Today, Fairfax reported the following statements from RBA Governor Glenn Stevens at a question and answer session at the Australian Business in Europe lunch in London (my emphasis):
Reserve Bank of Australia chief Glenn Stevens says he is not “terribly troubled” about the level of house prices in Australia.
Mr Stevens said the ratio of income to house prices in Australia was “not exceptional by global standards” at a short question and answer session at a business lunch in London.
“I don’t think we have huge rises going on … we have quite modest growth in house prices for the past year or so,” he said at the Australian Business in Europe lunch.
“That would seem to me to be consistent with a household sector that is being more careful and has properly observed what has happened in other parts of the world.
“There is quite often quoted very high ratios of price to income for Australia, but I think if you get the broadest measures country-wide prices and country-wide measure of income, the ratio is about four and half and it has not moved much either way for ten years.
“That is higher than it used to be but it is actually not exceptional by global standards.”
That Stevens gave the impression that he is relaxed about Australian housing valuations is understandable. After all, as the central bank chief, it is his role to maintain confidence and stability in Australia’s economy and financial system. And the last thing Stevens would want is to spook the foreign investors that provide our banks with the wholesale funding that lubricates the Australian economy.
In saying this, Stevens’ justification of Australia’s housing valuations – the price-to-income-ratio – warrants close scrutiny. According to Stevens, Australia’s national dwelling price-to-income ratio is “about four and a half and it has not moved much either way for ten years”.
Focusing on the ratio first, the RBA’s methodology for calculating the price-to-income ratio, which has been adapted from Rismark, is flawed and results in a ratio that is understated by around one-third. I explained why in an earlier post, Misusing House Price-to-Income Ratios:
Fellow blogger, Critical Influence, recently provided the breakthrough critique of Rismark’s methodology. Instead of using the Australian Bureau of Statistics (ABS) biennial Household Income and Income Distribution Survey data for the median household disposable income figure, which only counts income “available for consumption” (i.e. cash or cash like in nature), Rismark instead uses average incomes provided in the ABS National Accounts. However, there are a number of fatal flaws in this approach that together act to significantly understate the dwelling-price-to-income figure, including:
- Average incomes are inflated by a small percentage of very high income earner’s. As such, the average Australian income is 28% higher than the median income.
- According to the ABS, the household sector as measured in the National Accounts is “in a number of instances…measured as a residual of all other sectors“. Therefore, income that does not fit neatly into “government” or “commercial” income is attributed to households, even if it is not actually available for household consumption.
- The household sector as measured in the National Accounts includes sources of economic activity that are non-cash sources of income to households, or otherwise unavailable to be actually spent. Key amongst these inclusions are: (a) superannuation contributions, which are locked-away until retirement; and (b) imputed rents, which is the rental income that an owner-occupier would receive if they rented their home out.
Disappointingly, the Reserve Bank of Australia (RBA) and the banks have also adopted Rismark’s flawed approach to measuring Australia’s dwelling-price-to-income ratio, thus painting the rosiest picture possible of the Australian housing market.
Readers seeking a more detailed critique of the approach adopted by Rismark, the RBA and the banks are encouraged to read Critical Influence’s excellent recent article on this issue.
On the second part of Stevens’ claim – that “it has not moved much either way for ten years” – again he is being loose with the truth. As shown by the below RBA chart, Australia’s dwelling price-to-income ratio has increased from around 3.3 times in 2000 to 4.4 times in 2010. That’s an increase of one-third ladies and gentlemen.
Then there’s Stevens’ claim that Australia’s ratio “is higher than it used to be but it is actually not exceptional by global standards”. Oh really, because in 2008, the RBA’s Anthony Richards gave a housing presentation that contained the below chart showing “Australia’s median house price to income ratio [to be] quite high by international standards”. Note that the ratios shown for the other nations are prior to the global house price crash.
It’s one thing for the banks to misuse data to paint the rosiest possible picture of the Australian housing market. But I expect higher standards from our central bank governor.
Cheers Leith
unconventionaleconomist@hotmail.com
In an online ABC video Chris Joy (in response to Steve Keen)flatly denies using super in the income tally of households. This needs to be sorted out.
Page 58 of this ABS Report provides a reconciliation of the ABS Australian System of National Accounts (ASNA) – used by Rismark, RBA and the banks as the income measure – and the Survey of income and Housing Costs (SIHC). Here’s what it says re superannuation:
“ASNA household sector income relating to superannuation is recorded at the time the income is accrued to the household and is separated into employer contributions and interest income. Employers’ contributions to superannuation funds are included in the ASNA household sector as part of compensation of employees and are recorded at the time the liability is incurred by the employer….
In the SIHC, superannuation income is recorded as a current transfer at the time it is received as a regular pension payment, rather than on an accruals basis as for the ASNA. Consequently, SIHC income from superannuation (employer and own contributions as well as interest earned) is recorded at a very different point in a household’s lifetime compared with the ASNA.”
Unless Rismark specifically excludes super contributions from the ASNA, it is wrongly included in their income measure.
I don’t know about the use of super in the calculation…. but…
In the comments section below this article by Steve Keen on Business Spectator
http://www.businessspectator.com.au/bs.nsf/Article/Our-bubbles-bigger-than-their-bubble-pd20110216-E5AP5?OpenDocument&emcontent_spectators
Chris Joye responded in his usual bombastic way accusing SK of not propertly reading his research, admitting that his 4.4% figure included imputed rents, and then said that his team had calculated the figure removing the effect of including imputed rent in the household income figure and that it resulted in a “trivial” increase to 4.8%….
When I went back to that article now to post it here and say that he admitted it in that comment, well I noticed that his comment has been deleted…. interesting…. (but note there were other posters who were responding to Joye’s response)…
But if you google Joye and “trivial” over the last month I reckon you’ll come up with a few uses of it in this context…
Please also read down to my comment below SKs article where I respond to Joye’s comment and blow a whole in his BS assertion that the effect is trivial…
Back in 2008, fired up by similar comments from the RBA, Ric Batellino on that occasion, I wrote an article (on my website) and said something like perhaps given the environment and RBA’s mandate for stability that it feels it appropriate to step out further, itself, on the risk reward premium… that is, take the risk of sticking its neck out further (making claims that are less supported by robust analysis than they would normally) for potentially greater reward (more stability in an unstable environment)…
Obviously the risk was of damaging their credibility…. I have to say that GS has not exactly enhanced his credibility with these statements… and perhaps that is indication that they see the risks to our economy as sharply increasing…
AND let us all remember that it is JUST 1 YEAR (almost to the day!) since he took the unprecedented step of appearing on television to warn against speculating on housing…
Sorry Glenn, but you just took a big dive in my estimation… hope the pay off was worthwhile… or were you just that scared by what you were hearing in private conversations with foreign investors that you had to stoop to the spruiker’s level…
I have a suspicion Glenn Stevens will become the Alan Greenspan of Australia. Touted as a genius until….
It’s a major flaw with our current system that monetary policy is so asymmetric – speeches like this just go to highlight that politically (and also from a central banker self-interest perspective) it is easy to slash rates but much harder to raise them. Makes boom / bust inevitable in my opinion.
Great catch Leith.
Perhaps this is the “Steven’s Put”?
ie. Greenspan style, deny any problems and the existence of bubbles while they are forming, but at the same time give the impression that you are ready to bail everyone out when things go wrong? (not that Stevens says this above)
This kind of asymmetric policy can only end in disaster.
And “loose with the truth” is probably generous. I find it extraordinary that Stevens can be so disingenuous here. Central bankers do have to be careful not to undermine confidence, but that doesn’t mean Stevens has to act like Baghdad Bob.
“Focusing on the ratio first, the RBA’s methodology for calculating the price-to-income ratio, which has been adapted from Rismark, is flawed and results in a ratio that is understated by around one-third”
This accords VERY closely with my own anecdotes.
I don’t have the data at hand but if it’s the same data I’m thinking of, the average man on the street would conclude – based on actual experience – that the claimed average income is severely out of whack with on-the-ground reality.
It definately seems to be overstated by around a third.
Thanks Lefty. I provide calculations in the earlier linked article showing how I reached the one-third figure.
“On the second part of Stevens’ claim – that “it has not moved much either way for ten years” – again he is being loose with the truth.”
Maybe, or it might just have been a slip. The ratio today is roughly where it was seven years ago, rather than ten years.
Do bubbles grow to their peak and then plateau for seven years before bursting? Not any bubbles I’ve read about…
Australia’s median house price to median gross household income ratio is around 5x nationwide or 6x for capital cities based on my calculations.
My figure for Sydney is 6.4x as explained in my blog…
Blog – Is Australian Property Unaffordable?
Australian houses are not particularly unaffordable by global standards, and the fact that they have maintained their current price/income ratio for seven years suggests that the ratio is sustainable.
In fact, on a price/income basis, Sydney houses are currently much more affordable than they were in 2003.
Cheers,
Shadow.
I calculated a ratio of 6.7 nationally as cited in my earlier article. We’ll have to see about whether this is a bubble or not (I obviously think it is). I’d argue that Australia was saved by China – the commodity boom took off just as housing slowed in 2003. But there is lots of downside risk there. And if China corrects, we’ll see just how resilient the housing market is. If it doesn’t, we’ll probably do a New Zealand – experience a long, slow unwind. Either way, housing is a poor bet right now in my opinion. There’s lots of downside risk but little upside. That said, I’m not selling my house (too lazy).
No worries. I think your 6.7x ratio was based on disposable income, rather than gross income, from what I remember?
Shadow — What are you smoking? Because I’d like to get some of it.
Australian houses are highly unaffordable compared to almost any US city.
I live in New York, which is probably the most expensive city in the country, for good reasons (limited land in Manhattan, an abundance of cashed-up bankers, etc).
And (with the obvious exception of prime Upper West Side apartments, etc) prices here are not much different to Melbourne or Sydney.
So you’re saying that prices in America’s biggest city are not much different to prices in Australia’s biggest city? You started off by suggesting I was wrong and then ended up agreeing with me…?
Are you seriously suggesting that prices in Melbourne should be the same as in Manhattan?
You claim that Australian houses are not particularly unaffordable by global standards. If by global, you mean Hong Kong, OK. But like I said, affordability is vastly better in almost all areas of the US, and even in my most extreme example (NY), it isn’t much different.
I’m not saying prices ‘should’ be anything. Prices are what they are based on a combination of many fundamental factors present at the time.
It was you who said prices in New York were similar to prices in Sydney. If you didn’t mean that, fine.
Read my blog (see link above) if you’re interested in my thoughts on affordability… I think it should answer all your questions.
Cheers.
Your comparing Manhattan Island (note ISLAND) to Sydney?
New York-Northern New Jersey-Long island Metro area has a pop of almost 19 million.
Get a grip.
That reply was for Shadow not you RA.
It was Rotten Apple who made the comparison, not me.
It was perfectly clear to me that RA was using the Manhattan ‘example’ as an outlier, suggesting MEDIAN valued cities / in the US are more affordable.
When the blogging decends into semantics, the point made by RA is clearly ‘very affordable’
It wasn’t totally clear whether he was comparing Manhattan, or New York as a whole, to Sydney. He said he lives in New York. and prices ‘here’ are similar to Sydney, so sounds like he was comparing the whole of New York. Whatever, not sure what the big deal is?
Are other US cities cheaper than Sydney? Yes, I expect they would be, at least in terms of the initial purchase price. When you take the ongoing (high) property taxes into consideration, total cost over the lifetime of the purchase is not so clear.
Beside, most US cities are very small, compared to Sydney, and there are more of them, and there are far fewer constraints on residential development in the USA, which keeps prices low.
Note that I haven’t claimed homes in Australia are more affordable than homes in America. I simply pointed out that homes in Australia are not particularly unaffordable by global standards. Dozens of surveys show this to be the case as discussed in my blog.
RA responded to my comment with a comparison of New York and Sydney, suggesting prices are similar in both cities, which seems reasonable and likely to me.
If you repeat a lie long enough, it becomes the truth. This statement by Glenn Stevens just shows that the propaganda from spruikers like Joye is working.
Do note that Joye has admitted to using imputed rent and says that excluding imputed rent pushes the ratio up to 4.8. Of course, he doesn’t bother to correct anyone who keeps repeating the old lie about it being 4.5.
Cheers Leith – I’ll read that.
I recall seeing the average income figures some time ago and wondering how they arrived at figures that were so high above what I was actually seing “at the coalface”.
Hi Shadow.
We purchased in 1998 or 1999 (can’t recall which). We currently pay a little less than 20% of our income to service our mortgage. To buy the exact same house again today at current market rates would see us parting with over 50% of our household income.
We could “afford” it per se – but living would be very much tighter.
Conventional wisdom has it that Australian property always doubles in real value every 7-10 years. If it is to double again by 2020, there had better be the mother of all broadly spread income growth booms.
The national price/income ratio hasn’t changed much in seven years, but since you bought in 1998 (right before the boom, nice timing) obviously your property would have increased substantially in price/income terms prior to hitting the current ‘seven-year-plateau’.
As for doubling every 7-10 years, that statement is always based on nominal growth, not real growth. In fact, house prices have been generally on a rising trend in real terms for over 60 years, and in nominal terms, they have roughly doubled in value every 8 years during that time (with booms and busts along the way, but averaging out at a doubling every 8 years or so, in nominal terms).
More details here, if you’re interested…
1990-2010 House Price growth SLOWEST in decades; slowest 20 year growth since 1950-70
Whether that will continue into the future, who knows? Perhaps the past 60 years was an anomaly? Perhaps it’s different this time?
Cheers,
Shadow.
Australia national home price/income ratio has changed dramatically. There is no arguing that. Its all over the internet. Plus it is close to highest in the world. I think it is the highest. When the Aussie housing market goes pop then it will come back down.
Glenn Stevens is an idiot. He sits up there pushing his interest rate button like its nothing. Ill bet when the market starts falling down there will be reports from him saying we were to agressive on the rates. He said the same thing in 2008 when the market started falling down.
I believe NZ just cut rates.
Tell me, after you adjust for inflation, what do the results look like?
Making your argument around nominal growth is less meaningful than real, especially when you consider the high inflation Australia had pre 1990/91. If I used nominal figures to measure house price growth in Zimbabwe between 1998- and 2008 I’d probably see a doubling in value every 0.68 seconds…
The repayment/income ratio is far more important than the price/income ratio, and the economy depends on the household cashflow instead of the balance sheet. From the Reserve Bank point of view, more money going into housing repayment is preferrable to more iPads and iPhones. Due to the warped nature of the tax system, home repayment is the most tax effective form of saving, and there is nothing the Central Banker can do while this holds true.
Why are housing payments prefferable to discretionary spending or saving, available due to a less leveraged home?
Mark to market. Mark to Model. Mark to Myth.
If it isn’t the first- then never mind the BS here’s the bollaxnomics.
From Shadow’s “blog” :
“Furthermore, there is no reason why a family on median wage income should feel entitled to be able to afford a median house, because houses are not purchased using wage income alone. Houses are purchased using wealth. A better measure of a household’s ability to afford property would be to consider household discretionary income and total wealth. This would include non-wage income (such as income from interest, shares or other investments), and wealth stored in other assets (such as shares or equity in existing property) that may be liquidated or borrowed against in order to fund a new property purchase”
pfffffff.. wealth?? When our household debt is nearly equal to GDP?
Shadow, can I have 3 minutes of my life back? I consider time to be priceless.
“pfffffff.. wealth?? When our household debt is nearly equal to GDP?”
Excellent response. You really took by blog apart bit by bit there. I am humbled by the depth of your insight and analysis. I liked all the extra ‘f’s… that was really good.
I’m sure your stock vs flow comparison was probably a deliberate error on your part, and you must realise that the interest payable on that household is quite insignificant compared to our GDP.
Keep up the good work Mav.
Cheers,
Shadow.
You could have at least saved everyone’s time by shrinking your blog to just 5 words – “Equity maaate. We are different”
You’re on fire. The way you demolish my points, one by one… brilliant. This blog would be lost without your insight.
“Wealth stored in other assets (such as shares or equity in existing property) that may be liquidated or borrowed against in order to fund a new property purchase”
That is what I call “Inception” style wealth creation – create an illusion of more wealth by leveraging within a leverage. Along the way, people like you lose track of what is real wealth and what is leveraged wealth.
Equity is real wealth. It can be (and frequently is) used to purchase anything. Equity can be converted into cash, gold, other assets. Of course, as market conditions change the equity can shrink or grow. It can even turn negative. But while it exists it is real wealth. Perhaps your argument is that equity is not real wealth because something might happen in the future to make its value reduce? You could say the same about any asset or any other form of wealth.
“Equity can be converted into cash, gold, other assets.”
…by a process called “selling and buying”, NOT by borrowing more and more!!
How do you convert equity in your house to cash? Did you sell half of your bedroom?
PS: There goes another 5 minutes of my precious wealth
Well, there are a few ways of doing it. You could sell the house of course (i.e. the same way you would convert any other asset into cash). You could rent out rooms in the house, or rent the whole house, for a cash return. Or you could arrange a line of credit against the asset, and withdraw cash from the LOC. Pretty straightforward, millions of Australians do it. Hope this helps.
“You could rent out rooms in the house, or rent the whole house, for a cash return.”
.
Are you planning on renting half your bedroom?
.
Anyway, what about those investors who negative gear and have negative cash flow? Are they are basically handing out cash in exchange in order to maintain that illusion of wealth?
.
“Or you could arrange a line of credit against the asset, and withdraw cash from the LOC.”
.
Ahh.. LOC – another fancy word for more leverage/more borrowing.
All perfectly reasonable mathematically/financially viable solutions. However:
Houses are the most illiquid “asset” there is, with substantial transaction costs. (3.5% plus stamp duty, 2% selling fee to real estate agent) Settlement is a minimum 14-30 days, and is dependent on the buyer being able to close the transaction.
Renting out your house is full of risks and costs: the No.1 being – where do you live? You have swapped a cash return for an opportunity cost of putting a roof over your own head. You have to pick an ethical property manager and get the right tenants. For the majority of Australian mortgagee’s the cash return will be negative – ie. you won’t see any of it, except maybe at tax time.
As for LOC – yep, equity mate! – perfectly viable solution, but it exposes you to interest rate risk, additional emotional burden of putting more and more of your salary into a consumption item and behavioural risk of squandering that emphermeral “equity” on jet skis, holidays and other non-productive items.
Don’t tell me you wont: it is the Australian way to p#ss things up against a wall.
Your home is a security asset: not an investment. It can be use as a speculative/investment “pool” – and millions have done so.
Like the proverbial turkey that is fed for 999 days its a perfectly viable strategy, until the 1000th day. Thanksgiving.
And millions of turkeys overseas in Ireland, UK, Iceland, Italy and the US have regretted doing it.
Yes Prince, bad stuff might happen in the future. There are risks in all asset classes and all aspects of life. There is a risk crossing the road or driving your car. Should we just stay in bed? That comes with risks do. Doing nothing can be just as risky as doing something.
As long as you don’t introduce a systemic risk into the financial system, you can damn well do whatever you please and take whatever risks you want to take.
As the GFC has shown us, huge amount of mortgages is a systemic risk that can bring down entire economies with it.
PS: While bubbles in other asset classes can wipe out vast amounts of “wealth”, they don’t have a natural tendency to reboot the financial system.
There doesn’t need to be an argument on affordability for those with preexisting wealth, equity or a collection of grandpa’s old gold teeth. First home buyer affordability however is critical and it’s these people who should be allowed the chance of building equity and wealth just like previous generations could but without ever greater burdens of debt to shoulder.
When a median income earning household cannot afford a median priced house then that is a clear & utter failure of the system/market.
Mav, that spiel sounds like a definition of feudalism.
Who was it, Freddy Mercury had a song – “I want it all, I want it all, I want it all, and want it nowwwww.”
Nice song if the wish is for life and the dreams of youth
Wow, It is good to see that there is plenty of passionate debate out there….In my humble opinion, I believe we are on the downward curve towards an asset crash (including housing) in Australia.
I keep my ear to the ground, listening to ordinary folks and price pressures are starting to bite, slowly but surely, but the point in the curve when rapid organic acceleration takes place is not yet reached.
NOBODY knows when this will happen, but it will happen, probably triggered by something that does not exist at the moment.
If you need an example look back 400 years, there are numerous.
And at the bottom of asset deflation, cashed up investors will be saying (thank you, I am in a good position for the next 10 years)
I should add, everything in this world operates in a cycle, and I mean everything! and the secret is to enter and exit at the most opportune time….It’s that simple
“everything”?
When will 64kbyte computers be expensive again? When will a UK pound buy US$4 again? When will electricity be cheap again?
Sounds like you are of one those who believe house prices will revert to mean. A median Aussie house in 1949 was $2k (Stapledon data). Adjusted for inflation that would be $51k today. So you if you believe in cycles and reversion to mean you must be expecting the median house price to go back to $51k in 2011 dollar prices. Really?
Import lots of low-cost labourers desperate for cash, and you’d be amazed just how cheap some things become.
Of course houses in Australia are affordable – as are Porsches, which can be bought by almost any member of society, if they have the access to credit.
Market value is wealth – until it isn’t. Anyone holding an asset that is beholden to margin calls and margin variations (e.g shares bought on leverage, commercial property) will suddenly find themselves much less rich when that margin is called in. That applies to persons, households, corporations and yes, countries (MMT aside).
Luckily (?) residential property doesn’t suffer that fate because we don’t value it properly. It is valued by what the credit market (i.e what banks are prepared to lend based on the incomes they artificially inflate) thinks its worth, not based on the imputed rent and land value due to scarcity (or lack thereof).
This is called a bubble situation: when fundamentals are ignored and market valuations (high P/E’s basically) taken as gospel.
Folks – let’s keep the discussion civil. Please imagine you are at the bar or cafe in full public view and earshot. You can have frank discussions without resorting to potshots and snide comments.
Here is my take on it all as a potential buyer. We’ve been sitting on the sidelines watching the housing market now for 4 years since my return to Oz. We chose to rent, not buy for a number of reasons, including not being sure we would remain here in the long term. We consider housing to be grossly overpriced, partly because of income/price ratios…..but also because the vast bulk of housing stock is poorly designed, poorly sited, poorly built, using low quality materials, and poorly maintained. We cannot believe there is no attention paid to climate here. This is particularly true of houses built here in Perth in the last 5-10years. We have no interest in climbing the property ladder…and see a house as a dwelling, not an investment. We recently decided we would stay in Perth for family reasons and began looking at houses to purchase. We looked at new places, old renovated, old un-renovated and also vacant land. We have stopped and recently extended our lease here for another year. We do not need to borrow, so interest rates do not influence us, but we saved our cash by being cautious with our spending and have no intention of paying the prices currently asked simply because they do not represent value in our view. I must say, that we were surprised at how looking at houses for a period of time leads to a false impression of value though, as we occasionally found a house that had some of the things we are looking for, and appeared ‘reasonably’ priced, but of course, ‘reasonably’ meant relative to the even more outlandish prices set for other houses in the same neighbourhood. We will continue to rent (and save) and look at the state of the market as our lease draws to a close each year.
Stevens is not an idiot. He was promoted for his skills in lying. You dont get to that level by not ‘playing the game’.
Yeah he does float with the wind. 12 months ago his kids couldn’t afford to buy. I must congratulate them on the lotto win.
http://www.dailytelegraph.com.au/money/money-matters/reserve-bank-governor-glenn-stevens-says-sydney-property-boom-will-make-it-hard-for-his-children-to-buy-home/story-fn300aev-1225847189843
IMHO, as one respondent above has already said, all these ways of measuring burden should be calibrated against that which really matters: how does the common man think he is going? How much is he struggling?
In that sense, all the numbers are bullocks if not put into such a context; theyh all are effectively meansures of the same thing, and a effectively useless if we don’t ask, “And how is Joe Average going now?”
4.7, 9.6…useful numbers, sort of….but if not in their proper “common” context (which may not be very quantifiable!!), they mean very little.
I’ll be honest, and perhaps I am just caught up in my own ideas, but, this sort of “common calibration” approach really should be much more mainstream; too much focus is given to all these numbers, as if their significance were self-evident.
But their significance is not self-evident, and they need to be put into a “common burden index” type of context to be of any particular use.
Such an apprach also has the benefit of handwaiving at the particular methods, as they are put in their proper place, as relative measures that are all similarly calibrated against the thing that actually matters anyway – how families and households are actually going, apart from the fudgey numbers.
Or perhaps that’s just the engineer in me!
Regards,
Stewart
Very well put. All this quibbling about 4.6x being fine as opposed to
6.7 or 6.9 or even 3.0 is really beginning to do my head in. It’s all academic. Only time will tell us who were the winners and losers from this unique period of australia’s economic history (I believe it’s unique anyway). I already know that I’m one of the losers- single female median income, no house. I rent, save and contribute to my super with the knowledge I may never buy a pretty free standing house with a white picket fence. Im not losing any sleep over it though. However, if loose lending practices have created an unsustainable bubble which in turn destroys our economy and potentially my employment then there will be hell to pay!!
Not an esteemed finance journal but an interesting read on Irish real estate.. http://www.vanityfair.com/business/features/2011/03/michael-lewis-ireland-201103
includes the quote: “The statement struck him as absurd: real-estate bubbles never end with soft landings. A bubble is inflated by nothing firmer than expectations. The moment people cease to believe that house prices will rise forever, they will notice what a terrible long-term investment real estate has become and flee the market, and the market will crash.”
That is a FANTASTIC quote!
Hmmm. Vanity Fair may not be an esteemed financial journal but they certainly have their finger on the pulse. See also this excellent article on the Greek situation http://www.vanityfair.com/business/features/2010/10/greeks-bearing-bonds-201010?printable=true.
At very least we can respect the Good Governor’s request for a mature debate.
Australia’s RBA chief calls for ‘mature’ debate:
http://www.marketwatch.com/story/australia-central-banker-calls-for-mature-debate-2011-03-09?reflink=MW_news_stmp
What is that insult that rhymes with banker again?
By “mature”, I suspect that he means free of any emotional and subjective rhetoric. These guys are fortunate that they can operate and advise within the boundaries of their mandate. Should they happen to be wrong, they can always blame factors beyond their control. From a peasant’s perspective, the impact on one’s future naturally makes this issue emotive.
Gee, as a kiwi I lament our own politicians and Reserve Bank governor (terrible call in cutting the OCR by 50 basis points).
But ours look like positively truthful saints compared to this spruiker you call your RBA Governor.
I can’t believe he has the gall to come out with these obviously false comments -the renting masses should be out on the streets of Sydney!!!!!!
” . . not exceptional by global standards” – unless one looks at the 2008 Senate report – ‘A good house is hard to find’.
Chart 3.11 shows Aus ‘winning’ the Unaffordability Stakes Race at the International meet circa 2008:
http://www.aph.gov.au/senate/committee/hsaf_ctte/report/c03.htm
RBA is full of it.
I am generally not in favour of solving problems with more regulations, but I do wonder if it should be illegal to borrow beyond the rental income value of a property. That would bar betting on capital gains with borrowed money and make explicit how far in excess of rental income value the price was. It would be both stabilising and information-increasing.