House prices

I remember Kohler being extremely critical of the government for not borrowing more money and allowing large deficits to run around 2018/19 from memory. Listened to his podcast back then and I remember it quite well. Always promoted big debt and deficits.

article has Sydney at 10% decline

https://www.macrobusiness.com.au/2022/10/rba-forecasts-biggest-ever-hous...

so it can stop now as that was my throw at the dart board, that and 'cats and dogs living together': of which I'm sure we've all seen a bit this year.

Is Sydney at 10% really that surprising or 'shocking'? I think this is quite normal, it was always more volatile compared to other cities. Horrendous yields too, nearly impossible to achieve positive cash flows in Sydney (at least in the good areas).

Only shocking in terms of 'Australian House Prices Never Go Down' which might sound silly now, but seemed like gospel recently. Agree, it's a normal correction. And not even approaching covid gains.

Can someone help me with something? It caught my eye that among European countries Switzerland actually has very low inflation levels. It's around 3% while the rest of Europe is in the high singles or double digits. I didn't really have the time to look into the details but I'm quite curious about this. How did the Swiss avoid inflation? Would anyone be able to do a bit of digging, I think the findings would be interesting.

That's a good question. I imagine Switzerland as a land of sound banking, armed population, and chocolate. Less inflation probably cos they didn't do this:

https://www.afr.com/politics/federal/daniel-andrews-will-pay-a-quarter-o...

dafuq

unlocked with details

https://www.news.com.au/national/victoria/politics/premier-daniel-andrew...

"Treasurer Tim Pallas said the scheme was aimed at getting prospective buyers into the market faster.

“The Victorian Homebuyer Fund has been popular for a reason – it helps people get into their own homes quicker with help from a secure partner,” he said.

“Thousands more Victorians will now be able to realise their dreams with this new injection..."

flollo wrote:

Can someone help me with something? It caught my eye that among European countries Switzerland actually has very low inflation levels. It's around 3% while the rest of Europe is in the high singles or double digits. I didn't really have the time to look into the details but I'm quite curious about this. How did the Swiss avoid inflation? Would anyone be able to do a bit of digging, I think the findings would be interesting.

I'd say it's predominately because "Switzerland currently relies on hydro and nuclear power to meet the bulk of its energy demand." (from this McKinsey & Co report). So it hasn't had the energy price shock that a lot of countries have had that has set off inflation episodes.

Also, its composition of imports is pretty harmless in terms of not really experiencing supply chain issues and other import price shocks:

But from another perspective, Switzerland has had historically very low inflation and for the past 15 yrs or so lots of deflation, so its current level of inflation is actually relatively high for Switzerland and is at a like 25 or 30yr high:

velocityjohnno wrote:

unlocked with details

https://www.news.com.au/national/victoria/politics/premier-daniel-andrew...

"Treasurer Tim Pallas said the scheme was aimed at getting prospective buyers into the market faster.

“The Victorian Homebuyer Fund has been popular for a reason – it helps people get into their own homes quicker with help from a secure partner,” he said.

“Thousands more Victorians will now be able to realise their dreams with this new injection..."

Totally not a Ponzi.

It's so interesting as you have perhaps international buyers becoming more scarce, and then interest rate rises see approvals through commercial banks fall in size, so perhaps there could be price falls; but then you have this extra 150K or so deposit now co-entered with government, so prices ain't gonna fall.

Now will the market arbitrage an extra 25% in their asks as a result of the intervention?

Dunno why he's doing it tbh - perhaps they see recession next year.

DudeSweetDudeSweet wrote:

velocityjohnno wrote:

unlocked with details

https://www.news.com.au/national/victoria/politics/premier-daniel-andrew...

"Treasurer Tim Pallas said the scheme was aimed at getting prospective buyers into the market faster.

“The Victorian Homebuyer Fund has been popular for a reason – it helps people get into their own homes quicker with help from a secure partner,” he said.

“Thousands more Victorians will now be able to realise their dreams with this new injection..."

Totally not a Ponzi.

Another interesting piece of information from the article:

'Mr Andrews also pledged to invest a further $1.6bn in upgrades for schools, kindergartens and sporting facilities if re-elected next month.

More than $25m of these funds would be put towards planning for more than two dozen new schools across Melbourne.'

So there you go - $25m for planning. That's a nice job for someone, you would think they already have planning resources!? Wouldn't this just be business as usual work?

velocityjohnno wrote:

It's so interesting as you have perhaps international buyers becoming more scarce, and then interest rate rises see approvals through commercial banks fall in size, so perhaps there could be price falls; but then you have this extra 150K or so deposit now co-entered with government, so prices ain't gonna fall.

Now will the market arbitrage an extra 25% in their asks as a result of the intervention?

Dunno why he's doing it tbh - perhaps they see recession next year.

And I thought we are living in a free market?

"I noticed that Kohler seems to have lost the plot over the past few years and turned into a borderline crackpot."

was always seemingly a knowlegeable, moderate commentator, ...then a few years ago he started flirting with MMT...

many were advocating how 'harmless' it was... academic advocates getting a run nightly on the tele for months and months, seemed to be a big concerted push...

doesn't seem so harmless right about now though... unless you're in the assets class and trying to preserve your 'wealth' I guess - like alan...

I know it's a bit of a cliche, some might protest a furphy.... but the left generally love the debt, and the right like the balanced books, through ruthless cost cuttings etc...

all through the near zero interest rates period the left had their time... and then when abbott came out with his 'debt and deficit crisis' he got little traction, and ruthlessly ridiculed basically...

with the argument being '...now's the time to borrow, with interests rates so low...'

sounds reasonable... until it's not... until you see a less than six months dramatic turnaround in interest rates, like we have...

now chalmers is rattling on about '...the massive debt we inherited' ...and its one of his main priorties / obsessions...

probably rightly so, I read yesterday just the interest is now in our top five expenses, up there with medicare, ndis and social security...

hardly insignificant

all just shameless political point scoring and sort sightedness... from both sides...

and dumb, oh so dumb...

flollo wrote:

And I thought we are living in a free market?

Ah, you see it's been this way to an extent since the original First Home Owners' Grant and the Greenspan Put. More appropriately, it's a clown show.

Further, I do remember when FHOG went up from 7K to 25K then to 50K, watching the house and land packages go up a similar amount soon after.
Facepalmed then.

So, pop quiz: if you own a property in the targeted price/area, did you just raise your theoretical 'sell' price by a triple figure amount?

Absolutely. We discussed this many times, the subsidy (especially sudden, preelection one) will push the demand curve to the right which will result in higher prices. You can't just scale up the supply of housing overnight.

Here's a basic theory demonstrated in the ice cream example.

DudeSweetDudeSweet wrote:

This should really go in the Daily Good news thread

Holy shit…a win!

https://www.abc.net.au/news/2022-10-21/scotts-head-development-withdrawn...

Bravo! Now the locals will breathe easy :)

sypkan wrote:

"I noticed that Kohler seems to have lost the plot over the past few years and turned into a borderline crackpot."

was always seemingly a knowlegeable, moderate commentator, ...then a few years ago he started flirting with MMT...

many were advocating how 'harmless' it was... academic advocates getting a run nightly on the tele for months and months, seemed to be a big concerted push...

doesn't seem so harmless right about now though... unless you're in the assets class and trying to preserve your 'wealth' I guess - like alan...

I know it's a bit of a cliche, some might protest a furphy.... but the left generally love the debt, and the right like the balanced books, through ruthless cost cuttings etc...

all through the near zero interest rates period the left had their time... and then when abbott came out with his 'debt and deficit crisis' he got little traction, and ruthlessly ridiculed basically...

with the argument being '...now's the time to borrow, with interests rates so low...'

sounds reasonable... until it's not... until you see a less than six months dramatic turnaround in interest rates, like we have...

now chalmers is rattling on about '...the massive debt we inherited' ...and its one of his main priorties / obsessions...

probably rightly so, I read yesterday just the interest is now in our top five expenses, up there with medicare, ndis and social security...

hardly insignificant

all just shameless political point scoring and sort sightedness... from both sides...

and dumb, oh so dumb...

thanks Syp.

It's exactly what I thought - he seemed to be advocating MMT in the article.

Here's the breakdown of expenditures from the last budget.

Interest pmts were $28b out of $589b in total expenditures.

If govt debt was 100% of GDP (about $1,600b) at 6% interest, the interest expense would be $96b (2nd largest component of expenditures).

That would be placing a large debt burden on the nation, and put us up there with the basket case economies.

But at currently 36% of GDP, Australia could run some budget deficits and increase govt debt a bit more, provided the money was well spent (invested).

So I agree with Kohler that Chambers would be making a mistake by adhering to a belief that he needs to rein in government spending, balance the books and reduce debt.

(I think Australia should make a large public/government investment in renewables based energy independence.)

Yes MMT sounds (and works) fantastic in a 0% bond yield environment, but it's not so good when yields start to rise, as Japan is now finding out.

But did anyone on this planet really actually think that interest rates and yields would stay near 0% forever...?:

What do people think about this?

https://www.ft.com/content/cff42bc4-f9e3-4f51-985a-86518934afbe

velocityjohnno wrote:

article has Sydney at 10% decline

https://www.macrobusiness.com.au/2022/10/rba-forecasts-biggest-ever-hous...

so it can stop now as that was my throw at the dart board, that and 'cats and dogs living together': of which I'm sure we've all seen a bit this year.

This is the same RBA who said interest rates would not rise until 2024!!! Laughable if they think the housing bubble is gonna stop bursting at 20%.

velocityjohnno wrote:

That's a good question. I imagine Switzerland as a land of sound banking, armed population, and chocolate. Less inflation probably cos they didn't do this:

https://www.afr.com/politics/federal/daniel-andrews-will-pay-a-quarter-o...

dafuq

5% dep combined with gov paying for your house is a recipe for disaster.

Surely is.

Have a squizz at the Hang Seng chart if you can :0

flollo wrote:

What do people think about this?

https://www.ft.com/content/cff42bc4-f9e3-4f51-985a-86518934afbe

The Lowy Institute report published earlier this year is really good and detailed expression of the same ideas.

My view is there's two general themes at play here:

(i) China's chosen development model and alternative path to modernisation that focuses on common prosperity (equality, a socialist economy), and

(ii) the continued centralisation and consolidation of power of the communist party and its unique style of "whole-process democracy" (as apposed to representative democracy).

Both of these themes point to China preventing private sector/corporate concentrations of wealth and power and preventing a powerful private sector media, which may not bode too well for things like economic growth, productivity, corporate profitability, private enterprise, increasing earnings and share prices, etc.

More generally, China genuinely believes that it presents a valid alternative to western style representative democracies with market economies in the form of a "whole-process democracy" led by the party and a socialist economy focused on equality (as apposed to pursuit of private sector wealth).

China believes that it can overcome the problems we complain about every day in our democracies (they're largely just corrupted, chaotic laughing stocks dominated by corporate interests and the private media) and neoliberal capitalist economies (that just result in significant unequal concentrations of elite wealth and power, and shaft everyone else). China is trying to prove to the world that it has a better way forward.

I'm not so sure that their experiment will work too well but I think it's one of the most important and fascinating events to witness that is taking place right now in our own lifetimes.

But China's path to modernisation is built on economic strength. Actually I think a nation's political power is largely a function of its military strength which in turn is a function of economic size and control of resources.

So I don't see how China can or will turn away from economic growth. It's possibly most likely that China will just (continue to) pursue economic growth via its own "unique" means and styles that we in the west will (continue to) never really properly understand.

Always get something from your takes on things gsco, especially China related.

What’s your read on Xi’s confirmation for life? Do you think the ‘stability’ will be positive for markets and the economy? My sense was that the recent economic decline was in part due to his policies.

A good analysis of the current US housing market

https://www.bloomberg.com/news/articles/2022-10-10/here-s-how-weird-thin...

That’s really good @gsco. It’s hard to tell if their plan will work or not, I’m finding it hard to find reliable information for a proper assessment.

I remember a time when I had an interesting discussion with a Chinese work colleague. She was showing me pictures from her 1m people ‘village’ back home. It looked nice and we ended up having a lengthy discussion. She kept repeating that ‘the government’ takes care of this, that…And then I started asking questions about who this government is? She would answer in vague language like - you know the government. But I pressed on asking questions about who these particular people are, how do you get a job in the government, if I was to get a job in this government how would I go about it… She couldn’t answer any of them, the only thing she could explain to me is basically centrally planned hierarchy that you can learn from textbooks. She kept blaming the western media for an unfair portrayal of China (I don’t necessarily disagree with this). I agreed with her but also added that modern media can be unethical to anyone in their hunt for fame. I also added that in the West we ridicule our government officials on daily basis and media is quite happy to pass on the message. I asked her if the same is possible in China? And also, can I as a citizen walk around the town with banners portraying government officials as devils and asking for their resignation (I think this was around the time when people protested scomo on climate change, calling him cunt, walking with evil caricatures of him so I used that as an example). She laughed to all this and said there is no way that would be allowed. It would never even cross her mind to do such things and she never witnessed anyone else doing these things.

@etarip regarding Xi's confirmation for life, I noticed an interesting tweet from the legend Michael Burry, one of the central characters in The Big Short:

But yes a lot of the market jitters are related to Xi's policies to date and his strengthening grip on power, as well as things out of one's control like demographics and global economic conditions. But also don't forget the economic/political/information war against China the US is continually upping the ante on. A concern I have with Chinese politics now is just wholesale groupthink errors.

@flollo here's a link to a South China Morning Post article explaining how to join the Chinese communist party, and I'd reckon you'd be most welcome to...!

Not sure if you're aware but I've spent a little bit of time in China. From the article, about 1 in 15 people in China are members of the Party. And they're everywhere, permeated all throughout Chinese society, involved in every aspect of daily life, at all levels, all occupations, etc. It's nearly impossible to separate China from the Party, they're kind of the same thing. You have to be very mindful of your behaviour every waking moment in China - the Party is always there watching.

Yes I've said this a number of times, the China we see in our western media is not the same nation that's a short flight away, for a number of reasons, including the fog of the western media's full blown information warfare and propaganda, and just plain misunderstanding of China and its history, culture, society, politics and people. China is very impenetrable in many ways for the western mind.

My experience is no you can't say anything negative about the Party, but you can very tentatively and carefully engage in discussion and debate about general topical issues in Chinese society. For example, you could ask questions about and provide your ideas for solutions to China's property market concerns.

As a journalist in China, you certainly can't build a career off completely bagging the government like you can in the west. You actually need to have something positive to say.

flollo wrote:

A good analysis of the current US housing market

https://www.bloomberg.com/news/articles/2022-10-10/here-s-how-weird-thin...

Good points raised in that link. It’s hard to get one’s head around the fixed dominated mortgage market of some of these countries. Surely it must affect the lender’s (bank’s) profitability? Eg they wrote heaps of loans last year at circa 3% - fixed for term of loan. Now with inflation at 7%+ and Fed Funds Rate pushing mortgages to about 7%, the bank can’t see it as a good use of their book, especially with medium term view of inflation.

Also, they allowed heaps of people refi and lock in at 2% in last year or two. There must be penalties to refi to a lower rate, just as we have here, but people did it anyway, so maybe there isn’t?

5 years is the longest you can fix with aus banks, and current 5 year rate is about 2.5% above current basic variable rate.

Correction… you can get 10 yrs fixed if you look for it. Add another half a % for the privilege

kaiser

the short answer to your question is US banks/lenders manage that long-term lending risk by structuring the financing of those loans to lock in/hedge their interest rate spread and hence profits (often via complicated derivative securities) and/or by packaging up the loans into mortgage backed securities (MBSs) and offloading them roughly at the time of origination. It's part of a bank's interest rate risk management activities within its asset-liability management.

Banks will even structure their balance sheets to speculate on, ie take advantage of, changing interest rates and the shape of the yield curve. They're particularly good at making profits in increasing interest rate environments.

Actually MBSs were the main cause of the GFC: The super low interest rates post the tech boom resulted in banks wholesale packaging the loans up into MBSs and offloading them into the market. They packaged up good credit quality loans with bad (sup-prime) ones, to be able to offer an attractive interest rate on the MBSs. The MBSs seemed low risk since they contains lots of loans and people weren't expected to default on them all at once (low default correlations), but then the property bubble burst, the economy went into recession, everyone started defaulting, and the ponzi scheme fell over.

CPI is out @ 7.3%. I reckon we are looking at another rate hike @ 0.5%

https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/co...

gsco wrote:

Actually MBSs were the main cause of the GFC: The super low interest rates post the tech boom resulted in banks wholesale packaging the loans up into MBSs and offloading them into the market. They packaged up good credit quality loans with bad (sup-prime) ones, to be able to offer an attractive interest rate on the MBSs. The MBSs seemed low risk since they contains lots of loans and people weren't expected to default on them all at once (low default correlations), but then the property bubble burst, the economy went into recession, everyone started defaulting, and the ponzi scheme fell over.

Gee and who would think history can repeat itself in 2023 and beyond!1

flollo wrote:

CPI is out @ 7.3%. I reckon we are looking at another rate hike @ 0.5%

https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/co...

"The most significant price rises were New dwelling purchases by owner-occupiers (+3.7%), Gas and other household fuels (+10.9%) and Furniture (+6.6%)."

To me most of these are all supply shortages driving up material costs and fuel cost increases. Not something interest rate hikes can typically control too much of.

Thanks gsco. The wonderful world of derivatives… nuthin suss going on there…

@gsco that's a wonderful insight on China, thank you. It explains the situation very well - if Party is so involved in day-to-day life and its members are literally your neighbors, people you know the attitude towards it would be quite favorable. However, for outsiders that sounds like a nightmare, you really need to watch what you do and say but for normal people, it's business as usual and they probably don't see any issues at all.

Do you have any ideas about what to do with Covid over there? They still seem to be keen on the 'zero covid' policy, how will they get out of it?

Exactly Don: fuel and energy/electricity costs.

This is an energy shock like the 70's.

Making mortgages more expensive is not going to change the amount of fuel people use or lower electricity bills.

Sadly, they are very keen to hit it with the interest rate. Now, some here will argue that our global overlords are keen to cause the recession so the stubborn low unemployment finally goes the other way and weakens labor rights. That will bring things back to normal for the 'elite' so their businesses can get cheaper labor and very importantly - force people back to the offices which will increase the value of city properties. Higher unemployment will enable them to buy distressed assets that will return x10 once they bribe the government to push for another economic stimulus once things go downhill.

The best way to achieve all of this is to crush everyone with a big interest rate. So, workers and regular citizens need to unite and fight this demon.

Interestingly, this chain of thought could unite some very opposing individuals within this forum.

I don't know why I wrote this, I felt this surge of creativity to throw speculations out there. True or not?

No idea, but it's a compelling piece of rhetoric.

With permanent migration levels lifted to 195000/yr there'll be downward pressure on wages and likely an increase in inflationary pressures.

Assuming these people will need goods and services and be in the job market.

And I've still seen no logical or coherent explanation how we can cut our emissions by 2030 with this amount of extra population pressure.

What if regular citizens are savers? Will they go into battle against their money being able to purchase more, and receive more in interest?

https://www2.asx.com.au/markets/trade-our-derivatives-market/derivatives...

30 day interbank cash rate currently Nov 97.155, Dec 96.935, Jan 96.87
You can click on each month and bring up a monthly chart to interpret at your leisure.

@flollo no idea what China will do bout covid. They’ve been endlessly panning us for our approach and claiming theirs is better. They have their ego involved and need some kind of out. I’ll likely go back over once they relax a little. It’s still pretty hard to get a visa and there’s no way I’d want to be stuck in lockdown in China.

gsco wrote:

It’s still pretty hard to get a visa and there’s no way I’d want to be stuck in lockdown in China.

C'mon it would be fun!!!! ;)

Largest quarterly house price falls on record for Canberra, Sydney, Melbourne and Brisbane, from the Domain quarterly house price report: https://www.domain.com.au/research/house-price-report/september-2022/

gsco wrote:

Largest quarterly house price falls on record for Canberra, Sydney, Melbourne and Brisbane, from the Domain quarterly house price report: https://www.domain.com.au/research/house-price-report/september-2022/

More to come in 2023.

https://www.dailymail.co.uk/tvshowbiz/article-11298109/Calls-Block-New-Z...

"The season finale of The Block New Zealand raised eyebrows across the ditch on Sunday after the winning team's renovation made a record-low profit at auction.

Winning couple Chloe Hes and Ben Speedy's property went under the hammer with a reserve price of NZ$1.141m (AU$1.124m) and sold for just NZ$1.145m (AU$1.128m).

Viewers were shocked to discover that months of gruelling effort had earned the couple a profit of just NZ$4,000 (AU$3,046).

Even more jaw-dropping was that runner-up couple James and Maree Steele only took home NZ$100 (AU$76) from the sale of their property."

OK, who is psyched up for the Aussie Block auctions this weekend?

Don’t you love the way that it’s still classed as profit despite the fact this means their hourly rate over the build probably works out at about $0.0004c per hour?

That $76NZ would be a truly sumptuous fish'n'chips meal for two.

For me all the colourful mysterious personality buyers that buy the places are the wtf

There’s an estimate that ~20% of the US stock market are zombie companies and the risk of default is increasing. We often talk about housing, mortgage debt etc but not much was said about the corporate debt. I believe we all witnessed some crazy valuations over the last decade and the spread between fundamentals and valuations has never been higher. There are companies worth billions of $$$ that cannot turn the profit and they are surviving on questionable debt life support. Look how low has Facebook/meta fallen in the last 12 months, how many will follow? Some interesting points in the below article.

https://www.ft.com/content/73ca93a2-2f91-4236-9dec-400ab125d43d

flollo wrote:

There’s an estimate that ~20% of the US stock market are zombie companies and the risk of default is increasing. We often talk about housing, mortgage debt etc but not much was said about the corporate debt. I believe we all witnessed some crazy valuations over the last decade and the spread between fundamentals and valuations has never been higher. There are companies worth billions of $$$ that cannot turn the profit and they are surviving on questionable debt life support. Look how low has Facebook/meta fallen in the last 12 months, how many will follow? Some interesting points in the below article.

https://www.ft.com/content/73ca93a2-2f91-4236-9dec-400ab125d43d

I believe this is what's called the bubble. People blindly believe all stocks always go up so they keep buying irrespective of fundamentals. The pot stock euphoria of the 2018/2019's was similar. I rode it to the top. Sold Canopy Growth at close to $50. It's now valued at $3.75 and that's even after an impressive last week rise of 23%.

Netflix, Tesla, Facebook, Apple all were trading at unheard of values with fundamentals very poor (relative to valuation). Reality is setting in and these companies will fall further, probably with Tesla the least amount to fall out of the others.