Revenge of the first home buyer

For the first time in more than a decade, Australia’s first home buyers (FHB) are enjoying their moment in the sun.

Thanks to generous subsidies and a 60 basis point discount in mortgage rates, the value of mortgages issued to FHBs has overtaken investors.

As illustrated in the next chart, there were $7.2 billion FHB mortgages in January versus $6.6 billion worth of mortgages issued to investors:

This is a far cry from the 2015 investor mortgage peak when the value of investor mortgages issued ($10.1 billion) was roughly quadruple that of FHBs ($2.6 billion).

It is also only the second time in recorded history that FHB mortgages have outweighed investor mortgages – the other time being briefly in 2009 when massive FHB grants were temporarily available in the wake of the Global Financial Crisis (GFC):

Like then, I do not expect the situation to last.

According to the Reserve Bank of Australia’s indicator mortgage rates, investors can borrow at rates of between 2.5% (fixed) and 3.0% (variable). These will look highly enticing outside of Sydney and Melbourne, where juicy rental yields of more than 4% are on offer:

Given low borrowing rates and capital appreciation is locked in for the foreseeable future, I believe that it is only a matter of time before investors pile back into the property market. And when they do, they will once again crowd-out FHBs.

Thus, we look to be repeating the post-GFC house price boom where FHBs led the recovery before passing the baton to investors.

Sooner rather than later, frustrated FHBs will once again be watching from the sidelines, outbid by well-heeled investors able to leverage their existing property holdings.

Unconventional Economist
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Comments

    • Covid19MEMBER

      When interest rates double, houses prices will halve.

      I’m bored.

      Are we there yet?

      Getting there 😉

  1. New Zealand’s terrifying out – of – control housing circus …

    Expect the flight of young, desperate and aspirational Kiwis to Australia to resume … with a vengeance …

    Family sell Papatoetoe house for $980,000, but cannot afford to buy new Auckland home … Ben Leahy … New Zealand Herald (behind paywall)

    https://www.nzherald.co.nz/nz/family-sell-papatoetoe-house-for-980000-but-cannot-afford-to-buy-new-auckland-home/HXEA3NRAGGHSLHTQDMSLTRNAMA/

    George and Lee have a big payday arriving in May, yet they can’t afford to wait that long to buy their next home – otherwise they might end up in Australia. … read more via hyperlink above … behind paywall …
    .
    .
    New Zealand’s housing circus … Martin North of Digital Finance Analytics explains …

    The New Zealand 22.4% House Price Growth Crisis

    https://digitalfinanceanalytics.com/blog/the-new-zealand-22-4-house-price-growth-crisis/
    .
    .
    Aussie property looks cheap compared to New Zealand … Leith van Onselen … MacroBusiness Australia

    https://www.macrobusiness.com.au/2021/01/new-zealand-makes-aussie-property-look-cheap/

    • Signs growing (New Zealand) economy will drift down in 2021 … OPINION Tom Pullar – Strecker … Stuff New Zealand

      https://www.stuff.co.nz/business/opinion-analysis/124391098/signs-growing-economy-will-drift-down-in-2021

      OPINION: Evidence is starting to trickle in that 2021 will not be a year of recovery for the economy, but a year of downward drift, framed by fears of a strong correction in house and share prices.

      In early January, when consumer and business optimism seems to have been at about its highest, I was concerned that might be about as good it got for the economy this year.

      It seemed a mean guess to make at a time when most people were just finishing up their summer holidays and getting back to work.

      But the data is now coming in on cue. … read more via hyperlink above …

  2. michael francis

    Just sold my parents home (deceased estate). Listed for between $1.3 – $1.4 m. Had an earlier offer during Covid lockdown last November of $1m.
    Sold at auction for $1.96m. last Saturday.

  3. StomperMEMBER

    “Lucky FHBs” – signing up for a lifetime of debt via intergenerational wealth transfer. What could go wrong?

    • DelraiserMEMBER

      Yeah, FHB revenge on specufestors………….by paying anus-bleed prices

      That’ll learn ’em!

    • Intergenerational by inheritance in many cases. Friends of ours from granny, then pontificating about people not working hard enough to deserve a house of their own.

  4. pfh007.comMEMBER

    “.. I believe that it is only a matter of time before investors pile back into the property market…”

    A matter of time?

    What is the explanation for speculators dozing in their undies while FHBs snap up the super cheap bargains.

    Any speculators out there care to explain why they are letting the youngsters have a red hot go?

    Could it be APRA?

    Have the banks been told that they should hold off chumming a speculator lending frenzy as it is just too risky and owner occupiers are safer from the perspective of systemic risk?

    If this is the reason why would APRA change its mind once FHBs push the market to new highs?

    Why allow the speculators to pile in and spray more bank credit around at that point if they don’t do it now?

    We may find that our clown circus at the RBA might be getting a bit freaked at the energy in the market. This may be a lot more than what they had in mind.

    Must be very frustrating operating those giant levers of centralised control. They should ask our resident tankies for advice.

    • happy valleyMEMBER

      “We may find that our clown circus at the RBA might be getting a bit freaked at the energy in the market. This may be a lot more than what they had in mind.”

      Nah, this is exactly what the clowns wanted – housing prices to the moon. Always back self-interest.

    • Our plan when Covid started last year was to get as much capital together as possible and buy late November – December 2021.

      We figured there would be massive stimulus injected which would bring forward peripheral buyers and create a sharp spike in prices with the government throwing the kitchen sink at it.

      Apartment prices would be the first and most obvious casualty with employment in that area following suit as the primary driver. Apartments will also set the edge case for home purchases as the developers and investors then banks and super funds who are all sinking quickly start to offload – particularly CBD investors who are now at the wall.

      The spike has appeared no doubt, and as we can see FHB have been brought forward – but there will not be a mad rush of migrants so thats it pretty much.

      Our view was that post March and absolutely no way before that date would we start to see the tide recede with the ending of Job Keeper, Mortgage holidays, insolvency holidays, lowering of job seeker.

      Impact of supply chain disruption with huge consumable demand is hammering inflation, coupled with China doing so well – they are now driving global price setting far outstripping US consumers and pushing up prices, excessive liquidity escaping into consumables, commodities, and staples is also hammering things while the trade war and $15 wage rise will be the nail in the coffin. If interest rate rises – we will wait till November the following year as the market will collapse.

      So much debt now – its absolutely insane how much debt there is. Anyone who has not bought – has renovated to the eye-balls. New cars EVERYWHERE – where private schools were advertising on the radio last year – now they are all putting up their prices.

      Its 100% all based on massive debt as people have decided its the way to go and who cares. Its the only way to get ahead – so load up big time and live with it – its cheap.

      Interest rate rises will set this country on fire.

      • Cynical snake

        “Interest rate rises will set this country on fire.”
        Indeed they would.
        What has given you the idea that Government and the RBA would do anything other than throw every water bomber they have at the problem?

        • They have absolutely zero control over interest rates at the global scale – nothing they can do.

          If rates go up globally – and they are going up globally – that is all there is too it.

        • Mate are you absolutely kidding with this guff ? You think that one of the smallest minows in the pond of sharks can just print its way to riches ? What are you smoking there.

          So the USA is being hammered with excessive printing with bonds screaming, EU all chasing China at %3.25 – but that wont matter to Australia – whose FX just got smashed.

          The RBA sets rates – the banks have absolutely ZERO obligation to follow those rates – and they absolutely will not. The only way the RBA can do that is by printing for them, which they have done – and that SMASHED our bond yields by 150%.

          Posting a link to macrobusiness is not “evidence” – macrobusiness literally only ever posts anything which confirms the two or three things they post about while they ban and delete everything and anything off scope.

          Just mind blowing you can think Australia can set its rates at 1% and the rest of the earth will have them at say, as an example 10% – how does that work in your brain ?

          • I think what is being suggested is that.. yes the banks dont follow rba rates but they will still be kept low.
            Here’s a brain fart of how that will work: if the bond market raises the rates required for banks to charge by 1%, RBA will lower the TFF rate by 1% (to -0.75) effectively subsidising the IR for mortgages for the banks. The banks will still need to pay out an extra 1% but they get to charge the govt than the mortgage holder. See? Mortgage rates lower forever.

            Off course is that this will have to be across the entire mortgage book for the banks in aus.. TFF is currently only at 200bill. The entire mortgage book is 2 trillion right now. So you will have to ensure banks can borrow their entire book at 1% less than what the market will charge, a subsidy of 10billion per annum to the industry in this scenario which will have to grow each year just to keep the prices stable.

            The issue still not answered is how on earth the currency will hold up due to all this rba artificially holding low rates in an evironment where the rest of the world is raising rates (premise here). I mean they have to print this amount to lend…
            If you control IR and expect capital to some how stay here at those low rates, the value has to give. So in this scenario, rba will still have to raise rates to defend the currency right…

          • Cynical snake

            “So in this scenario, rba will still have to raise rates to defend the currency right…”
            Rock, meet hard place. What’s the point of defending the currency if the entire population is decimated by rising rates? No one will have any to spend anyway…

      • ‘…but there will not be a mad rush of migrants…’
        Except for the last decade or so of back log.

      • pfh007.comMEMBER

        SP,

        That is a reasonable strategy but I am not sure that too many of our speculator class are that rational.

        It is hard to imagine the more excitable members of that crowd holding back unless they are on a loan officer’s choker collar.

        Those issues you mention are definitely things to watch.

        I think one that is currently unrated is China choosing to let go of the title “cheap factory of the world”. Price rises out of China will cause plenty of woe for the inhabitants of debt mountains in the west.

        All they have to do is adjust prices upwards to a point just below the point that western customers will bother trying to reorganise supply chains.

        Everyone threatens to take their business elsewhere when prices rise but few do.

      • It’s sad that a unit has now become the new ‘house’.

        We have given up so much of our living standards that we have to accept that we are lucky to be able to buy a unit.

        Units aren’t ideal and most people would rather a house than a unit

    • kiwikarynMEMBER

      No foreign buyers for OTP.
      Investors struggling post-mortgage deferral, can’t meet servicing requirements for additional properties
      Investors with empty CBD apartments have cashflow problems, cant afford to buy additional properties
      Everyone is too busy using their HomeBuilder subsidy to fund the 200 square meter extension to their OO home

    • innocent bystander

      I have been asking myself that same question.
      where are the property investors?
      I have been watching the market fairly closely here in my part of Perth and it is all FHBs – but they are often accompanied by the parents, so I am thinking some of the traditional investors are teaming up with the offspring?
      Still, that doesn’t account for all of them.

  5. BaldbadgerMEMBER

    You’ve written this article as if you are happy for them?
    I couldn’t feel more sorry for first home buyers. You’ve also locked in capital appreciation with the same confidence you had one year ago about house prices crashing. How did that end up?

    • He finally saw the writing on the wall.

      Privately owned housing is now a state backed investment in Australia and will never be allowed to crash.

    • You wait until second half this year
      It’s going to end in tears
      They will not stop trying to blow this bubble

      Interest rates are going to rise next 6 months, 2% will be 3 to 4%
      But it’s the global banking crisis that’s going to push this off a cliff

      Putting that aside, interest rates and inflation are going to be much higher over next 5 years,,, home loan rates will be 5/6/7% probably higher similar to 1989 if anyone was around in those days

      The AUST 10 year bond (will come off now a little) but it’ll be above 3% mid year

      Home loan rates won’t be 1.99% and anyone who tells you different has no idea

      We are past the point of no return

      Xmas this year is going to be ugly the meltdown is second half this year

      I used to say put your crash helmet on, Don’t even bother this time, it won’t help you this time

        • Ram
          I’m not there anymore because they’ll keep printing and borrowing to hand out money
          Selling bonds printing
          Inflation is going to just keep rising and interest rates will be much higher
          There won’t be guns yet ……. but the price to stop guns is higher food costs etc
          It’s going to be a very tough few years for many

          Right now as we head into second half, you want NO DEBT

          We are going to have a debt crisis that will be unprecedented

          They have blown this bubble so high it’s going to be frightening when it bursts
          I understand it’s harder for others to see into the future, but Xmas this year will be much worse economically than 1930s Great Depression
          Unemployment above 20% and I don’t believe all banks will be standing
          I don’t know what they’ll do
          Think they may just save what they can
          This is going to be much worse than Ireland
          Everyone needs to get themselves in a very strong and sound position to survive next year
          You need to do the absolute complete opposite to what’s going on now
          Start really preparing now, bunker down and get everything in order in preparation

          You are going to see things in second half that you thought would only happen in movies

          Remember last year everyone felt they woke up in a sci fi film

          This will be multiple times worse

          • This is not going to happen.

            The Australian government and RBA would never allow one of the Big 4 banks to collapse.

          • True they won’t want to allow it but they won’t have a choice
            The bail out in 2008 US TARB was $960N
            This will be $10 to $20;trillion and they will do it
            But this is a meltdown, it’ll happen too quickly
            This will be all in a 6 month period
            They’ll print trillions but from the ashes everything will rise in price but no where near the highs of this year
            Assets will rise from borrowing printing but with interest rates and inflation
            They’ll act in response not to avoid
            It’ll be way too big

            Cynical true we can, and we will absolutely but it won’t be enough to prevent, it will make the downturn end quicker but with consequences

          • Re Ireland I believe ECB did give them huge liquidity but they had a fixed exchange rate?
            That was my memory? was the issue

            Doesn’t matter the global leverage derivatives margin lending house hold debt is so much higher ,

            Nothing can stop it this time

          • boomengineeringMEMBER

            bcnich.
            You asked if anyone was around in 89.
            very long story short.
            I/we owned 11 houses, 7 beachfront mostly outright. Then bought another thinking commercial wouldn’t be as badly affected. Our interest rate for the gym property in Manly went from 17.5% to 20% which we couldn’t pay the difference of so was selling the houses half price to keep it going till they were all gone then got foreclosed on 2 days before Christmas with 2 kids in tow out on the street. Had to go to Vinnies for food.
            .
            Before all this, I remember the RE frenzy well which prompted me to put a couple on the market but unfortunately it takes a time to sell and settle but did manage to get rid of one before the above story happened.
            As I’ve stated here for many years it was like someone turned off the lights. Many suicides’, divorces etc ensued. No one was unaffected. The wife and I were scarred for life.

          • @boom
            I’m sorry to hear that
            Same in Melb back then
            The younger don’t understand
            Our debt was 30% of GDP then
            Now 125%
            It’ll be so much worse than you experienced
            Everyone is just going to need to help each other
            It’s going to be a blood bath
            This will scar society
            After 1930s no one wanted to go near debt for a very long time
            We are going to start saving again
            You’ll get 5 to 10% again on your money but I don’t know what bank there wiii be some nationalised entity and maybe private
            My guess 2 banks ….we will see smaller private lenders but loan term 5 years
            This is what it was in 1930s
            What ever the landscape will be very different to now

          • @Boom
            Thanks for sharing your experience.
            Govt & banks will burn a couple of generations in housing markets. No need for a war. Just withhold housing & jobs, decrease family formation, promote credi card debt & FOMO housing. Young crew never exposed to fallout & decline will go ball$ deep in debt on tradie wage to get girlfriend ( give most of it away in divorce – restricted child access ) formula for suicide & native population decrease. Impart moooooaaaaar o s folk with $

          • So bcnich, you say no debt. But what really happens to cash anyway in this environment. It aint good anywhere but where is “least bad”.
            I am reading farmland and commodities!

        • Yes it was and they didn’t allow the deleveraging true
          I said April and they came up with every shenanigans they could and blew the bubble sky high
          But now their printing has created inflation
          We have reached the inflexion point
          They can’t prevent this time

          We have truly created a life is misery for the kids
          They will never experience the life that the previous generation had
          Going io be very tough for them
          Everyone will just have to help each other

          • Cynical snake

            Sure they can’t. They’ve barely begun the shenanigans…

            when the RBA owns as much of the bond and sharemarkets as the BOJ and super has been strip mined then we can talk.

          • ^Snake gets it. They still have plenty of levers left to pull until they can get plane loads of immigrants piling back in again.
            And make no mistake all the recent things they’ve deployed were to save any banks going under. Mission accomplished.

          • Why?
            Because the RBA and government have shown a clear intention to let the place burn?
            Or because you think it should?
            Other reasons?

            The RBA has a similar incentive to the BOJ to save Aus. ECB wasn’t overly concerned with Ireland or greece, as long as germany/france were doing OK.
            The Euro monetary union was always going to be a disaster. https://www.theatlantic.com/business/archive/2013/04/watch-margaret-thatcher-explain-why-the-euro-is-a-terrible-idea-in-1990/274768/

            “Countries such as Ireland and Spain haven’t so much been done in by “inefficiency” as they have by the inability to respond to giant housing busts and recessions with the help of their own central banks.”

          • I agree we have reached an inflexion point. But everything is so unreal who could truely honesty say with 100% conviction they believe they are absolutely correct. It’s all make believe .. who knows I’m fully expecting alien contact is now imminent 😛

    • That’s ridiculous .. over 3 million. ? Some abstract view of the sea from a far. Be better off printing a photo of the beach and putting it on the wall.
      A good storm would blow that builder spec home away.

      • Charles MartinMEMBER

        pfft, who cares about that.

        Did you see the bottle of Moet thats waiting for you when you get home from a long day at work that you and the misses can enjoy sitting around the fire pit once the kids are in bed whilst imagining what your house will be worth in 7 years.

    • Yeh it used to be “Criminal Hill” Boom but that pocket is a pretty nice neighbourhood now. That price is absolutely crazy but had a mate who lived just up from there and they loved it.

      • That’s not the price when interest rates are 6% and I’m being generous
        Those that had a mortgage in the 80s understand

        • boomengineeringMEMBER

          See above. there are similarities.
          bcnich, that statement was genius (anyone who had a mortgage), as the only person of adult age at the time I’ve talked that had no idea of of the 89 crash was a renter.

        • Imagine what happens when things start to crash – that feed back loop with people not being able to pay their mortgages – everyone freaking out about bad housing loans on each others books – governments with mountains of excessive debt and devalued currencies.

          Housing will be the worst of the worst to have on your books on a global level.

          • Imagine if the Reserve bank predicted these things.
            What could they possibly do to avoid it all?
            What adverse side effects would they be willing to cop in an effort to prevent it?

    • Nah, these articles are just part of the ‘forked tongue’ the property lobby is talking with… these are just “counterbalanced views” but virtual at that, as no one actually holds them.

      We all know RBA will ‘look through’ anything of importance, hit the snooze button when the alarm rings and ultimately be too late in taking action when anything needs to be done.

    • The RBA won’t do anything that is sensible
      They are past the point of no return

      Inflation is pushing up interest rates
      They will be forced to tighten but market is pushing up interest rates anyway
      They can’t do anything that will work
      You watch inflation break out next 6 months
      US will tighten by mid year as inflation runs out of control from this liquidity
      It was low rates 4 years away
      Now it’s 1 year ?
      In 2 months it’ll be 3 months away
      In 6 months they will already be higher

      • “They can’t do anything that will work”
        What’s your prediction for interest rates in japan?

        • Yes I know but it’s getting out of hand in the US and they know it
          There hands will be forced by mid year
          They won’t have a choice
          They’ve created an inflation nightmare
          You are going to see the US economy flying next 3 months
          They will tighten by either draining liquidity by tapering QE or both that and raising the FFR
          Think RBA will be forced too, and either way Australian 10 year bond will be up at 3 or so % by mid year
          Maybe off a little now with their shenanigans but won’t change the outcome
          Banks will be raising rates around mid year if not before

          • The90kwbeastMEMBER

            The FOMC has tried to re-inflate the economy for a decades with marginal success. Granted the relief package passed is substantial and monetary policy is accommodative but I just don’t see how inflation will be drastically above say 3%. Jobless claims are stubbornly high. How are we going to have high inflation if you still have 800k weekly claims for unemployment insurance?

            https://www.google.com/search?q=us+jobless+claims+feb+2021&tbm=isch&ved=2ahUKEwja9MnrsZDvAhVcz3MBHUPWDmUQ2-cCegQIABAA&oq=us+jobless+claims+feb+2021&gs_lcp=CgNpbWcQAzoCCAA6BggAEAgQHjoECAAQGFD2kwFY66ABYPShAWgBcAB4AIAB3wGIAY4MkgEFMC43LjKYAQCgAQGqAQtnd3Mtd2l6LWltZ8ABAQ&sclient=img&ei=vIs9YNqmFNyez7sPw6y7qAY&bih=1266&biw=1291&rlz=1C1GCEB_enAU875AU875#imgrc=JMfDEQ0rOcXSOM

          • That’s not even the right question.
            How are you going to have inflation when 3/4 of the entire economy has been bankrupt by the rising interest rates, including all the banks.
            The CB’s will be FORCED to look through inflation as they are already hinting long before it appears.

          • Guys if you want to believe there is no inflation coming and interest rates will remain at 2% for ever because some public servant told you good luck

            What I’m saying isn’t even a forecast, it’s actually happening right now

          • Goldstandard1MEMBER

            Has anyone realised we are in the roaring 20s again (it’s 2021)…….a little too coincidental for my liking.

          • Yeah guess that will be interesting. To see rba having to choose whether people get to keep the roof over their heads or put food on the table.
            One of them will need the rates to stay low and the other will need rates to be raised!

          • Cynical snake

            “What I’m saying isn’t even a forecast, it’s actually happening right now”
            Bond yield =/= home loan interest rates, and it’s about to unhappen. Lets see what rba has to say in an hour or so.
            PREDICTION.
            Statement about willingness to look through inflation
            jawboning or outright announcement of increased bond purchases to drive yield back down, possibly to longer terms as well.
            And some other fluff of little consequence, exchange rate, employment, apra, mplol and stuff.

          • Hey 90k, why does high inflation require low unemployment? A supply shock in 1970s had both high inflation and high unemployment until rates had to be raised (unemployment went higher but at least you fix one problem at a time). It is called stagflation.

            Anyway, on your comment of “The FOMC has tried to re-inflate the economy for a decades with marginal success. ”
            Think these guys are on to something:
            https://www.variantperception.com/2021/02/17/the-next-commodity-supercycle/
            But policymakers should be careful what they wish for. Large government deficits financed by pliant central banks have preceded every high and hyper-inflationary episode of the 20th century, from Weimar Germany in the 1920s, to Hungary in the 1940s, to Argentina in the early 1990s. QE has lulled people into a false sense security as it was not inflationary. QE created a supply of dollars, and relied on the banking system to “transmit” those dollars. But a private sector still licking its wounds from the financial crisis did not want to borrow, and banks did not want to lend, which meant borrowing and therefore inflation did not sustainably pick up.
            The pandemic accelerated a trend that was already in place: the increasing impotency of QE. Now we need QE combined with large government deficits, which is a very different beast to QE on its own as it creates supply of money and a simultaneous demand for that money. History shows this has much greater inflationary potential.
            —–
            At least, what we cannot say is that because the past performance of the central banks with only the one interest rate lever has not achieved inflation, that they will not be succesful in stoking inflation when combined with fiscal policy now.. which both govts in u.s. and aus here have showered the country with in the last year.

          • Cynical snake

            “Statement about willingness to look through inflation”
            “The Board remains committed to maintaining highly supportive monetary conditions until its goals are achieved. The Board will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range.”
            This one hinges on what “sustainably” means. I bet it doesn’t mean touches it for 1 quarter though.
            “jawboning or outright announcement of increased bond purchases to drive yield back down, possibly to longer terms as well.”
            Well, we got some jawboning and aknowledgment of changed plans.
            “The Bank remains committed to the 3-year yield target and recently purchased bonds to support the target and will continue to do so as necessary. Also, bond purchases under the bond purchase program were brought forward this week to assist with the smooth functioning of the market. The Bank is prepared to make further adjustments to its purchases in response to market conditions.”

    • Goldstandard1MEMBER

      I think that the effect of this announcement has already played out. FHB and others think this is a signal of no risk so people are leveraging up big time. No need for this to actually pass now.

      • Cynical snake

        The RC confirmed there was never an need for this to pass as it was routinely ignored anyway.

  6. migtronixMEMBER

    “look mate, I’m sure you’re real good at ‘business’ and ‘work’, but unless you can explain to me the value of your proposition in part house I don’t know what we’re doing here. We can do 1/16 house, 1/8th, quarts. You want an 8ball?”

    • Yes, yes…. jumping off this cliff will not hurt you. In fact, it can never hurt you, I guarantee.

      In fine prints; only hitting the ground does.

      • No a public servant and politician told me I’d be ok
        They are very intelligent competent and honest people

  7. There is more than one type of inflation.
    Financial asset inflation may create limited trickle down employment
    Housing inflation for 2/3 of the economy is an input cost and a big and sensitive cost
    What do high inflation economies look like? Empty supermarket shelves, empty of imports first.
    Why did Hank Paulson Smash inflation ‘fears’
    what is the dynamic of inflation(s)?
    How do you pay for complex imports with today prices but selling in 3 or 4 months time when there is 12% inflation
    Consumer inflation is a globalization killer
    Consumer inflation will cause a jobs holocaust
    Comments?

    • Episode 99 Replay

      Disclaimer: All characters and events in this Episode – even those based on real people – are entirely fictional. All celebrity voices are impersonated…..poorly. The following Episode contains coarse language and due to its content it should not be viewed by anyone.

      Not so long ago in a galaxy not so far away …..

      Darth Sidious: A Chinese-led mining boom will take off in a few years. We should capitalize on the coming boom and concentrate ever greater fractions of the Strayan wealth into our hands.

      Darth Costello: Yes, Master. We will lower the nominal tax rates, encourage negative gearing, and direct the state governments to fund their expenditures from the rising stamp duty receipts. The stamp duty is the only tax the voters are willing to pay.

      Darth Sidious: Do not forget to take measures that encourage borrowing and speculation. Higher house prices alone won’t help if the number of transactions stays low.

      Darth Costello: Yes, Master.

      Darth Sidious: Providing better government services while cutting taxes. You shouldn’t have any trouble selling it as a testament to your responsible economic management of the nation.

      Darth Howard: Yes, Master. I can foresee that the gullible Strayans will mortgage their paper profits to fund their overindulgence like overseas travels and SUVs.

      Darth Sidious: The Moron Side of the Force will dominate Straya’s destiny as the incoming large doses of effortless money will numb their senses. Steve Keen and his mates will be no match for you.

      Darth Costello: But Master, wouldn’t the resulting CAD cause even greater fractions of our assets to fall in the foreign hands? The foreign creditors have not been stupid enough to keep their proceeds in the rapidly debasing AUD.

      Darth Sidious: Then you must help them learn how to become stupid. Perhaps you can open the gates wide and encourage them to mingle and learn the Strayan way of doing things. But don’t forget to stop the boats and make sure the media are there when you do. You cannot afford to look like an irresponsible keeper of the boarder.

      Darth Howard: Yes, Master.

      Darth Costello: Master, what should we do if a large fraction of the population overstretch themselves and fail to service their debts? Wouldn’t that place our chaps in the banks in danger?

      Darth Sidious: Then you must debase AUD still further. Keep printing just enough so that you won’t let the overstretched borrowers live but you won’t kill them either. After all, unlike Greece and the others in the Euro zone, you can print as much as you like.

      Darth Costello: Print as much as…… Master, is it legal?

      Darth Sidious: I will make it legal. I already instructed Darth Greenspan to prepare his jurisdiction for the upcoming Yes, Master.debasement of the century. One of his underlings came up with a fancy name that tends to mask its real nature; quantitative easing – I will have him succeed Darth Greenspan in due course. You just need to follow what is going to transpire over there.

      Darth Costello: Yes, Master.

      Darth Howard: The voters will scream if we cut their pays but they will be happy if their nominal income keeps rising.

      Darth Sidious: You just need to keep reminding them that their pay checks are not denominated in the Zimbabwean dollars.

      Darth Costello: Yes, Master.

    • You wouldn’t classify bond prices rising off the back of an interest rate cut as that kind of inflation. There is a very clear understanding that it is a one-off adjustment of yields meeting future interest rate expectations. Yet when share and property prices behave like bonds due to interest rate cuts…

    • It’s tradeable goods inflation
      It’s getting more and more out of hand
      The longer they delay tightening the worse it’s going to get

  8. A lot of this is based on low numbers of houses for sale….here as well as the US and probably everywhere. The tell will be if those who are hunkered down in a safe place for the virus decide to sell at the higher prices if the vaccines work with variants.

    https://twitter.com/jessefelder/status/1365371345287151619

    No need for a gold standard when you can use houses as a store of value……no place for crypto in such a system, just a central bank account to send your mortgage payments to.

  9. Property investors may not be the same demographic as they were post GFC.
    Baby boomers are 10 years older so a fair chunk of them may be going into conservation mode.

    There would have to be some number of older people who were once investors but are now pulling back from the hassle of being a landlord. It is still a relatively uncertain time, the world has not returned to pre Covid by any stretch.

    • This is a good point. Some will be scared from the landlord expetience in covid to wear the holding costs without rents coming in or paying only half rent.
      But the other half will see the greed factor.

  10. TailorTrashMEMBER

    First home buyers having their time in the sun ? Have we taken temporary leave of our senses ?

  11. I saw this post early in the morning and I thought I was reading Domain. When is the MB going all in on property?

    • The Moron Side of the Force is a pathway to many abilities some consider to be unnatural.

    • Yeah never mind the last decade of articles about Australian housing being a bubble and it will bust, especially after an external shock, those articles memory holed, never happened. Now it’s ‘relatively affordable’ and ‘juicy yields’ and cheering on central bank financial repression.

        • The insolvency phase was just delayed by the injection of liquidity
          We are going to have huge involuntary bankruptcy stage in second half this year
          Similar to when Lehman went under
          Huge corporations and banks are going to go under and spread a shock through the world

          • Cynical snake

            OR,
            lehmann taught em a lesson and they will inject earlier, more and longer…

  12. “… Low borrowing rates and capital appreciation is locked in for the foreseeable future.”

    Have MB drunk the property kool-aid? Is there really no risk that rates begin to rise? Did the 10 year treasury yield not just double?
    Please explain how capital appreciation is locked-in. Seriously. I think this is MMT gone full loco.

    How does inflation stay so low when landowners go to cash in on this free-debt, locked-in-capital-growth, negatively-geared property binge?

    • kannigetMEMBER

      Its because inflation doesn’t count property prices, only the interest portion of repayments, so when you drop interest rates you reduce inflation overnight… also inflation drops over time as the interest portion of repayments drops, admittedly assuming no new bigger mortgages.

      Its why using home loan interest rates to manipulate inflation is a problematic and disastrous idea. You drop rates to stimulate purchases but that drops the inflation measure….so it has limited effect. As rates approach 0 that effect becomes even smaller.

      Once property can not longer absorb the debt injection it will flow quickly over into other areas and then suddenly we go from 1% inflation to 10%. Then the turning off the tap has limited effect and raising interest rates will raise inflation again….

      welcome to the circle jerk death trap, enjoy your ride.

      • That’s exactly what I thought. It seems completely bizarre to me that housing prices aren’t included in inflation…..
        As soon as people cash out their capital gains, they’ll go spending it on stuff. It’ll just be a matter of who gets left holding the bag.
        From the looks of this, it’s going to be FHBs.

        • Cynical snake

          “As soon as people cash out their capital gains, they’ll go spending it on stuff. ”
          Yes, mostly another house to live in.

          “Once property can not longer absorb the debt injection it will flow quickly over into other areas”
          Lending isn’t very available other than against property so not sure how the debt is getting injected anywhere else?

          • kannigetMEMBER

            I don’t know… maybe borrowing against equity for renovations, a designer kitchen, a new boat, a family holiday. It happened prior to 2008 and will happen again once they feel they don’t have any more ‘safe’ borrowers they will try and extend the ones they already have….

            Maybe banks using the profits from the home loans to push credit cards and car loans. it happened prior to 2008…. remember the ‘Equity Mate’ ads?

          • MauriceMEMBER

            My point is that we constantly hear that inflation is low and not moving. It’s not low, it’s just not the CPI that’s inflating, it’s asset prices. Which is fine – people have more equity but its tied up in their home so they can’t spend it. But eventually the day comes, retirees downsize to unlock equity, property investors sell an outperformer to realise gains. Generally funds flow from investment assets to consumption spending – which will drive CPI inflation. Rates start to go up, and the most heavily-geared property investors with the lowest income, and first home buyers, finds themselves in a red hole.
            It’s nothing new, it’s the business cycle. What’s new is how high we’re willing to blow the bubble.

            Full disclosure – I’ve thought the property market was overvalued for longer than I’d be able to admit, and I am proven wrong every time. I still refuse to believe that we can endlessly pump free money from the RBA to maintain growth in real estate, but I can understand why MB does.

          • Cynical snake

            We can’t “endlessly” pump free money, but it’s a while to go yet before it becomes problematic. Quite a while.

            “maybe borrowing against equity for …”

            The thing about borrowing is it has to be paid back, with interest. so is not actually inflationary long term but deflationary. It doesn’t increase the supply of money.

          • kannigetMEMBER

            The thing about borrowing is it has to be paid back, with interest. so is not actually inflationary long term but deflationary. It doesn’t increase the supply of money.

            I disagree, it results in short term inflation as it get spent in the economy not just thrown into other property, and as the borrowing is from the banks it either creates more money or just releases money already created, just not yet in distributions.

            Yes, it is long term deflationary but so is endless circular property purchasing/selling…

          • Cynical snake

            How’s the total debt value been going the last 10 years?
            What’s inflation looked like?

  13. Listen
    I’m just the messenger
    I don’t even read half the BS
    We are going to have probably the greatest financial crisis ever , what’s left standing who knows
    This is way big for anyone to stop this time.
    Not many will survive this time
    You may as well get popcorn and just watch the meltdown on TV

    We will have a deflationary down turn but they’ll print and inflation is just coming back

    This decade is inflation and higher interest rates much lower USD and much higher commodity prices
    (Dollar will have a safe haven spike, but they are going to long term devalue, makes their debt lower i read somewhere)

    Anyway you are going to see inflation up around 4% next few months, you won’t have to wait long

    • Lol. This thing is bobbing its head back up:
      https://www.marketwatch.com/investing/bond/tmbmkau-10y?countrycode=bx
      I thought they pounded this back down to 0.1 with 4bill or made a big noise about doing so:
      https://www.marketwatch.com/investing/Bond/TMBMKAU-03Y?countryCode=BX
      I dont actually see on the chart where it got down to 0.1 at all on Monday. Or am i reading it wrong/ these gtaphs are dudded? Atleast the 10y came down from 1.9 to 1.6something.

      On this…
      This decade is inflation and higher interest rates much lower USD and much higher commodity prices.

      Will inflation translate to wage rises or are we looking at high unemployment and high inflation in your opinion? I just cannot see all JK to JS bring soaked up end of this month in time to sustain such inflation into wages.
      Commodities.. would be better in USD i imagine. Still metals or you reckon other fungibles that people need to eat?

      Well at least the timeline is short for this now. It either happens or soon to find out if it doesnt.

      • I want to be positive
        some industries will do well.
        Mining, Food etc
        but higher unemployment lower wages
        This decade is going to be probable better. Who needs all the debt its a complete headache