pomtastic

How to spot a bubble - from Robert J Shiller, professor of economics, Yale.

http://dealbook.blogs.nytimes.com/20...e-next-bubble/


Sharp increases in the price of an asset like real estate or dot-com shares check

Great public excitement about said increases check

An accompanying media frenzy check

Stories of people earning a lot of money, causing envy among people who aren’t check

Growing interest in the asset class among the general public check

"New era” theories to justify unprecedented price increases check

A decline in lending standards check


7 out of 7, I'd say we're looking bubblyicious

EvannTel

Hardly 7 out of 7 we'll see though.

pomtastic

Sharp increases in the price of an asset like real estate or dot-com shares check How so? ABC has recently published the figures and no sign of "sharp" increase

Australian house prices increased 5.2% in 3 months, Sept to Dec 2010, Preliminary numbers from Australian Bureau of Statistics (ABS).
http://www.abs.gov.au/ausstats/[email protected]?OpenDocument

Great public excitement about said increases check
Debateable

Anecdotal evidence only: all I’m hearing is boom, boom, boom, prices are gonna go up from every Tom, Dick and Harriet I speak to.
An accompanying media frenzy check
Debateable

House prices rises make headlines here while stock market rallies make the business pages only.
Stories of people earning a lot of money, causing envy among people who aren’t check Thats always true the world over


Growing interest in the asset class among the general public check

"New era” theories to justify unprecedented price increases check Where are these theories and what unprecedented rises?

“It’s different here” is my fav.


A decline in lending standards check
Hardly, banks are much stricter now although Aus always was pretty good on not doing sub prime type stuff

So how comes 45% of first home buyers in the last 18 months are struggling with their mortgage repayments? How comes 1 in 4 of all mortgages will suffer severe mortgage stress if rates go up by a tiny bit more, despite historically low interest rates? How comes Australia has one of the highest debt to income ratio in the world?

http://www.canberratimes.com.au/news...4/1739606.aspx

http://au.news.yahoo.com/thewest/a/-...tress-hits-wa/

http://www.brisbanetimes.com.au/quee...ml?autostart=1

http://seekingalpha.com/article/1800...debt-obsession

EvannTel

Don't get me wrong, I do not believe everything is wonderful and secure and we have nothing to worry about in Aus, but likewise as others also suggested in the "Established house prices" thread running at the moment, I don't believe we are on the verge of a fiscal collapse of the likes seen in the UK or USA.
Yes house prices may go through another correction phase, yes interest rates will probably rise, yes the dollar will weaken but not dramatically or more specifically quickly.
Its my view only, no one knows for sure - if they did they would be very rich indeed!

jd6969uk

Some interesting articles from Mike Shedlock.

Fascinating charts on least and most affordable housing in the world. Needless to say, Canada, Australia, UK and US dominate in the ‘least affordable’ category.

Least and Most Affordable Housing in the World, By Nation and City; Vancouver Canada is Least Affordable City, Australia the Least Affordable Country

Australian Housing Bubble About to Burst, Market About to Crash http://www.marketoracle.co.uk/Article16958.html

big_matt

The interesting fact for me is that there are a significant number of mortgages that would be defaulted if rates go up half a percent.

Therefore, if rates go up 2-3% (which they will over time) there will be huge defaults and mortgage stress. These properties could then be purchased by foreign investors (keeping prices high) but I think at least a decent correction is inevitable.

Vash the Stampede

5.2% in 3 months is not a sharp increase. 15-20% would be a sharp increase. 5.2% is within the scope of market fluctuation. Don't forget that the average Australian house price fell by 2.4% in the third quarter of 2008. In the same period, Perth prices fell by 6.7% and Sydney prices by 4.% If 5.2% is a "sharp increase", is 6.7% a "sharp decrease"?

A media frenzy is what happened when the global recession came to town. That's what a media frenzy looks like. We don't have a media frenzy about house prices.

Firstly, that's not a "new era theory to justify unprecedented price increases." Secondly, I've never heard anyone use "it's different here" in that way. Thirdly, it is different here. Australia was the only major Western economy to escape the global recession, remember? We didn't lose any banks, we didn't have any bailouts, we didn't see any giant bankruptcies. When AIG fell over in America, its Australian wing continued trading without a blink. Australia has a stronger, better regulated economy: fact.

That's because too many Australians are over-committing themselves on car loans and credit cards. Clock up too many commitments and something's got to give. It has little to do with mortgage lending standards.

ABCDiamond

The figures shown at that ABS source, looking at the price indexes over a longer period of time, show a different figure to that recent artificial rise. eg:

Price Index of Established Houses ; Weighted Average of 8 Capital Cities ;

• 130.1 Dec 2007
• 124.8 Dec 2008
• 141.8 Dec 2009

This works out at an annual 4.4% growth over each those years, hardly anything to write home about.

However to look at another period we could consider this 12 months:

• -0.84% Jun-2008
• -2.62% Sep-2008
• -1.34% Dec-2008
• -0.80% Mar-2009

Prices reductions in every quarter totalling 5.6% DROP.

asprilla

Here's another graph to throw into the mix, from RP data blog.

Vash the Stampede

Nice graph. Australia still riding high, I see.

ABCDiamond

Average annual change for each of those are about:

US -1.38%
UK 2.80%
NZ 7.93%
Aus 5.52% (this growth would take 14 years to double in price)

Sydney price doubling for comparison:
People often talk about price doubling every x years.
Here are Sydney's price doubling periods, since 1970

2009 is $447,000, so any guesses ?
At 5.52% average annual growth it may be 2015 (doubling after 15 years).

Property prices are slowing down their doubling periods.... seems weird doesn't it....

Lord_Farquar

Well...technically at least.

Amazulu

Technically works for me.

Lord_Farquar

Has China recieved its thank you card yet?

Dreamy

Don't you flap about the incorrect use of apostrophes?