|
Ex Dame Pansi
|
From Money Morning....
The Real Estate Institute of Victoria (REIV) announced today:
“The Clearance rate this weekend is 61 per cent, compared to last weekends 59 per cent.
“There were 836 auctions reported this weekend, of which a total of 508 sold and 328 were passed in, 210 of those on a vendors bid.”
Funnily enough, last week the REIV said that “920 [auctions] expected next weekend…”
Which tells you that roughly 10% of the auctions that were supposed to take place this weekend didn’t. Or if they did, the real estate agents don’t want to tell you about them.
In other words, rather than a clearance rate of 61%, you’re looking at a clearance rate closer to 55%. And that’s for Melbourne which is supposed to be the housing auction capital of Australia.
And if you look at the handy chronology of auction results and previews on the Castran Gilbert Real Estate website, you can see how the number of actual auctions taking place each weekend is becoming significantly less than the number predicted the week before.
The trend is telling you that more and more properties are going up for sale, but fewer and fewer are being sold.
You can expect this to get worse as sellers become ever more desperate to flog off their over-leveraged properties… and so much for the property shortage, the REIV says, “over 1000 auctions expected for each of the next three weekends and buyers are more cautious in light of the banks decisions to increase rates above the decision of the RBA.”
The spruikers wouldn’t be worried would they? Of course they are. They’re petrified in fact.
Our old pal Michael Pascoe over at The Age is clearly on edge at the number of housing bubble stories doing the rounds. For instance, he makes the typical mainstream mistake of assuming higher income earners are safe from mortgage stress. He writes:
“As for the National Centre for Social and Economic Modelling’s ‘mortgage pressure tipping point’ of 30 per cent of disposable income going on repayments, it means little without consideration of how large that disposable income might be and the other demands on income. If a household takes home $150,000 and chooses to spend $50,000 of it on buying a roof, living on $100,000 is hardly any form of absolute ‘pressure’.”
Really? Obviously Mr. Pascoe doesn’t appreciate that most people tend to live up to and even beyond their means. Which is rather the point about why excessive borrowing is having the impact it is.
Those with $150,000 of disposable income are likely to have the lifestyle of someone with a $200,000 income, just as a $50,000 income lives the life of someone with a $70,000 income – hence the reliance on debt Michael!
Besides, he shouldn’t forget that most of the newbie borrowers, sucked in by the first home buyers bribe are forking out 50%, 60% or more of their income on mortgage repayments.
But perhaps the best way of showing the impact of what’s happening is a chart we came across when we were fiddling around on the Interweb at the weekend. We thought we’d pay a visit to the website of our old pal, Prof. Steve Keen.
Last week the prof wrote an article saying that Australia has already experienced competition in the banking sector, and that further competition wasn’t necessary. Instead of competition:
“What we need are methods to regulate the volumes of debt offered by the banks to stop this happening again, without putting upward pressure on the cost of households have to pay for it. That may sound like an economic impossibility, and it would be if ‘free competition’ between banks were expanded.”
As you know, we believe regulating something is a waste of time. The banks are supposed to be regulated already, but that doesn’t stop them from issuing ever greater amounts of debt so that now the banks have little more than a few cents out of every dollar of depositors’ money on hand to meet their obligations.
This has been the result of manipulation of interest rates which has kept the rate artificially low and encouraged more people to borrow. As Prof Keen notes:
“Be careful also about wanting a lower price – in terms of the margin between the RBA’s base rate and the variable mortgage rate. One way price can be driven down in competition is by offering a lower quality product…”
We couldn’t agree more. But we wouldn’t say that it’s competition that’s to blame. Competition in any part of an economy is always good for the consumer, even in banking.
But it’s the manipulation of the interest rate plus other forms of government interference that is the main cause of excessive borrowing rather than competition.
Anyway, here’s the chart from the Prof that caught our eye:
Source: Debt Deflation
As you can see, since the early 1990’s the value of mortgage debt as a percentage of gross domestic product (GDP) has gone through the roof.
The Prof states:
“Back when ‘the recession we had to have’ began, mortgage debt was a mere 17% of GDP.”
Now, if you look at the chart, it’s hit almost 90% of GDP. In other words, over a four-fold increase in mortgage debt exposure during the last twenty years.
But the thing that really interested us the most was the comparison with unemployment that the Prof used on the chart. If you put them in a ratio, then in 1990, the amount of mortgage debt against the unemployment rate was about 3:1.
Today, the ratio is around 16:1.
|
Forum
Pages: 1 
