Steve keen latest update. 2017 recession, 20-70% drop in house prices

purchased properties in Atlanta 2007 that crashed 70%, fast forward today-2016, this market started booming in 2011 and now prices are back to 2007 prices and continuing to rising.

 

I hear and understand you, as most on PC would. The trouble is my friend is a tad financially handicapped. Keeping cash in an offset would be akin to keeping water in a sieve.

So buying outright secures the windfall against frittering away on cars, boats, toys etc. as it is a once in a lifetime opportunity to get set up in an outright owned home. But at the end of the day it's not my decision to make. You can lead a horse to water. . . .

 

I hope you bought after they crashed and not before.

 

I purchased in 2011/12

 

Good stuff.
You're pretty much a local now - go Falcons!

 

A basic fact find would reveal the financial acumen or lack of, so the structure alluded to would be innapropriate for your friend.

@Sonamic - I would give him an opportunity to increase his financial knowledge. You know them best so give them a book or an invite to a seminar or just a coffee. I would hate to see someone waste an opportunity like that. What is vital is that he gets enough knowledge and protection not to get it swindled of him, as what happens more than not with windfalls.

 

Correct @Colin Rice

That's why it's best tied up in a house, where it can't be squandered, until said financial knowledge is attained. I dropped out today with some good reading material so he can get a grasp of the basics. Also advised to scour/join PC to open the door to other ideas.

 

The bottom line is , if the GFC didn't cause a significant drop in the Australian property market , what will ? Steve Keen might have predicted the GFC , but he sucks at predicting the Australian property market .

I've seen the recession we had to have and the GFC up close and personal . For me they were both good buying opportunities .

The world economy isn't brilliant , but from what I can see it there seems to be glimmers of hope around so I can't see Australia going into recession and even if it does , for me it will be another buying opportunity . This time. I know exactly where I want to buy

Cliff

 

I agree that good buying does come from recession if cashed up.

 

According to keen...

Interviewer: The country is facing a massive credit crunch, Australia will be in a recession probably next year, why?

Steve: Because we've lived on credit (private credit), we borrowed ourselves to the hill, and we are depended on that to continue, to rise on that overtime, and it simply won't. Credit level is starting to fall, and demand will fall, and unemployment will rise as well.

Interviewer: What will burst the bubble?

Steve: It's simply it's own mechanics, the only way for it not to burst is for the housing sector to continue borrowing forever. More than it earns.

Interviewer: Reserve bank is about to cut rates again and make credit cheaper.

Steve: It will continue to suck people in, it will delay it by cutting the rate. They've only got 1.5% to go, there's a maximum squeeze out of us. Household sector will be indebted up to its teeth, beyond any household before, globally any households. They are simply not going to continue borrowing.

Interviewer: What's the catalyst for recession?

Steve: Normally there aren't catalyst, its internal dynamics. But the catalysts that do exist this time around, it's the declining trade, price bubble resources, mining boom is over, and bad economics. All trigger factors, but the base internal dynamics is booms are caused by rising credit, and calapses are caused by falling credit.
Credit rises when debts slow, when debt becomes extreme people will stop borrowing, and then credit falls. And you have a downturn.

Interviewer: Was does it mean for house prices if this happens next year?

Steve: Because demand for housing comes from new mortgages, that's what sustains the price level. So it's not the change in mortgage debt that drives the change in house prices, it's wether that change is rising or falling. And we're now seeing decelerating mortgage debt and that's driving house prices down. Now it's happened elsewhere else in the world and prices have fallen 20-70%, we're going to see somewhere in that range.
One wild card can be foreign buyers. It's been turned off right now. Government can turn it back on again if they see houses falling.

Interviewer: Can we avoid all of this, recession?

Steve: We need an enormous government stimulus. The deficit of 10-15% of gdp. We would need massive foreign buying for cashflow to come in from that, and we need to be lucky with our exports. But I don't think we are going to see those 3 things happen.
Governments could pump money into infrastructure, which would help.
Other countries that will go into recession...
Canada
Korea
China
Norway
Sweden.

 

Or did he?
Looking back at claims to have predicted the Great Recession

What does it mean to have 'predicted the global financial crisis'?

 

Did you read the comments in that link. Quite interesting Keen and Fabius have quite the back and forth going.

 

I started to... then realized how little I cared! Something big is bubbling no doubt but it could be years before something actually happens. Planning for the worst and mitigating risks are obvious but will play a more important role in my strategy than previously considered

 

I think Steve's on the right track. As someone else mentioned - unfortunately he underestimates the power of "collective denial" that keeps pushing the housing frenzy along for you guys down south milk every last drop folks

Then sell up, and come retire with me on our own tropical island up north

Has anyone seen the report on how many non-operating resorts there are now, due to running costs and wages?

 

Pretty interesting, but got a bit too complicated for my understanding at points.

But yes, I don't think that blog in any way dismisses his predictions of the GFC. It gets fixated on the timings, which as economists tell you, are very hard to predict. You can predict a change, the exact timing, almost never

 

WILL.
Righto.

 

Is it just me or is there a sense of glee from Keen when making these predictions? Hoping they come to fruition.
A recession is certainly possible but its also likely that it would be over before anyone realised it had occurred as the data on GDP is backward looking.
Sydney has run very hard no doubt but on a side note, if anyone would like to sell their Sydney property to me at a 20-70% discount to current market value please pm me.

I'll try and cobble together some pesos.

I bet Keen wished he timed the sale of his western Sydney unit a little better.

 

Hi Barny, add to your list of countries going into recession:

UK, Mexico, Ireland, USA, Australia, NZ, Singapore [gosh, how is possible for someone earning $4K a month to buy a 1M condo?] And Malaysia as well; my niece just bought a $850K house on a $5K p.m. family income.

All these homebuyers are driving their countries into depression!!

KY

 

It's Steve Keens list.

 

Fundamentally, I agree with this. I was on the ground in Perth, attending home opens and auctions when the market peaked. Prices overshot and people stopped buying.

But it seems interesting that an economist would get this part so wrong:

"All trigger factors, but the base internal dynamics is booms are caused by rising credit, and calapses are caused by falling credit."

If you have a look at cause and effect, rising credit is the effect of a boom, not a cause and falling credit is an effect of a collapses (or corrections), not the cause. Look at Perth, negative gearing policy has not changed, the CGT discount has not changed, credit is as cheap as ever and easily available... and yet house prices continue to fall. The argument that rising credit causes a boom is the same as saying increasing house prices cause a boom.