7:30 report on ramifications of bursting housing bubble

This is exactly why I go so hard at the ABC.

 

RBA didn't mention the word 'bubble' or 'burst'. Is RBA correct or Mr Das? http://www.smh.com.au/business/the-...lbourne-property-markets-20151016-gkaqse.html

 

But you used the claim, so are you against it or for it?

Most folks who use a piece make it clear how they stand when using another piece.

Because you used it, and then didn't add that you disagreed with it, we have to assume that you agree with it.

 

RBA have an interesting take on this:
"Sydney housing prices falling because of greater supply, RBA deputy governor Philip Lowe says

Philip Lowe told a Sydney business conference he would welcome a drop in home prices."
http://www.abc.net.au/news/2015-10-...ces-to-fall-because-of-greater-supply/6850566

In Australia, there is always a correction after a boom. It seems like this could be the start of the correction.

 

Assume whatever you like. I was merely pointing out that the analyst was talking about the broader market and not your personal experience.

 

Fair enough.

So; what is you take on that piece?

You already know mine.

 

Hate how media changes things to suit their needs...way I pretty much ignore it these days.

I used to be a superannuation technical analyst at a financial services firm - a pretty unsexy title. I was interviewed for an article in the paper (The Age). Apart from 'reinventing' certain things I said they also decided they didn't like my work title and changed it to General Manager - Insurance.

I soon got an email from the ACTUAL General Manager - Insurance asking 'What the heck?'.

 

Like anything, judgment is required when reading these news from 'reputable' writers. Otherwise, it's not good for mental health.

 

I'm tipping the word he used ended in CK, but wasn't Heck.

 

Minsky defined three types of borrowing:

• Hedge finance is when the income stream from an asset covers the loan's interest and principle.
• Speculative finance is when the income covers the loan's interest payments only.
• Ponzi finance is when the income doesn't cover the interest payments, and profit is made from the asset price rising.

Taking these definitions, then Das is correct in saying that the Australian property market is a Ponzi scheme.

With regards to credit, I think @Bayview has got it the wrong way round. Demand means that someone has the desire and means to pay for something. If there was a collapse in mortgage finance then you'd see a similar fall in property prices.

 

I support the ABC but I'm very disappointed with that piece. I consider what is happening in housing to be top of the list in terms of solving multiple problems. If we get housing wrong, down goes the economy.

So when they go with the talking head, quick flash, who is this, what did they say? model... it's bad.

That analyst for example - I don't really like fact-free discussions. For example, household debt in the form of mortgages has tripled over the last twenty-five years. Our population hasn't tripled over that time - so what happened? This is a simple fact, easily grasped but instead he leads talking about ponzi.

Simple facts like the median house costing 3-4 x median income vs 9-10 times now. And so on.

I'm also disappointed nothing is said about the 1.2 million property investors in the country. That's a lot of people and a lot of debt. This is why you can't screw with tax laws and you need to be careful. People plan their lives according to tax laws. They decide to invest or not based on tax laws. Unfortunately when that analyst talks about it, he paints all 1.2 million with the same brush, which isn't fair. There are certainly some investors that deserve being pointed out - the I/O loan, negative gear, speculating on capital gain type but the way it was presented certainly doesn't convince many people that they should think about it.

In regard to his broader point - yes, there has been rapid credit expansion. SMSFs have plunged billions into property and it's very arguable that many of them are very poorly informed. They are also risking a lot and if it goes wrong they don't have the years to make it up. They can't wait through a ten year stagnation after a fall to recover.

Anyway, I don't think things like this are very useful much. They lower the quality of discourse, which is disappointing. It certainly makes investors feel like anyone who talks about the topic sees them as evil specufestors or whatever, which certainly doesn't help promote change.

I'd like to see a more sober view taken frankly. Again, I support the ABC but that was a poorly constructed argument.

 

Most of my friends in Singapore live in HDB or government housing and to ensure most citizens have a roof over their heads, they are able to use monies from CPF similar to superannuation fund to their first purchase. For most of their history the housing prices have been well regulated but in recent times the influx of migrants from China have pushed up prices. Perhaps similar policy to help first home buyers to fund their purchase and less mortgage taken out? Obviously I have not thought about the implications in our environment.

 

I like simple....

We are a small population that likes to cram into 5 or 6 main cities in Oz......

We have one of the fastest growing populations in percentage terms on the planet.... due to being I guess one of the most liveable countries.... Seriously where else is better??? (Biased of course)....

It has been and probably still is embedded in the collective psych of the nation to buy your own home....consistently approx 70% home ownership rate.... I know some will say " but, but look at the lending figures....it's all investors at the moment"", which it may be, but that is a very short term blip on the radar....

Our capital city property markets (speaking broadly) have survived big losses where others around the globe have not.

While I agree that low interest rates in Oz have helped support and fuel prices in "some" markets.....we still have higher rates than a lot of other countries and can lower them if "needed".

This below is the bit that makes it all simple.

Average Joe homeowner doesn't buy a house just to get a home loan......

They actually get a home loan so that they can buy a house.....

 

Nate what you've neglected to mention here is that the rate of outright home ownership has actually fallen.while the number of mortgages has actually increased.

These figures are critical as we head into recession.
Don't believe the collective psych analogy.
Our home ownership rates are eerily similar to that of Ireland but neither country ranks under the top 30.

 

This is probably due to a larger than usual number of refinancing over the recent years due to lower rates, as well as more investor purchases.

That is nothing unusual for a boom period and low interest rate climate.

A few years ago when Tassie was showing good rent yields, a mini-boom occurred there, lots more sales than usual, no doubt a bit of extra refinancing as investors scurried to release equity and so forth, but then the yields caught up, became less appealing and the frenzy stopped.

It seems a lot of folks are looking at this small window of time in Sydney and assume it is the same for everywhere, all the time.

Go back 10 years in Sydney and see what was going on then....next to nothing.

There is also the trend for younger folks to wait longer before having kids, getting married, buying a PPoR.

Nowadays, a larger number of the teen/early 20's births are from the "welfare end" of the demographic, and those folks aren't able to buy due to a variety of reasons.

30 years ago and more; this was the age when everyone was getting married, having a couple of kids and looking to buy a PPoR.

So, this can also have an affect on the ownership figures.

Don't worry Rump; the sky is not about to land on your scone.

 

Something wonderful has happened. MGF is communicating rationally on a property forum. Well done, you'll get more rational discussion happening. Did I also notice that you (MGF) have seen the light and relocated from Sydney to greener pastures here in the poorer state of Qld?

Perhaps you are a researcher assigned to get some background for an upcoming program on the ABC and by changing the Sydney to Qld persona you had to change your writing style to suit.

 

I'm from Melbourne originally. My business is not geographically constrained so we decided to move somewhere sunny and warm. Can't buy a laksa up here and the internet speed sucks but beaches are nice and houses are getting cheaper by the month.

 

Are you in Gladstone?

 

I get a grant for having a baby. I get a tax deduction for having a baby. They are both subsidised by the taxpayers not having babies.

I get a tax deduction for a loss-making property. I get a grant for a loss-making property. They are both subsidised by taxpayer not making losses in property.

 

You pay tax on your income. If you have to spend money to receive that income or you lose money in the process of pursuing it it is not income.

If I am a car dealer and I buy 10 cars and sell them all for $100,000 I don't pay tax on that whole $100,000 because it cost me $90,000 to buy them. I pay tax on my income being $10,000

Property investor: If my income is $100,000 but I lose $10,000 this year getting that income I ay tax on $90,000 not $100,000. Why should it matter if that money was lost buying a new computer for work, starting up a failed car dealing business or buying property that made a loss.

Being able to deduct your losses from income is not a subsidy as those losses were never income. It's a fundamental principle of tax law IMO.

So property investor looses money, has less income as a result, pays tax on income. pays less tax than last year as he has less income to tax.

Person has baby, income stays the same, pays less tax because he has a baby = subsidy
Or person has baby, goes to part time work, earns less income as a result, pays less tax = not a subsidy

Big difference