Sunday, October 23, 2011

Call for 20% Drop in Prices 'way out there'

An apparently sober Andrew Harvey wants doomsayers held accountable for their predictions. (Nothing scares a bull betting his future on buyers intoxicated by leverage more than a whiff of a wider perspective circulating in the marketplace.) So, indeed, let's have some accountability. Noting Mr. Harvey's poo-pooing below for later reference.
Keen's house price hit won't happen
And the calls seem to be getting more outlandish, with the latest prediction being for a 20 per cent drop in Australian house prices between now and the end of 2013.
A whole 20%! That would be a 24% fall overall since the peak (approximately). Again for future reference.

It is the long-term trends in underlying demand and supply that drive housing prices.
No, it's access to credit that drives prices up. If tomorrow, everyone were forced to pay with cash only, what would the price of houses be? (Yeah, I know, kinda makes your brain stop imagining that, doesn't it?)

The total debt necessary to drive an increasing volume of house prices upward is truly a thing to behold. I notice Mr. Harvey failed to mention the bond markets that actually feed this debt. Odd he ignored it, especially because these markets have been doing well, seen as a safe haven. HM. Makes me wonder if something isn't going wrong in the bond market for Mr. Harvey fail to trumpet it. . . Although bringing it up at all does remind people that the Australian housing market is a game of selling every more expensive houses to each other using foreigners' money. Nothing about that sounds dodgy at all.

Increases in the ratio prior to 2003 were due in large part to structural changes in the economy which increased the availability of housing credit.
Whoa there, Kemo Sabe. You admit that access to credit drove the bubble before 2003, but somehow, not after that? And that there was no correction for the pre 2003 bubble, either?
More importantly, Australian households remain highly able to service their housing debt, with arrears still at low levels when compared internationally.
Yeah, if you cherry pick the numbers. Sure. I notice you failed to mention that Australian household debt levels are recordbreaking (north of 154% of income, compared to 118% in the late 90s early 2000s), especially compared internationally. You and Canada are really duking it out for worst debt-ridden. Both in excess of the U.S. at our most, um, excessive.

And China’s demand for iron ore has not been on a stable upwards trend but rather it has been growing exponentially. Basically, the amount of iron ore the country sucks in has been doubling every three years. The investment in Australia’s largest resource projects to help meet this and other demand is in the main locked in. In other words, no matter what happens in Europe, we have roughly a two-year period where business investment will contribute strongly to our growth.
Hey, China is going to buy enough over-priced iron ore to bail out the economy. Iron ore, really? Australia loves being an economic colony, apparently. Export raw materials, import finished products. . . And by the way, it's 5.6% of total GDP and less than 1% of your national workforce, mining is. But it is going to help all those masses of Aussies get out from under their recordbreaking debt burden. Yeah, you've definitely proven your point there.

Using fiscal and monetary policy to stimulate the economy when needed is entirely appropriate and the prospect should not be ignored when expressing a future outlook.
Ha. And if all else fails, we'll kick the can down the road. Oh, I'm totally convinced.

Justification as to why the crash didn’t happen has subsequently been far from convincing.
Kinda like this article you just wrote, you mean?

In economic terms the claim can be shot down on both theoretical and empirical grounds, but there is a risk that doing so gives more oxygen to such a claim when instead it should be doused.
You started drinking before you finished writing. And you were doing so well too.

Everybody is entitled to their opinion, but individuals should refrain from frightening people with opinions that by their very nature generate scary headlines, but that fail to transpire.
And cheerleading a bubble so even more young people are sucked into debt slavery isn't irresponsible?

Inherent value would be inherently obvious. However, value judgements made now based solely on large expected future gains are possibly susceptible to negative news. Imagine that after all those arguments about the massive shortages and free money for all forever and all the rusty rocks of iron ore heading north to China to build yet another 5x5 cubicle of office space for every man, woman, and child in the country. After all those iron clad arguments of fact, a little thing like sentiment is such a scary spectre.

Hey, Mr. Harvey. Boo!

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