Hours worked crashes, mortgage stress up - Page 3

It seems most did not spend long considering it, because far more people still arrive than leave. In fact the number of people leaving Australia has fallen recently!

So, you are saying that the trend of more people arriving than leaving will go on forever?

I actually wouldn't be surprised about this.

Australia is still living in a cocoon concerning international events. We are definitely bound in a belief that we're special and what goes on OS won't affect us locally.

But the moment you step off a plane on foreign shores it's pretty obvious that the little 'blip' we had in 2009 with the world wide stimulus packages was a short lived sugar high and the general deflationary spiral downward will continue and get much, much worse over the next few years.

Whilst Australia is nice and isolated and living happily in it's own ignorance, I expect the shock from international market collapse here will be devastating.

You only have to look at the figures and realise Australia is living in a fool's paradise.

Will house prices double in Australia over the next 10 years?

You'd have to be delusional to think yes.

But then again, Australia is packed with delusional property buyers, so who knows?

OK i have to ask but can you see exponential growth in property prices continuing indefinitely?

Aside from all the other reasons good and bad regarding property prices how long can the rate of growth be maintained?

If you take out all the the other issues exponential growth is a warning sign, very very very few things continue growing exponentially.

Most exponential growth ends, bursts crashes etc very abruptly rarely does it nicely go flat or then gently keep growing.

I understand what you are saying about property prices in general but if the real driver is asset price speculation as part of a giant ponzi scheme then how is that of benefit to anyone in the long term?

The rise in property prices has nothing to do with demand for property its all about the availability in credit.

A wise person asked why property prices in small country towns have doubled when there was no net immigration, these prices doubled because the money flowed freely and the finanical institutions allowed people the money to purchase these properties. That's why prices have gone up.

And why did banks loan people extra money?

Because the banks felt they were covered by increasing property prices their risk was covered. You default who cares cause the property is worth more now than when you bought it.

Ironically the more banks funneled money into the property market the more there risk was covered they have total control over the situation. They literally print the money that ensures property prices go up.

Only catch is with any ponzi scheme is that at some point you either run out of people to lend money too, price new comers out of the market or an externality like the GFC comes along.

People loose their jobs, can't afford payments (because they are so highly leveraged) and you have a Aussie version of a sub-prime crisis.

Love to hear your thoughts.

Cheers

Justin

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Economics in a Nutshell: Sure, it works in practice, but does it work in theory?

No, nothing can do anything forever.

If you mean 'forever' then no, nothing can do anything forever. If you mean 'for an undetermined period of time' then yes.

No idea. Sixty plus years so far. Who knows how much longer?

Ponzi schemes rely on new money coming in only from new customers. The property market has money coming in all the time from existing customers - rents and incomes. As long as existing homeowners continue to recieve income and rent, then there is no ponzi scheme.

Credit was also available for boats, cars and holidays. But those things didn't rise in value in the way that house prices rose. The key difference is that demand for houses exceeds supply, whereas supply of boats, cars and holidays is reasonably limitless.

Have you got any examples of towns with no populatin growth where house prices substantially rose faster than the general rate of inflation?

So, you're saying that one day, the trend will reverse and more people will leave than arrive?

I'm not saying any particular thing definitely will or won't happen.

Anything could happen.

See that's really not true.

Seen the price of of classic cars these days?

Classic cars are worth what people are prepared to pay or the finance they can get. Borrowing against the house too.

You example referring to new goods is incorrect.

A new good costs a certain amount of money to make then a margin on top of that.
Inflation has been low so it has not increased the cost of these items. A good that is produced does have a value that can be calculated because it does cost an identifiable amount to make.

House and property is fundamentally different.

There is no objective measure of the price of a land. Its worth what people are prepared to pay (this has never actually changed) and the amount they are prepared to pay is influenced by the amount of money they can borrow.

The amount of money they can borrow is driven by the bank covering its risk.

People are prepared to pay a lot for property simply because they believe its sure bet and they cannot loose. The more they think its a sure bet the more they are prepared to pay. This continues to reinforce hopuse prices.

If say tomorrow a 20% deposit was mandated for houses what do you think would happen to property prices?

Cheers

Justin

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Economics in a Nutshell: Sure, it works in practice, but does it work in theory?

Yes, classic cars are a good comparison. There is a shortage of them, so people will pay ever increasing prices, assuming they have the available funds, which sufficient people obviously do have.

It wasn't really about whether the goods are new or old. It is about whether supply of the goods meets demand.

If there were ten similar houses for sale on a street, and only one buyer, then the price will fall, regardless of credit availability. The vendors will compete against each other to offer the lowest price in order to secure the sale. The buyer will not simply decide to pay the highest price because he thinks the value might increase. The situation is much different if there is only one house for sale, and ten potential buyers. In that case, yes the buyers will use all the credit they can get their hands on and push up the price to the purchasing power of the wealthiest potential buyer.

Prices would not rise as fast as they are currently doing, and there would be very few transactions. But there would still be a shortage of decent property close to transport and services. The same number of people would still have to live in 'lesser' houses than they would like, and just as far from their places of employment.

Easy credit won't cause prices to rise if there is sufficient supply, as per my example above. The easy credit (which I agree is a factor) is only capable of making prices rise because there is a shortage. It doesn't make prices rise for goods that are not in short supply.