House prices
Re the RBA, I get the gist that there are those who support their efforts and those who don’t. I’m with gsco in part, on the basis that we have overall been very well served by the RBA and Treasury for most of the past 40 years, ever since the permanent head of Treasury, John Stone, was sacked in 1984.
But this current mob have been terrible, and have followed mistake with mistake for 4 years now. I can’t defend them.
I think of Jack Gibson’s coaching aphorism, if you make a mistake, stop making ‘em. Would have been useful.
batfink wrote:Overall one of the more lucid forums in swellnet, with only the occasional howler mixed in. Keep it coming.
For some not even historical context, economics was only ever taught as political economy. Economics is always political, it is about choices. We can’t have everything, so we have to choose. Economics attempts to build a framework around the effects of those choices, via theory.
Economics is not a science.
The issue that economics is confronting is that it has been wrong, for so long, on so many issues/theories. Its underlying theories which have been accepted largely without demur are houses of cards, and they are coming down. There is a struggle going on to find better theories to replace the existing ones which no longer reflect our modern economy. Not surprising really. The world economy of 1980’s is like an alien civilisation compared to today, and economics is still holding on to theories from the 60’s, 70’s, 80’s and sometimes even more ancient times.
It is slow, resistant to change, and dominated by people who learnt all those theories from 40 and 50 years ago. The only economists worth reading are the heterodox academics, and journalists with economics backgrounds who can see that economics is only a small part of the picture.
Ross Gittins and Alan Kohler are the current standouts, but there are a few around. Read widely.
I would also add Greg Jericho, although he is coming from a more Keynesian angle in my view.
Agree you cannot separate economics from politics because there are always some groups who will do better than other out of certain policy choices.
Oh well at least the RBA is in good company...I think... Canada's central bank balance sheet / money supply chart:
I don't really have any words to describe that, apart from it appears they abandoned 70+ years of sanity in one crazy moment of...well...insanity...
Interesting that they're been doing some QT to contract their balance sheet, and our RBA hasn't been.
Wilhelm Scream wrote:#Shit's Broken
https://mpiovesan.com/2020/09/20/hammer-and-the-need-of-multidisciplinar...
Yeah, excellent article Wilhelm. Has a lot more work to do on it, but the measurement of productivity as it currently stands, and feeding that back into whether someone’s wages can go up, needs a wholesale re-think. It’s just not of this world.
What they’re measuring is something, or a proxy of a something, but productivity in a service based economy is a moribund concept. Ditch it.
I would t normally read much macrobusiness stuff, but someone else linked to a tweet, thanks, which had a link to this story.
https://www.macrobusiness.com.au/2023/06/real-estate-agent-sell-while-yo...
I’m as much in the dark as anybody, but Australia has huge personal indebtedness, and if and when the crunch comes it will likely come very quickly. If they are posting this on macrobusiness then I’d be worried.
The fact that a lot of fixed rate loans from the previous two years start to come up for re-financing has eerie reminiscences of the GFC, when all those ninja loans went from honeymoon rates to real interest loans.
USA housing market is different though. If they owed more than the home is worth the owner can walk away and it becomes the banks problem. Here, the debt stays with the person. This could be terrible, really really bad.
But I’ve been saying that for years.
batfink wrote:I would t normally read much macrobusiness stuff, but someone else linked to a tweet, thanks, which had a link to this story.
https://www.macrobusiness.com.au/2023/06/real-estate-agent-sell-while-yo...
I’m as much in the dark as anybody, but Australia has huge personal indebtedness, and if and when the crunch comes it will likely come very quickly. If they are posting this on macrobusiness then I’d be worried.
The fact that a lot of fixed rate loans from the previous two years start to come up for re-financing has eerie reminiscences of the GFC, when all those ninja loans went from honeymoon rates to real interest loans.
USA housing market is different though. If they owed more than the home is worth the owner can walk away and it becomes the banks problem. Here, the debt stays with the person. This could be terrible, really really bad.
But I’ve been saying that for years.
Nightmare scenario....
One US commentator stated that over there the stickiness of house prices is due to those on low fixed interest loans being reluctant to sell and face higher rates in a new loan - so another constraint to supply.
So while higher interest rates is reducing demand the impact of limited supply is muting the tendency for housing prices to fall.
So there is a tension in the market to the downside. A bit like an earthquake fault under pressure until it slips and the earth shakes.
Once the fixed rates run out and the normal forces that cause residence moves build up, a surge in transactions will occur shifting prices down in a sort of step jump.
Housing is priced at the margin. Recent sales set the price. So this fall might be contagious.
Less a factor in Australia but still something to consider that might surprise.
frog wrote:Once the fixed rates run out and the normal forces that cause residence moves build up, a surge in transactions will occur shifting prices down in a sort of step jump.
Something like 90% of US mortgages are 30 year fixed, might be waiting a while!
Yes, but life goes on and the host of reasons to sell to move, upside, downsize, divorce, death etc. are still at work and the concept is that this is building up but restrained.
Once a few sales are "forced" in a suburb at a reduced price this sets the new value for other houses. Then those worried about falling prices will tend to be motivated to sell before further price drops.
It is sticky but then slips.
batfink wrote:I would t normally read much macrobusiness stuff, but someone else linked to a tweet, thanks, which had a link to this story.
https://www.macrobusiness.com.au/2023/06/real-estate-agent-sell-while-yo...
I’m as much in the dark as anybody, but Australia has huge personal indebtedness, and if and when the crunch comes it will likely come very quickly. If they are posting this on macrobusiness then I’d be worried.
The fact that a lot of fixed rate loans from the previous two years start to come up for re-financing has eerie reminiscences of the GFC, when all those ninja loans went from honeymoon rates to real interest loans.
USA housing market is different though. If they owed more than the home is worth the owner can walk away and it becomes the banks problem. Here, the debt stays with the person. This could be terrible, really really bad.
But I’ve been saying that for years.
“We have never ever had people’s loan repayments being such a big proportion of their incomes”.
Well Fck me. That’s what happens when people buy exorbitant priced houses and interest rates go up!!! Clearly the author of this is a rocket scientist!!!
Wow I’d be very tempted to say that news.com.au has actually published something sensible for a change:
https://www.news.com.au/finance/economy/interest-rates/just-doing-their-...
“the government’s claims this is all someone else’s fault are increasingly untenable”, saying “there should be no doubt in the mind of any economist”
“We used very low interest rates, we did unprecedented fiscal stimulus in all sorts of ways, pumped a giant amount of money into the economy, and at the same time we weren’t spending like we would because of the pandemic, forgoing all the things we would for years,” he said.
“So when we came out of Covid we had this huge stockpile of savings built up, and massive pent-up demand. That huge surge in demand was pushing up against constrained supply. That’s pretty standard, and the only way all that excess demand is wound back is by the RBA raising rates.”
But Prof Hamilton noted the root of the problem went back much further.
“There’s a longer-run story — we certainly haven’t experienced rates of this level since around 2007, so really over the past 15 years we’ve had a period of very low interest rates that I think put in people’s minds the notion that it would be like that forever,” he said.
“People buying houses now for the first time have never experienced high or even moderate interest rates in their working lives. I think this is why this kind of moderating interest rate environment has come as such a shock, both psychologically but also economically. People did make long-run financial decisions on the basis that things would be like that forever.”
How can anyone with half a brain ever think money was going to be free forever. Fck me people are delusional.
“People buying houses now for the first time have never experienced high or even moderate interest rates in their working lives. I think this is why this kind of moderating interest rate environment has come as such a shock, both psychologically but also economically. People did make long-run financial decisions on the basis that things would be like that forever.”
Not sure about the evidence for that statement.
In fact, economically, what stands out from the rate rises is the lack of economic shock.
Only a modest house price correction, which has already reversed even as rates tighten!
It seems to have barely touched aggregate demand in the economy.
I think he's referring to people who are genuinely experiencing financial hardship from the interest rate increases.
But yes I think you're right about aggregate demand. The story of the Australian consumer is super interesting.
At the very start of covid consumers completely stopped spending (blue line) and saved all their money (black line), to the point that the savings rate got to 25%:
But then the govt/RBA turned on the QE and stimulus tap, and consumers went crazy and started spending massively, and their spending has closely tracked the QE/stimulus (black, money supply line) that's still in the economy (remember the RBA is insolvent):
Currently, the Australian consumer cannot be stopped! And from the first graph above, they have been spending so much to the point that the savings rate has fallen below 5% and to the lowest in decades.
Also, at the very start of covid when interest rates (black line) went to basically 0%, and well before the RBA decided to include inflation and interest rate forecasts in their commentary, people just went crazy and started taking out new home loans (blue line) at an unprecedented scale:
But the rate of new home loans has fallen back to sane levels now interest rates have started to go up.
So in a nutshell, the consumer really tightened up at the very start of covid. But before long, once interest rates went to 0% and the QE/stimulus tap turned on, they just started going completely crazy with spending money on consumption and housing.
Spending on housing has gone back to sane levels but consumers don't seem to want to stop consumption spending, even to the point of spending all their savings.
But now they have no savings left and it will be interesting to see what happens leading up to the end of the year.
That first graph shows it all very clearly IMO. Wait until the savings line goes negative.....then the shits really gonna hit the fan!!!! GSCO can you please go back further in time on that first graph and plot.....I'd like to see/understand when in history we last savings this low (<5%) please.
savings rate:
(including consumption spending doesn't provide anything interesting since it's just a long linearly increasing line, and it kind of ruins the scale of the plot)
Thanks GSCO. Got a similar timeframe plot of Australian house prices too please?
For people who believe house prices ALWAYS go up, take a look at chart 3 in this link.
https://matusik.com.au/2021/07/06/140-years-of-house-price-data/
There's significant historical periods of no growth or sub-zero growth.
From the link above his end note makes interesting reading.
"End note
My update further confirms my thesis. To reiterate:
We are likely to see house prices lift by 25% to 30% from trough (2019) to peak this cycle (2022), which will translate (in current terms) to between 7% to 8% per annum on a compound basis.
Alternatively based on estimated 2023 dollars – and assuming an anaemic rate of inflation between now and then – such growth would convert to between 5% and 6% per annum in 2023 dollars.
The recent change in house prices appear spectacular and is does compare well to the long term average. But assuming my forecast rings true, then the likely annual rate of component growth (in both current and real terms) will be in line with recent market recoveries/upturns. Revisit chart 2.
Of course, a higher rate of inflation in coming years would result in less real compound annual growth.
I also believe that after this market peak, the housing market (price wise) is likely to settle into a somewhat long period of stagnation. Although the stagnation time periods have been shortening over time – revisit chart 3 – here appears to be little left in the tank to help drive future house prices.
I do think that the next price plateau could be as long as a decade. Maybe even longer. History shows that such a period of inactivity does happen".
So, 25-30% increase since 2019, then a price plateau.
Doesn't sound like much of a real market correction to me.
tradingeconomics.com goes back to 2012:
but Shane Oliver (who is an actual economist!) seems to present the best charts, and back to 1984, in his twitter feed:
note that tradingeconomics.com's and Shane Oliver's graphs are not of the exact same property indices (though they are similar) and tradingeconomics.com doesn't seem to be updated for the last couple months yet, when prices have gone up a bit again.
CoreLogic confirms Aust home prices up for 3rd mth in a row in May as the underlying demand/supply shortfall dominates higher rates.
— Shane Oliver (@ShaneOliverAMP) May 31, 2023
With the hit to buyer capacity, threat of more rate hikes, fixed rate reset & high & rising recession risk the risk of another down leg is still hi pic.twitter.com/S3PBsBjLIT
Greg Jericho never really says anything but state the obvious.
https://www.theguardian.com/business/grogonomics/2023/jun/15/forget-deat...
That's an interesting article.
I'd like to add a centre-left economist to the above list of journalists.
I'd argue that the preeminent centre-left orthodox economist in Australia right now is Richard Denniss, the executive director of the Australia Institute.
Guardian articles: https://www.theguardian.com/profile/richard-denniss
The Monthly articles: https://www.themonthly.com.au/author/richard-denniss
He and the Australia Institute have been making very constructive contributions to the debates in Australian society, particularly climate change.
Actually I'd argue that he and the Australia Institute have completely pulled down the pants of both sides of politics on the climate change debate (and on may other issues).
Surprising that I'd mention him/them since they've also been going very hard on the corporate profits-executive salary-inflation "link", which I think is not accurate and is deflecting blame away from the role of RBA/govt QE/stimulus in our inflation episode. (Actually it's also very easy to make the obvious case that this QE/stimulus has been the main cause of any increased corporate profits.)
But it would be very awkward for the Australia Institute to argue something else given the stances they've taken on other topics and their clear ideological and political biases, particularly towards govt spending, MMT, the notion of "big government", etc.
But one has to give credit where it's due, and the Australia Institute is more than just a bunch of journalists, nor are they fake left in any way.
Rays of sunshine from Matt Barrie:
https://www.dailymail.co.uk/news/article-12191965/Matt-Barrie-tech-CEO-r...
"A leading entrepreneur has warned that Australia is on the brink of financial collapse due to a housing bubble similar to that which crippled the US economy in 2008, and reliance upon burgeoning immigration to prevent it bursting.
Matt Barrie, founder and CEO of labour hire company Freelancer.com, outlined a terrifying list of factors which he claimed would soon tip Australia into an economic meltdown.
He said rising cost of living, consequent interest rate hikes and surging mortgage repayments were among the troubling signs of a looming financial disaster.
Mr Barrie compared the current economic climate in Australia to the Global Financial Crisis that was caused by the collapse of the housing market in America in 2008, when reckless lending and risk-taking by banks saw home prices surge and then inevitably crash.
'It's exactly the global financial crisis which we saw in America, happening here in Australia today,' he told Australian online broadcaster ADH TV.
Mr Barrie, who rose to national fame for opposing the Sydney lock-out laws in 2016, said every Australian realises 'something is terribly wrong in this country' as mortgages, bills and the cost of living skyrocket.
He said Australian workers are forced to take on massive mortgages due to extraordinary housing prices, which are being pushed ever higher by importing more and more people to sustain rising demand.
'The only reason why house prices are going up is because we're bringing more people into the country,' he added.
'We have 620,000 students brought into this country, and everybody knows they're not students but a low-cost workforce that's been brought in to prop up GDP and work in 7-11 or drive an Uber.
'Really it's late-stage desperation in a Ponzi scheme. The housing market going up for 60 years relentlessly has led to a Ponzi out of all proportions - its the housing bubble of all bubbles.'
Almost half a million more immigrants are expected to come to Australia this year as overseas students, temporary visa holders and working holidaymakers return.
'(Prime Minister Anthony) Albanese has gone full berko on immigration. He's turning every single tap he can on in a desperate attempt to prop everything up,' Mr Barrie said.
'He's desperately attempting to keep the housing market - and therefore the banks - solvent because we're going to head into a GFC (global financial crisis) event.'
The mean house price in Australia has risen by a whopping $8,500 to $896,000 in the March quarter.
The mean price of property in NSW is $1,150,400, which remains the highest in the country, followed by the ACT ($951,800) and Victoria ($898,300), according to the Australian Bureau of Statistics (ABS).
As a result, young people coming into the housing market are having to take extraordinary levels of debt to buy their first home, making them very vulnerable to rising interest rates.
Mr Barrie said Australian household debts are now double the US, 'a country that you'd normally associate with credit cards and debt'.
'Households are basically at breaking point and mortgages are skyrocketing,' he said.
As rates rise, discretionary spending falls as intended as the Reserve Bank tries to get inflation under control, but some analysts fear it could go too far and tip the country into recession as spending dries up and businesses fail.
The outspoken tech CEO warned that Australia would experience a 'complete replay of the movie The Big Short'."
---
That was a really cool movie btw
velocityjohnno wrote:'We have 620,000 students brought into this country, and everybody knows they're not students but a low-cost workforce that's been brought in to prop up GDP and work in 7-11 or drive an Uber.
Or offer services on this gentleman's Freelance.com website? What would he do without them?
velocityjohnno wrote:Rays of sunshine from Matt Barrie:
Mr Barrie said Australian household debts are now double the US, 'a country that you'd normally associate with credit cards and debt'.
This as a standalone metric is meaningless. If those debts are backed by quality assets (that are relatively liquid) there should be no major issues.
"....Last month, Telstra said it would lift its mobile and data charges “in line with the consumer price index, rounded to the nearest dollar....That’s an increase of 7%, allowing Telstra to boost its charges in line with inflation in a way Lowe doesn’t want workers to...."
Peter Martin.
https://theconversation.com/dont-blame-workers-for-falling-productivity-...
Seriously I’m getting Fcking sick and tired of companies saying they have to increase their prices because of inflation. Inflation is not a reason to increase your prices. An increase in your costs due to inflation is a reason to increase your prices. But you can’t just up your prices by 7% because inflation is 7%!!! Fck me.
Yep, thats embedding inflation.
I'm with you Don, what a fcking joke.
Simply summarised by Steve.
Good old immigration will save us!!
https://thenewdaily.com.au/finance/finance-news/2023/06/15/recession-job...
Immigration saves and ruins (overloads environment and infrastructure) at the same time.
Half a million in one year!
But all is well for first home buyers - a house for $45k ! Cosy.
https://www.zerohedge.com/markets/home-depot-capitalizes-tiny-home-craze...
donweather wrote:Seriously I’m getting Fcking sick and tired of companies saying they have to increase their prices because of inflation. Inflation is not a reason to increase your prices. An increase in your costs due to inflation is a reason to increase your prices. But you can’t just up your prices by 7% because inflation is 7%!!! Fck me.
Why is this even debated? It's nothing new; businesses and workers will always scramble to rise their prices in an inflationary environment. Some are successful and some are not, it happened hundreds of times before and it will happen again. This is one of the biggest dangers of inflation as it spirals out of control very quickly. Is this some sort of surprise to people?
flollo wrote:donweather wrote:Seriously I’m getting Fcking sick and tired of companies saying they have to increase their prices because of inflation. Inflation is not a reason to increase your prices. An increase in your costs due to inflation is a reason to increase your prices. But you can’t just up your prices by 7% because inflation is 7%!!! Fck me.
Why is this even debated? It's nothing new; businesses and workers will always scramble to rise their prices in an inflationary environment. Some are successful and some are not, it happened hundreds of times before and it will happen again. This is one of the biggest dangers of inflation as it spirals out of control very quickly. Is this some sort of surprise to people?
No not a surprise just don't understand why more people don't call out companies that make these statements. For example, the majority of things driving inflation right now are housing/rent and electricity and fuel prices. What of these affect Telstra's costs? Electricity would be the dominant one, fuel coming second, housing/rent zero. So they're costs would not have risen 7%. And they're certainly not going to up the salaries of their offshore call centre staff now are they, as they will be saying to them that Australia's inflation rate doesn't affect/impact them.
"In the good old days, pollies would cut immigration numbers during downturns. This mitigated the impact of a downturn on Australian living standards.
But after 2012, during the great mining bust, the Coalition government kept its foot on the immigration accelerator for the first time during a downturn.
Immigration went from being an economic complement to an economic driver.
The result was an unprecedented ten years of weak per capita GDP. Your slice of the GDP pie rose very slowly but fell in real terms as stuff like housing shortages and crush-loaded public services and the environment were never counted.
That same trick is now being pursued by a Labor Government as the great inflation bust transpires..."
https://www.news.com.au/finance/economy/australian-economy/longest-anybo...
sypkan wrote:"In the good old days, pollies would cut immigration numbers during downturns. This mitigated the impact of a downturn on Australian living standards.
But after 2012, during the great mining bust, the Coalition government kept its foot on the immigration accelerator for the first time during a downturn.
Immigration went from being an economic complement to an economic driver.
The result was an unprecedented ten years of weak per capita GDP. Your slice of the GDP pie rose very slowly but fell in real terms as stuff like housing shortages and crush-loaded public services and the environment were never counted.
That same trick is now being pursued by a Labor Government as the great inflation bust transpires..."
https://www.news.com.au/finance/economy/australian-economy/longest-anybo...
Unemployment at 5% is seen as a disaster? How many clicks do these guys want? They'll write anything these days.
"They'll write anything these days."
I would have thought that the basic premise of that article was quite noteworthy.
Typical macrobusines blog hysteria.
Can't say that I'm a fan of the way that it's written but the reality of a per-capita recession and the way that politicians (and most media) remain fixated on GDP as the be-all-and-end-all seems worth talking about.
And the pros and cons of immigration is a conversation that pollies won't touch either, despite the fact that a solid majority of people are pretty wary of where we're at.
People's views aren't being represented in the MSN so no wonder Macrobusiness are basing their business model on the above.
Move on, nothing to see here, certainly nothing about electricity giants making super profits!!!
https://thenewdaily.com.au/finance/2023/06/16/agl-ups-profit-outlook/?ut...
“It’s a tough period for everyone.”................bahahahahaha....clearly only tough for some!!!
I just got a letter from my electricity provider that my rates are going up by 50%. What in hell can justify this increase? As of 1/7/23, so not even 2 weeks to go.
The big gouge.
I called them to double check as it sounds unreal but they confirmed that it’s going up by 50%. He said that the government increased something dramatically (I didn’t fully understand what). He basically told me to shop around and try to find a better deal. Alinta BTW.
So basically if electricity is going up this much all the discussions here are a waste of time. Future is pretty clear; inflation is going nowhere and rates will keep going up for quite a few months. And then all this will be followed by a series of gifts leading to the next election. And if government doesn’t prove to be generous I’m sure LNP will promise all sorts of stuff to get back in. And it might be tempting, at the end of the day if the wallet is empty all those other fancy problems are relegated to the back bench.
Far out. That's not good.
"Electricity tariff increases of up to 51 per cent are set to hit some households this winter as retailers advise of price rises that far exceed the ones in regulated benchmark tariffs announced last month."
https://www.afr.com/companies/energy/bill-shock-energy-retailers-outline...
It’s nuts. Look at the timing; middle of winter so heating is on, lights are on as days are short, solar output is shit…You have to be a complete idiot to let this happen right now. It needs to be prevented at all costs.
we're getting taken for mugs at every angle
with barely a murmur coming from amongst our 'leaders'
I guess that's what happens when 'the left' aligns itself with corporations...
neoliberalism baby!
suck it up
suckers!
AndyM wrote:Can't say that I'm a fan of the way that it's written but the reality of a per-capita recession and the way that politicians (and most media) remain fixated on GDP as the be-all-and-end-all seems worth talking about.
And the pros and cons of immigration is a conversation that pollies won't touch either, despite the fact that a solid majority of people are pretty wary of where we're at.
People's views aren't being represented in the MSN so no wonder Macrobusiness are basing their business model on the above.
- large immigration is impacting GDP per capita which is even going backwards at times
- poor economic conditions might raise the unemployment to 5%+
All the other 300-400 words are redundant. Macro business is basically committed to a certain narrative and they are recycling a vocabulary of 1,000 words + a few dozen graphs to tell the same message day in day out. Good on them if they can make money like this, sounds like a low overhead high margin business model.
Sounds similar to most articles in most outlets.
They all have a narrative and they're all shorter as bullet points :)
House prices - going to go up , down or sideways ?
Opinions and anecdotal stories if you could.
Cheers