Tag Archives: house prices

The Australian Housing Investor’s Prayer

8 Sep

XzEaud7iQ2ub78Ea9nID_child_prayer

Now I lay me down to sleep,
I pray the Feds neg gearing to keep,
If prices slide before I sell,
I pray new buyers be lured to hell,
May capital gains offset the rent,
And bless me in retirement.

Amen.

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The Apologia Of An Awakening Real Estate Agent

25 May

awakening

Reader “Phil” had the following to say, in response to Thursday’s post, Real Estate Marketers Now Out To Get Your Kids.

His words are an object lesson for real estate industry professionals everywhere (my bold added):

As a licensed real estate agent myself, I would like to suggest a difference between single office agencies and franchise groups. The typical stereotype of a real estate agent is derived from the high flying top 3%. There is no doubt there are some wankers in the industry. The rest that I know are hard working good people who support families and employ staff of 10 to 15 on average. That goes for many of the offices within franchise groups.

Since 2008, I have stood back and looked at the industry a bit differently. I have recognised that most real estate agents have no idea that it is bank credit expansion that causes house prices to rise. Or as Steve Keen explains, actually “growth” in credit expansion.

This is only possible due to legislation allowing private banks to use housing equity as security to create credit. We just continue to do this as that appears to be the way it always was. (IMO housing should be a consumable not an asset).

BTW, hat tip on your recent article exposing those who foster the continuation of the “housing industry” as a financial derivative.

Back to the franchise groups and franchises in general (Parasites!!!). This is not unlike usury or rent seeking. They take franchise fees from hard working small businesses and promote corporate ideals. The LJ Hooker promotion is revolting IMO.

I keep returning to your story of the used car salesman. Most people just keep doing what they know to do to get by or maybe get ahead. We are all preyed on by those who control and promote the FIRE structure.

As one who is now seeing the reality of this I feel a responsibility to speak. Much as you do. I tend to do this even as it makes me an outsider. Strange that huh?

How Malcolm Turnbull Helped Pump Howard’s House Price Bubble

23 May

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“…it makes no sense whatsoever for the average Australian family to have to tie up over two-thirds of all their wealth in the world in one highly illiquid and very risky asset: viz., the owner-occupied residence.

…we find that one in four families lose money (in real terms) when they come to sell the roof over their heads. For roughly one in ten dwellers, the situation is even more dire – these poor souls are subject to real price declines in excess of 13.4 percent.”

– Summary of Findings for The Prime Ministerial Task Force on Home Ownership, 2003

Australian economics and political forums are full of good-hearted, well-meaning types, who argue passionately, and often cogently, for the need for policy changes to enable lower house prices. Criticism of the Howard Government’s economic policies that encouraged rampant housing speculation and private debt growth is common with these folks.

Something I find particularly interesting to observe, is just how many of them are also given to lauding the Member for Wentworth — otherwise known as the “Member for Goldman Sachs” — as somehow representing all they aspire for in a national leader.

Apparently, the Australian economy would be magically transformed, our society would heal and “progress”, the national average IQ would rise, reality TV audience share would fall, spelling errors in news captions would cease, and childrens’ severed limbs would grow back, if only the brilliant, eloquent, self-made millionaire, and socially “progressive” Malcolm Turnbull were our PM. Or at the very least, the Treasurer.

These folks need to do their homework.

Let us take a journey ten years back in time, to the year 2003, and the Menzies Research Centre’s “Summary of Findings for The Prime Ministerial Task Force on Home Ownership” (pdf here).

It was chaired by Malcolm Turnbull – the former chairman, managing director, and partner of Goldman Sachs Australia, and co-owner (with Neville Wran and Nicholas Whitlam) of merchant bank, Turnbull & Partners. Which he sold to … Goldman Sachs.

Reading this summary report should, all by itself, be enough to convince any honest, open-minded person who (a) remembers the GFC, and (b) wants to see lower Australian house prices, that Malcolm Turnbull is hardly the wonderful, objective, unbiased, clear-thinking, far-sighted, vested-interest-free political saviour that so many gullibles imagine him to be.

First, let us consider the identity of the principal author of the report for the Howard government’s Home Ownership Task Force.

Christopher Joye. Arguably Australia’s most prominent housing “investment” spruiker.

Next, let us take a look at the list of “Institutional” professionals who are acknowledged on page 7-8 of the report (my bold added):

We would to like to recognize a number of individuals, categorized according to profession: –

Institutional: Rob Adams (First State Investments), Dan Andrews (RBA), Andrew Barger (Housing Industry Association), David Bell (Australian Bankers Association), Laura Bennett (Turnbull & Partners), Neil Bird (Urban Pacific), Mark Bouris (Wizard Home Loans), Angus Boyd (Foxtel), Jason Briant (The Menzies Research Centre), Kieran Brush (RAMS), Jasmine Burgess (JP Morgan), Alexander Calvo (RBA), Louis Christopher (Australian Property Monitors), Tim Church (JB Were), Bob Cooper (Tobari Management), Tracy Conlan (CBA), Lorenzo Crepaldi (Ebsworth & Ebsworth), Peter Crone (Prime Minister’s Office), Brendan Crotty (Australand), Margaret Doman (Cambridge Consulting), Tony Davis (Aussie Home Loans), Bob Day (Home Australia), Craig Drummond (JB Were), John Edwards (Residex), Lucy Ellis (RBA), Alex Erskine (Erskinomics), Jason Falinski (IAG), Arash Farhadieh (Phillips Fox), Guy Farrands (Macquarie Bank), Lyndell Fraser (CBA), Wayne Gersbach (Housing Industry Association), Steven Girdis (Macquarie Bank), Adam Gordon (Baltimore Partnership), Samuel Gullotta (Goldstream Capital), Michael Gurney (ABS), Jason Falinski (IAG), Martin Harris (First State Investments), Nick Hossack (Australian Bankers Association), Chris Johnson (NSW Government Architect), Alan Jones (2GB), Sally Jope (Brotherhood of St Laurence), PD Jonson (HenryThornton.com), Anatoly Kirievsky (RBA), Caroline Lemezina (Housing Industry Association), Steven Mackay (Ebsworth & Ebsworth), Angelo Malizis (Wizard Home Loans), Patrick Mangan (HomeStart Finance), Geordie Manolas (Goldman Sachs), Ramin Marzbani (ACNielsen.consult), Patrick McClure (Mission Australia), Gina McColl (BRW), Bill McConnell (AFR), Robert McCormack (Allens Arthur Robinson), John McFarlane (ANZ), Bruce McWilliam (Channel Seven), Robert McCuaig (Colliers Jardine), Peter McMahon (Clayton Utz), Alison Miller (Urban Development Institute of Australia), David Moloney (Booz Allen & Hamilton), Ruth Morschel (Housing Industry Association), Paul Murnane (JB Were), Darren Olney Fraser (Australian Public Trustees), Rod Owen (ABS), John Perrin (Prime Minister’s Office), Daniel Pillemer (Goldman Sachs), Dr Michael Plumb (RBA), Dr Steven Posner (Goldman Sachs), Brian Salter (Clayton Utz), Eloise Scotford (High Court of Australia), Tony Scotford (Ebsworth & Ebsworth), Nick Selvaratnam (Goldman Sachs), Tony Shannon (Australian Property Monitors), Matthew Sherwood (ING), Tim Sims (Pacific Equity Partners), Dr Tom Skinner (Redbrick Partners), Arthur Sinodinos (Prime Minister’s Office), Orysia Spinner (RAMS), Bryan Stevens (Real Estate Institute of Australia), Gary Storkey (HomeStart Finance), Arvid Streimann (UBS), Louise Sylvan (Australian Consumers Association), John Symond (Aussie Home Loans), Scott Taylor (ACNielsen.consult), Simon Tennent (Housing Industry Association), Lucy Turnbull (City of Sydney), Nicholas van der Ploeg (Turnbull & Partners), Peter Verwer (Property Council of Australia), Nick Vrondas (JB Were), Colin Whybourne (Resimac), Charles Weiser (RAMS), and Simon Winston Smith (JP Morgan).

Finally, let us consider carefully just a few pages of this Summary report. Doing so should enable thoughtful readers to gain a very clear insight into the kind of Orwellian doublespeak, the guile and cunning, the all-pervasive casuistry, that was and is employed by the Merchants of Debt and their cronies, in seeking to rationalise financial innovation, supposedly as a means to help would-be homeowners “benefit from a lower cost of home ownership”.

How? By making it easier for them to get into debt, via financing a portion of the total cost of their home through “equity investment”. In other words, a “financial innovation” enabling a transfer of some of the “equity” (ownership) in even more Australian homes, to speculators, through the genius of “investment” bankers.

Hopefully, a careful examination of this report may also enlighten some readers as to where our politico-bankster-housing nexus has its roots.

To set the tone of all that is to come, here is a snippet from chairman Turnbull’s preface to the 2003 Home Ownership Task Force summary report (my bold added):

No part of the Australian dream is more instinctively human than the desire to own our own home. In recent years, however, that worthy ambition has become harder for many Australians to attain. This is not a function of high interest rates; they are at record lows, but rather is due to a combination of other factors including escalating property prices and, so we contend, inflexibilities in housing finance which limit its availability.

So, the basic premise of this report, according to Malcolm himself, was this: Difficulties in obtaining the dream of home ownership are due to limited availability of housing finance + escalating property prices. Ergo, removing the “inflexibilities” in housing finance will take away those limits to its availability, and make the dream more attainable. Riiiiiiiiight.

And now, to the Summary report itself (my bold added):

Page 12

For centuries now, businesses in need of funds have been able to avail themselves of both debt and equity. Yet for households who aspire to expand, mortgage finance has been their one and only option. And so, despite the ever-growing sophistication of corporate capital markets, consumers around the world are forced to use only the crudest of financial instruments.3

3 This begs the question as to the absence of equity finance in the first instance. One answer instantly offers itself: securitisation. In the past, it was not practicable for a single unsponsored entity to go around gobbling up interests in individual properties in the vain hope that they could bundle these contracts into something that would look like a regulated holding. Fortunately, there has been spectacular progress of late in terms of the ability of private sector participants to package otherwise illiquid instruments into marketable securities.

Do you see what they did there? “Sophistication” = good. “Crude” = bad.

Oh dear, those poor, poor consumers; “forced” to use “only the crudest of financial instruments”. Despite “spectacular progress” in “securitisation”. Oh the humanity!!

Apparently the author — like all Merchants of Debt — does not ascribe to Leonardo Da Vinci’s maxim: Simplicity is the ultimate sophistication.”

Page 13

Spurred on by economic and social ructions of this kind, the State and Federal Governments sought to actively expand the supply of housing finance, and by the mid 1930s mortgage markets had arrived in Australia. Without widespread support for these changes, it is doubtful whether they would have materialized at such great pace. Ironically enough, it was bureaucratic inertia of precisely the opposite ilk that was to stifle the growth of trading in mortgage-backed securities some fifty years later. Thankfully, reason prevailed, and today it is hard to imagine what life would be like without alternative lenders and the pressures they exert on the banks.

Thank God! “Reason prevailed”, and we finally got … “trading in mortgage-backed securities”. Hallelujah and praise the Lord!

In this report, we renew our call for constituents to take the next brave step along the evolutionary housing finance path. It is our belief that there is no longer any need for the household sector to be the poorer cousin of financial markets. That is to say, aspirants should be able to access a suite of debt and equity instruments that is no less rich than that which corporations avail themselves of every day.

Wow! “The next brave step along the evolutionary housing finance path”. How could any responsible, modern politician even think of resisting this natural, evolutionary progression? How awful, how immoral would it be, to deny the household sector the opportunity to no longer be “the poorer cousin of financial markets”?

In what follows, we undertake four main tasks. First, we offer evidence that irresistible economic logic motivates the introduction of ‘equity finance’. Second, we tender a vast array of new information, drawn from, among other things, survey and focus group data, on the profound socio-economic benefits that these markets could deliver. Third, we demonstrate the proposal’s institutional viability, and pinpoint relatively minor adjustments to the legal, fiscal and regulatory structures that would be required in order to guarantee its success. In the fourth and final section of the report, we embark on a detailed appraisal of the ‘supply-side’ in the context of the debate about the rising costs of housing in this country. Just as we contend that it is vital to extend ownership opportunities to as many Australian families as possible, we also think it is critical to remove artificial constraints on the supply of low-cost properties.

All hail, ladies and gentlemen! We have our first oxymoron of the Summary report.

“Irresistable economic logic”.

Snigger.

Oh yes, about that “institutional viability”. That would be Newspeak for, “All the institutional Merchants of Debt featured in the acknowledgements list love my proposed financial innovation … so it’s clearly viable”.

Page 14

The report itself consists of four distinct ‘parts’. Parts One and Two take up the challenge of introducing the economic rationale underpinning our desire to eliminate the ‘indivisibility’ of the housing asset (which, in layperson’s terms, simply means allowing individuals to hold less than 100 percent of the equity in their home).

On the demand side, we conclude that there should be immense interest in securitized pools of enhanced home equity contracts, so much so that it is unlikely that there will be sufficient funds to sate institutional requirements. In fact, our tests indicate that this new asset-category could come to dominate the ‘optimal’ investor portfolio, with conservative participants dedicating at least 20 percent of all their capital to ‘augmented’ housing.

Page 15

Finally, might a liquid secondary market enable other forms of risk sharing and spawn the development of derivative and futures contracts on residential real estate?

Of course! “Other forms of risk sharing”, the development of “derivatives and futures contracts on residential real estate”, that’s sure to be a win-win for everyone, right?

Oh, wait … remind me again, what happened in 2008?

Page 21

It would appear that the prevailing legal and regulatory framework can flex to accommodate the introduction of equity finance. Most exciting though is the revelation that we can fashion these arrangements as either equity or hybrid debt instruments. The latter is an especially attractive alternative since it enables one to circumvent all of the legal and psychological complications implicit in ‘co-ownership’. In particular, under the debt option, occupiers always own 100 percent of the home in which they live. Furthermore, the costs borne by the institution are noticeably reduced (to take but one example, stamp duty is no longer relevant). In this sense, we can have our economic cake, and eat it too!

Yes, sure, just a little bit of “flex” in the legal and regulatory framework. That’s all. Just enough to “circumvent all of the legal and psychological complications”, and so “accommodate the introduction” of my financial innovation.

So where are the much mooted impediments to progress? In the immortal words of George Harrison, “Let me tell you how it will be, there’s one for you, nineteen for me.” Our study of the proposal’s institutional feasibility suggests that over-zealous regulatory authorities have the capacity to tax away the gains from trade. Here it is not so much the imposition of new levies, but rather the rigid interpretation of existing ones.8 This was certainly the case with several small-scale efforts to launch equity-based products overseas. Yet what would make these actions especially perverse is that markets of this type present the Federal Government with unprecedented revenue raising possibilities. That is to say, the advent of equity finance would permit the Commonwealth to tax owner-occupied housing for the very first time. Naturally, these charges would only apply to the investor’s holding. In this vein, we would submit that even the most ruthless of bureaucrats should be incentivized to encourage the promulgation of these products.

Do you see the cunning carrot bribe being offered by the Merchants of Debt here?

“Hey Mr Howard, if you let us have our financial innovations, and clamp down on any ‘over-zealous regulatory authorities’ who might get in the way of our plan, then VOILA! you can introduce more taxes!”

Page 22

Irrespective of what is decided in the post-publication period, we are convinced that the application of both debt and equity finance will eventually become standard industry practice. It is more a matter of whether that day will arrive in the near term or in the far-flung future; and that, truth be known, is a question that only you (i.e., consumers, decision-makers, investors and opinion-shapers) can answer.

Unsurprisingly, it is our belief that Australia is well positioned to push the intellectual envelope and become the very first nation to develop primary and secondary markets in real estate equity. And at $2.5 trillion, that is no small cheese.

You see? It’s that natural, “evolutionary housing finance path”. It is inevitable, like the rising of the sun. So you best get on board now, and give us what we want; we are going to get it anyway, someday, whether you like it or not, so why not enjoy the ego-stroking (and votes) that will come with being a policy leader in “the very first nation” to “push the intellectual envelope”?

Page 24

Readers will become familiar with our argument that it makes no sense whatsoever for the average Australian family to have to tie up over two-thirds of all their wealth in the world in one highly illiquid and very risky asset: viz., the owner-occupied residence. Indeed, in Part Two of the report we find that one in four families lose money (in real terms) when they come to sell the roof over their heads. For roughly one in ten dwellers, the situation is even more dire – these poor souls are subject to real price declines in excess of 13.4 percent! In this context, it is high time that we brought capitalism to the home front and provided all Australians with the option of issuing both debt and equity capital when purchasing their properties.

Bringing “capitalism to the home front”. Now that’s got to be a great idea! Why? Because it makes no sense whatsoever to tie up over two-thirds of all your wealth in one “highly illiquid and very risky asset”.

Er … hang on. If the owner-occupied residence is such a “highly illiquid and very risky asset”, then tell us again why would it would be such a great idea to “securitise” a portion of the “equity” in that “highly illiquid and very risky asset”, and sell it to speculators as an “investment”?

It should be plainly obvious to any thinking reader, that the entire Home Ownership Task Force report in 2003 was little more than sales pitch by the Merchants of Debt –

We have had some expenses for assistance with research, computing services and the like and we have therefore been fortunate in receiving generous and much appreciated support both financial and in kind from a number of organisations, including Wizard Home Loans, the Housing Industry Association, JBWere, Booz Allen & Hamilton, Aussie Home Loans, Resimac, RAMS Home Loans, HomeStart Finance, Clayton Utz, Ebsworth & Ebsworth, Phillips Fox, ACNielsen.consult, and Home Australia.

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A sales pitch to the Howard Government, to allow financial innovation in the Australian housing sector. Innovation of the kind that brought us the Global Financial Crisis.

With folks like Goldman Sachs, the Turnbull & Partners merchant bank, and Malcolm Turnbull’s former Goldman Sachs Australia associate, Christopher Joye, leading the bankster cheer squad.

And with Task Force chair and then head of the Menzies Research Centre, Malcolm Turnbull, endorsing it all with his usual eloquence –

The Menzies Research Centre, while affiliated with the Liberal Party, is neither an echo chamber for Government policies nor a substitute for the public service. Our aim is to promote independent, creative and practical ideas on subjects of public importance. Our political perspective is simply that of a commitment to individualism, enterprise and freedom of choice.

We recognise that the most challenging social issues are not susceptible to quick ideological answers. We need constantly to promote new approaches and new ideas in social policy as much as we do in science or technology. We believe that these reports do deliver a wide range of new ideas, many of them worked out in considerable, groundbreaking analytical detail.

The principal author of that report, Christopher Joye, has since gone on to introduce his Equity Finance Mortgage product, and the leading housing spruiker / real estate investment / funds management firm, Rismark International.  He is also a director of Yellow Brick Road (YBR) Funds Management, a company founded by another Merchant of Debt who just happened to feature very prominently in the acknowledgements list of the Howard Government report — Mark Bouris, formerly of Wizard Home Loans.

It was Christopher Joye who told readers of his column two years ago, that “The big fella once said to me, You capitalise on chaos.”

He was speaking of his former Goldman Sachs associate, Malcolm Turnbull.

If lower house prices is something that you want to see in this country, then Malcolm Turnbull MP is not your friend and saviour.

* See also Compassion For Malcolm: He Just Wants His Balls Back

The Chart That Proves RBA House Price Policy Is Doomed

14 May

The RBA’s surprise decision to cut the official interest rate earlier this month has re-energised the housing-debt-spruiker community, who have begun forecasting house price rises of 8 – 12% per annum on the back of more interest rate cuts to come (they presume):

Stephen Koukoulas - economist and ALP apologist

Stephen Koukoulas – economist and ALP apologist

Close examination of just one chart — one drawn directly from RBA statistics — is enough to debunk those who still cling to the belief that the RBA’s cutting interest rates must inevitably result in rising house prices:

Click to enlarge

Click to enlarge

This chart shows the all-important annual growth rate in credit for “Owner-occupied” and “Investor” housing, for the period July 1992 to March 2013. As we saw in January’s very popular “The Easy Way To Know Where House Prices Will Go”, anyone can visit the RBA’s website and use their monthly updated Chart Pack to see the true reason why house prices rose so strongly for over twenty years. It was all about the annual growth rate in “credit” for Housing, which is presently five (5) times lower than the peak seen in February 2004.

In that January article, we used the RBA’s own data to discover that the twenty year boom in house prices was largely due to a stunning annual growth rate in so-called “Investor” housing credit…

Clearly then, house prices in Australia were not driven up over the past 15-20 years by “demand” from “population growth”, from people who needed somewhere to live (Owner-occupiers). On the contrary, by far the strongest rates of growth have – during the bubble phase – been driven by so-called “investors”.

… and that is where a closer examination of that one chart above demonstrates that the RBA’s house price policy — trying to pump up the housing bubble again, now that their recently preferred “make room for the mining boom” policy has proven to be seriously short-sighted — is doomed to failure.

Why?

Because using interest rates to influence demand for housing “credit” — especially with “Investors” — has lost its effectiveness. And we can see this clearly, simply by zooming in on the above chart to look at the period November 2007 through to March 2013…

Click to enlarge

Click to enlarge

… and then adding in the actual interest rate rises, and cuts, and rises, and cuts during this period immediately before and since the GFC:

HousingFinanceGrowth_07-13_InterestRates

Take careful note of the change in the growth rate of housing “credit” for “Investors”, as compared to “Owner-occupiers”, as interest rates moved.

As you can see, the three (3) interest rate increases in late 2007 through early 2008 tipped both “Investor” and “Owner-occupied” housing credit growth over the cliff. By October 2008, when the RBA began taking a chainsaw to interest rates, housing credit growth was practically in free fall, plummeting from 12% per annum (Total) to 6.3% per annum, before the total 4.25% in “emergency” interest rate cuts halted the decline.

Interestingly, you can see that both the rate of fall and the total decline in housing credit growth was greater for Investors than for Owner-occupiers. As we saw in our January article, this is also what happened in the brief early 2000’s recession:

The rate of growth in “credit” for housing “Investors” was, until early 2004, far in excess of that for “Owner-occupiers”, with the notable exception of the early 2000′s global recession that only briefly affected Australia. At that time, “credit” growth for “Investor” housing plummeted to the same level as the “Owner-occupier” rate, before recovering spectacularly to reach a whopping 30.7% annual growth in Feb 2004.

What prompted the recovery? John Howard’s introduction of the First Home Owners Grant in 2000, and in particular, his doubling it in early 2001. With a rush of newly-enslaved borrowers bidding up house prices, “investors” too rushed back into the welcoming arms of the bankers, as ever only too eager to lend “credit” at interest to willing borrowers against the “security” of “their” house.

We see a similar, though far smaller effect largely repeated in the post-GFC period. The Rudd Government further doubled the First Home Owners Grant. A modest influx of new “First Home Owner” buyers rushing out with their government-debt-financed mortgage deposit to bid for a house, drew the “investors” back into the market as well. By July 2010 the “Investor” housing credit annual growth rate once again overtook that of “Owner-occupied” housing.

But not for long.

As you can see from the chart, the annual growth rate in credit for “Investor” housing had already peaked in August 2010, and had begun to fall, 2-3 months before the RBA’s final 0.25% interest rate increase in November 2010.

“Owner-occupied” housing credit growth, by contrast, had peaked back in October 2009 — the very same month in which the RBA first began to raise interest rates again, from their GFC “emergency low”. The First Home Owners Grant helped keep “Owner-occupied” housing credit growth relatively steady through to March 2010, when it resumed its long, steady post-2004 and pre-GFC decline. It has only now begun to flatline, in the first quarter of 2013.

The important observation to make about this chart, is that since the GFC “peak fear” in late 2008 and early 2009, things have changed. The world has gone past a point of no return, and the old “rules” of monetary and economic policy do not necessarily apply anymore.

While RBA interest rate increases still have the effect of reducing annual growth rates in housing credit, cutting interest rates no longer appears to have much effect in boosting housing credit growth back up again. Since November 2011, the RBA has cut interest rates seven (7) times — the most recent (May) not shown on this chart — to what are now lower than “emergency lows”, without causing an overall increase in the housing credit annual growth rate. Indeed, the RBA’s own Housing Credit growth chart in its Chart Pack confirms this:

9br-cgbys

The RBA now has the official interest rate at 2.75%. They have cut a full 1.5% since November 2011, without managing to “stimulate” a “recovery” in the growth rate of  house prices housing debt.

There are many more knowledgeable observers than I who have argued that 2% is as low as the Australian official interest rate can go; that 2% is effectively ZIRP (Zero Interest Rate Policy) for us.  The reason given sounds plausible enough; the Australian economy is essentially financed by borrowing “capital” from abroad, so with the rest of the West operating on ZIRP, we need a +2% interest rate difference in order to have any hope of continuing to attract foreign “capital”.

If the RBA is indeed “lower bound” by the 2% level, then the above chart makes one thing pretty clear.

At the present 2.75% cash rate, even another 0.75% in possible interest rate cuts is unlikely to “stimulate” much if any additional growth in Housing credit.

And with annual housing credit growth now running five (5) times lower than the February 2004 peak, and barely two-thirds the level when interest rates hit the 3% “emergency low” in April 2009, the RBA’s policy of trying to re-stimulate the housing bubble to support the economy after the mining boom … is doomed.

Simply, the RBA is pushing on a string:

This is the crux of the “pushing on a string” metaphor – that money cannot be pushed from the central bank to borrowers if they do not wish to borrow.

Don’t Buy Now.

A Sign The End Of Our Housing Bubble Is Nigh

15 Feb

First home buyers are waking up. No longer are falling usury rates seen as a sign to “Buy Now!”

Quite the contrary.

They are a sign that says “DON’T BUY NOW!!”

From the Courier-Mail:

LENDERS have started dropping their home loan interest rates without waiting for the Reserve Bank of Australia to move.

Although the RBA last week decided to keep interest rates on hold, a couple of lenders have dropped their variable rates and many more cut their fixed rates.

According to financial comparison website RateCity, BMC Mortgage cut some of its variable home loans this week by up to 10 basis points.

Yesterday Holiday Coast Credit Union cut its variable rate by 20 basis points.

Since Monday, many lenders have cut their fixed rates, with ANZ and Commonwealth banks dropping by up to 30 basis points, Suncorp 20 basis points and RAMS by 40 basis points. St George cut its fixed home loan rates for one, three, four and five-year terms.

The number of home loans approved by banks and other lenders has fallen, according to Australian Bureau of Statistics figures.

Demand for loans from first-home buyers has slumped to its lowest level in more than eight years.

The number of home loans approved in December was down 1.5 per cent on the previous month. This is despite four interest rate cuts by the RBA last year.

According to betting on futures markets, there is an even-money chance the RBA will cut the official cash rate next month to a record low of 2.75 per cent.

Unsurprising. Long expected, and forewarned of right here, and elsewhere.

The financial system – bankstering – is a Ponzi scheme.

It requires ever-expanding growth in “credit” issuance to sustain itself, and to continue generating vast profits for banksters.

As we saw in The Easy Way To Know Where House Prices Will Go, the annual growth rate in credit debt for housing has been in overall decline since Feb-Mar 2004. Housing debt is still growing. But at an ever slower annual rate:

9br-cgbys

Feb 2004 – Peak in annual growth rate for Housing Credit

We also saw something more important.

That Australia’s world-leading house price bubble is NOT, as many vested usurers would have you believe, due to “demand” for housing driven by population growth.  That is, by eager Owner-occupiers looking to “own their own home”.

In fact, RBA and ABS data clearly shows that for several decades, by far the greatest driver of Housing Credit growth in Australia – and thus, the greatest driver of house prices – has been so-called “Investors”. Known by the wise as “speculators” –

Click to enlarge

Click to enlarge

For a detailed, easy-to-understand explanation of the true drivers of Australia’s house price bubble, click here.

For those who can’t be bothered, simply take note of the obvious.

Everything in the economy starts with the banking system.

They are not just the pipes and taps for the flow of “money” throughout the economy.

Banks are the creators of “money”.

Don’t believe me? No less an authority than the biggest bankster of all, the Federal Reserve Bank, has said exactly that:

The actual process of money creation takes place primarily in banks. As noted earlier, checkable liabilities of banks are money. These liabilities are customers’ accounts. They increase when customers deposit currency and checks and when the proceeds of loans made by the banks are credited to borrowers’ accounts.

It is really quite simple.

Banksters grow richer by lending. At usury.

When you sign up for a loan, the bank creates new “money”. How? By typing a new, double-entry, digital book-keeping entry into their computer.

A new “deposit” for you. With which to buy “your” house.

A new “asset” for them. Your signature on a loan document, pledging to work as their debt-slave for the next 30 years to repay that loan … plus interest.

Your loan, is their asset. Your legally binding pledge to repay those electronic digits plus interest, is their asset.

Banksters are all about profit.

They will only cut interest rates on home loans – by far their #1 profit centre – out of sheer necessity.

To attract more willing debt slaves to sign up for a home loan.

To keep their Ponzi scheme going.

Now, it may take many months yet, or even years, for Australia’s house price bubble to burst.

Obviously, the banksters will do everything in their power to prevent it.

Their cutting home loan interest rates “out-of-cycle” is one clear sign of that.

Their inevitable calls for RBA and government “intervention” to support the housing market – that is, to help out with encouraging/bribing ever more folks into taking on ever more debt – is another.

But the writing is on the wall for the banksters. And our house price bubble.

And that writing on the wall is exactly in the shape of that Housing Credit annual growth chart you can see above.

To quote Prosper Australia’s David Collyer once again –

DON’T BUY NOW!!

Australia’s And Canada’s House Price Fate Entwined?

22 Jan

Ever since I first experienced the chilling majesty of the landscape and the warm conviviality of the people in that other former British colony, I have informed aspiring travellers that Canadians are just like us, but with an American accent.

Today, I offer you a little proof of the truth of my assertion.

Following my last post ( “The Easy Way To Know Where House Prices Will Go” ), a Canadian retweeted my article, along with the comment, “Coming to Canada”.

Perhaps understandably for a Northern Hemispherian, he got it downside up.

What’s happening with house prices now in Canada, is Coming to Australia.

Here’s why.

Like our RBA, the central Bank of Canada publishes a chart on its website that shows the all-important growth rate in residential mortgage “credit” (debt).  You can find the chart by visiting the Bank of Canada website, and clicking on “Credit Conditions” in the top menu –

BankofCanada

This opens a new window in your browser. Click on “Household Credit” –

HouseholdCredit_BoCanada

… where, if you scroll to the bottom, you will see this chart –

MortgageCredit_Canada

Well, well well.

Quelle surprise! (that’s for French Canadians)

As you can see, the growth rate in Residential Mortgage “Credit” (ie, debt) in Canada topped out at 13% per annum in May 2008.

Amateurs! 

We Aussies peaked out our pre-GFC housing debt annual growth rate at 22%, in March 2004. Here’s how we compare (click to enlarge) –

HousingCreditGrowth_AU_vs_CA

Click to enlarge

What caused that modest (compared to ours) slump in the growth rate of “Residential Mortgage Credit” (debt) in Canada?

That’s right … something called a “Global Financial Crisis”.

The critical growth rate in new “credit” lending did keep growing, mind you.  Just like in Australia, it never actually went negative.  But what is vital to understand is that, as in Australia, the rate of growth decelerated rapidly. 

Australian economist Steve Keen has empirically proven that the rate of change in the change in debt – meaning, the acceleration in growth of debt – is vital to keeping an “asset” price bubble inflated. It takes not just steadily growing debt – say, 5% per annum – but accelerating growth in debt, to keep enough new buyers armed with enough new debt to keep bidding prices ever upward.

The Bank of Canada, aided and abetted by the Canadian government, got the public’s foot rather gingerly back on the borrowing gas, by slashing interest rates to 0.25% (April 2009) .  You can see the result in the blue line of the chart above.  It’s the area of flat / barely accelerating “credit” growth through to 2012.  Since then though, the public’s foot has started to come back off the gas again.

Why?  Because the Bank of Canada started raising interest rates. From June 2010, Canada’s official interest rate has quadrupled to a whole 1% (wow!).

Following the GFC “peak panic” in late 2008 – early 2009, our Reserve Bank began raising interest rates again fully 8 months earlier than Canada. From October 2009 to November 2010, our central bank gradually increased interest rates from a GFC low of 3.25%, up to 4.75%. You can see the result of these interest rate movements as a small hump in the chart above (magenta line).

Thanks to record low interest rates – and unlike Canada, a massive injection of (borrowed) cash home loan deposits as a result of the Rudd Government’s doubling of the First Home Owners Grant – Australia’s long deceleration in housing “credit growth” from the stratospheric heights of 2004 paused, and briefly accelerated again. It reached a mini-peak of 8.3% per annum in May 2010 (when interest rates hit 4.5%), before those rising interest rates once again took the Aussie public’s foot off the housing-debt-growth accelerator. The RBA began cutting rates again in November 2011, hoping to get us back on the borrowing gas, but to no avail. We are now back to 3% interest rates … lower than the GFC low … yet the housing “credit” growth rate is still decelerating. Watch out below?

There are some other similarities between Australia and Canada.  They too, are considered to have a “commodity-based” economy. Just like our own, Canada’s economy relies heavily on exporting stuff they either dig up or grow.  Like Australia, this abundance of natural resources – and gargantuan Chinese “stimulus” spending to stave off the GFC – was a key factor in their economy (and house prices) not following the lead of the rest of the West.

But perhaps the most disturbing similarity between the economies of our two former colonies is this.

Euromoney magazine bestowed Canada’s Minister of Finance with their “World’s Greatest Finance Minister” award in 2009.

Why is this disturbing?

The award is judged by leading European banking and finance magazine Euromoney on advice from global bankers and investors.

Unsurprisingly, Euromoney magazine has a history of picking winners (lest we forget, “global banker” powerhouses like Goldman Sachs were actively betting on a collapse in their own mortgage-backed derivative products prior to the GFC) –

2006 to 2008 were indeed magic years for Euromoney’s awards selectors with “Best Investment Bank” 2006 going to Lehman Brothers who went broke in 2008. They’re blamed for much of the Global Financial Crisis. “Best at Risk Management” went to Bear Stearns who went bust in 2007. “Best Equity House” 2006 named Morgan Stanley and “Best Investor Services” favoured Citigroup. Both were bailed out in 2008.

Just like our own Treasurer Wayne Swan, who received the award in 2011, Canada’s Jim Flaherty supposedly “saved” their economy from recession too.

How?

Exactly the way the “global bankers” wanted, of course. By goosing the public back into supporting their (the bankers’) Great Western Debt-Driven housing bubble –

Interestingly, Canada’s “World’s Greatest Finance Minister” now says he is pleased that Canadian house prices have begun to nosedive –

“I don’t mind prices coming down a bit, too,” he said in an interview, after the latest data showed that home sales fell sharply in December compared with a year ago.

I wonder if The Goose (or the JHockey?) will respond the same way when Australia’s house prices respond similarly to our decelerating growth in housing “credit”.

The Easy Way To Know Where House Prices Will Go

19 Jan

Want to know whether Australian house prices will rise or fall?

The RBA has the answer.

Just go to their website, and click on “Chart Pack” under “Key Information” –

RBA_chartpacklink

Then click on “5. Credit and Money” –

RBA_chartpacklink2

… where you will see this chart –

9tl-cmg

This chart tells us the growth rate in the amount of “credit” and “money” in the economy.

As you can see, the growth rate in “credit” has plummeted to less than 5% per annum.  In the period where Australian house prices rose the most in history, the annual growth rate in “credit” was three to four times higher than the present rate.  Without strong growth in new “credit” issued to borrowers, house prices can not rise much.  If at all.

Indeed, unless there are enough new buyers – armed with enough newly-issued “credit” – out and about and actively purchasing houses, then house prices must eventually fall.

For over twenty years, housing in Australia has been a banker-profit-driven “bubble mania” scheme, you see.  To drive up prices, the #1 and absolutely essential ingredient is more and ever more new “credit” – debt – with which bright-eyed and dull-brained buyers – debt slaves – can outbid each other to buy a house.

The RBA has another chart that shows this.  It will help you to see more clearly exactly why Australian house prices rose so much … until the GFC struck.

In the main menu of the Chart Pack, select “3. Household Sector” –

RBA_chartpacklink3

Then select “Household Finances” –

RBA_chartpacklink4

… where you will see this chart –

6tl-hhfin

As you can see, Household Debt (ie, “credit” offered by banks) as a percentage of disposable income rose dramatically for nearly twenty years.

Until the GFC.

It turned down sharply as Australians wisely responded by tightening their belts, and paying down their debts.  Then began to climb again – but only a little – thanks to the Rudd government offering “free money” in the form of a doubling of the First Home Owners Grant.  This handout of what amounted to a free home loan deposit kept the bubble from collapsing.  It encouraged thousands of new buyers – mostly young people with little or no savings – to go to their bank and borrow hundreds of thousands in “credit” to go and bid up the prices of houses again.

Unfortunately for them – and the bankers – this could only last for as long as the government was willing, and able, to find more “new home buyers” – new debt slaves – to dangle “free” money in front of.  As you can see from the chart, the level of Household Debt to disposable income has now bounced off the ceiling for a second time.

And so, as most Australians know, house prices in most areas of Australia have basically gone nowhere in the past year or two.  Some rises here.  Some falls there.  But overall, house prices have simply mirrored the Household Debt level … falling as debt levels fell, and rising (briefly) to bounce off the underside of that invisible private debt ceiling, thanks to that brief inflow of new “credit” that was borrowed by the government, and then handed out to First Home Buyers as deposits enabling them to apply for new mortgage “credit” from banks.  And yes, the RBA has another chart that confirms this –

6bl-dwelpri

Now, it might interest you to know exactly when Australia’s private debt-fuelled, bankster-enriching house price bubble scheme actually hit the ceiling.

No, it was not when the GFC struck; when many Australian households began to wake up, and realise that paying down their debts might just be a good idea.

Our housing bubble actually hit the ceiling first in early-to-mid 2004.  That is when the all-important rate of growth in housing “credit” topped out, and began to fall.

Unfortunately, the RBA does not make it easy for you to see this critical economic parameter.  The Chart Pack only gives you “Credit” growth in aggregate – that includes other forms of borrowing like business loans and credit card “credit”.  They even give you a chart for the number of “housing loan approvals”. But they do not give you a chart specifically for that all-important rate of growth in housing credit.  You have to dig into their statistics, and construct the chart yourself (click to enlarge) –

Click to enlarge

Click to enlarge

As you can see, the rate of growth in “credit” for both “Owner-occupier” and “Investor” housing peaked in Feb-Mar 2004, and has been falling ever since.

It is particularly interesting to consider the magenta line showing “Investor” housing “credit”. The rate of growth in “credit” for housing “Investors” was, until early 2004, far in excess of that for “Owner-occupiers”, with the notable exception of the early 2000’s global recession that only briefly affected Australia.  At that time, “credit” growth for “Investor” housing plummeted to the same level as the “Owner-occupier” rate, before recovering spectacularly to reach a whopping 30.7% annual growth in Feb 2004.

What prompted the recovery?  John Howard’s introduction of the First Home Owners Grant in 2000, and in particular, his doubling it in early 2001.  With a rush of newly-enslaved borrowers bidding up house prices, “investors” too rushed back into the welcoming arms of the bankers, as ever only too eager to lend “credit” at interest to willing borrowers against the “security” of “their” house.

Or houses.  How many people do you know who (used to) boast about their “investment property portfolio”?

From early 2004, the well began to run dry.  The rate of growth in “credit” for “Investor” housing began to fall steeply.  It fell well below the “Owner-occupier” rate, which was also declining.  This overall decline in the growth rate for housing credit has continued ever since.

However, thanks to the “stimulus” provided by Kevin Rudd’s further doubling of the First Home Owner’s Grant in 2009 – again, using borrowed money – aided and abetted by the RBA slashing interest rates in response to the GFC, both “Owner-occupier” and “Investor” credit growth bounced briefly.  Indeed, “Investor” credit actually overtook “Owner-occupier” credit again for a very short time in 2010, before both continued falling together.

Clearly then, house prices in Australia were not driven up over the past 15-20 years by “demand” from “population growth”, from people who needed somewhere to live (Owner-occupiers).  On the contrary, by far the strongest rates of growth have – during the bubble phase – been driven by so-called “investors”.

Speculators, in other words.  People who have come to believe that borrowing money to “invest” in property is a guaranteed path to riches, because house prices “always go up”.  Meaning, they believe that if they can only buy now, they can sell later for an easy profit.

Sadly, it is not just “investors” who have come to believe this.  Most Australian owner-occupiers have come to believe the same thing.  It is the very definition of a “bubble mania”, when most people have come to believe they can profit from buying and later selling an “asset”.

Who benefits most from a “bubble mania”?  Who has the most powerful vested interest in ensuring that the bubble does not burst … that is, not until they are positioned to profit from the “downside” as well?

The banks.  The same World’s Most Immoral Institution that has been given the power to create “money” – digital book-keeping entries – and lend it to others in the form of “credit”, at interest.

And so, dear reader, I suggest that you bookmark this post.  In the weeks and months ahead, the powerful banking and property (sales) industry will undoubtedly ramp up the propaganda – and the pressure on government and the RBA to “do more” to support “home buyers”.

Meaning, do more to prop up the Ponzi scheme that keeps them all in caviar, Bollinger, and the latest Aston Martin.

You will hear all kinds of oh so plausible-sounding reasons and statistics, presented by “experts”, encouraging you to believe that house prices will soon go up, and that now is a good time to buy (meaning, to “borrow”).

Whenever this coming bombardment of propaganda causes you to wonder if what they are all saying might just be true; when the charts and statistics and testimonials from credible-sounding people causes you to start feeling “con-fident” about Australian housing, come back and read this post again.  Or visit the RBA’s website, and click on the Chart Pack to see the Credit and Broad Money Growth chart.

Because the simple truth is this.

Unless the government can find a new source – a BIG source – of new people willing to borrow enough “credit” to keep bidding up house prices, there is only one way for them to go.

Unless the government can find a way to reverse the trend of that last Housing Credit chart, then in time, there is only one way that house prices can go.

And “up” it is not.

Finally, although I am loathe to ever suggest that anyone heed what the RBA Governor says, here is one exception.

In July last year, Glenn Stevens warned that –

It is a very dangerous idea to think that dwelling prices cannot fall,” RBA governor Glenn Stevens said in a speech today. “They can, and they have.”

Indeed.

To quote Mr David Collyer of Prosper Australia

Don’t Buy Now!

UPDATE:

Correction – how careless of me! The RBA does indeed provide a chart in their chart pack that shows the growth rate in “credit” for housing.  Simply select “5. Credit and Money“, then choose “Credit Growth by Sector” –

9br-cgbys

As you can see, the annual growth rate for Housing “credit” is in a long and steady decline.  It is presently less than a quarter of the rate of lending that the bankers achieved at the peak.

So, The Easy Way To Know Where House Prices Will Go, is to visit the RBA’s Chart Pack and look at that particular chart.  If it hasn’t started shooting back up again, to the kind of pre-2004 levels that financed the near twenty-year “boom” period, then you know where house prices will go.

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