And therein lies the rub. I’ll be made many times a fool by my proclamation (no matter how right or wrong) that the recent rate of house price growth is unsustainable. I can accept this. I cannot put a precise date to my estimate that the long-term growth rate of house prices will trend towards the rate of general inflation (best possible case scenario). Between now and then, perhaps many millionaires will be made through nothing more strenuous than the buying and selling of houses. This I can accept.

What I can’t accept is that I should make a short-term dire prediction on which others might act and become ‘fools’ themselves, nor to stay silent while people build 10, 20 and 30 year plans around false beliefs. Certainly, I have estimates and ideas of dates and growth rates, but that is not the point of my contribution here. I just like to see people thinking and planning realistically and taking responsibility for their own decisions, actions and outcomes. But remember when making 10, 20 or 30 year plans, that the outcomes aren’t judged at the 2nd or 3rd year, but the 10th, 20th or 30th. That is the message of Solon’s warning. Incidentally, I stole the warning from a superb book I read earlier this year, Fooled by Randomness: The Hidden Role of Chance in the Markets and Life by Nassim Nicholas Taleb. A ripper of a read. I’m looking forward to picking up his new book The Black Swan soon.

Cheers, F. [cowboy2]

PS – Please look to history. When did we last see such price growth in assets like art and Aussie muscle cars? And what happened next? Be very careful (not scared, just careful).

– – – – –

News roundup for the week:
* ANZ’s Saul Eslake told the Property Council of Australia that “Residential housing prices are likely to do no more than match CPI inflation, on average”, though I didn’t attend the luncheon, so cannot specify the period of which he spoke.
* “Louis Christopher, head of property research at Advisor Edge … predicts long-term property growth going forward of between 6.5 and 8 per cent.”
* “BIS Shrapnel director of building and construction Rob Mellor … forecasts long-term gains for three bedroom houses to be capped at between 5 and 6 per cent, or around 3 percentage points above the inflation rate”
* “Mr Matusik expects capital growth of between 5 and 8 per cent per annum over the next four to five years for houses and units.”

What a strange and immature response.

If anything I've written is demonstrably wrong, feel free to refute it. You have many tools available to you; primarily rational reasoning, logic, empirical evidence. Sarcasm, exaggeration and deliberate misinterpretation of my words makes you look inept and petty, while doing no harm to my proposition(s).

Here’s an example. I might say to you:
“Make no mistake about it Devo my boy, an unsustainable trend in debt is the driving force of our economy today and will be the most influential factor in our economic future over the next decade or so (either by its continuation or by its absence).”

You might try to refute this statement, but you’d have a hard time trying. That debt growth is following an unsustainable trend is proven beyond doubt. That without this unsustainable trend our economy would be in recession is adequately arguable on empirical grounds, and certainly stronger than any counter-argument. Thus, the (continuation or absence of this) unsustainable trend will decide whether we will have an economy of growing or declining productivity in the future.

Given that the very definition of unsustainable is that it cannot be sustained, I’ll leave you to make your own assessment of the probabilities of various futures.

Don't forget that a back-of-the-fag-packet calculation can indicate roughly the percentage impact on house prices that a slowing of debt growth to a sustainable rate would have. Do report back when you're done!

Hi Lostie. Everything you need to know about this subject can be found on Steve Keen’s Debt Deflation blog here:
http://debtdeflation.com/blogs/

SK is a mathematician and professor of economics, so some of his work is very technical, but his argument is sound and his blog itself is an easy read. Check through the comments and you’ll find I’ve tried to make my point over there too (probably better so than here). There are also plenty of clever people reading there, so anything you don’t understand can be sorted out with a quick question. Oh, and PM me – I’ll link you to an interesting site.

If you don't feel like checking out those sites, I'll break it down to "the short" as you requested:

The past 30 or so years of house price growth has been dependent on an unsustainable trend in debt growth. This trend is reaching it's limit. Anybody who is basing their expectation of house price growth over the next 30 years on their experience or knowledge of house price growth over the last 30 years is deluding themselves.

Cheers, F. [cowboy2]