Easy credit to blame for high house prices-the Australian.

Discussion in 'Property Market Economics' started by Barny, 15th Apr, 2018.

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  1. Barny

    Barny Well-Known Member

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    IMG_5983.PNG There was this article in the Australian 4 days ago indicating home price drivers and impact % wise, the source was from digital finance analytics.
    Interesting to see how much they place 'all personal finance' to be the number one reason for price growth, roughly 28% which is much much higher than property supply (8%) or immigration growth (6%) we keep hearing to be the biggest factors. Also will note that credit alone does not cause high house growth, this is evident if you look at places like Perth over the last few years, and interesting to see what will happen to Perth and the rest of Australia if this credit crunch continues.
    Sorry I can't post the direct link as you must be a subscriber to view the article, I read the hard copy.

    This linked video also has George tharenou speaking about credits link to property, the current credit tightening, the availability of credit to fall 20-30%, property prices etc. I reckon he's on the money here, many other posters have also written similar. Interesting times ahead.

    George Tharenou speaks to The Business
     
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  2. DrunkSailor

    DrunkSailor Well-Known Member

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    it Looks like there is a strong correlation between growth and credit supply. RBA starts lowering rates in 2012 which is when the boom started. Banks tighten lending in 2017 which is when the boom ended. What other factors changed that can be attributed to these movements? Fundamentally, everything about Sydney and Melbourne is the same since 2010 yet for some reason a property boom just started to happen.

    Perth may have tanked a lot harder if not for the lower interest rates.
     
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  3. MTR

    MTR Well-Known Member

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    Syd/Melb - low interest rate environment and immigration key drivers
     
  4. Tony66

    Tony66 Well-Known Member

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    I don’t understand rather than blaming on negative gearing, overseas investors, banks and low credit rates why can’t the government/authorities make more liveable land available to people who wants to build?
    At the moment it appears to me the land value is controlled by the big developers who subdivide them to small land plots. In some areas 250sqm goes to 300k where as there is abundance of land / paddocks surroundings.
    For example a govt can establish something like a National Housing Development Authority and develop infrastructure to the available land and sell directly to people who wants to build.
     
  5. Graeme

    Graeme Well-Known Member

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    The IMF have found that house prices in some cities are highly synchronised around the world.

    Sydney, Melbourne house prices are now global IMF warns

    Some of this is likely to be driven by cheap credit, as interest rates have been at record lows for the last decade in most countries around the world.
     
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  6. hobartchic

    hobartchic Well-Known Member

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    Which would inflate things even more with cheap credit. After a while with tight credit it might work well. The govt did something similar up until the 1990s but the credit was much harder to come by.
     
  7. Blueskies

    Blueskies Well-Known Member

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    9 times out of 10 government mismanagement is the problem in the first place, not the solution. We already have a deep pool of property developers willing to build products that people want, just need all levels of government to get their beurocracy fees and taxes of the way.
     
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  8. marmot

    marmot Well-Known Member

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    The problem is just under 90% of investors want established property, that's generally where the best capital gains are, and you dont have to wait 6-9 months for the home to be built, before you can start renting it out.
    Then you have first home buyers , some states allow them to use their grants on new and established property, others will only allow the grants on new property, as it adds more stock to the market , I think the industry would prefer no restrictions on purchases ,as most will go for established property in more desirable locations, it keeps stock levels reasonably low and prices will always go up over a reasonable time period.
     
  9. Graeme

    Graeme Well-Known Member

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    Running a country is probably a significantly harder project than anything we do, and I think that ascribing failures to all politicians being useless is lazy.

    What does the government want with property?
    1. Prices to remain high and keep on rising.
    2. Housing to become more affordable to the younger generation.
    Look at Scott Morrison's comments about winding back the APRA regulations as objective #1 takes a hit...

    Building more properties might be the answer, but there's been a huge amount of development in Sydney and Melbourne, which have also had the biggest price rises in recent years. It also doesn't help if investors outbid FHBs for them.
     
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  10. marmot

    marmot Well-Known Member

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    I would not be surprised if one of the recommendations from the Royal Commission would be to consign IO loans to the scapheap or place even further restrictions on its use for the long term health of the Australian residential housing market.
     
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  11. Magnet

    Magnet Well-Known Member

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    The problem is that anything the government does in terms of trying to bring prices down hurts far more than the potential first home buyers. Its also unreasonable to think that most first home buyers could afford anything in Sydney, and to some extent other capital cities, even with some Government intervention. Prices would need to come down by a hell of a lot for them to be affordable to a FHB.
     
  12. Sackie

    Sackie Well-Known Member

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    I don't really care what's causing long term house prices upwards trajectory. As an investor I want it to keep going (which I think there's a very good chance long term it will) . I'm on a wealth creation forum, not a bloody kumbaya one.
     
    Last edited: 16th Apr, 2018
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  13. Barny

    Barny Well-Known Member

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    Wow that’s an incredible statement to make..
    you don’t care what’s causing house prices upwards trajectory, but reference yourself as an investor. Your money was made in a time where fairytales and dragons still existed, which was also the same time easy credit was available to all, hang around and see what happens when you can’t borrow like we used to.
    Why do you even bother posting in this thread
     
    Last edited: 16th Apr, 2018
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  14. Sackie

    Sackie Well-Known Member

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    Much prefer to pluck the fruits than to obsess over the roots. People have obsessed over the roots for decades, only to miss out on the juicy fruits.

    Wrong. My money was made due to the right attitude, unrelenting work ethic and approach. It has never (nor should it be) been easy to build wealth. Granted, credit is harder these days but it isn't the end all to wealth creation. If someone really wants to build wealth then AHPRA can't stop them. Maybe at a slower rate for a time period.

    Alternative opinion.
     
    Last edited: 16th Apr, 2018
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  15. Barny

    Barny Well-Known Member

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    World wide trend there..
    Would you any idea if those countries have had lending changes to individuals in the past recent years?
    Have they or are they having credit restrictions/altered servicing policy requirements like we are having now? If so it will be a trend to follow and see how linked it is.
     
  16. marmot

    marmot Well-Known Member

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    Problem is the politicians get younger and younger , compared to the older generations , and then they start piling on the taxes and withdrawing all the tax benefits.
     
  17. Sackie

    Sackie Well-Known Member

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    Don't worry about the tax benefits. For the most part, it's not gonna break a wealth creation plan long term.
     
  18. Graeme

    Graeme Well-Known Member

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    Had property prices had followed inflation since 1996, just before they went ballistic, the median house in Sydney would cost around $350,000. For wages it'd be around $400,000.

    If they fell by two thirds, it'd fix affordability, but would vapourise a high percentage of investors, owner occupiers, and the banking sector.

    Most government affordability schemes are about propping up prices, rather than helping first time buyers.

    @Barny I don't know if there have been lending changes around the world, other than cutting interest rates.

    Prices have been falling in the UK, particularly London, due to the uncertainty over Brexit, and changes to stamp duty. The former is slightly ironic, because there was significant support for leaving the EU from the older generation, and it looks like it might trash their prime asset's value.

    @marmot it'll be interesting to see what happens in New Zealand. Jacinda Ardern is on the cusp of Generation X and the millenials, and will be young enough for housing affordability to have been an issue.
     
  19. hobartchic

    hobartchic Well-Known Member

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    Capital risk management via banking tends to be gIobal even with local markets and conditions. Globally bank risk and lending is being tightened and that is likely to continue. Along with demographic changes (a more youthful population with record low home ownership, high rent) which should also impact government policy.
     
  20. Perthguy

    Perthguy Well-Known Member

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    Correlation does not prove causation. What this means is that just because credit increased it does not mean that credit caused the boom. It could be that the boom caused the credit to increase.

    A boom is partly driven by buyers willingness to take on additional credit. One factor in this willingness is employment. Another factor is cheap credit which is a factor when people decide how much they will borrow.

    Another factor is fear of missing out. All these factors drove the boom.
     

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