By: ang101000
13/10/2009
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Hi Jay,
I am so sorry, but it seems to me that I have to repeat the same arguments all over again, which I just don't have the time for.
Do you mind reading my answers to Akdoc, they are not that long and have links. Perhaps, I should repeat some of points made before, will do that by defending Menta. |
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By: ecchi.gaijin
13/10/2009
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| Land tax wouldn' effect the equation much. NSW would probably be the highest taxed and even they have residence exemptions and a $368000 ratable value threshold. |
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By: ang101000
13/10/2009
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lasty,
lets just put a hole in your argument, and look at the 'other side' of the housing balance sheet.
Yes, income tax has decreased for every group of wage earners_ that is correct!
In the same time; land tax has increased (due to re-valuation every year/two years).
Maintenance cost have increased and all other government/private service costs have increased. So our tax cut gains were more than offset by all other housing costs increases. |
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By: jaymarcel
13/10/2009
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| Hi almurrie, I do think wages & rents will go up before we see housing prices fall |
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By: jaymarcel
13/10/2009
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Hi ang I may be wrong here but isn't the share market a bit the same along with gold, silver & other resources.
As something becomes more desireable & less of we are willing to pay more for, especially if we think it will be worth even more in the future.
Housing is not alone on this one just more complex as we also have to live in them. |
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By: almurrie1@y7mail.com
13/10/2009
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While inflation hasn't taken off it IS still there Menta (not deflation) and I doubt if many people will sit idly by when prices do go up. Then we shall see some fairly big wage adjustment demands, eg teachers etc.
Assuming that wages will remain static when people are afraid of losing their job, this is a shaky premise. Especially if they see pollies wages going up and big business still paying millions to their CEOs.
So housing affordabilty is not static or getting worse, like you would like it to be, and may adjust downward with big wage rises (dual income households) and lower taxation. It does not mean that house prices are certain to drop.
Al |
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By: ecchi.gaijin
13/10/2009
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Gee, it appears that economics is not just a simple "look at 2 variables" topic.
hmmmm, perhaps i heard that somewhere before? ;) |
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By: lasty49
13/10/2009
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Gross incomes may not have gone up to match the larger borrowing costs HOWEVER tax rates have fallen.
For example in the 1988/89 tax year top marginal rate kicked in at $35k @49%
2009/10 kicks in at $180K @45%
Here is a link to the marginal tax rates
http://www.bendzulla.com/ref8.html
As you can see its not just the top marginal tax earners getting slugged.
All facts need to be taken into account and not just some.
Sounds a bit like the Climate Change argument doesnt it ? |
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By: ecchi.gaijin
13/10/2009
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| Plus increasing dual income households. |
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By: rstuarts2000
13/10/2009
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| ecchi, I also agree the price income ratio is inaccurate. Interest rates are one thing, but the cost of many goods and services has become comparatively cheaper. In essence we can now dedicate a higher portion of earnings to housing while maintaining the same quality of life. This is proposed in the Senate document ang has posted. |
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By: ang101000
13/10/2009
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Ecchi,
Yes, you are correct again. We are borrowing more to be able to afford the more expensive houses, which are more expensive because we can borrow more (does that make sense to you? Hence the great Ponzi scheme, we are paying more and more often for the existing inner city ('desire living') homes. We are bidding up the prices. |
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By: ang101000
13/10/2009
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Hi Firefly,
He he, I am a good sport and not offended by your personal question.
All good,
AJ |
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By: ecchi.gaijin
13/10/2009
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"you would of had a hard time saving for the deposit (hence FHG to help with the 'deposit gap')"
Just as increasing prices were counteracted by falling interest rates (reducing the effect on affordability). similarly changing lending practices would have countered the growing deposit gap. (20% deposit stopped beign mandatory)
I have to admit I wasn't quite sure about the deposit gap portio of the graph when i went through it, thanks for your explanation. |
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By: ang101000
13/10/2009
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H Ecchi,
You are absolutely correct in regards to interest rates, ie they came down from their high level in the eighties. So your mathematical methodology of calculating the repayments on the fictional loan of $250,000 at 10% and the corresponding (20 years later) loan of $450,000 is perfectly sound.
My issue is the same; following the eighties bank liberalization and subsequent credit growth, median house prices have increased by about 3 to 4 x times and incomes have not. Put it in plain language; if you would have bought that home for $200,000/250,000 in Paddington (Sydney) at the beginning of the eighties, you would of paid close to one million for it in 2000. Now, it is true, your interest rates would of been much lower, BUT you would of had to save a bigger deposit (say $200,000) and would of had to borrow $750,000. Now, due to average wage growth being what it is (low)
1) you would of had a hard time saving for the deposit (hence FHG to help with the 'deposit gap') and
2) would have to use a really high percentage of your income to make the repayments on the $750,000 (hence the argument about affordability).
Many economists argue that the increase of easy credit have resulted in increased house prices (hence the speculative bubble). There is a lot of evidence supporting this argument.
So, that is why I have argued that your assumptions are a bit shaky.
Please look at my answer just below to Akdocs question and the link in that ( Don't worry, it is just a table of figures, not a long document.) |
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By: ecchi.gaijin
13/10/2009
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| negative equity is somewhat irrelevant unless defaults become enough to put mortgage protection insurers out of business. |
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By: jaymarcel
13/10/2009
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Menta your reply to lasty
"Lasty, a wave of mortgage defaults and forced sales will be led by the heavily indebted FHB market"
But the FHBs that bought during the govs grant boost would have bought during the banks tightening of lending so would be in the position of a deposit & a good employment history & so at little risk of defaulting or negative equity. |
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By: ecchi.gaijin
13/10/2009
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Hi Ang
Sorry for the late reply. I had a look through those graphs you noted. (Thank you for indicating the relevant sections)
If you look at the third graph it demonstrates my point. Housing affordability is not so diferent from 20 years ago when interest rates were so high.
Looking at price to income ratio is inherantly innacurate. 1987 was only 4:1 and housing prices were around $100 000 and yet the third graph shows they were extrememly unaffordable.
...... because of interest. |
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By: lasty49
13/10/2009
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So Keen feels there is a housing surplus?
Lets take a snapshot of Sydney
We had the FHOG which should have moved the rentals into purchasing property which it no doubt did.
That means there would have been vacancies in the rental market galore had there been a surplus.
Surprisingly there is little change in the vacancies according to the latest stats.
source.
http://www.smh.com.au/business/sydney-rental-marke t-stagnates-20091013-gu78.html
Now you can read into this what you like and Im sure the Keen supporters will come to his rescue.
But with simple maths you can see there is no surplus in this case.Infact I would go out on a limb and say there is a shortage. |
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By: firefly_au
13/10/2009
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Hi Ang:)
Thanks for your detailed and thoughtful reply - oh and thanks for explaining about Paul and the "he he :)" was just my silly way of trying to convey that I mean no harm while asking what may be a personal question I was not intending to infer anything else - so I am sorry if I gave that impression :)
BYE :) |
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By: ang101000
12/10/2009
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Menta,
I expect from you a bit more reasoning and a balanced approach to investment issues (even if it involves housing and Professor Keen).
'In the April edition of his Debt Watch bulletin, Keene referred to ABS figures that showed there were 800,000 unoccupied dwellings on census night in 2006. Over the long term, more houses are being built than are being filled by a growing population.'
Calculate from the total population numbers and total existing dwellings;
1) the percentage of people on vacation (not home on the census night)
2) the properties on sale on the market (therefore empty)
3) the properties under contract exchange (therefore empty)
4) properties that are rented and perhaps empty for only few weeks (like mine in Canberra for 10 days due to painting)
5) properties under renovation (therefore empty)
6) holiday homes (only occupied on certain times per year)
7) properties that are still under construction (interior not finished)
etc, etc, 800,000 is not a huge number considering that people on vacation in Australia for say 2 weeks at time would account for about 400,000.
In regards to the taxation issues such as negative gearing, land tax, etc; see page 59 and onwards 'The Senate Select Committee on Housing Affordability in Australia' report. The link
http://ifile.it/y9rafhx
Sorry, many can spot a false argument and I can't let it go either. |
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By: ang101000
12/10/2009
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Hi Firefly,
'You may be correct about the sustainability and risk profile of Australia's investment regime!
I just have one question for you - What do we invest in if not property or equities?'
I think, we are the survivors in an orchestrated Ponzi Scheme. We should aim to create a long term sustainable environment built on productive enterprise, the type that produces real 'things'.
See the cost of living on easy credit, the idiocy of diverting most of Aust capital into mortgage debt:
http://en.wikipedia.org/wiki/List_of_countries_by_ current_account_balance
The top of the list - countries that actually produce more than they consume, either through manufacturing, via sovereign ownership of resources or just plain good business acumen.
At the bottom of the list are the debtor countries that consume more than they produce.
The US has the largest CAB of -$731B. Given that US has x 15 times the population of Aus, in comparative terms Aus has a larger effective CAB equivalent to -$845B.
I wonder about our future...
'Just one more question - who is Paul ? he he :)'
Paul and I have worked together on many successful projects, he is a excellent economist, better still; he has a brilliant mind. Oh, there is no 'he he :)' |
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By: lasty49
12/10/2009
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Menta
when data is starting to point signs of recovery not just here but in other countries one shouldn't dismiss it unless your not telling me something I'm not aware of.
And yes I've seen what the bears are throwing around as an excuse but still the uptrend remains intact despite several attempts by them to sell.
Until there is disturbing news and this uptrend is broken I will be in hibernation but I'm not in the business to wear a fur coat or a set of horns I'm here to enjoy the profits whether it goes up or down |
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By: mentawaisurf
12/10/2009
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Lasty, there is no inflation, just a great deal of inflationary expectations already priced into markets. Hence the interest rate rise by our RBA as they merely follow the market (ie. due to increased treasury yields during this bear market rally in stocks).
"No recession, No zero interest rates, No house price falls, No unemployment at 15-20%".
Lasty, it is dangerously premature to be calling that the worst is over or that recovery is imminent (as many of our so-called experts are already doing and markets are already pricing in).
As the bear market resumes and deflation intensifies in coming months then these 'experts', together with our RBA, will be forced into yet another back-flip as they once again chase the market down and down (while they yet again proclaim that "no one saw it coming".)
Keen called the initial phase of the GFC correct, when few others did, and his longer-term forecast is likely to be spot on too. |
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By: akdoc1
12/10/2009
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| What is the criteria for unoccupied dwellings? I have a bush block where the previous owner lived in a one roomed shack. The letter box still gets filled with junk mail but as a dwelling which it previously was forget it. Local council would never let any one live there permantly and there are probably lots of these old dwelling still counted as well. You also have farmers with unoccupied dwellings some times they can have 3 or more that were used for workers. Yes Keen is right there is thousands of empty dwellings Menta but as Lasty said position is the important point that will effect prices. |
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By: firefly_au
12/10/2009
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Hello Ang :)
You may be correct about the sustainability and risk profile of Australia's investment regime!
I just have one question for you - What do we invest in if not property or equities?
Nothing else seems to be worth the effort given our current tax regime so are you suggesting some radical changes to our tax laws to enable the change in risk profile for all Australians?
Just one more question - who is Paul ? he he :)
BYE :) |
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