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Australian Housing Bubble Reinflated

By theoakman following x   2010 Aug 6, 1:19am 5,323 views   12 comments   watch   nsfw   quote     share    


Looks like Australia successfully blew their bubble up even more.  The crash didn't come and they stimulated their way out of it.

http://www.bnet.com/article/how-australia-ducked-the-crisis/352693

 And while GDP and housing markets held up remarkably well, both received assistance from government stimulus programs. Australia has its equivalent of the U.S.’s first-time home buyers credit, with an AU$14,000 grant for rookie home buyers, which could go as high as AU$21,000 for brand-new homes. The OECD estimates that the home buyer’s grant and other stimulus goodies, including a big infrastructure project called the Nation Building program, saved 150,000 to 200,000 jobs that might otherwise have been lost.

#housing

1   pkennedy   ignore (0)   2010 Aug 6, 3:23am   ↑ like (0)   ↓ dislike (1)   quote   flag        

I noticed many countries became major buying grounds during the US bubble. Immigrants and investors seemed to have pushed prices way up in many places, using the US as a "it works for them!" mentality.

Many countries people live in the big cities, without urban areas because gas is so expensive, and transportation is expensive. We're only starting to feel those pressures here.

2   bob2356   ignore (4)   2010 Aug 6, 5:43am   ↑ like (1)   ↓ dislike (1)   quote   flag        

As someone living on the ground in the area I can tell you that real estate in both Australia and NZ are very much in a bubble. Increase of triple and quadruple in less than 15 years. Rents for less than half the cost of buying are very common. NZ has come down a lot in the last 3 years, but Oz is still crazy. Lots of people are leveraged to the max and insane mortgage terms are the norm there. Banks are encouraging 40-50 year loans. Interest only is very common. The general philosophy is that RE will always go up so just pay the interest and you will make a fortune on the appreciation. I saw a recent advert by a finance company explaining how if you took an interest only 30 year mortgage that after 30 years you would have enough equity to pay off the mortgage when you sell the house and have enough left over to buy a retirement home. Pretty crazy.

The only thing that will keep the house of cards afloat is that all loans are non recourse and bankruptcy is very, very difficult. Absent a big crash in commodities (pretty much the entire Oz economy) I think the air will slowly go out of the balloon in Oz. That is what is currently going on in NZ RE which is slowly but steadily falling with the most inflated prices falling the fastest. I recently saw a beachfront house down the street sell for $750,000 (about 560,000 US) that sold for 1.4 million 3 years ago. I am currently renting a big beachfront house in the best area of the district. It's on the market for 2.5 million (it's worth maybe 1.5 at best) and I'm renting for $2200 a month. Why buy? The good news is that NZ has decided that subsidizing housing isn't the most productive use of capital and there are several changes to the tax system that make real estate investing less subsidized (like rational depreciation schedules) coming into effect this year. That will probably cool things in NZ a little more.

3   theoakman   ignore (0)   2010 Aug 6, 2:19pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

The real estate bubbles making new highs are in two countries that derive a ton of revenue off natural resources. They aren't experiencing difficult unemployment. A huge fraction of that revenue is coming from China. Expansion of the money supply, stimulus, and subsidies create real estate bubbles. Australia and Canada are doing all three. But on top of that, they get blow over from the 2 trillion dollar Stimulus that China embarked on. Apparently, it was enough to keep home prices going up. As far as them not being aware of the US home prices crash...you'd be surprised. There are still plenty of people that completely deny that housing was in a bubble here in the first place. You should see the couple throwing a fit about the offer my wife and I put in on a home last week. IMO, we were about 30k over it's true value.

4   bob2356   ignore (4)   2010 Aug 6, 2:29pm   ↑ like (0)   ↓ dislike (1)   quote   flag        

I think you answered your own question. World wide government manipulation in the housing markets combined with massive amounts of debt and/or government manipulation of the money supply. Debt in the US as a percentage of GDP is higher now than any time in history. The only time even close was 1933. That date rings a bell. I have yet to be convinced that infinite borrowing is possible either by individuals or governments. History suggests not.

FYI in the last 3 great debt deflations (US 1870's, US 1930's, Japan 1980's) the low in long term interest rates (which are controlled by market forces) occurred about 15 years after the burst. So continued fall in interest rates is probably going on for at least another 10 years. Whether this is enough to prop up housing debatable.

There doesn't seem to be all that much money sloshing around the world at present. Australia, Canada, and China seem to be the only countries that aren't experiencing a declining or stagnant housing market. China is a command economy so who know what is really happening there. Australia and Canada are still riding commodities. Almost every housing market in europe is sucking wind with some experiencing heart stopping declines. Places like Costa Rica (huge bubble) are really sucking wind. I have really considered Costa Rica for retirement for a while. If Costa Rica prices stabilize for 2-3 years I'm going to really consider buying something. Even if prices decline further it will be my estates problem, not mine.

5   thomas.wong1986   ignore (3)   2010 Aug 6, 5:34pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

LOL! Actually Australia is experiencing a economic boom. Unemployment is at 5%, economy expanding with rich minerals and food being purchased by China. The Aus Central Bank actual raised their interest rates earlier this year. And yes! Chinesse millionaires are taking their summer vacationing during the Chinese winters there as well. And you thought they were buying in Palo Alto .. oh thats rich!

6   theoakman   ignore (0)   2010 Aug 7, 11:22pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

thomas.wong1986 says

LOL! Actually Australia is experiencing a economic boom. Unemployment is at 5%, economy expanding with rich minerals and food being purchased by China. The Aus Central Bank actual raised their interest rates earlier this year. And yes! Chinesse millionaires are taking their summer vacationing during the Chinese winters there as well. And you thought they were buying in Palo Alto .. oh thats rich!

You should work for the Australian NAR. It's obvious you didn't read anything else in this thread.

7   thomas.wong1986   ignore (3)   2010 Aug 11, 5:57am   ↑ like (1)   ↓ dislike (0)   quote   flag        

theoakman says

You should work for the Australian NAR. It’s obvious you didn’t read anything else in this thread

No oak, their boom is much more real. The one great thing about the Aus RE market, is the brokers were busted for fabricating multiple offers. As a result, REA can lose everything if they screw up. We need similar laws in the US.

Agents to face $1m fines for fake bids MARK RUSSELL July 19, 2009

THE Australian consumer watchdog says real estate agencies involved in under-quoting and dummy bidding will be hit with fines of up to $1.1 million from January 1.

Australian Competition and Consumer Commission chairman Graeme Samuel said a new Australian Consumer Law is aimed at any businesses involved in misleading and deceptive conduct, including real estate agents.

Maximum penalties will be fines of up to $1.1 million for businesses and $220,000 for individuals convicted of dishonest behaviour under the bill, which is now before the Senate.

http://www.brisbanetimes.com.au/national/agents-to-face-1m-fines-for-fake-bids-20090719-dp5i.html
If we had such laws and processes in the US markets, you would see the mother of all corrections.

8   theoakman   ignore (0)   2010 Aug 11, 6:11am   ↑ like (0)   ↓ dislike (0)   quote   flag        

thomas.wong1986 says

theoakman says

You should work for the Australian NAR. It’s obvious you didn’t read anything else in this thread

No oak, their boom is much more real. The one great thing about the Aus RE market, is the brokers were busted for fabricating multiple offers. As a result, REA can lose everything if they screw up. We need similar laws in the US.
Agents to face $1m fines for fake bids MARK RUSSELL July 19, 2009
THE Australian consumer watchdog says real estate agencies involved in under-quoting and dummy bidding will be hit with fines of up to $1.1 million from January 1.
Australian Competition and Consumer Commission chairman Graeme Samuel said a new Australian Consumer Law is aimed at any businesses involved in misleading and deceptive conduct, including real estate agents.
Maximum penalties will be fines of up to $1.1 million for businesses and $220,000 for individuals convicted of dishonest behaviour under the bill, which is now before the Senate.
http://www.brisbanetimes.com.au/national/agents-to-face-1m-fines-for-fake-bids-20090719-dp5i.html

If we had such laws and processes in the US markets, you would see the mother of all corrections.

uh huh. I'll let time vindicate me on this one. Prices are already spiking down.

9   thomas.wong1986   ignore (3)   2010 Aug 11, 7:03am   ↑ like (0)   ↓ dislike (1)   quote   flag        

theoakman says

uh huh. I’ll let time vindicate me on this one. Prices are already spiking down.

Look, they have a much more healthy economy compared to the US markets. Equally true today, Aus RE markets have much more transparency in the buy-sell process than the US.

They did not have easy lending and teaser rate financing. But they did have lots of RE fruad,
thus a bubble. Put in place heavy fines on fake multiple offers and continue with auction style sales will only create more stable prices. Yes prices will fall, that is true, but thats entirely to removing the potential fraud out of the picture.

We have it both ways. Toxic loans and RE fraud with fake multiple offers. It will take a long while until we get to a bottom in the US.

10   thomas.wong1986   ignore (3)   2010 Aug 11, 7:06am   ↑ like (0)   ↓ dislike (0)   quote   flag        

theoakman says

I’m not sure about Canada, but if you ask me, I’d say the Australian’s look poised for a big time crash.
This graph of Canadian prices does indicate that it is possible to reverse the price direction of home prices, which you’ve been arguing for the past year

Same issue, RE fruad uncovered in Canada.

The secret's out on phantom bids
September 15, 2007

Tony Wong

The incoming head of the Toronto Real Estate Board has come out swinging against phantom bidding tactics after denying they even existed when she ran for the job three months ago.

"It's dirty realty, it really is," Maureen O'Neill said of agents who fabricate offers during bidding wars. She is now calling on the Real Estate Council of Ontario (RECO) to yank the licences of agents convicted of using phony bids.

"Boot them out, we don't need them in the business," O'Neill said. "I don't think these people should be allowed to sell real estate."

Phantom bids can be used by selling agents to spark extra rounds of bidding or to spook potential buyers into rushing or raising offers. The practice is considered a breach of ethics under the Real Estate and Business Brokers' Act of Ontario – administered by the Ontario council – and realtors who are caught can face hefty fines.

There are more than 52,000 real estate agents in Ontario (26,000 in Toronto) and last year they sold 194,793 existing homes in Ontario (84,872 in the Toronto market).

An informal poll of 30 Toronto-area agents taken yesterday by the Star suggests that virtually all believe that some form of phantom bidding exists in the market. More than two-thirds said some kind of structural reform in the way bids were handled was needed to address the problem.

However, more than half the agents said the problem is being caused by "a few bad apples."

One prominent broker, who handles one of the city's largest brokerages, calls the problem "rampant."

"This is a major problem and it's causing a black eye for the real estate community," said the broker, who did not wish to be named. "You end up with one man at an auction bidding against himself – it's plain fraudulent." The broker says he gets an average of one complaint per day from his agents about potential phantom bidding.

He said he has complained for three years to directors at the Toronto Real Estate Board who "really don't have the stomach for this. They don't want to deal with the issue."

O'Neill made her comments after learning the Star had received documents proving the Real Estate Council of Ontario has been called upon to deal with complaints about bidding war tactics.

Until this week, she steadfastly refused to acknowledge made-up bids occur, saying the Ontario council's CEO Tom Wright and registrar Allan Johnson assured the Toronto body's 18-member board on July 19 that no complaints had ever been received.

But the Ontario council's spokesperson Sandra Gibney said yesterday that Wright and Johnson made no such statements and "RECO does not know why Maureen O'Neill is claiming otherwise.

"If Ms O'Neill had contacted RECO prior to responding to questions about RECO's complaints statistics, RECO would have provided the same information that you received," Gibney added in an emailed statement.

In response, an angry O'Neill said she "will certainly be calling (RECO) and asking what the hell is the problem. Certainly they have strained this relationship."


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