Wednesday, September 14, 2011

More Recycling of Tired Arguments in Australia

This time in the Herald Sun. This set of arguments have been through the wash so many times, you'd think they'd notice it's threadbare and the knees need patching up.

The Australian property bubble can withstand greater adversity

The article opens with a poo pooing concern troll tone. That is a free bonus.

Add in high household debt, high house prices compared to incomes and low rental yields and the offshore analyst will quickly extrapolate imminent price falls.

That sort of analysis ignores some of the local subtleties of the Australian market which make it a somewhat different animal to its offshore counterparts.

The most basic of these is our continued stronger economic growth, courtesy of our exposure to the Asian boom through commodity exports.
That's what you've got?

"Mining contributes about 5.6% of Australia's Gross Domestic Product." --Wikipedia

5-6% of the economy is going great. No worries, Mate!

And help me out here, but isn't much of this mining in WA, you know, the home of Perth, where real estate declines have been the steepest?

Others are more difficult to pick up, such as the fact that most Australian home loans are at floating interest rates that adjust to cope with the changing overall economy - a very different proposition from offshore fixed-rate loans.
Completely fails to explain why this might help. Again, correct me if I'm wrong, but since you are betting the farm on Mining, which is inflationary, you don't want floating interest rates. That means your consumers get cut off at the knees by the very boom that is going to save everyone.

Our housing loans are also full recourse, which means that borrowers are fully liable for any losses they suffer from selling a house for less than they bought it for.
You know what this destroys the discipline of? The banks, who should have access to far more information than the average borrower, resulting in vastly unequal contractual positions. But let's leave that aside. The real problem here is that in a downturn, your consumers go absent. You will reach a time when you will desperately want families spending, but instead they will be scrounging for every last aussie they can beg, borrow, or steal to keep paying the bank for an asset worth less than they owe on it. They will exit the consumer arena, exacerbating the knock-on employment decline. But go ahead and continue celebrating your "disciplined" borrowers while you can.

This tends to add discipline to housing purchases as shown by our tiny rate of non-performing loans compared to the US foreclosure experience in which householders who have their equity more than wiped out by falling prices can simply mail in the keys and walk away with no more to pay.
What is it with this?? The U.S. is more than five years into a crash and you are making comparisons with that? Seriously. Get a grip.

Your arrears rates are way up, in case you hadn't noticed. Desperate much?

Tax also plays a part, with the capital gains tax exemption for owner-occupied housing and negative gearing for rental housing adding to returns and supporting higher prices than would otherwise be logical.
Here in Australia, we take misallocation of capital to an art form. Don't mess with us.

Lending practices in Australia have also been more rigorous than many offshore markets, where people with almost no prospect of repaying loans have been lured into home ownership by low honeymoon rates and the misleading mantra that property prices always go up.
Your low-doc arrears rate is pushing 7%, you realize that, right?

Higher Australian property prices can also be justified by the higher quality of Australia's housing stock, with renovations and extensions naturally adding value.
My god, this is a re-write of our desperate salesman's post from the other day. Yeah, you continue to reassure us that your mis-allocation of capital is based on widespread delusion. We got that already from your colleague.

Another factor often missed by offshore analysts is that while Australia's household debt levels seem high, most of that debt is held by people who can easily afford to repay it.
Seriously, you are cribbing this entire thing. You and Mr. Yardney must be sharing a cubicle. The rich are just as easily overextended as the rest of your good citizens. And, their house prices are falling faster too. Bet that helps them "afford" or at least feel better about their high debt load. By your logic.

By the way, give me some stats on this magical population of top 40% you are so relying on. How about debt to income ratios or something? Disposable income over time... Anything? Otherwise you are just blowing the same hot air as your like-minded friend. Whom you are apparently cribbing from. Or did you both receive the same talking points from the Real Estate Ministry of Propaganda?

Eh, then the article has such a weak close I won't even bother with it. I think the author got bored and just stopped. So I will too.


jesse said...

Well it looks like repenting while in purgatory is in full swing after last week's "reporting" SNAFU.

On the plus side, The Sun likely secured an increase in advertising fees for the next while. Sometimes a gentle reminder that papers hold sway over both readers and those with no other avenue to launder disingenuous marketing filth into scientifically-verified canon goes a long way.

GG said...

The cribbing off some two-bit selling blog was really lame too.