Good News: New housing boom tipped for H2 2009

I’m far from convinced that a continuation of the housing boom will kick off again anytime soon, nor do I believe that should it miraculously occur, that it would be a good thing.  Simply put, we’d be continuing down a line that only adds to the $1 trillion in private debt we’re already carrying.  Let’s not forget that the economy and employment is unlikely to support it anyhow.

New housing boom tipped for H2 2009

David McIntyre

“We’re creating the next housing boom, or bubble potentially.”

March 15, 2009 – 10:49AM

Low interest rates, population growth and a shortage of new home construction is the perfect mix for a fresh house price bubble, says Firstfolio chief executive Mark Forsyth.

Australian might be on the brink of recession but Mr Forsyth believes a new housing boom could begin as early as in the second half of 2009.

“If you combine the last rate decrease with news that there’s going to be another decrease, rental yields going through the roof, shortage of supply of property and the first home owners grant, it’s a perfect storm of a positive nature,” Mr Forsyth told AAP.

Meanwhile:

Which bank preys on battlers?

THE Commonwealth Bank has demanded that a Sydney family pay more than $240,000 after allowing them to guarantee a friend’s mortgage, despite already defaulting on their own loan.

Distressed Minto couple Wida and Joko Sosrohardjono, their children and grandchildren could be forced onto the street, if a court does not overturn the repossession order for their home next month.

Editorial: Bank reveals compassion deficit

“I cannot believe this is happening to us – we do not know what to do,” a devastated Mrs Sosrohardjono told The Sunday Telegraph.

“We work so hard and if I lose my house it is all for nothing.”

I’ve also, voiced my concerns over the sustainability over such a boom and what I consider a major crisis in the making,  namely ‘unaffordability on a large scale.  Min’s feedback was extremely insightful.

Don’t Stop The Dance: First-home grant to end

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58 Responses

  1. I’m betting that all the lenders who are now taking advantage of the first home-buyers grant are hoping to see upward movement in the housing market and are simultaneously preparing for a major debt recover operation that will see prices fall – essentially it will be a race to the bottom. Simply put: those who are able to recover debts owed by selling off assets at above the amounts lent will suffer the least amount of losses.

    It’s all about knowing that there’s a lot of potentially bad debt tied up in the market.

    All the signs are there, from February’s news:

    CREDIT: CBA tightens mortgages amid new rules

    THE Commonwealth Bank will tighten borrowing rules for first-home buyers to insist they contribute at least 3 per cent of the purchase price in their own money, in addition to any available government grants.

    The move is in response to growing industry concerns about the quality of loans to the fast-growing, first-home buyer market and is in anticipation of interest-rate hikes in coming years, due to the expected inflationary impact of the large, recent increase in household income.

    Currently, government grants of up to $14,000 for an existing home and $21,000 for a new home mean some first-home buyers can purchase dwellings with a 5-10 per cent deposit and no cash contribution of their own.

    PROPERTY: Sales dry up unless price is right

    THE property market has slowed to a whimper, with sales crashing to less than a third of last year’s levels, despite a surge in first-home buyers capitalising on low interest rates and grants.

    Just over 500 properties have sold at auction this year in the major markets of Sydney, Melbourne, Adelaide and Brisbane, compared with more than 1800 at the same time 12 months ago.

    Only 1775 properties have been placed on the market since January 1, compared with more than 3700 last year.

    While auction clearance rates continue to improve, thanks to strong first-home buyer demand for cheaper housing, softness in middle and upper markets is putting the brakes on sales.

  2. ““If you combine the last rate decrease with news that there’s going to be another decrease, rental yields going through the roof, shortage of supply of property and the first home owners grant, it’s a perfect storm of a positive nature,” Mr Forsyth told AAP.”

    John, I’ve been thinking the same thing for a couple of weeks now, but just haven’t got around to mentioning it on the recent threads.

    I have a friend who is a lending manager with the CBA and she says that she has never been busier. In her neck of the woods property sales are at an all-time high. The low interest rates and the first home owners grant have contributed to this.

    It’s even better (for investors) if the first home owners grant is abolished as this could see a temporary dip in housing prices, but not rental income, so the return on the investment would be better than it has been any time over the last four years.

    I don’t buy into all the doom and gloom. Sure, the GFC is a horror, but I think that some people are going to make a lot of money over the next 12 months. I don’t think there’s been a better time to buy property.

  3. Migs

    “I don’t buy into all the doom and gloom. Sure, the GFC is a horror, but I think that some people are going to make a lot of money over the next 12 months. I don’t think there’s been a better time to buy property.”

    Watch the banks in coming months. They’re really concerned about the market and potential losses coming from a crash in prices.

  4. John McPhilbin, on March 15th, 2009 at 12:26 pm Said:

    Migs

    What are your thoughts on the ‘affordability of housing and rent’s’?. I’m not sure you’ve looked at it from that angle.

  5. Migs

    Sean Parnell, FOI editor of the AUSTRALIAN wrote last October:

    AUSTRALIA’S big banks ignored the sub-prime crisis in the US and actively took greater risks in the home mortgage market to see off a challenge from rival lenders.

    The banks not only relaxed their lending standards in recent years – ultimately luring many customers into financial distress – but held off tightening their terms of credit to build a better market position.

    Reserve Bank documents, obtained by The Australian using Freedom of Information laws, show the change in lending standards was driven by competition and the housing boom.

    In the last six months of last year, banks informed the Reserve Bank that the proportion of new mortgages described as non-standard – such as low-document loans and those with high loan-to-valuation ratios – was increasing.

    That was despite the sub-prime crisis, rising interest rates and evidence that more of their existing mortgage customers were unable to make repayments.

    In April this year, as the Reserve Bank ended its run of interest rate rises, an RBA analysis found the relaxation of lending standards had allowed some Australians to take on extraordinary debts. Households with annual incomes of $60,000 or more could borrow up to five times their annual income – up from 4 1/2 times in 2004 – requiring repayments of about 50 per cent of gross income, up from 45 per cent in 2004 and well above the common cut-off point that lenders applied of 30 per cent.

    Single individuals could borrow amounts requiring repayments of 50-75 per cent of their net income, about 5 per cent higher than in 2004.

    Although most borrowers had not utilised their greater borrowing capacity, the analysis found “recent low-income home buyers do appear to have taken on relatively larger loans”.

    The median mortgage debt servicing ratio – the proportion of income spent on a mortgage – for recent mortgagors had risen from 20 per cent in 2003-04 to 22 per cent in 2005-06 and had been “accompanied by an increase in financial stress”.

    Based on income scales, the largest increase, 4 per cent, came from lower-income households and first-home owners.

    The analysis noted that new and poorer mortgagors had increasingly found themselves in financial trouble; since 2004 there had been a gradual increase in the proportion of loans that were at least 90 days in arrears.

    A follow-up analysis in July this year, based on data collected in May, found that for households earning $90,000 or more, their borrowing capacity had fallen by 6per cent since late last year. But most of that was due to rising interest rates as lending standards were “still much looser than in 2004″.

    That month, the Reserve Bank’s financial stability department also warned that the relaxation of standards, and particularly the rapid growth in low-document loans, “may mean that the average borrower in arrears is now less able to ’self-cure’ than in the past”.

  6. John – again can you please use the blockquote tagging so that we know what is the quote and what is your comment on the quote?

  7. Apologies Joni. I couldn’t find the previous link because I’d failed to use in the thread I’d previously posted it on

    Migs

    I’m not trying to panic you with this information, I’m trying to point out that banks control the purse strings in a large number of cases and this is the type of information and potential outcomes that they prepare contingency plans for.

    Like the following on unemployment figures, this will have them getting really uptight:

    http://www.theaustralian.news.com.au/story/0,25197,25189561-12377,00.html
    THE Federal Government says it won’t speculate on whether unemployment could reach as high as 10 per cent by Christmas.

    The jobless rate has soared to 5.2 per cent for the first time in nearly four years, as deteriorating economic growth pushed 47,100 people onto the dole queue in February.

  8. John – dont worry in that case about the link, but using blockquote will help a lot.

    (and I am glad that you understood my email and my refusal 😛 )

  9. How do you use blockquote Joni? Can you email me?

  10. Sure – will do it now.

  11. “Simply put, we’d be continuing down a line that only adds to the $1 trillion in private debt we’re already carrying. ”

    Hi John

    Do you have any figures on how much of this private debt is in the hands of people and how much is in the hands of private companies???

    I saw that Rio Tinto has $40B of debt. Also Sydney Airport also has $8B. So thats almost $50B for just two private companies.

    Also for the debt that consumers have- how much debt is in mortgages and how much debt is due to consumer goods.??? Things like plasma TV’s furniture etc.

    Just wondering of you have any figures.

  12. Migs

    I really suggest you check out the survey (below) in relation to where we rank in affordability internationally, which should give you a good idea as to the precarious position we’re in. There have also been lots of good news items about the reduction of ‘mortgage stress’ of late as a result of lowered interest rates, however, you and I know that low interest rates are only a temporary reprieve and doesn’t offer a long term solution.

    Seriously Unaffordable
    The Daily Reckoning Australia
    https://blogocrats.wordpress.com/2009/01/27/seriously-unaffordable-housing/

    5th Annual Demographia International Housing Affordability
    Survey: 2009 (Data for 3rd Quarter 2008)
    http://www.demographia.com/dhi.pdf
    The report concluded that Australia has the most unaffordable housing of all the nations surveyed. Not only that, but according to the report, Australia doesn’t even have a single urban area in which housing is merely “moderately unaffordable.”

    –Now before you write in defending the honour of Australia’s housing market, let’s be clear what the survey’s designers consider unaffordable. They use a ratio of Median House Price to Median Household income. A house is “Affordable” if the ratio is 3.0 or less. It’s “Moderately unaffordable” if the ratio is 3.1 to 4.0. It’s “Seriously Unaffordable” if the ratio is 4.1 to 5.0. And it’s “Severely Unaffordable” if the ratio is 5.1 or more.

    –Australia sports a ratio of 6.3, which is both “Severely Unaffordable” and “Seriously Daloob.” New Zealand comes in next t 5.7, followed by Ireland at 5.4 and the U.K. at 5.3. Owing to its large number of metropolitan areas in which there is a wide variety of median prices and incomes, the U.S. nationwide ratio is just 3.2.

    –Part of the problem in the other countries is that national median incomes and house prices are derived from just a small number of densely populated urban areas. It’s a pretty common occurrence in America to pack up your car, change states, and change jobs. You trade lower wages for a lower cost of living. That may be harder to do in more homogenised labour and housing markets, like, say, Australia.

    –So is today’s ratio any higher than historically? You bet it is! According to the study, “In recent decades, the Median Multiple has been remarkably similar among the nations surveyed, with median house prices being generally 3.0 or less times median household incomes.”

    –”This historic affordability relationship continues in many housing markets of the United States and Canada. However, the Median Multiple has escalated sharply in Australia, Ireland, New Zealand and the United Kingdom and in some markets of Canada and the United States.”

  13. Dang it didn’t work Joni, I’ll try again.

    Neil

    On total national debt, as indicated in a previous thread:

    Don’t mention the debt: It is Australia’s Ponzi scheme
    https://blogocrats.wordpress.com/2009/02/19/dont-mention-the-debt-it-is-australias-ponzi-scheme/

    According to Michael West:

    Looking at the numbers, according to the Australian Bureau of Statistics we have about 21,374,000 or so people living in this country. Our combined national debt (taking all government, personal, private and business debt into account) is $2.32 trillion ($3.4 trillion including equity) as of September last year – and growing. A falling Aussie dollar makes it more expensive to repay, or roll over.

    Each and every Australian then, including babies, accounts for foreign borrowings of nearly $110,500 dollars. If we use the same method to calculate what the cost of Prime Minster Rudd’s “stimulus package” is to the nation, we end up with a cost of nearly $2,000 per head.

    Inching to the edge

    To put it another way, says macroeconomic consultant Mark Beavan, Kevin’s rescue package is increasing the nation’s net debt by little more than 1%.

    ”Malcolm might happily forget that while his former government colleagues were steering the good ship Australia, the nation’s total debt soared from a mere $700 billion in 1997 up to $3.2 trillion by the close of their term. An increase of 387%”.

    In the past decade the housing boom – including the welter of negative gearing – has seen household total debt double relative to their disposable income from 80 per cent to almost 160 per cent.

    Also, consider the big picture

    Aussie debt at historic levels
    http://www.abc.net.au/news/stories/2007/09/25/2043312.htm
    By economics correspondent Stephen Long
    Posted Tue Sep 25, 2007 9:28pm AEST
    The world economy is booming, but it is nothing compared to the growth in credit when looking to the big debtor nations today.

    Australians are in debt to levels never before seen in the history of credit, with the only two periods that come close – the 1880s and 1920s – followed by major depressions.

    That might sound alarmist, but those were the facts observed in passing today by senior Reserve Bank (RBA) official, deputy governor Ric Battelino.

    “For Australia, we have data on credit going back 150 years, and it is certainly the case that there is no domestic precedent for what has happened over the past 30 years,” he said.

    “The closest previous experiences were those in the 1880s and the 1920s.”

    The run-up of household borrowing is staggering. Over the past three decades, in Ireland, Spain, Australia, the United Kingdom and New Zealand, credit growth has outstripped GDP by 5 per cent per year.

    Across the top 15 top industrialised nations, debt has more than doubled as a percentage of GDP, to about 135 per cent.

    Mr Battelino did not say why credit growth collapsed after the 1880s and the 1920s, but to anyone who knows their history, it is an ominous parallel.

    In both cases the credit binge preceded a major depression, and former New South Wales premier Jack Lang lived through both crashes.”

  14. Excellent, I did it!

  15. Hi John

    it will take me a while to read through your links but i don’t think you answered my question. How much of this private debt is in hands of Australian companies. For example Qantas is about to purchase approx 18 A380’s. They sell for about $350M each. That means our private debt will increase by approx $6B. Provided Qantas keeps them flying it should not be any trouble to pay back.

    So what percentage of the private debt is owned by Aussie companies??? 10%, 40%, 80% ???????

    I must admit I really do not understand private debt but i am trying to learn.

  16. Joni, please email me also to let me know how to block quote.

    Thanks in advance.

  17. John, let me be the first to admit that I fail/ignore to look at the big picture as well as you do.

    I haven’t looked deeply into housing affordability or the lending criteria in the face of a credit squeeze.

    I only look at my position, although I feel for those people who are suffering, or are in the sufferance firing line, because of the GFC. My position, IMHO, is what matters to me the most.

    If I lose my job or fall to some long-term ailment then I’m well and truly in the poo. But on the other hand, if I survive the next few years I might look back and regret not having grabbed at a few opportunities.

    If I do come tumbling down then somebody will surely prey on me. And if I make some gains over the next few years I am sure that someone will lose because of it.

    You probably think I sound evil. That is not the case. I fell heavily about 15 years ago – lost everything I had – and I do not want to go there again.

  18. Interesting that it is the lower end of the market which is holding it’s own. This poses a question. Was it just an urban myth that first home buyers were the ‘greedy’ ones aiming for the mega mansions? Or was the upper end of the market and it’s over-pricing fueled by 2nd and 3rd home buyers who thought that the good times would never end?

  19. Watch the banks in coming months

    Indeed John McP. “Watch them now.”

    Slightly off topic but related nonethless, my bank NAB, has just sent me an American Express Card – completely unsolicited.

    They’ve been building up to it during the past couple of months writing to me saying – “lucky you. We’re going to give you two cards instead of one – so you can earn rewards points faster!”

    Now I’m quite happy with my NAB visa card, but never once did they ask “do you want an amex card to go with that?”

    It just arrived in the mail.

    Now I’m am absolutely sure that offering someone an unsolicited credit card (ie just sending it to them in the mail) was completely illegal a few years ago.

    My other arf has just told me that NAB have landed themselves in some strife with this approach.

    I haven’t used it yet, and probably won’t, as no doubt anyone that does use it, will be by default “accepting” receipt of the card along with all the terms and conditions as soon as they make their first transaction on the un-asked for card.

    As Miglo would say “despicable”.

  20. “Interesting that it is the lower end of the market which is holding it’s own. ” – Min.

    Spot on Min. All along it has been the upper end of the market that has seen the most growth. Not anymore. It’s the bottom end that we will see more growth in.

  21. Reb, that’s despicable.

  22. “It’s the bottom end that we will see more growth in.”

    Then I’m becoming a slum lord tomorrow.

  23. Then I’m becoming a slum lord tomorrow.

    Then you won’t have far to look.

  24. Then Migs, developers will have to find a way to built cheaper. They can’t go any smaller with building blocks under 500sqm in some areas. They can try lobbying governments re developer contributions but then you end up with rate-payers hopping mad because it’s then they who have to pick up the tab re drains, road maintenance, parks and gardens etc. They can try buying up farm land on the far outskirts of cities, but no one wants to live there due to lack of jobs, transport and community facilities. That is, they cannot maintain their current profits.

  25. “Then you won’t have far to look.”

    That’s not quite true, Canberra is quite some distance away.

  26. Good points Min. Again, I was looking with tunnel vision in that I was only thinking of existing houses.

  27. Migs

    You probably think I sound evil. That is not the case. I fell heavily about 15 years ago – lost everything I had – and I do not want to go there again.”

    Evil? No way! And I certainly don’t want you to fall.

    Neil

    I can’t tell you precise figures I’m sorry, and everytime you try to get them it’s more likely to vary than not. The central fact, however, remains the same ; private debt has reached levels that are far from healthy.

  28. Tom, the low end of the market in Canberra, price wise, is about the same as the middle market in Melbourne.

  29. Thanks John.

  30. But Miglo – I’m talking about slums, not price.

    But I’ll have to continue later, there’s some red on next door.

  31. Reb

    Banks are certainly ready to pull out all stops – next they’ll be sending credit cards to my kids.

  32. private debt has reached levels that are far from healthy.John McPhilbin, on March 15th, 2009 at 4:44 pm Said:”

    O.K. we will assume what you are saying is correct. What plan does the ALP have to do something about it???? I think with Australia private debt just keeps getting bigger and bigger most probably because we have to import most of our manufactured goods.

    As i said i don’t understand private debt. Surely we don’t buy everything on credit?? i know for myself, apart from the mortgage I don’t have any private debt. Furthermore apart from the mortgage I have never purchased anything using a personal loan. I use my credit card, but pay the whole amount owing every month

  33. Neil of Sydney, on March 15th, 2009 at 5:56 pm

    You are special, Neil!

    It’s a personal problem not a government problem…always has been…its just that some folk actually listen to politicians…as they stuff everyone’s life up…

  34. To Min and Mig: Speaking only of the housing situation in WA, I can tell you the situation is dire.
    Rents are still rocketing upward, house prices are no longer negotiable, supply is short, artificial stimulus such as the housing grant are keeping prices high.

    Obviously, whenever demand outstrips supply, prices rise. So why are prices here so high?
    Simple answer. The building of public housing is almost at a standstill, forcing those who can least afford to pay high rents, to pay high, and rising rents. Owners market.
    Public housing is the (egalitarian) release valve which stabilises housing and rent prices.
    The less privileged in our society should move into public housing, allowing private renters to occupy private dwellings at a reasonable market price. In other words, private renters provide the demand, the Federal Government in concert with state governments increase vacant property supply.
    This is where I truly feel Rudd/Swan have failed miserably. The only ones who benefit in the current situation from the housing demand and home grants are banks and building contractors. Prices are artificially inflated. Homes are in short supply.

  35. Oftenbark

    ‘This is where I truly feel Rudd/Swan have failed miserably. The only ones who benefit in the current situation from the housing demand and home grants are banks and building contractors. Prices are artificially inflated. Homes are in short supply.”

    My point exactly, however, affordable housing was ignored all through the Howard years, and is now thankfully being taken seriously by the Rudd Government.

    Rather than encouraging young couples into large debts perhaps it’s time the government stopped ignoring this country’s housing shortages for lower socio-economic groups, without over-inflating existing housing prices and rents. It all comes back to affordability across the board.

    Housing shortage will hurt the poor
    http://www.theaustralian.news.com.au/story/0,25197,25174266-601,00.html
    The Government has justified the temporary boost to the grant as a measure to bring forward purchases in the face of economic crisis.

    But the council’s report highlighted the country’s long-term housing shortage, the burden of which would fall predominantly on poor families.

    Owen Donald, the chairman of the council, said a lack of land on urban fringes of cities did not appear to be driving the shortage, contrary to industry claims.

    Instead, Dr Donald said, state governments had failed to provide enough social housing. They had also contributed to prolonged planning and development approval constraints on “infill” land in built-up areas.

    New research prepared for the report showed a lack of affordable housing for low-income renters. These renters need 237,000 dwellings, the research found.

    But across the country there are only 91,000 affordable houses or apartments. Of these, higher-income households occupied 56,000, leaving a shortage of 202,000 affordable houses and apartments.

    The Minister for Housing, Tanya Plibersek, said the report showed that government and industry responses could begin to close the gap between housing demand and housing supply.

    “Certainly, the argument that the previous federal government mounted that it was all the states’ faults and it was all about land supply, I think is disproved by this report.”

    Dr Donald said the worst-case scenario of a 1.5 million shortage in houses was unlikely to eventuate, as the Government and industry responded to the problem.

  36. Neil

    I’ll try to put everything into context.

    Michael West wrote last year :

    Australia like the US is a current account deficit country (currently 6.2% of GDP) which means our banking system borrows from the rest of the world to support our lavish lifestyle.

    No longer can this country rely on a debt-funded spending spree to fuel a recovery. This is bad news for both the banks [business] and the consumer.”

    Rewind the clock back over twelve months and I can still hear Howard repeating the same dangerous mantra “interest rates are lower and people can borrow more.”

    Howard said the heavier debt burden reflected rising affluence.

    “It is the case that people are buying ever more expensive houses, and they are doing that because of a number of factors,” the Prime Minister said. “One of them is that interest rates are lower and people can borrow more.”

    He then went on to say: “Debt levels are rising, but we are choosing to use the debt more productively to buy assets that traditionally rise in value, like shares and property.”

    At around the same time the Reserve Bank’s figures on household finances showed that assets were rising faster than debt (in spite of many Australian’s carrying record levels of debt). Households, they claimed had assets, including housing, superannuation and other investments, that are equal to eight times their annual income.

    However the economic reality goes something like this, as
    Mark Davis, author of The Land of Plenty points out:

    “Australia’s ‘age of prosperity’, as Peter Costello calls it in his memoirs, has been underwritten by the mining boom (even as manufactured exports stagnated during his tenure) and massive increases in household debt (now more than $1 trillion – about the same as the annual national output), even as the government has wound down its own debt. The national debt has in effect been privatised while, at the same time, risk has been shifted away from government and business onto the shoulders of ordinary people, in the shape of long working hours, casualisation, and the sort of uncertainty that is written in the fact that Australians take the least holidays of any western nation.”

    It just doesn’t get anymore succinct and to the point than that. And it was the Howard Government that have left us in this precarious position.

    In fact it was reported late last year that our “economy is even more vulnerable to an economic downturn than the struggling US, leaving us facing the spectre of soaring unemployment, falling house prices and a long-drawn out economic slump.

    Experts say the only way to head off a crisis is to quickly cut interest rates and improve household finances decisively. Which has taken the pressure of many households.

    But a bleak picture is painted by economists who point to a series of data showing how we compare to the US.

    Australia has some of the most expensive property in the world, relative to incomes, according to the Demographia International Housing Affordability Survey.

    It says the median Australian house price is 6.3 times median household income, higher than the US, Canada, New Zealand, Ireland and Britain. A median Sydney property will cost nine times the average Sydney income.

    Australia also has more debt per household than the US, with Australians owing 177 per cent of household income in mortgage and other debts compared to 138 per cent in the US.

    This is coupled with the fact Australians save an average of 0.5 per cent of their income compared to 2.6 per cent in the US.”

  37. Exactly, John Mac.
    Now, as one of my dearest friends and his wife are executives of a very prominent building/building supply company here in WA, i.e., 2IC and personal secretary, I often discuss business with them, especially business pertaining to the building/housing industry here in WA and SA.

    This is how it goes. In the current market, their business has taken a 30% downward hit, mainly due to postponement of government projects, and some large private projects. They tell me the housing grant is keeping the company buoyant.
    However, if ever the Feds wished to stimulate the economy, and stabilise prices, housing would have to be top of the Fed Government financial assistance list.
    I shall paraphrase the comment of my friend.

    If the downward trend continues, this (private) building company will survive the times because of the real cash they hold.
    However, if the Feds were to embark on a large public housing building project, this company is well placed to gain a major portion of those government building contracts.
    That, along with the housing grant, would surely lift their level of business, forthwith, thereby creating more jobs, more housing supply, and theoretically, having the short and long term effect of stabilising house prices for all, thereby returning values to where they should be; as I stated earlier, the underprivileged would be allocated government housing, rental and sales supply would increase.
    Win, win, win. Its not rocket science. Its simple arithmetic.
    Why the heck would one lead an economic recovery on the back of water tanks and insulation?
    Water tanks and insulation can both be included in the bigger project of ‘home’ building as an ‘australian standard’.
    For that, and other reasons, and to this end, I honestly think Rudd/Swan have lost the plot.
    But that’s just me.

  38. John McPhilbin, on March 15th, 2009 at 7:28 pm Said:”

    Like I said i do not understand private debt. Furthermore i do not trust leftoid jounalists like Peter Martin, Mark Davis and most probably West.

    To solve a problem you have to understand the problem. Thats why i asked for figures. For example Rio Tinto has $40B of debt. Sydney Airport corporation has $8B. Qantas is buying 18 A380’s which will add another $6B to our debt. If 90% of our private debt is held by business we would need to follow a different pathway than if 90% of private debt was held by households.

    Furthermore as we know the US has a humungeous debt. But when people talk about US debt they are usually talking about the US Federal debt. We are different in this respect as we have no Federal debt and had some money in the kitty until Showpony, Daffy Duck and the communist came along wasted it all.

  39. …until Showpony, Daffy Duck and the communist came along wasted it all…

    Gotta be – Tip Custard…no-one else could be so dumb and/or biased!

  40. One Kneel good,
    Two Kneels bad.

    (only kidding, of course)

  41. You are cruel! OB! ..but I like you… 😆

  42. Neil of Sydney, on March 15th, 2009 at 8:01 pm

    Ooh, ooh. Hedged debt; speculative debt; and Ponzi debt. It’s all one circus with three rings when the Government gets in on the act at the Big Top and begins feeding pay and pay again patrons to the lions.

  43. One rabbit-hole…Steve Keen’s Deeper in Debt (pdf); and Source Data (Appendix D) (xls). Prospective slumlords might like to consider the data for table 7; or otherwise, spread their wings, and notice that the 70-120sqm apartment/condo is the world’s choice for yield-chasing slumlords, not that the global picture for property across the gamut of configurations isn’t fascinating in its own right.

  44. reb, what a disgraceful approach by the bank.

    Check this American article out for a WAKE UP call:

    Bill would help schools, nonprofits teach financial literacy
    By LES BLUMENTHAL
    McClatchy Newspapers

    One-third of college students have four credits cards apiece when they graduate, and more than half of graduates have piled up $5,000 each in high-interest debt. The number of 18- to 24-year-olds who have declared bankruptcy has increased 96 percent in 10 years.

    Surveys show that many of these young people also are financially illiterate: They don’t understand such things as interest, minimum payments, credit reports, identity theft or that they may be paying off their school loans for years.

    the rest here:

    http://www.kansascity.com/444/story/1087468.html
    ——-

    They get them when they’re young these days.

    Financial literacy needs to be taught more, yes…but will it offset the bombardment of BUY BUY BUY ads that young people are assaulted by?…the entire system is bankrupt in that respect.

    And how many youth are receiving credit cards in the mail like reb’s situation?…that can lead them into impulsive buying and a lifetime of indebted servitude to the financial organisations.

    Previous governments are responsible for creating a society that exists on wobbly foundations partially due to the desire to create full(ish) employment figures based on rampant consumerism. The onslaught of lobbying of government by large companies w/ a self-interest in continuing this madness doesn’t help either.

    I don’t blame the government in Australia for its initial stimulus bill and emphasis on purchasing in order to initially dampen the effects of the global downturn (and fortunately many are using the money to pay down debt)…or being saved for a rainy day (rather than emergency payments being plomped onto the credit card)…but it’s essential they create alternative job sectors in the process, those more sustainable.

    A decline in Aussie house prices is inevitable…but when one takes into account the low population factor & isolated island “security” appeal…& attraction of warmer climate (tho this could be a bane in the long run)…it’s hard to see that prices will dive for a lengthy period.

    It puts the government in a tricky situation however, needing to prop up ailing & archaic sectors temporarily to ensure people can service their loans. Whilst alternative career/job pathways & industries are constructed.

    In the long run, someone has to lose. It’s the way capitalism works.

    joni, I need to know how to blockquote too…thnx ahead of time.
    N’

  45. Min, good points re: people selling initial first home owner grant home…in desire to go upmarket.

    The barrage of TV shows and such promoting this attitude didn’t help.

  46. Oftenbark

    Thanks for the feedback it confirms to me what I believe is happening.

  47. Neil

    If I were to hazard a guess at how much debt businesses were carrying compared to households. I’d be surprised if it amounted to much more that 7-8%. I’m thinking even less.

    Prove me wrong. Your 90% of total private debt theory is way way off.

  48. Neil of Sydney said:

    O.K. we will assume what you are saying is correct. What plan does the ALP have to do something about it???? I think with Australia private debt just keeps getting bigger and bigger most probably because we have to import most of our manufactured goods.

    As i said i don’t understand private debt. Surely we don’t buy everything on credit?? i know for myself, apart from the mortgage I don’t have any private debt. Furthermore apart from the mortgage I have never purchased anything using a personal loan. I use my credit card, but pay the whole amount owing every month.

    Two things Neil. First, my hat goes off to you for your wise approach to bad debt (or the avoidance of bad debt). I wish my wife and I had your self discipline.

    Secondly, I think you’ve shown that people can take control of their own situations. I therefore ask, what is it exactly that you want the ALP to do about it?

  49. Bloody good question Migs

    “Secondly, I think you’ve shown that people can take control of their own situations. I therefore ask, what is it exactly that you want the ALP to do about it?”

    Over to you Neil. And you might ask yourself why the Coalition failed to address this problem instead of encouraging it along with the banks.

  50. My pleasure John Mac.

    That’s how things are on the ground here.

  51. And you might ask yourself why the Coalition failed to address this problem instead of encouraging it along with the banks.
    John McPhilbin, on March 16th, 2009 at 9:02 am Said:

    Not sure if this is the role of governments. Perhaps the parents of these people may have some say in how their kids are brought up and what values they have.
    I never got involved in great mortgage debt.

    I had a look at the Excel file that legion gave (appendix D) and if I read it correctly most of our personal debt is mortgage debt. The debt due to plasma TV’s etc is not as big. Furthermore it listed business debt at 35% of GDP and private debt at 95% of GDP. As well as listing business debt it also listed Financial debt. I have never heard of Financial debt before and have no idea what is different between this and business debt. Table T26B listed our Financial debt as 10% of GDP but listed the US’s financial debt at 110% of GDP

    “If I were to hazard a guess at how much debt businesses were carrying compared to households. I’d be surprised if it amounted to much more that 7-8%”

    Well if I read the Table correctly business debt is 35% of GDP and private debt is at 95% of GDP. Also most of this increase in private GDP started around 2001 about the time the mining boom started

  52. Neil

    As a percentage of total private debt not GDP was the question. I couldn’t access Legions figures

    Business lending +personal lending = total private debt

    1.Business lending divided by total private debt multiplied by 100= %
    2. Individual lending divided by total private debt multiplied by 100= %

    Also, look at the difference though, 35% to 95% of GDP – it’s a huge spread and all off the back of individuals.

    You’ve just shot yourself in the foot Neil and I’m sure you’ve been working hard all day to work this out.

    There has been extremely reckless lending by the banks both on mortgages and credit cards as well as other lenders. Of course, a comparison between mortgage debt and credit card debt is going to be significant do to the sheer size of loans taken out increasingly in an-overpriced market.

  53. Neil

    Neither our banks nor our corporate sector are highly geared at present. Unfortunately, the same can’t be said for our households. In the past decade the housing boom – including the welter of negative gearing – has seen their total debt double relative to their disposable income from 80 per cent to almost 160 per cent.

    That’s our great vulnerability. If Australia succumbs to the global recession, excessive household borrowing will be the greatest reason.

  54. Neil

    This sounds about right

    Deeper in debt: australia’s addiction to borrowed money
    http://cpd.org.au/sites/cpd/files/u51504/KeenCPD_Deeper-
    Main Points

    In-Debt_MainPoints

    This report explains the dynamics of debt accumulation and the statistical evidence that our current borrowing
    trends cannot go on forever. The author outlines the probable economic consequences of the end of the debt binge, offers advice on how to cope with the debt hangover, and proposes reforms to prevent it happening
    again.

    Despite the booms and busts in business and the housing market, since 1964 the ratio of Australia’s private debt to GDP has grown by 4.2% every year, and is currently 156% of GDP. This exponential growth can’t be sustained indefinitely.

    The increase in national private debt accounted for more than 16% of GDP last year. This means that our economy currently relies on increased borrowing, rather than on actual income, for a sixth of its total activity. This is a big proportion – and it continues to grow. We can’t afford to reduce our borrowing without economic pain – yet we have no choice but to do so if we want to bring debt growth under control.

    After interest payments, households are poorer now than they were in 2002. Interest on mortgage and personal loan payments is more than negating the income increases in the last five years, leaving households worse off in real terms. (No wonder they don’t feel that they’ve ‘never had it so good’!)

    The so-called ‘housing boom’ didn’t build many houses – or create more homeowners. House prices have more than doubled in the last twenty years, far out-stripping increases in real wages and rental returns. And because debt has risen even faster than house prices, our net equity in our houses has fallen.

    Rising house prices do not in themselves create wealth. While lucky or well-informed individuals can turn a profit from speculating on the housing market, society as a whole cannot. And we’ve blown a large chunk of our record borrowings on speculation.

    A return to the crushing interest payment burden of 1990 (when interest payments were at 17%) is just 18 months away if current trends continue. Cutting interest rates is unlikely to work as well as it did the last time Australia’s debt bubble burst.

    Australia’s level of irresponsible lending isn’t as high as that which brought on the US subprime crisis, but because our rate of increase in debt is so much higher, the impact of any slowdown will be more severe here – and the pain will be much more widely spread.

  55. So we can understand how the Government’s failure to address affordable housing by allowing the market to do its magic has resulted in strangling citizens with higher mortgage debt and rents thereby reducing their earnings and ability to spend which has led to an increased reliance on consumer credit.

    The so-called ‘housing boom’ didn’t build many houses – or create more homeowners. House prices have more than doubled in the last twenty years, far out-stripping increases in real wages and rental returns. And because debt has risen even faster than house prices, our net equity in our houses has fallen.

    I think that’s pretty conclusive.

  56. Neil of Sydney, on March 16th, 2009 at 6:47 pm Said:

    And you might ask yourself why the Coalition failed to address this problem instead of encouraging it along with the banks.
    John McPhilbin, on March 16th, 2009 at 9:02 am Said:

    I think I’ve answered enough Neil, perhaps not to your liking because it throws major questions about the Howard Governments economic management. That’s something you’ll have to keep on denying or live with I suppose.

    They simply lost touch.

  57. I think I’ve answered enough Neil, perhaps not to your liking because it throws major questions about the Howard Governments economic management.”

    Well John maybe no-one is to blame. You know stuff happens. I guess its just a matter of supply and demand. Our population is increasing and they all want to live in the big cities. Everyone puts what spare cash they have into housing. What would the ALP have done that was any different.

    The only way i can see to make housing more affordable is to decentralise. Put some large employers of people in smaller cities like Broken Hill, Tamworth etc.

    However the good thing is we do not have the problems the US has although it is affecting us.

  58. In the small areas over the years growth has occured in those areas, but growth was measured by housing sales while the jobs stood idle and people found it hard to find work.
    My cousin when to Mudgee as a doctor to fill the void and ended up with so much less pay but stayed for the family and the freedom of that enviorment.

    I think its about the pay not if we have the labour to fill in those positions.Buisness owners have an aim to get into the city for the big bucks, why move to the sticks.

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