Thanks deepthought. Yes I forgot about the fact that the stockmarket was on the nose for a few years after the dot com bust. Conversely the property slump has done wonders for our stockmarket!

Seeing that it doesn't apply to investors or people buying their second or more home its effect on house prices during the boom was probably small.

Yes it was only responsible for part of the boom, but the point is that it did push up house prices. It only has to push up house prices by a small amount to make it a bad idea.

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An interesting article from crikey on housing costs. I'm not sure I agree with the bit about interest rates somehow favouring the pruchase of existing homes.


Interest rate rises are supposed to slow the economy ... how then do we explain the surge in house prices in 2007, a surge that came despite two interest rate rises during that year (and after three in 2006)?

The Australian Bureau of Statistics house price index (which calculates the average price across the eight capital cities) jumped by a boomish 12.3% in the year to December.

That was the fastest annual pace since March 2004, when the last Australia-wide housing boom (driven by strong demand for loans) was dying. Brisbane was the stand-out, with an annual rise of 21.6%, Melbourne enjoyed an 18.1% jump and even Adelaide saw a 20% rise. Sydney enjoyed 8% growth but Perth saw prices up just 1.1% in the year as its boom exhausted itself with buyers driven from the market (Perth prices rose by more than 30% in 2006-07).

So on the face of it, the boom is back and lending is strong, but a rate rise later today should add to the pressure for a slowdown shoudn't it? Well, not so fast. According to the RBA's own figures, growth in home lending was already at the lowest level for nine years in the year to December. Official Reserve Bank figures on credit growth released last week showed that in the year to December, the growth in housing loans was running at an annual rate of 11.6%, which shows no change since September of last year and the growth rate had slowed from around 13.7% at the end of 2006.

That can't just be explained by the slowdown in housing loans coming from non-bank lenders who have been forced to curtail their activities by the problems at RAMS and the impact of the credit crunch. The growth in housing advances was slowing before then.

So if the growth in housing loans is running at lower than expected levels, why are house prices surging again, and surging at boom-like conditions in Brisbane, Adelaide and Melbourne in particular? Interest rate rises are in fact a large part of the cause because they erode the affordability of new housing, thereby restraining supply as demand rises for the existing stock of houses. So a tightening of monetary policy today will have (as it had last year) the perverse impact of providing some upward pressure on house price inflation.

What many of the stories in repossessions and foreclosures in Sydney do not explore is the incidence of people who are investors losing their investment and primary properties: that's not mortgage stress as the many Australian home owners would understand.

House prices in the major cities rose faster than the servicing costs rose last year, which means many home owners got wealthier, while renters and others suffered because of a near 10% rise in rental costs over the year.

So I reckon that all the moaning and groaning about rising mortgage stress should be taken with a great big chunk of salt. We have the unedifying spectacle of hundreds of thousands of people worrying about housing affordability and mortgage stress (so we are told) while the value of their houses climbed at three times the rate of inflation nationally, and by a fifth in three major capital cities.

I reckon there's a lot of misery guts out there in Australia who don't know when they are well off.

And finally, the cut-off for mortgage stress is when servicing costs hit 30% or more of income (they were much higher in the 70s and 80s). In Spain, where the housing sector is imploding, it’s over 45%. Now that’s stress.

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Dr Ron Wood, The Econoclast. What we’ve got is called capitalism, not inflation. When the price of fuel goes up its because of reasons relating to supply and demand. That’s not inflation, it’s a market mechanism. If you’ve got fruit going up because suddenly you’ve got a shortage of bananas and that causes apples to go up because people buy more apples, that’s just a market mechanism at work. Same with fuel, we know why that has gone up. The other things that have gone up are all the bits that contribute to the RBA raising rates: rents, and interest and deposit facilities. If you take only those four items out of the CPI that leaves you with 111 out of 115 items. You’ve still got 97% of all items, which represent an inflation figure of 2.4%, which is at the lower bounds of the target range, and it’s been stuck at the lower end for two years, even including the impact of fruit, fuel and the RBA controls. What a lot of economists do is say that if the CPI is rising that must be a sign that the price mechanism has broken down, then they make the leap to say we must have inflation. But if the CPI is not rising that much at all, then you don’t even have the footprint of inflation. What we have is capitalism at work.

freediver wrote on Mar 4^th, 2008 at 3:23pm:


Yes, another ill-thought out policy from the Liebor Fantasyland Party.  Has he any idea at all?  I guess not which is why he's got a bunch of seat polishing committee members and is planning to get 1000 dudes together to tell him he's an idiot.

Sprintcyclist wrote on Mar 5^th, 2008 at 3:35pm:


Yes, quite right sprint.  But being there will make them realise they are within an idea free zone with Little Kevvy determining its demarcation.

But you're right they will enjoy the glory of having comfy seats to fart in, a nice nosh up, some blithering idiots from the Liebor Lala Party doing a few tricks and apologising for each other and ultimately an entry in their resumes when they go for that job as chief seat polisher in some public service dead end.

RecFisher wrote on Mar 5^th, 2008 at 9:16pm:


Not thought of it and fixed the dishwasher instead.  That would have been more productive and less damaging to society.

This is what Mr.Swann had to say on his blog:

[Comment From Patricia]
Mr Swan what about me? I am 63 and work full time and paying my own house off. Your reforms will not give me any more money in my pocket. I will be working forever.
Hi everyone - Wayne Swan here. It's great to be online to answer your questions about our tax plans for the future.

And Hi Patricia - thanks for your question.

We've put in place a very substantial measure through our changes to superannuation which means that people over 50 will be able to make bigger concessional contributions to their super accounts, provided they have a super balance under $500,000.

We've done this because we recognise that many Australians may not have had the chance to build up adequate super earlier in their life, but at this stage in their life, perhaps with the kids off their hands, they might have more scope to build up their super to prepare better for their retirement.

That's a major measure and we're proud of it.

[b]Mr.Swan.
Can you please inform me where is Patricia going to get $50,000 to put into super as she is still paying off her house?

How much does Mr.Swann know about economics making a silly statement like that and he handles the countries finances.      

Yours truly
Hawil