Problem with forums is there are so many opinions and members with thier own agenda, they can actually cloud your judgement.
What may start as opening your mind to strategies/outcomes etc, (even to members who have experience and “millions”) could end in bad judgement, since noone but you know your own situation and strengths and many don`t keep this in mind when they hand out advise, and many who do hand out advise are merely putting forward what they have been told, not what there actual experience is.
I will agree with Robert with regard to newspapers they are so out of touch is never ceases to amaze me, they are very misleading and always way behind the eight ball, I pay no attention to them whatsoever.maybe it’s ‘buckflation’ – a weaker form of stagflation?
hmmmm inflation – inflates property values, deflates mortgage values in real terms. a great environment for property investment.
http://www.megainvestments.com.auExtensive list of ‘Off The Plan’ property available for sale in Perth.
John – 0419 198 856
maybe it’s ‘buckflation’ – a weaker form of stagflation?Maybe … its stagflation with low unemployment. They had high unemployment in the 70s.
hmmmm inflation – inflates property values, deflates mortgage values in real terms. a great environment for property investment.That’s price inflation (as in the CPI) not asset inflation. We’ve had a eight years of unprecedented asset price inflation already.
Inflation increases prices across the board in most cases. That would include property prices even though they are not counted in the CPI.
Robert Bou-Hamdan
Mortgage AdviserInflation increases prices across the board in most cases.Not for the past eight years it hasn’t. The CPI has been running at 2-3% while house prices have been increasing by 10-20% p.a. Almost makes you think there might be something out of whack doesn’t it? [blink]
Note: The RBA is not required to control asset price inflation. Why? I dunno.
Interesting point dmichie – why are the RBA concerned about inflation at all? Why specifically do they focus on consumer prices? Is not monetary inflation in any form equally as destabilising?
I have noticed regular mention of concern over house prices in statements from the Reserve Bank, yet the market has largely ignored their concern. In the case of falling house prices will the RBA react to contain investor damage or simply say “I told you so..”?
My personal take is that they are frustrated by their role as CPI police only and will fight to curtail consumer price inflation over and above other concerns. Only time will tell.
Cheers, F.[cowboy2]Why specifically do they focus on consumer prices?Because that’s what their charter tells them to do.
Runaway asset price inflation is every bit as damaging as runaway consumer inflation (if not more so) but all the RBA is allowed to do is express concern.
Here’s an interesting article about the issue:
http://www.henrythornton.com/article.asp?article_id=2723Methinks if the housing boom ends with a crash the rules may change.
I think you guys misunderstand what the Reserve Bank can actually do. They are not restricted to cash rate movements. They just realised in the early 90s that keeping inflation within the 2-3% worked well for the economy.
They have various other tools available to them one of which is to give piblic statements or warnings to instigate change without the need to move rates or use other tools.
Remember, they can still release a heap of currency if they want to devalue the dollar. They obviously know something that many doom and gloomers here don’t about why it is good to keep the currency at the higher end. I certainly know who I prefer controlling things!
By the way, the RBA is autonomous.
Robert Bou-Hamdan
Mortgage AdviserI think you guys misunderstand what the Reserve Bank can actually do. They are not restricted to cash rate movements.Sure there is more than one lever to monetary policy, the RBA has considerable powers, the restriction lies in what their stated objectives are. i.e. The government never told them it was ok to target asset inflation so they don’t.
http://www.rba.gov.au/MonetaryPolicy/statement_on_the_conduct_of_monetary_policy_1996.html
In pursuing the goal of medium term price stability the Reserve Bank has adopted the objective of keeping underlying inflation between 2 and 3 per cent, on average, over the cycle.They obviously know something that many doom and gloomers here don’t about why it is good to keep the currency at the higher end.Robert, I can assure you that the RBA does not, has not, and never will target a specific value for the Australian dollar. The value of the dollar is determined by the markets, and the RBA’s role is to smooth any sudden changes in the value of the currency by buying and selling dollars.
By the way, the RBA is autonomous.Not entirely. Its more of a friendly agreement and the RBA’s independence is not enshrined into law.
The 1996 Joint Statement on the Conduct of Monetary Policy served only to codify existing practices. While the Statement included explicit acknowledgement of the Bank’s “independence” this was merely an affirmation of an existing institutional reality. There was no change in relation to the Treasurer’s statutory powers to override the Bank’s monetary policy decisions. The fact that these powers have never been used demonstrates the substantial amount of de facto independence the RBA has always enjoyed. The 1996 Statement only saw the government discontinue the practice of issuing a largely redundant press release in parallel with the RBA’s interest rate decisions.http://www.institutional-economics.com/index.php/section/just_how_wrong_can_the_economist_be/
More info about the history of RBA independence here:
http://www.econ.usyd.edu.au/drawingboard/digest/0502/smith.htmlThe 1990-91 recession was centred in Melbourne. In 2004, the slump in Australia’s economic growth is hitting hardest in Sydney.
The statistics are unanimous. NSW is lagging the rest of Australia across the board: on job growth (especially full-time jobs), consumer spending, housing construction, business construction, and growth in population, demand and state output.
In 2004, the Bureau of Statistics estimates, the trend growth in demand in NSW was just 2.8 per cent, barely half the rate of the rest of the country. Its population growth for the year to September was 0.7 per cent, also just half the average of the rest. And, over the three years to June, output grew just 7.6 per cent in NSW but 13.3 per cent in the rest of Australia.
This is not good news for the rest of us. Sydney is Australia’s global city, its financial and service capital. One in five Australians lives there, and almost one-quarter of our gross domestic product is created there. It will be hard for Australia to get back to economic health while Sydney remains sick.
The question is: will it? Is the slump in NSW relative to the rest of Australia since 2001 due to a confluence of one-off factors, or is it something more long-term?
AdvertisementAdvertisementAccess Economics, a team of sharp minds, is optimistic. It sees the slump as almost at bottom. In the financial year just ending, it estimates, NSW will grow by just 0.9 per cent, the slowest of any state. But it sees a modest rebound ahead, with NSW more or less matching the nation’s growth rate over the coming four years.
Solid growth in Asia will pump up demand in Sydney’s financial and service industries, including tourism, it says. Engineering construction remains strong, and the Carr Government’s $30 billion infrastructure plans should keep it that way.
But there are other, as yet unreported, statistics that point to a more disturbing trend.
They show that the decline in NSW’s population growth has been overwhelmingly among those in their 20s and 30s, and in young children. And that slump has been largely in Sydney.
From 2001 to 2004, the rest of Australia grew by 542,000 people: 110,000 aged under 40, and 432,000 aged 40 and over.
NSW grew by just 156,000. But it actually went backwards among the under-40s, losing a net 11,400 younger people, while gaining 167,400 of the middle-aged and elderly.
Talk to them, and one reason is clear. Sydney’s real estate prices remain about three years’ average take-home pay higher than in Melbourne, almost five years’ higher than in Brisbane, and almost double average prices in Perth and Adelaide.
House prices in Sydney were always higher, because Sydney is where land is most scarce. But as successive real estate booms and home renovations almost doubled the average price of a house relative to wages, the affordability gap between Sydney and the rest widened.
Even after a steep fall in prices in 2004, the Real Estate Institute and AMP Banking report that, in the December quarter, the median price in Sydney was $89,500 higher than in Melbourne, $162,500 higher than in Brisbane and $204,500 higher than in Perth. That’s a lot of income to sacrifice just to get a foot on the ladder of home ownership. What drove Sydney’s prices so high? More unreported statistics help explain.
Between 1997 and 2003 NSW, with 34 per cent of Australia’s population, averaged almost 50 per cent of all lending to housing investors in the nation.
Between 1993 and 2003 the amount of money banks lent housing investors in NSW rose more than tenfold, from less than $3 billion a year to $33 billion, or 12 per cent of the state’s GDP. In 2000 and 2001, investors in NSW property markets borrowed more money than those in the rest of Australia put together.
Since the Reserve Bank raised interest rates in late 2003, new borrowing by owner-occupiers slumped briefly, only to rebound to new record levels. It is investor housing that has fallen. In year-on-year terms, it has slumped 15 per cent: from a peak of $72 billion to $61 billion in the year to March 2005.
But that slump has been very uneven. In the March quarter alone, lending to investors in booming Western Australia was up 26 per cent on a year earlier. In South Australia it was slightly higher, in Victoria slightly lower, while in Queensland it fell 11 per cent and in NSW 15 per cent.
Even so, NSW investors are still borrowing more than investors in Victoria and Queensland combined, and their share of the national total remains 41 per cent – compared with less than 30 per cent in earlier downturns. If Sydney’s housing prices need a painful correction to make the city affordable to young people, that could be a long way off.
So who wrote this article or are you claiming ownership Salacious?
Robert Bou-Hamdan
Mortgage AdviserSALACIOUS, good article, but how about a link?
The fundamental problem in Sydney is that when the baby boomers start selling off their investment properties to fund their retirement, there will be no-one left in Sydney who can afford their overpriced nest eggs.
Ahhh … Colebatch, knows his stuff.
Hey David et ors…
You guys might like to check out the thread:
https://www.propertyinvesting.com/forum/topic/17299.htmlI am getting hammered due to my lack of economic knowledge (‘using the word ‘the’ instead of ‘a’) which you guys might like to get involved in. Some of your opinions would also be interesting (hundreds of links are NOT needed).
Robert Bou-Hamdan
Mortgage Adviserdmitchie – is that tongue in cheek or are you serious? his position seems quite different to yours that’s all i.e. correction is a long way off (read: never)
http://www.megainvestments.com.auExtensive list of ‘Off The Plan’ property available for sale in Perth.
John – 0419 198 856
Another good article today:
http://www.smh.com.au/news/Paul-Sheehan/How-a-clever-world-could-selfdestruct/2005/05/15/1116095851377.htmlOn one side, the city-based politicians are handing out $20 billion in tax breaks to millions of people who are counting increased wealth built on a nine-year prosperity uplift caused by rising property values, superannuation payments, tax cuts, increased productivity, and a China-driven commodities boom
…
On the other side, 90 per cent of the largest state is drought-declared, yet again thousands of farmers are in financial distress, the river system is falling apart, the landscape has been cleared, scoured and eroded, leading to desertification, leading to a hotter landscape, leading to less rain, a water shortage for Sydney and catastrophic water levels in some country townsThe Prime Minister, supposedly a champion of lean government and private enterprise, has to be concerned that he has led one of the biggest-spending, highest-taxing governments in Australian history.“The Howard Government has made no substantive progress in the direction of small government, indeed it has gone backwards,” says Des Moore, director of the Institute for Private Enterprise and a former deputy secretary of the Treasury Department.
“Since 1995-96, federal spending, excluding interest, has actually increased as a per cent of [gross domestic product], and it is even higher than in the Whitlam government’s final year,” says Moore, a flinty fiscal hawke. “It is absurd to have 2.7 million, or 20 per cent of the working-age population, receiving income support compared with only 15 per cent at the end of the 1980s, and 4 per cent in 1969. Social assistance benefits now contribute 14.3 per cent of gross household disposable income. This compares with just 8 per cent under Whitlam.”
dmitchie – is that tongue in cheek or are you serious? his position seems quite different to yours that’s all i.e. correction is a long way off (read: never)I didn’t say I agreed with what he has to say, but I respect Colebatch’s opinion, he is one of the better economic commentators. If you want to read biased, one-eyed clap trap, read Terry McCrann.
Originally posted by dmichie:dmitchie – is that tongue in cheek or are you serious? his position seems quite different to yours that’s all i.e. correction is a long way off (read: never)I didn’t say I agreed with what he has to say, but I respect Colebatch’s opinion, he is one of the better economic commentators.
I think David is being worn down and moving to the ‘Force’. Forget the ‘Dark Side’!!!
If you want to read biased, one-eyed clap trap, read Terry McCrann...OR, just read David Michie!
Robert Bou-Hamdan
Mortgage Adviser
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