by newly formed families, therefore, likely peaked around 2012, 25 years after the peak number of births, and has since fallen along with the drop in new household formation. We estimate new household formation has declined around 7% per year since 2012.”

      “…the idea that urbanization directly results in rising home demand in China’s first- and second-tier cities is largely a myth.”

      The first quote in particular is likely of more importance to Australia’s future than the next six Commonwealth budgets.

  8. My wealthy baby boomer parents now tell me that, after moving out of Sydney, they don’t think they could realistically move back even if they wanted to…

    My how the tide turns…

    Ouch.

  9. The Major factors affects property prices…Here is my thought

    1) Land tax ( introduce the land tax will knock down the price to the same level as US, say 2%-3% of the property value each year) . Property will go down by 35%

    2) abandon the CGT 50% discount and the negative gearing . Property price will go down by 25%

    3) MB for 4 -5 times of dispersible income loan facility and minimum 20% deposit . property price will go down by 15%

    4) interest rate increase, for each 1% increase will knock down house price by 5%

    5) Stricter Foreign ownership and immigration control will knock price by 15%

    6) land release will knock down price by 10%

    7) QE Taper off and US interest rate increase and housing burst in China…40-50% off from current price

    8) abandon self management funds on Property…10% off

    • Point 7 is the most disturbing considering it’s not controlled domestically which ads up to Janets and Tea Merchant’s points above!
      How did you get up to those percentages though?

    • That adds up to 150% or thereabouts!

      Suspect that none of the measures requiring government action will occur, but 4 and 7, not controlled by government quite possibly will, although if 5 occurs after 7 it will have no effect on house prices (Chinese funds for investment having been decimated by the bust), but be a vote winner nonetheless.

    • Abolishing prohibitions on using land anywhere you like, to build anything from your own log cabin, to a master planned community, would bring prices down more than 50% on its own. No way it would only bring them down 10%.

      I would predict that ALL the other measures you discuss, applied together, MIGHT reduce house prices as much as 30%, but the trend as long as supply of land remained under quota, would be reversion to a high price of living space per square foot. Affordability in median multiples might be lower but housing smaller. This is not a bad outcome per se.

      But liberal land supply and land taxes combined, would reduce the house size AND make the prices as fully affordable as they should be. None of the other stuff matters other than as components of fiscal neutrality and other peripheral matters.

    • they are just my estimates…

      It is based on the current price for each independent factors.
      Suppose you have introduced land tax first , it will go down by 35%, and then you have factor 6, it will go down by

      35%(factor1)+(1-35%)*10%(factor 6)=41.5%…

      just a joke…

      • seafeet,

        Next time say ‘based on state of the art economic forecasting techniques’ – everyone will know what you mean.

      • flyingfoxMEMBER

        @seafeet

        If I can quantify the real effects of these factors, I will be a qualified economist

        If you can, you will be really rich. You are already better than most economist by put said equation up and kinda explaining it.

  10. I know this will dismay other Bears, but I have been persuaded that cycle length is long and predictable. No true crash for years yet.

    It can’t go much higher. But it can stay high, and drag more and more people into its black hole of debt.Then the crash when it comes, will be a bloodbath. Not earlier than 2021, and not later than 2025, is what I now accept from the “cycle length” experts.

    This is all the more REASON to do reforms, not an argument that politicians and central bankers can keep claiming victory over the bears, until they won’t be able to any more. Macroprudential will NOT restore housing affordability but it will make the financial system more resilient. It achieves this by preventing more people from buying their own home with a mortgage. The price hiatus when MP is introduced, is temporary only, due to the cohort of people who “just make it” to home ownership having to save for a bit longer.

    South Korea proves that even 50% LVR’s merely result in those who are not priced out for their entire lifetime, saving 8 times their annual income to get the 50% deposit on a house that is 15 times their annual income. All that debt still in the system, at 8 times annual income per mortgage, still leaves the financial system vulnerable – perhaps not quite as vulnerable as if the LVR had been loose.

    It is the supply of land for housing development that determines who will be excluded from home ownership. Everything after that is just a question of how hard people have to save and work and pay off debt and possibly go broke.

    • IF government does the right reforms, to supply of land for development, then obviously it is not necessary to wait for cycle end for prices to revert.

      It is a tragedy that the issue was not confronted at the end of the last cycle, which was 2007. If achieving a house price reset at that time was politically unpalatable, what was the sense in pursuing an even higher level from which reset was going to have to occur instead one day, with a LOT more debt and “equity” to be wiped out?

    • It is the supply of land for housing development that determines who will be excluded from home ownership. Everything after that is just a question of how hard people have to save and work and pay off debt and possibly go broke.

      This is what I have been trying to explain to the dopey shortage-deniers. The level of shortage determines the number of families that miss-out and the level of credit determines at what price they miss-out.
      Instead of understanding the simplicity, the shortage-deniers fixate on price and simply deny the shortage. A 50% price fall cannot fit 6 families into 5 houses, you need a 6’th house. Ensure there are enough houses (responsive supply) and price will take care of itself like it does with TV’s and DVD players.

      • Actually, if there are not enough houses for 16.6% of families or 5/6 families, then the price is irrelevant.

        Is it not?

      • At least after a 50% fall 5/6 families can have their own house… that’s a lot more than now!

    • The fact is most of the people still have a roof…but more than 30% through renting…yes…it might be top 5% of the wealthy people/speculators owns 40% of houses…

      Housing shortage is part of the story. if this problem is that serious, you will see homeless everywhere….however, people still have a roof…

      I believe it is the RE interests that try to tell everyone buy the house now or you will lose…it is long term shortage…

      Still govt can control the immigrants intakes while build the house at a similar rate…if it does, it will not a long term shortage…

      Based on my understanding, if you increase the cost of speculation or other methods dismay the housing speculation instead of encourage them like negative gearing, CGT discount,etc, you will still see more people have a house while less renting…

    • Ronin8317MEMBER

      LVR won’t lower prices, however it will slow credit and limit the loss of the “banks” (actually, taxpayers) when the property bubble finally pops.

  11. How is it that there a shortage when vacancy rates are going up everywhere ?

    Q) How can it be hot when my thermometer is dropping?
    A) Easy. It might be 41 degrees and then the temperature drops to 40 degrees. It is still hot.

    Do you understand?

    • Or maybe the cool change has started to arrive, and the thermometer’s delay time means it hasn’t caught up yet.