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Banks have treated our housing market like a Ponzi scheme, and it's about to bust

Discussion in 'Property Market Economics' started by MGF, 20th Aug, 2015.

  1. MGF

    MGF Well-Known Member

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    Full article: http://www.theguardian.com/commenti...ket-like-a-ponzi-scheme-and-its-about-to-bust

    Extracts:
    Australia’s big four banks are among the largest and most profitable financial institutions in the world. Despite this, it is mathematically impossible that these banks, primarily focused on domestic retail operations, could be as big and profitable as they currently are without one of the following taking place:

    • either each of these banks, in their individual capacity, has solved (at the same time, in the same country, and as a first in the history of banking) the ultimate recipe for infinitely profiting from an exponentially-growing stock of private debt; or
    • they are all engaged in activity which is incredibly risky.

    the evidence suggests that on the back of irrational exuberance, Australia is experiencing what can only be described as a classic debt-financed speculative housing bubble with every metric that evidenced the bubble in the US and Ireland present within our economic system today.

    Between 2002 and 2015, the mortgage books of National Australia Bank, ANZ, Commonwealth Bank and Westpac grew by 388%, 435%, 475% and 554% respectively. Put another way, the big four’s mortgage books escalated from a combined $242bn to a whopping $1.13tn, surging at such a consistent rate it would make Bernie Madoff proud.

    Australia’s economists have not learnt the lessons made obvious by the global housing bubble, especially in the US. While claiming dwelling shortages justified sky-high prices, none except a small number of American economists were competent enough to realise that more than enough dwellings were constructed to house the flow of new households formed over the course of the price boom, and any such shortage would’ve been evidenced by a strong surge in rents (steady yields).

    The housing market is sure to follow the path of the mining industry. Policymakers believed the mining boom would last for decades, boosting the economy. With the mining sector now collapsing, the public will inevitably realise rising housing prices cannot last forever.
     
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  2. Leo2413

    Leo2413 Well-Known Member Premium Member

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    Been hearing this for years and years. SO glad I never bought into it and instead bought property. :D
     
    Last edited: 20th Aug, 2015
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  3. THX

    THX Well-Known Member

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    Oh look, another bubble prediction. Reads just like the ones from last year/last decade/last century!.

    I like the comments, all those people wishing for a bust. Do they not understand that if a bust were to happen the likely cause of it would have to be something pretty damaging to our economy - something they are likely not immune from.
     
    Last edited: 20th Aug, 2015
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  4. Hodor

    Hodor Well-Known Member

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    Same old same old.

    Eventually the boom cycle will end in Sydney and the last economist to write one of these articles will be proud to explain how smart they are. They won't be talking about how this is just part of the property cycle.

    Yawn
     
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  5. THX

    THX Well-Known Member

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    I'd love if every columnist/economist had to have a list of their failed predictions printed with every new column :D.
     
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  6. Azazel

    Azazel Well-Known Member

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    What's your opinion @MGF ?
     
  7. 2FAST4U

    2FAST4U Well-Known Member

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    True!
    The only cities that are booming are Melbourne and Sydney and that's due to population growth and the service economy, which are largely insulated away from commodity prices.
    Even in Perth where prices should be collapsing according to naysayers the price of houses has barely dropped. Unless the Government implemented some radical policy changes capital growth throughout Australian cities will at best stagnate.
     
  8. AndrewTDP

    AndrewTDP Urban Planning Consultant Business Member

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    I think a plateau in the market is inevitable until wage growth catches up in some markets. But that's it really. Standard cycle.
     
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  9. Aaron Sice

    Aaron Sice Well-Known Member

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    sure - but that has nothing to do with "learning lessons from the GFC - and a housing market "surely" following the path of the mining sector either overinflates the importance of mining in this country, or misrepresents the reasons for house price increases.

    Australia didn't see US-style housing crashes because WE ACTUALLY WERE DIFFERENT. We have a different prudential system and a different regulatory system. NINJA loans, or no-docs, were in place during the crash but not nearly to the same extent as the US. We also didn't have non-recourse loans.

    This woeful and verbose diatribe simply clutches at straws to prove a poor point. I've even heard the argument that it's the number of spare bedrooms in the residential sector that proves a glut of property or an oversupply. Just 'cause it's true, don't make it so.

    Considering APRA's continuing changes to the resi lending sector, one cannot come to conclusion of "learning nothing" without preaching with a blindfold on.

    Furthermore, CBA's and NAB's exposure to resi lending and willingness to lend was partially brought about by their selling of RMBS's internationally, tied to Australian Property. ANZ and WBC are also exposed to some extent. This came about, in the volumes we see today, AFTER the GFC by the banks not grouping no-doc/lo-doc with A1 grade mortgages.

    Creating a business which has a nature to make money, then complaining about the effects of it doing so is simply ill-educated, mis / dis informed and does nothing to effect the change continually parrotted as a "good" thing.

    APRA wants to see Basel 3 results, not promises. Take with that what you will.

    And I still can't see the Ponzi scheme....you are aware of how a Ponzi Scheme works, yes?
     
    Last edited: 20th Aug, 2015
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  10. Leo2413

    Leo2413 Well-Known Member Premium Member

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    Who knows. I believe anything is possible but I prefer to deal with what's more likely than not. Personally I just see normal cycles going round as @AndrewTDP suggested.

    You know, there is 1 thing many people are forgetting. I know quite a few investors who NEVER only rely on market movement for CG. They always buy deals at good prices WITH room to add value from day 1 so they are not reliant on market movement any great deal. IMHO this a much more robust investment approach which further mitigates risk and reduces sensitivity to market movements. When you are not 100% at the whims organic CG and have a card or two up your sleeve to create your own growth. This is rarely ever mentioned by the pundits and writers who preach bust predictions, often on dates which coincide with their book releases. How nice.
     
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  11. See Change

    See Change Timing Lord Premium Member

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    Yawn ...
    :rolleyes:
    Cliff
     
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  12. Leo2413

    Leo2413 Well-Known Member Premium Member

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    I need to learn from you the art of just holding my lounge sometimes...
     
  13. Propertunity

    Propertunity Exclusive Real Estate Buyers Agent Business Member

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    It was in May 1986 that Paul Keating made his famous banana republic remarks. Without further reform, Australia would become a "third-rate economy", he said. It could no longer rely on selling a "mound of rock" and a "bit of wheat and a bit of wool" to underpin its prosperity.

    He was wrong given the recent mining boom.

    I'm so glad that the guy I purchased a block of land from in 1990 for $19,000 was selling to me because in his view, Australia was bankrupt and the proverbial was about to hit the fan.

    It may all be a Ponzi scheme or it may not. Either way, that's how the system works and you can make money following the cycle or you can get on your soapbox and rail against the injustice of it all. But I'd just prefer to work with the cycle and ignore the doomsayers.
     
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  14. Leo2413

    Leo2413 Well-Known Member Premium Member

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    Exactly. So true.
     
  15. Azazel

    Azazel Well-Known Member

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    Yes... your lounge.
    Wise beyond your years Leo ;)
     
  16. Leo2413

    Leo2413 Well-Known Member Premium Member

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    @Azazel hahaha.... ah gosh.. thats what happens when your too tired and you have smart asses to point it out!:p
     
    Last edited: 20th Aug, 2015
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  17. Perthguy

    Perthguy Well-Known Member

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    The number of new "bubble" type threads should be a PC leading indicator ;)

    Look, I find the research done by Lindsay David and Philip Soos really interesting. They have also made some very relevant recommendations about tax reform, financial regulation, public policy, and macro-prudential reform.

    That said, I find their 'bubble' hysteria tiresome. I find their comparisons of the Australian property market and the US sub-prime market flawed. I'm not optomistic about property prices in Sydney and Melbourne after the market peaks in those cities. But that doesn't mean we are in the middle of the mother of all property bubbles. I have not seen any compelling evidence that this is not a normal 'boom/bust' cycle that we have all seen over and over again.

    http://www.lfeconomics.com/team.html
     
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  18. Perthguy

    Perthguy Well-Known Member

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    I like this perspective better.

    http://www.realestate.com.au/blog/qa-is-australia-in-a-housing-bubble/

    I have no doubt that Sydney is overheated. Parts of Perth were overheated last year too. If Melbourne isn't already, it soon will be. Property markets go through periods of overheating and then soften and experience flat growth to compensate. In Perth, this has meant lower prices, longer times and the market and a lack of price growth. However, it wasn't a housing bubble and the bubble didn't "burst". It was just a (sub) market that overheated and then slowed down.
     
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  19. Aaron Sice

    Aaron Sice Well-Known Member

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    ....and no-one out there is denying a slowdown.

    so still yet to see the failing ponzi scheme or parrotting permabulls forming part of the OP.
     
  20. skater

    skater Capitalist Premium Member

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    Nothing to see here. Same boring stuff!;)