House prices

A resident sealion interviewed by the local paper about the property market.
https://www.betootaadvocate.com/breaking-news/multi-millionaire-who-boug...

Ross Gittins (always worth a read) on house prices.

"The rules of the home-ownership game are rigged in favour of existing home owners. That’s because they far outnumber aspiring home owners. And they’re not willing to give up their tax and other privileges to help the younger generation."

https://www.smh.com.au/business/the-economy/vested-interest-how-the-home...

BB - you and Ross do have some strange views .

A government should change long standing rules that the majority of Australians have made decisions upon for a minority .

Only you could think that is rational .

You are still in good form .

I don't think I need to read the article based on your summary . Sounds VERY stupid .

It's OK, Hutchy. Inequality will never effect you anyway.

Apart from where brainpower is concerned.

Stu - you are wrong again and know little about me .

It does on SN with your treatment of me .

Inequality is adversely affecting the majority in favour of a minority . Happy to help first home buyers in any way .

A good start would be not pushing them into a market that is RED HOT imo .

"Inequality is adversely affecting the majority in favour of a minority ."

No mate, words don't mean what you want them to mean. Not even Scotty tries that on (as far as I've noticed, but I wouldn't completely rule it out). Inequality is when one section of society gets a disproportionate share of the nation's wealth, as is happening and accelerating right now through neoliberal policies designed to achieve that exact end. The COAlition's real coalition is a rounding up of comfortably off suburbanites, aspirational tradies and other small businessmen, conservative religious elements and those fooled by the lies of political advertising and the Murdoch media. All except the last driven by self interest. Plus of course the racist right rounded up by One Nation and the lunatic right rounded up by Clive Palmer.

"Inequality is adversely affecting the majority in favour of a minority"

Yeah, great definition, mate. Straight from the mind of a RWNJ.

As for not pushing them into a market that is red hot. Care to tell us when the next price drop will be so people can wait..?

NZ perspective:
Inflation has just reached 5% for the last quarter, and interest rates are going up. Keep an eye on what's happening over here. It won't be pretty.

logic vs ctrl_p

two man enter one man leave

Very happy to offer an opinion Stu .

When interest rates go up . No one know how much they will rise of course , not even the RBA ( they say now not until 2023/4 ). We all know they are at world record lows .

For the first time in decades inflation is marching higher around the world . Central Banks said it was transitory but have recently changed their mind ( the Fed ) and say it will be with us longer . How long they don't know . As I posted on the Climate thread lots of things are costing more . Costs are on the rise . Like i/r no one knows how high the will go .

First home buyers usually spend as much as they can afford . Most also need to borrow money and again as much as they think they can afford . If i/r double this will be higher than many have factored in . It would mean a home loan goes to say 6% . For people who lived through the 80's this rate would seem cheap .

Central Bankers know that if they had to double rates we would go into a recession and many would lose their jobs . You can't pay off a loan if you have no income .They also know they can't let inflation get out of hand ( keeping it below 3% p/a is their main job and target ) . I really hope they don't get caught between a rock and a hard place but it has never looked more likely imo .

Another old saying " Buyer beware " .

"If i/r double this will be higher than many have factored in . It would mean a home loan goes to say 6% . For people who lived through the 80's this rate would seem cheap ."

1988 - 18% on $300k = $54000 ($300k was ALOT for Jo Average!)
2021 - 6% on $900k = $54000 ($1m these days doesnt seem as BIG as what $300 was in 88.)

Have salaries tripled to keep up?

Spooky - If you look current rates are cheaper than 6% . Macquaries home loan rate is 2.23% with an LVR of 70% ( you need a 30% deposit ) .

I am not sure what point you are trying to make . If salaries haven't tripled 900k would be lot more for Joe now than 300k in 1988 on your numbers .

I don't know but if someone today borrows at 3% are they factoring in a possible move to 6% ?

If you do your figures you may see the reason why house prices have gone up a lot .

Stu - does my opinion on house prices get you ( fur ) seal of disapproval ?

Further to my comments about interest rate rises CPI figures out yesterday in Oz .

A comment from one of my " experts " I listen to .

■ AUS’ key core inflation measures in 3Q21 rose 0.7%QoQ, above expectations, lifting year-on-year to a 6-year high 2.2%. One-offs appeared limited. AUS’ CPI is still well below peers, but the 3-year bond has spiked to 0.92%, a spread above Bills last seen in 2009! Such a spread leads rate rises just 50% of the time. We see the 1st rate rise in 1H23, well before the RBA’s “not before 2024”, but this data and a V-reopening could bring the rate rise forward. "

The V is a view on they type of recovery ie quick .

Just read this . Wage inflation hasn't happened for decades but was a major reason for the spike in inflation in the 70/80's . I think it is great that people look for higher paying jobs . If there is a major change it will lead to more inflation . The Great Resignation might cause a great nightmare .

Unfortunately all the ducks are lining up on inflation imo .

"Hoards of under-appreciated Australian workers could soon walk out on their jobs in a phenomenon being referred to as The Great Resignation. The pandemic trend which has taken economists by surprise, has already turned the labour market upside down in the US with 4.3 million Americans or 2.9 per cent of the entire workforce quitting their jobs in August. While the job market Down Under is vastly different to the US, new data shows the same thing is likely to happen in Australia with up to 25 per cent of the workforce now actively considering a change of scenery."

Daily Mail

Just heard another view on the CPI .

60% of the increase in the recent CPI figures were petrol and building costs . They thought the RBA would not flinch as the numbers may be caused by covid .

We will here from the RBA on Tuesday .

Can't see any evidence of upward pressure on wages around here

Probably depends on the sector.

Where i live for many service type jobs and trades ive seen clear increases in prices, blows me away when i even need to get a tradie mate to do a job on an hourly cash rate, the difference in their hourly rate compared to ten years ago is crazy.

Just in the last year with Covid i think most tradies have put their prices up with increase in work.

But most of the buyers here are from Melbourne anyway.

BTW. l looked online last night and it seems our prices have gone up again, hardly anything listed and what is, is pushing more 800 to 1 million plus range and not talking places with ocean views or great modern house either...crazy.

Maybe it was that new Byron article or just Peninsula etc too expensive pushing our prices higher.

Same. Last week, the people across the road from us put their house on the market. The RE agent is either too busy or can't be bothered to post a 'for sale' sign out the front. It's going to auction this weekend so I asked what they were expecting and my jaw hit the ground.

Even more, he's prepared to shut the auction down if he gets offers above that - which the RE agent said was likely.

It's incredible. This ain't a trophy home address, just a bog standard suburban backstreet.

freeride76 wrote:

Can't see any evidence of upward pressure on wages around here

Work is easy to find but wages are the same.

Yup, tiny untouched grandma 80s brick homes which need everything done on 500sq blocks a kilometer from the beach are now claiming over $1mil here.

What's your rough area Sprout?

House on Fenwick Drive in Ballina is expected to go for between 2.5 and 3.

https://www.realestate.com.au/property-house-nsw-east+ballina-137587786

Blowin wrote:

How much for Palais Nettle Adjacent?

Thought about it for all of five seconds and banished the thought. It'd only make sense if I moved to another, cheaper area, and I'm not gonna do that.

I put in a lot of time and effort to break into the pecking order so I can stake a few sets on the primo days. Took strategy and consistency, just turning up day after day, taking my lickings, put downs, closeouts, and general blowin dogsbody shit. But also, it ain't entirely artifice. I often spin around between sets and face inland admiring the scarp that rises so dramatically from the sea, like nowhere else in Australia, and the vista hits me in the chest and I realise I fucking love where I am, and I love the crew that surf the joint.

That hit home when I had enforced time out this year and recently returned, reminded me how much about 'place' is actually the people.

Way too late to start that again in another town even if I wanted to.

North of the river, Sunny Coast AndyM.

Crazy money Sprout but I don't reckon we're done yet.

" I often spin around between sets and face inland "

Check it out, take a whiff of the molasses grass and faint hint of frangipani.
Tune into the smell of freshwater that's travelled maybe a k from that wetlands around the corner after rain.

Good for the soul.

I often go for a SUP on PP bay (when the ocean beaches are garbage) in the Rosebud to Safety Beach area.
What amazes me is that 9/10 times, I'm the only person on the water (a little busier on the weekend, of course). So where are all the sea-changers and what are they doing..., shopping at Aldi? Worrying about their investments? Washing their cars?
It seems that most can't see the ocean for all the water

People are bizarre.

Every weekend I see people paying $16 to sit in their car in a queue for 30 minutes for the automatic carwash.

Fuck that for a voluntary way to spend part of your life.

Wonder what crowds in the surf would be like if people ditched that type of consumerism.

Cafes are packed every day.

Blowin might be right - shit goes berserk in a few weeks.

Sprout wrote:

Yup, tiny untouched grandma 80s brick homes which need everything done on 500sq blocks a kilometer from the beach are now claiming over $1mil here.

Meanwhile on the Water

View this post on Instagram

Root me thong Shirl.

ahaha the buyers are going to love the whole street - nay, country - seeing exactly how many spambux they paid: how might they now feel toward the agent?

Hutchy above: the great resignation, interesting idea, I like the term. My hand was forced in this direction over 10 years ago and it's been pretty good tbh. Lots of waves.

This shit feels like 10+ years ago in more ways than one. GFC hit and I saw the carnage in markets (Sept 18 2008 Fed backstopped the money market funds iirc, that was huge), the hiccup in local property and the gnashing of teeth but she'll be right mate and off it went again. I was enraged at the US loose monetary policies of that time but oh no, off everything went and it's bubble time, with more extreme worldwide monetary policies and now everyone understands what is going on. Now Australia is doing these same policies, in fact, nearly everyone is.

Think I'm numb to it now. Nearly everybody got a bailout in covid - or income/business life support. Even if the bubble pops, another cycle begins and something new gets bubbled even bigger and the last debt fallout is papered over. Hopefully the next bubble can be space exploration so we get to Mars by 2030s and head toward Alpha Centauri by early 22nd century.

A while ago I asked an expert why the bond markets rates were so low . He had just given a speech about inflation starting to pick up and his view we we see a V shaped recovery in the US and OZ .

If you buy a 10 year government bond the markets yield is 1.5475% . Less than inflation .

If you buy a 30 year bond the yield is 1.9535% . I emphasise these are the markets rates .

Remember the home loan rates get priced off the bond markets rates .

His answer as to why the markets rates are so low is that they are distorted by the Central Banks buying the bonds . I thought he was probably right .

Today I know he was right . Rates here doubled in minutes without RBA buying .

Zerohedge .

"No need to fear a taper tantrum, they said. It's all in the price, they said. Central banks have made it very clear what they are doing and there will be no surprises, they said.

Well, they - as usual - were full of shit, because moments ago this is what happened in Australia where the central bank unexpectedly did not offer to buy the April 2024 yield target bond: the yield on the 2Y bond just exploded, doubling in the matter of minutes from 25bps to 50bps as the central bank's 0.1% yield curve control was summarily executed in broad daylight."

Yeah, it's happening. There's not much that scares me but inflation is on top of the list. This will certainly put pressure on the housing market over the next few years, especially if they lose control.

https://www.reuters.com/article/australia-economy-rba/update-1-australia...

Hutchy I'm just catching up on that, whoa!

Take away the intervention and we might have a chance at true price discovery. (Price and rate inverse relationship)

Would one of you guys like to explain what a bond is and how bonds work or point me to a good article?

Hutchy and gsco work in the field, maybe give them a chance first?

@Patrick, Investopedia is a good source of financial terminology. The link below is on bonds.

In essence, a fixed-income instrument that governments and corporates heavily use to borrow money. They sell them on the market with a promise of a fixed % return (called a coupon).

These bonds can then freely be traded in the market. For example, a government can issue a 10-year bond with a 5% return (much lower now, 5% is figurative). I can buy that bond from them but I can also sell it to others. The price that someone is willing to pay for my bond will determine the yield at that point in time.

https://www.investopedia.com/terms/b/bond.asp

Current news from Canada, they're ending QE, signaling rate hikes in near future.

https://www.cbc.ca/news/business/bank-of-canada-decision-1.6226796

Flollo has done a very good job . I will try to elaborate .

Fixed Interest . Bonds with a fixed yield payable over a fixed time period then you get the money you put in back ( if the bond issuer hasn't gone broke ) . Bonds can be issued by governments , companies , municipalities etc .

The safest bonds are those coming from a safe issuer . US Bonds the safest , China not as much . Chinese bonds would need to pay a higher interest rate to convince an investor to take the duration ( time ) risk . Telstra Bonds are safer than Qantas bonds etc . None are as safe as the US govt bonds .

Fixed Interest is where most of the worlds goes for a home due to safety . Much bigger than stock or property markets .

As interest rates have gone down old bond holders make capital gains . If you bought a 30 year US bond five years ago yielding 5% and put in 100k you could sell it much higher as the same bond issued today yields 2% and it still has 25 years of paying 5% left . Hence as Jonno said if you buy a bond today and put $100k and rates go up in the future no one will pay you 100k . Yields go up bond prices ( buy and sell ) go down . Hence Inverse relationship .

As bond yields have gone down traditional owners don't like or can't live ( ( like retirees )on the interest ( same with Cash ) .They then are forced to buy riskier assets like corporate bonds , property or shares .

All other interest rates are priced from government bonds eg home loans .

Central Banks have been buying most of the worlds government bonds to lower interest rates in the hope of stimulating their economies . They are relatively new entrants into what was previously a free(ish) market . When they exit ( tapering their buying ) there are people that think there will be a market tantrum . Hence the term Tapering Tantrum .

I am not an expert in bonds . Everything though is related to bond prices . If bonds go back to 5% in the US the big money will move back into it for safety and take money out of the share markets . Same here .

The RBA yesterday surprised the market which was silly . They should know that all markets hate negative surprises . They have much smarter people working for them than me . Maybe it was a very small auction and they wanted to surprise the market to gauge what would happen . A dangerous strategy imo . It was probably an overreaction by the market but a good warning to the RBA .

We might hear more about this on Tuesday . The RBA have a meeting every month on the first Tuesday and release their minutes to the market .

so... about bonds and stuff...

going on the dismal rates of return above (1.5475% - below inflation... ) ...why would someone invest in bonds in the current climate beyond diversifying / spreading risk?

and, if people are not currently investing in them... is it pretty much governments that are currently the main buyers?

and, what do governments do with them in current climate? ...on sell them?

sorry for my ignorance, but for what seems like such a simple concept, I just don't get it...

hey sypkan here's some answers to your bond questions, not in the order you asked them:

sypkan wrote:

and, if people are not currently investing in them... is it pretty much governments that are currently the main buyers?

and, what do governments do with them in current climate? ...on sell them?

Governments are not really buyers/holders of bonds. They are the main sellers/issuers of them, along with corporations and financial institutions. Regarding governments, the main ways they finance their spending is via taxes, and when that's not enough (budget deficit) then they raise money by issuing bonds (and thus go into debt).

sypkan wrote:

going on the dismal rates of return above (1.5475% - below inflation... ) ...why would someone invest in bonds in the current climate beyond diversifying / spreading risk?

The main buyers/holders of bonds are fund managers (including superannuation funds), central banks (this is really all quantitative easing is) and wealthy individuals/families.

We all know that central banks have been doing a lot of buying of late.

Regarding investing in bonds, there's a number of reasons why fund managers and wealthy individuals/families buy/hold bonds, including: diversification, capital security, regular income stream.

Diversification: bond prices and coupon payments are not very correlated with other asset prices and income streams (shares and dividends, property and rent, etc), so holding them can provide diversification benefits, reducing risk in a well diversified portfolio.

Capital security: bond prices my not be as volatile as say shares, so they may be bought for that reason. But bond prices are inversely related to interest rates/yields (rates/yields go up and bond prices go down) so in the current environment your capital may not necessarily be very secure in bonds, unless of course you intend to hold the bonds all the way to maturity. Note also that government bonds are fairly free of default risk.

Regular income: bonds pay regular interest (also called coupon) payments, But yes with interest rates/yields so low right now, these regular coupon payments are also relatively low. But you could also compare bond yields to say share dividend yields and property rental yields to get a better picture - compared to other investment options bond yields may not necessarily be so low.

Great replies folks, does anyone want to explain how inflation eats into the bond if you hold it - unless you get inflation-protected bonds - and how an inversion in the curve (the curve being the different interest rates over different time frames) can predict - or revert and not predict! - incoming recessions? And if this even applies with current interventions?

Todays update .

■ We see four drivers of a US V-expansion: i) inventory rebuild; ii) Multi-decade high consumer fundamentals; iii) profits boom driving strong investment; and iv) a further US$275tr stimulus. Inflation, at a 39-year high 4.6%YoY, is the key risk for markets. We expect a faster Fed than markets discount!

Some other details .

Traditionally governments were not the main buyers of their own bond . The GFC changed that . Central Banks bought bonds - Quantitative Easing ( QE 1 ) increase their price to lower their yield - ( remember inverse relationship ) to lower i/r . At first it didn't work as the lower i/r still get companies and people to borrow as the environment was too risky in their opinion .

Central bankers thought ( silly ) that the reason it didn't work was because we didn't do enough buying of bonds and did QE2 . Then QE3 and 4 . So now rates are at world record lows . They have been the MAIN buyer of bonds ( yield too low for normal investors ) . They will not sell them imo opinion ( who will buy them at the same price ) and will hold them until they mature .

Jonno . If you invest 100k in a bond at 2% and inflation is at 3 you still get your 100k back on maturity , It is just cant buy the same amount of other things as their prices have gone up by 3% . Obviously not all things go up by 3% ( some things more , some things less - home prices , school fees are not included in the official Consumer Price Index ( CPI ) ) .

A yield curve is often used to indicate the future performance of an economy . Remember this is where the big / smart money plays .

If it is flat ( 1,2,5,10 years rates roughly the same ) the market is worried about the future . They are willing to have longer duration without getting paid for it . A steep yield curve ( normal ) is signs of good times . An inverted yield curve , 2 year rates higher than 5 and 10 sends shivers down the markets .