Its the Economy, Stupid: Why Australia won't have a Housing Crash

IMO It’s easy to look at the negatives, we’re all limited by what we hear and see, and that’s a whole lot of negativity now that housing market confidence is low at the moment. There’s probably not enough recognition of how strong conditions are at the moment.

Looking big picture, the strength of the Aus economy is getting worldwide attention now too.

The Economist has a pretty cool special into Aus economic conditions and what drives our success. It’s worth a read for those that are interested in a fairly worldly view of Aus.

They coin it #wonderdownunder

 

@Redom
The sooner your glass gets half empty mate the better. Your optimism is not welcome around here.

 

Macrobusiness had something to say about that article:

The Economist issues dire Australian magazine cover indicator - MacroBusiness

"It’s only ironic if you accept The Economist’s stupid assumptions. The truth is:

• incomes are falling;
• standards of living are falling;
• house prices are insane (and falling);
• we have good public debt but crazy private debt (that is guaranteed by public);
• 60% of the nation wants immigration cut,
• and, ignoring all of this hard fact has destroyed our politics and therein any possibility of reform.

Australia is one cycle behind the travails of the developed world thanks to the rise of China but it is catching up fast and, if this cover story is any indication, is about to join it with a bullet".

 

The argument "the fundamentals of the economy is strong" is OK to justify the price floor based on fundamentals of income.
We are in forth environment in Syd/melb and way pass fundamentals to justify current valuations.

APRAs focus on high leveraged, high debt investors is to remove the 'IO and high debt' froth and avoid the systemic risk by forced deleverage.

So given the headwinds unless there is massive rise in salary or credit is loosened back to 2014/15 times, how can one see "bottom is in" before 2021?

 

Price falls doesn't need a lot of forced sales a small number is enough to sustain the current fall. The fear which overshoots can also undershoot

 

The system is stable.
Economy is expanding.
Risks are well managed.
Unemployment is ok.
Regulators are top notch.
Dollar is slowly getting down to where it should be.
Animals spirits have been largely contained
Super pool is one of the largest on the planets
Royal Commission is likely to result in even fairer system
A fairly equalitarian state
Wealth is more or less normally distributed
LNG is coming online
Transition from mining is largely done
Exports are booming
Tourism is picking up
Education is booming


Supervisory Authorities, lead by APRA, are considered some of the most proactive in the world. What are we complaining about?

APRA has been constantly shifting and changing its policy depending on what is happening in the market. It’s this flexibility, nimbleness and proactive risk management created a sound stable system.

Even if we end up with the dumbest leaders on the planet. The fact that we have independent and proactive authorities gives me all confidence in Australia and it’s future.

 

Get outta here with your optimism

 

Oi!! What did we say about optimism around this hear parts. If you want to contribute to the “Property Market Economics” section of this forum you best be emptying that glass.

 

There is a economic theory that stability creates instability. Ie people are lulled into taking more risk - we have the 2nd highest level of household debt in the World. You don't mention that 2/3 of our GDP growth is just due to dumb population growth so is largely an illusion of prosperity - there is a lot of underemployment and wages are stagnant. .

 

Are these the same regulators that were slammed by the Royal Commission?

 

Sorry! Didn’t get the message

Drinking it now! Someone keeps filling it up!

By slammed you mean had just a tiny paragraph mentioning that they could be more aggressive in court actions? There is an important distinction to make here. APRA is not, and never was, a corporate or consumer watchdog. That’s ASIC and ACCC job. Who were mentioned in RC report. APRA is tasked with system stability, capitalisation of banks and ensuring any stress to the system passes with minimal losses.

That said, it is RCs job to ‘slam’ the things they are investigating. Everything can be better. When someone gives me a piece of feedback I’m seeing it as opportunity to grow and improve myself. Not as ‘slamming’.

It is likely that real GDP in 2018 would be heavily front-loaded, with growth to moderate through the second half of 2018 on the back of fading net exports and softer household spending. Household spending did constitute the majority of GDP growth but we need to realise we are coming off a huge capital investment hangover post mining boom.

During the mining boom our investment into capital was huge. It’s is amazing that the transition post this once in a century investment has been so smooth. Again shows how resilient Australians and Australian economy is.

 

Link to the article

Edit: Link to special report (may have to use incognito to view articles)

 

@scienceman
Interested as to why you refer to it as “dumb population growth”?

 

Used to be a daily reader and still visit their site for a quick skim of the comments every now and then since some of their commentators are far more eloquent/reasonable then the actual writers of the blog who come off as smug/know it all individuals who rubbishes and ridicules any idea that doesn't fit with in their agendas.
They have always been in the business of selling fear, doom and gloom and i kind of grew out of it even though it.

They have been right on many things but also very wrong on many , especially about property and they still fail to admit that they were wrong about it.

 

It might be more helpful if you commented on the actual article rather than bag the blog in an ad hom way. Also plenty of the people they ridicule deserve it, eg proclaimed demographer Dr Liz Allen, most of our politicians. PS what is their 'agenda' and how were they wrong about property? Looks like they are being proven right at this point in time.

 

Well it's a lazy/ nasty way to grow the economy compared to increasing productivity/ making things the World needs. It benefits the ticket clipping FIRE industries, but the rest of us have to put up with the downsides such as stagnant wages, underemployment, overloaded infrastructure/ congestion and loss of amenity, trashing of the natural environment.

 

Though we have pain in store for over leveraged players in frothy segment over the next couple of years, The new normal in credit scrutiny and sanitising IO froth will be great for the future financial stability.

In-spite of being responsible for letting the froth built,
It must be appreciated that RBA is handling the systemic risk proactively rather then reactively, via APRAs very targeted attack towards froth(small minority) with minimal possible impact to majority, as against using blunt monetary tools like IR hikes which would have been painful for all without much success.

I think one of the important piece missing from the list is,
Gov's negligible debt.
so push come to shove they can inject lots of fiscal stimulus.

Irrespective,
The days of easy credit growth is over for some years to come.
Its a decade to deleverage.

 

@scienceman , as you mentioned, some people deserve ridicule and in this case i'm ridiculing MB for being wrong about property for at least half a decade and never admitting they were wrong. And yes, if you keep repeating that property is going to crash/correct/decline , i'm sure at one point in time you'll be correct which is the case with MB.

For a financial blog, it seems like they have never heard of opportunity cost. They are a business so obviously their agenda is to have more subscribers and doom and gloom is obviously their way of hooking people up, just like most media outlets.

As for the Economist article, i'm in agreement with their points and as usual MB, only looks at the doom an gloom and they dismiss all the positive parts of the article.