LoCarb

ABC news interviews Professor Steve Keen about the coming Australian recession & housing crash.
But can we avoid the fall out with our Australian owned banks?

Extended interview with Steve Keen - The Business - ABC News (Australian Broadcasting Corporation)

Charismatic

Unlikely, supply has been kept very tight in the areas with greatest price inflation and there has been no uptick in unemployment/non-performing residential mortgages. We are well into the second longest equities bull market on record however.

When you are a financial boffin or anorak you want to predict outlying events to get your name in the media. Errors are forgotten and eventually they get lucky as long as they keep taking a punt, even a stopped clock is right twice a day. Even when a bubble is widely seen for what it is (e.g. the .com bubble) few actually get out after bring rewarded for so many years so even if many forecasts are correct often they are of little value.

LoCarb

As Keen pointed out, those getting "out" actually trigger the fall.

I think his argument that private debt levels of 220% of GDP compared to 20% of GDP in the 1980's is strong reason for the jitters.
Or do you believe in perpetual motion?

His argument that only high deficit spending by the government could prevent a crash is sound, as a slow deflate of relative house prices by moderate inflation could work.

Pointing out the Chinese effect applies equally to the NZ scene, and is why John Key doesn't want a housing correction before the next election, so National wont take any action.

jmh

I see no reason why NZ would be any different. I was just listening to Q&A this morning and we were told that NZ's very strong economy is outperforming the rest of the world so there is no risk. Remember, politicians lie to you. High immigration is hiding the fact that we have no real growth.

There ARE a lot of very rich people both in and outside of NZ who are desperate for somewhere to put their capital. NZ is seen as a safe haven and this can make us look stronger than we really are. Our markets are not protected so when economic disease spreads I see no reason why NZ won't go down as well. Best advice he gave was to minimise your debt.

Interestingly, Bill English said recently that first time buyers should 'be patient'. Wonder if he knows something we don't.

Charismatic

No amount of debt is too great when the interest rate gets to 0% p.a. (or beyond.)

We living in an aging society with almost no productivity growth on a per capita basis and a central bank that set rates to targets inflation growth. If there was deflation everyone would sell assets and run to cash of course but the one thing a reserve bank can always do is devalue money to create inflation. Easiest choice in the world really for reserve banks, they have no social mandate so to devalue peoples incomes (and any assets held as cash) is the obvious choice.

Charismatic

jmh, I can't believe you'd sully the name of such a reputable office .


Basically it's "buggered if I know, leave it to the kids to sort out" which has actually been de facto government policy on any number of issues for years now jmh. The current government has presided over the status quo for 8 years now, if they had any great ideas I'm sure they'd have mentioned them by now.

LoCarb

That's funny. My kids are still paying over 5% interest on their mortgages.
Banks will never provide mortgages of 0%....obviously!

LoCarb

I don't follow this at all. There are alternatives to CB policy e.g. government taking back control and running the country as they used to before your Monetarist buddies took over.

You seem to have no knowledge of previous eras. Too young perhaps?

Charismatic

I refer you to the recent situation in Denmark.
All I'm saying is that growth isn't really a problem monetary policy alone can fix in the long term .

LoCarb

Denmark has a fixed exchange rate with the Euro, so has to do weird things defending the peg.

NZ gave up the peg in 1984, so not comparing apples with apples

chocolate cake

I'm not sure where this outperforming NZ economy is? there's been no real growth, any growth is simply on the back of my migration and increased numbers, as wages haven't risen.
Also no sign of 0% mortgage rates here either, though the base rate surely has to be cut re: the value of the NZ$.

All that said even with the main reason behind house price growth being lack of supply, surely house prices can't go much higher, relative to incomes there already unaffordable for people not on the gravy train. Even for those of us who are, there's no benefit in the ridiculous prices, as any house price gain isn't exactly tangible income - as you buying in the same market if you're moving, unless you're down sizing or able to move to cheaper location. Higher house prices benefit virtually no one.
Inevitably they'll plateau, and they must close to that level, otherwise it'll be a more major correction.

LoCarb

I've been thinking about that.
Is there a really big shortage or just a small shortage?
Obviously everyone in Auckland does live somewhere in the city or surrounds.

Is it the case that there are just not enough houses for people who want to own their own home i.e. lots of rental properties but not enough for sale?

I say that because of a story in the newspaper last week about a Chinese guy (resident?) who had accumulated 12 or 14 houses to rent out, meaning that there are now 12 or 14 houses not available for Aucklanders to buy.

Multiply that up 100's of time and you get a housing shortage on paper with people scrambling to outbid each other at auction.

I don't know

LittleGreyCat

Sounds very like the UK.
There is a housing shortage in the desirable areas near to well paid jobs.
There isn't the same shortage where there are no jobs apart from low paid ones.
Then again, few people go to live there by choice.

The Government strategy seems very much the same as well.
Complain about the housing crisis then drop interest rates to try and boost industry and exports. Quantitative Easing (AKA printing funny money) seems very much on the agenda as well.

Of course, not building more houses but lowering the cost of loans will be enormously effective in reducing the demand for and cost of housing in popular areas.