House prices

Hey Batfink,
You use the term "fractional banking', could you please explain to an economic simpleton like myself what this means?

I’m in the same boat as you san G a quick google found the answer. https://corporatefinanceinstitute.com/resources/knowledge/finance/fracti...

“ To be an actual example of MMT the RBA would have to write off the debt. Effectively it doesn’t matter, because the govt owing money to the RBA is equivalent to Dad borrowing money off Mum.”

This x 100.

The only difference between MMT and our situation is semantics.
Of course the debt wont be paid back.

Thanks Supafreak,

from the article:

"The fractional banking system came into place as a solution to problems encountered during the Great Depression when depositors made many withdrawals, leading to bank runs. The government introduced the reserve requirements to help protect depositor’s funds from being invested in risky investments. For example, if a person deposits $1,000 in a bank account, the bank cannot lend out all the money. It is not required to keep all the deposits in the bank’s cash vault. Instead, banks are required to keep 10% of the deposits, i.e., $100, as reserves, and may lend out the other $900."

but then later,

"Reserve requirements, or the reserve ratio, are central bank regulations that dictate the minimum amount of reserves that a bank should hold. Some countries, such as Canada, the United Kingdom, Australia, Sweden, New Zealand, and Hong Kong do not impose reserve requirements. Instead, banks in these countries are constrained by capital requirements. When a commercial bank’s reserves deplete, the central banks in these countries step in to offer the needed reserves."

So does that mean that we do not have fractional banking, or do we have a variation on that theme?
I could not imagine an Australian bank voluntarily reserving 10% of its' funds when that money could be used to make more money!
Which is why we have capital constraints (I assume, the value of bank owned assets and investments as collateral).

...or have I totally misunderstood this and disappeared down a rabbit hole ?

I don't see that batfink and I are in disagreement. I agree that MMT is not being used in Aus.

Actually I'd go so far as to say it's not being used anywhere right now because even though the debt currently being created by govts (via issuing bonds) is being "monetised" by being purchased by central banks, the expectation is this debt will still be paid off (indeed it's still being viewed at "debt"). So govts are currently "technically" not printing money (yet).

Roughly speaking, the conventional theory says that govts should on average run balanced budgets over the long term (over many business cycles), not get into long-term debt (seek to pay back or at least significantly reduce their debt over the long term), and allow central banks to use monetary policy to keep the economy at full employment and dampen the business cycle via inflation targeting. This is the current paradigm practiced today (but which seems to be failing; see below).

MMT says that govts should freely print and spend money to keep the economy at full employment, not be concerned with deficits and debt since they can just keep printing more money to spend (in this sense deficits and debt are illusions), and use fiscal policy to dampen the business cycle by spending more and/or lowering taxes in a downturn and spending less and/or increasing taxes when inflation becomes a problem.

So in this sense, MMT is a long way off from being practiced today.

Historically, all previous empires/govts that freely printed and spent money (i.e. practiced MMT) ran into economic, financial and political ruin due mostly to inappropriate spending (they couldn't be trusted to spend wisely) and to an inability to control inflation and prevent their currencies and financial systems from being debased and collapsing.

The main reason for being unable to control inflation and prevent currency debasing is govts often find it very hard to cut back on spending and/or try to raise taxes, a lot of large businesses and other important players "take flight" to other low tax and economically stable jurisdictions and currencies, people turn to using more stable currencies in international payments/transactions, etc...

The reason there is renewed talk of MMT is that we are on the brink of traditional monetary policy tools (reducing interest rates) no longer being effective in stimulating the economy, hence the current need for nontraditional tools such as negative real interest rates and quantitative easing. Now MMT proponents are saying that MMT is the answer and in fact is inevitable.

It all sounds good in theory in a challenging economic downturn but historically no empire/govt that practiced MMT survived when inflation and currency devaluation and flight reared their heads.

March CPI/inflation numbers out today... and they are lower than expected, after there was some creeping optimism or bullish-ness that there'd be a little heartbeat in inflation. It's flat-lined, looks like the rock bottom interest rates are here to stay which will continue to nudge house prices up. Some steam will come out of it but it'll keep ticking upwards I reckon.

Add to that people not going on overseas holidays you'd think for another 18-24 months at least...more money in people's pockets for bigger homes.

I guess an issue that could arise from getting gifted big loads of cash off your parents for a deposit is that logic could maybe say that you're getting an early chunk of your inheritance ahead of time, so if your folks eventually do cark it, there won't be as much coming your way to help you pay off the big mortgage you probably now have, as you've already used a fair bit of it to lump yourself with a big mortgage....

Perhaps not as simple as that and not in all cases, but could impact some

Interesting video, few factors in there to current price rise that i didn't consider.

https://www.smh.com.au/politics/federal/first-home-buyers-get-budget-hel...

This will help

bonza wrote:

https://www.smh.com.au/politics/federal/first-home-buyers-get-budget-hel...

This will help

This aspect of being able to access super, was actually mentioned in the video above as being one of the factors pushing prices up.

It's a little bit of a hoax, its like the first home owners grant, end of the day it doesn't really help first home buyers as prices get pushed up by pretty much the same value.

. Was being sarcastic ;)

@Sanguine and Supafreak,

Australian banks are regulated by APRA.

APRA requires all locally incorporated banks to hold total capital of at least 8 per cent of their risk-weighted assets. At least half of their total capital must be the better-quality Tier 1, implying a minimum Tier 1 ratio of 4 per cent.

You can read more here: https://www.rba.gov.au/publications/bulletin/2010/sep/6.html

@coaster , thanks for that, always good to be educated in shit I don’t understand.

Guardian reporting a house in Kensington Sydney sold for $4.05 million on the weekend. Uninhabitable, no power or water, holes in roof. Sold for $1.1 million in 2005.
Meanwhile in Hawaii, Trumps brand is tanking, half a million for a water view apartment in Trump Waikiki.

I once worked for a guy as a first year apprentice electrician on a good house he bought for 5 million aud, knocked it down and built a 12 million doller house.

on the MP i received a letter in the mailbox last week from a "young family" who is looking to move in to the area from Melbourne and are willing to pay over the area average for a "forever" home in my area. Now in this area the kind of price they are talking about is 2-3 million for a house like mine being brand new.

we love living in this area but we also love the idea of mortgage free living even though it would be in a lower quality house than we have currently. If I was a single man Id be all over it and cashing up big time

House prices are nuts! How are people affording them? Middle aus income = $57k based on 14.2m taxpayers. Only 2% of that number earn over $210k a year. A million $ mortgage needs about a $1000 a week in repayments +++ it’s absolutely got me stuffed. It may be a form of state based racism but I wish all the intestate blow ins would piss off. My 5 min drive to x now takes me 25 min. Can’t book a dr for 3 weeks used to be pop in next day. Place is now pharked. And I’m sure I’m not Robinson Crusoe.

Spookypt it's not the income earners snapping up your Robinson Crusoe deserted island paradise real estate. From what I can see and general discussion in my area is it's mostly the cashed up boomers from the major cities trying to escape to paradise.
They stick out like dogs balls. Range Rover/BMW X6/Jaguar/Etc. Blokes with chino pants, loafers and the shirt tucked in. Women coifed up to the nines!!! In some instances they are purchasing more than one property to bump up their retirement funding with an AirBnB just because they can, and this is causing some serious accommodation problems for those average income earners you were talking about.
I bought a small place on the coast a few years ago for next to nothing, not because I'm cashed up, but as my dream to retire there one day. Now I'm thinking of selling as a) my dream is no longer as they are turning it into a mini Byron Bay and b) these idiots are prepared to pay these stupid prices so I'll take the money and run and find somewhere less attractive to this demographic.
I'm also trying to locate Bill the brickie as I'm sure he can help with our current problem.

goofyfoot wrote:

on the MP i received a letter in the mailbox last week from a "young family" who is looking to move in to the area from Melbourne and are willing to pay over the area average for a "forever" home in my area.

Reckon I've had four or five letters like that since COVID hit. Same with everyone in our suburb I imagine.

Few people I know bit. One guy took his family a few suburbs south (and much closer to the beach), others went further down the coast, all of them paid off their mortgage. The money flowing out of Sydney is nuts.

We were tempted - but not overly. Mortgage-free is a great position to be in, but there's a lot to be said for putting your roots down.

Don't know about other states but Victoria at least currently has a timber shortage prices have risen quite a bit in the last few weeks to months, you basically have to order weeks ahead for lots of different cuts/types of timber.

Heard various reasons behind this not sure what is true, wonder how this will affect house prices.

Noosa, as much as I hate the place its is now aka little Melbourne.

As much as they say it's mainly Brisbane/Locals moving around/buying on the SC, every house I know the reality of, it has been Viccos, with a few sight unseen before even going to market. Had friends sell near the beach to net up a few hundred K, but now renting in crap spots or living with relatives waiting for a fall that will never come for how close they were to the beach. We've had stupid offers but I'd rather work a few more years and keep our awesome spot than go through the headache.

It's mental - 40 yo knockdowns going for a million on the Sunny Coast because it's close to the beach.. It'd be nice to cash in, but where do you go?!?

Nearly every professional I know on the Coast, from stockbrokers, accountants, financial planners, realestate agents, etc, are blind drunk on and feverishly chasing the vic money that's sloshing around the place right now, and are basically neglecting everyone else unless they have at least a spare $1m in cash burning a hole in their pockets.

ID, same issue in NSW with months of delays for timber orders, but is also now extending into metal shortages for building frames.

Not sure exactly on reasons of timber shortages, but hardwood would be scarce here due to bushfires then lots of State Forest being closed after the fires. The Covid shutdown last year would have also slowed harvesting works. I read there is also a timber shortage in the USA due to delays from lockdowns.

The SC stretch is starting to turn into the construction site dunny. Its fine at the start, but essentially with the influx of workers and no one giving a fuck it turns into a shitta not worth shitting in due to its parlous state. Yet most, end up so used to it they in the end just accept it as normal.
The hand written note in the LB a plenty, the RE agent ringing also...but even if I did opt out what are the options. Zero considering what I have in comparison. My wife and I met a nice couple with their kid a few weeks ago...... moved from CBD Melbourne to a rental about 25mns from the beach. Paying the same in rent as they were in Melbourne. Now adding to the rest of the Vics that think Bris is only an hr as the crow flys (but in reality 3 hrs driving) so worth the move. Shocked I cant get into the local GP non bulk bill for 3 weeks. Wonder why.

How's the dog poop situation now Spooky? Any progress?

Your hands getting cold Zen??

Hey Zen argh the poop. Bit like our fearless swellnet leader - over the handle bar broken ribs scenario - I'm 5 weeks post OP from a shoulder reconstruction that'll take 6 months to heal proper. Twas supposed to be a 6 week clean and all good but turned out I had major tear.
Unlike most of you I cant go near the beach when I cant surf. Its Chinese water torture for me. So Ive adopted a train hard at gym and at home as best I can and stay focused on getting a healthy body back and fight of the big 50.. So that in turn means my poop duty has fallen behind...suffice to say theres as much chance of a change in dog owners actions as there is of house prices falling. Refer previous aka shitty onsite dunnies. So like most things when you push shit up hill all you get is a face full. I'll continue my one man fight against @mansbestfriendsdumbestowners though.

All the best Spooky. Hope the recovery goes well.

Andy- summer here.

Drats, shut down again :)

more and more, the beach is for fucken kooks.

come out Coraki way Andy and get on the goat program.

That's ok Andy. Sad to say my mate (our big dog) passed away a few weeks ago and our little dog is deteriorating too. On a happy note, our vet is buying a bigger boat.

On the lookout for a new handwarmer as we speak.

We keep an eye on the coastal property market here in Victoria and for what its worth we reckon its cooling off from the frenetic highs of early 2021. Back then the asking prices for shit boxes were 50%+ higher than what you would reasonably expect and they would be snapped up within days for sometimes up to an additional 25%-50% of the mid point in the asking range. Now similar houses remain on the market for weeks and weeks and are selling below the bottom of the asking range. Some of the agents we speak to down the coast and locally are saying the same thing.

That is sad new Zen, sorry to hear that.
In good time a new pup or dog will be awesome.

Got acquainted with the neighbour's kelpie pup this afternoon.
Now that it's settling down a bit, it's so gorgeous it almost brings a tear to the eye.
Beautiful creatures.

Bought a nice chainsaw the other day FR, I'm ready to move out to the country.
Firewood until the apocalypse.

The big question is though, will goat poo keep your hands warm on those frosty mornings?

Jeezarz, looks like the Sydney yuppies haven't found Coraki yet.

House with a downstairs granny flat and a great shed out the back.

Shhhhh......,

https://www.realestate.com.au/property-house-nsw-coraki-136194866

Chasing the fucking things around will keep you warm.

Shhhh
https://www.miragenews.com/shotgun-hunting-knives-sword-seized-man-charg...

On the same street no less.

Reassuring.

I'm sure he'd be fine unless you went near his crops.

Crop and Powder rooms.
Driving through Coraki gives me that 'Gut Feeling'.

There's a bit of that around here, from all around Nimbin and Kyogle, Lismore, Drake...

Went 4WDing out the back of Nymboida a while back, way out in the sticks, a track off a track off a track.
Got bogged, as you do.
As I was winching myself out, old mate comes riding past on his motorbike, harvest in a clear plastic bag sitting on the tank.
Bold as, didn't give a shit.
I obviously didn't concern him and his son, I had a very pleasant chat with each of them as they went past.
Got myself out and went about my business.

Considering the direction Australia's heading in economically, I don't begrudge the backyard grower in the slightest.

As long as they don't get antsy and shoot me.

indo-dreaming wrote:

Don't know about other states but Victoria at least currently has a timber shortage prices have risen quite a bit in the last few weeks to months, you basically have to order weeks ahead for lots of different cuts/types of timber.

Heard various reasons behind this not sure what is true, wonder how this will affect house prices.

I can chip in with a few answers since I work in the industry, where the demand is far greater than supply.

The Homebuilder Grant has pushed demand along nicely and in conjunction with COVID has the new market housing approvals at the highest in 20 odd years.

Not to mention many people being stuck at home have directed their energies towards a reno or addition, which increased demand.

Low interest rates forecast to stay low for the next few years combined with more relaxed banking loan requirements and more equity re-financing.

Timber imports have been drastically impacted by lower volumes, and now it seems that US markets are attracting some of this volume as prices for timber there are like house prices here.

Local vs Global pricing meaning Australian timber is undervalued against global benchmarks, and import pricing that does occur is reflecting that increasing global pricing.

Worldwide global consumption of wood will increase by 33 000 000m3 over 2021-2022. That is equivalent to the entire log harvest of Australia in 1 year.

China/Greater Asia are still expected to grow significantly over the next 5 years.

Demand for structural framing across Europe is high and therefore export volume has tightened.

It is expected the in the US alone demand increase by another 14 000 000m3 by the end of next year.

Prices in the US are up more than 500% since 2020.

Already the local market has seen 3 price rises in the last year.

It is estimated that the cost of lumber to build a house is 20% of the total cost.

@Westofthelake

Yeah i was reading about it today and they were saying pretty much what you have said, seems like it's fuelled by not just the Australian market and increase in demand but also in particular the same issues in USA of increased demand and shortage of supply and big increases in prices..

At the Berkshire annual meeting a month ago Warren Buffett used timber pricing and demand from Berkshire companies as an initial sign of red hot inflation in the US.

FOMO. It’s rife. If only we had a sensible population policy.

Yep I'd heard of certain timber lengths becoming unobtainium down here, wonder if it will see takeup of things like steel frames?

Went to the hardware shop to get a piece of premium pine for some cutting out of things, and ouch, the price!

Cheers on the market report above GS, wonder if the madness and froth will return once it starts warming up? Or will they all just go to Queensland?

Some places cooling, some places red hot .

From today's paper (not a link)

A couple of timber shortage memes