High home prices sustainable: RBA

[Ash007]

Looks like we will continue to have high or increasing prices in Aussie land. Let the wars begin!

http://www.smh.com.au/business/high-home-prices-sustainable-rba-20091125-jp4z.html

High home prices sustainable: RBA
CHRIS ZAPPONE
November 25, 2009 - 11:11AM Comments 16
Australians can cope with high home prices, even as first home buyers struggle to enter the market, according to the Reserve Bank.

RBA deputy governor Ric Battellino said that Australian households appeared to have the capacity "to sustain a relatively high ratio of housing prices to income" but older, more financially secure households had seen the biggest benefit of home price rises so far.

The wealth accumulated by older Australians through superannuation funds and nearly 20 years without a recession had encouraged more borrowing for upgrades and improvements later in life, Mr Battellino said, creating a "significant factor" in the housing market over the past 10-15 years.

By comparison, under 35 first-home buyers had experienced "a noticeable decline in home ownership over the past 10–15 years," he said.

"It may be that this is being driven by demographic factors – such as the fact that young people are staying in education longer and delaying the formation of new households – but it may also be financially driven," he said.

Real expenditure on new homes was now 60 per cent higher than it was around 15 years ago, he said.

Mr Battellino predicted that Australia's trade with the growing Asian economy would help keep Australia's economy on sound footing in years to come.

With strong population growth helping to keep unemployment low, household income should rise, which would underpin demand for housing.

However, as the economy grows, driven in part by resources exports, industry will compete with the construction industry for workers.

First home buyers

The rising cost of a deposit on a first home had become a barrier for entry into the housing market for younger buyers, he said.

"On plausible assumptions, the deposit needed by first-home owners may now be around one and a quarter years' income, almost twice what it was 15 years ago."

The proportion of people who owned their homes outright has fallen from 42 per cent in 1994-95 to 33 per cent in 2007-08, the Australian Bureau of Statistics said this month, while the amount owing on homes had doubled to $150,000 and the median home value had doubled to about $400,000.

Mr Battellino said government grants for first home buyers - such as the First Home Owners Buyers Grant enacted in October 2008 and scaled back in September of this year - principally helped only the first entrants into the market.

"Various governments have sought to provide concessions to first-home owners through grants or tax relief," he said.

"However, while these measures assist the first wave of buyers who are able to take advantage of them, the benefits diminish over time to the extent that these concessions become capitalised into higher house prices."

Renovations and replacements

"Almost half of all dwelling investment has been accounted for by alterations and additions in recent years," Mr Battellino said.

Also, more new houses being built were replacements for existing houses that had been demolished.

The Housing Industry Association is tipping a 56,000 home shortage in 2009, which will remain at least until 2012. Industry analysts blame the chronic shortage of available homes in part for the high cost of Australian housing relative to similar economies elsewhere.

Median home prices in capital cities have increased almost continually since at least since 1986, jumping 28.1 per cent from 2003-04 to the June quarter 2009 alone, data from Australian Bureau of Statistics shows.

Household debt as a share of disposable income also rose from about 50 per cent in 1993 to about 150 per cent in 2008, according to separate numbers from the RBA.

In the today's speech, Mr Battellino said the RBA estimated that from 2001 to 2006, about 15 per cent of new houses built had replaced houses that had been demolished. The figure was under 10 per cent 10–15 years earlier.

A "significant proportion" of investment appeared to have gone into holiday homes or second homes, the statement said.

"Census data show that the number of dwellings built has exceeded the increase in the number of households by a large margin."

The ratio of the number of dwellings to the number of households has been rising over time with 8 per cent more dwellings in Australia than households in 2006.

"Presumably, most of this surplus reflects holiday houses and second houses," Mr Battellino said.

'Reasonably relaxed'

In the speech, "the RBA seemed reasonably relaxed on the issue of housing stress/debt suggesting that international comparisons are difficult to make and that households appear to have 'the capacity to sustain' relatively high house prices," said RBC Capital Markets economist Su-Lin Ong.

"This partly reflects the RBA's view - highlighted in some of its other research - that those with the highest debt levels are generally best able to manage it, the impact of accumulated compulsory superannuation savings, and some factors specific to Australia which encourage the faster paydown of debt."

University of Melbourne finance professor Les Coleman said rising house prices was asset inflation by a different name.

"The RBA talks up a storm about controlling inflation for good and proper reasons… it’s no different with assets."

"If you have rampant inflation it induces people to make poor financial decisions."

[email protected]

BusinessDay

 

[Ash007]

Din know that UAssA spend so much on other stuff.

http://www.smh.com.au/business/economic-upswing-to-last-years-rba-20091125-jpnr.html

Economic upswing to last years: RBA
November 25, 2009 - 11:34AM
Australia's economy had entered a new growth phase that may last years, underpinned by booming mining investment, rapid population growth and rising household incomes, a top central banker says.

In a resoundingly upbeat speech, Reserve Bank Deputy Governor Ric Battellino this morning also highlighted the strength of Australia's major Asian trading partners, predicting economic growth there was likely to recover to trend next year.

Mr Battellino noted the domestic economy had held up much better than expected this year, being the only developed economy to boast year-ended growth.

"With the economy having only recently entered a new upswing, it is reasonable to assume that we will see this growth extended for a few more years yet," said Mr Battellino, in a speech to a housing industry conference.

That optimism was one reason the RBA raised interest rates in October and November, the first G20 central bank to do so since the global credit crisis blew up.

It will also encourage speculation the RBA will again lift its 3.5 per cent cash rate at its December policy meeting next week.

Mr Battellino said recent evidence suggested global growth as a whole had continued in the fourth quarter, led by a pick up in Asia. That was positive for Australia, since Asian countries were its major export markets.

"While the world economy as a whole is forecast to remain relatively sluggish next year, economic growth for the group of countries that comprise our major trading partners is expected to recover to a relatively normal pace," he said.

Mr Battellino played down concerns that weakness in the North Atlantic economies would prevent a recovery in Asia, noting that much of the expansion in the region was fuelled by domestic demand rather than exports.

For China, domestic demand had contributed on average close to 9 percentage points per annum to growth over the past decade, while net exports contributed about 1 percentage point.

"Importantly, the authorities in most of these countries have plenty of scope to pursue policies that sustain domestic demand," he added.

Rising demand in Asia was also fuelling a boom in resource investment in Australia, notably in mining and liquified natural gas. "If this scenario eventuates, it will have powerful and broad-ranging implications for the economy," he added.

For one thing, demand for labour would likely keep immigration strong and thus support rapid population growth, he said. Household incomes were likely to rise solidly, which would help underpin the demand for housing.

The construction industry would likely face substantial competition for workers from the mining sector. Indeed, the need to build enough homes to meet rising the population would stretch the housing industry.

Mr Battellino said Australian home prices relative to incomes did seem high compared to, say, the United States. Yet he also saw good reasons for this, including the fact that Australian households spent less of their incomes on non-housing consumption than Americans and tended to pay debt off quicker.

"The experience of the last few years suggests that the Australian household sector as a whole appears to have the financial capacity to sustain a relatively high ratio of housing prices to income," he said.

Mr Battellino also played down worries the global credit squeeze would limit the supply of mortgage credit in Australia, saying lending by banks was relatively high and more than enough to fund needed housing investment.

Reuters

 

[neddy]

Din know that UAssA spend so much on other stuff.

Reuters

I did not want to say this previously.

It is about time you realise that an Average Aussie earn more than their American counterparts in many US states.

Because of the variation of wages among the states in the US, there are only about 15 states in which median wages are higher than Australia's.

Meanwhile, we are finally understanding the pains which Americans are going through. Americans are opting for smaller houses to save on heating and cooling bills. Housing developers are removing frills to lower housing cost.

This is amazing consider that Uncle Sam has Freddie Mac to artificially lower the mortgage rates, eg 3.5% for 30 years!!!

While Americans are re-inventing themselves now that they cannot overspend, this is bad for the western world. President Obama humiliated the proud Americans during the 3-day visit to China, .... US banker.

 

[Ash007]

Thanks, I did not realised that things are worst in America. I knew that minimum wages are very low, hence tipping is mandatory over there. I always thought standard of living would be on par with Australia. I never really liked living in the States. One of my former colleague in the States actually said, if he wants to migrate, he would migrate to Australia. Says something about country.

Wonder what the trolls have to say about all this.

I did not want to say this previously.

It is about time you realise that an Average Aussie earn more than their American counterparts in many US states.

Because of the variation of wages among the states in the US, there are only about 15 states in which median wages are higher than Australia's.

Meanwhile, we are finally understanding the pains which Americans are going through. Americans are opting for smaller houses to save on heating and cooling bills. Housing developers are removing frills to lower housing cost.

This is amazing consider that Uncle Sam has Freddie Mac to artificially lower the mortgage rates, eg 3.5% for 30 years!!!

While Americans are re-inventing themselves now that they cannot overspend, this is bad for the western world. President Obama humiliated the proud Americans during the 3-day visit to China, .... US banker.

 

[neddy]

Thanks, I did not realised that things are worst in America. I knew that minimum wages are very low, hence tipping is mandatory over there. I always thought standard of living would be on par with Australia. I never really liked living in the States. One of my former colleague in the States actually said, if he wants to migrate, he would migrate to Australia. Says something about country.

Wonder what the trolls have to say about all this.

Actually, I used to like USA a lot until not too long ago after Bush got elected. Don't be mistaken, the coastal states are fine, but you will not want to stay in some states, such as the ones in the south.

As for politics, Capitol Hill is run by K Street, DC

Now, Wall St rules the pulse of Main St America. Thomas Jefferson will be turning in this grave.

"I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale."

 

[neddy]

Yes. Americans have forgotten this ...

I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.

Thomas Jefferson, (Attributed)
3rd president of US (1743 - 1826)
http://www.quotationspage.com/quote/37700.html

 

[axe168]

Looks like we will continue to have high or increasing prices in Aussie land. Let the wars begin!

The world is so kind to us ! Thanks for the info.

 

[scroobal]

One has to be careful when comparing 1st world countries. No doubt they are all streets ahead of Singapore but US, UK and some of the European countries such as Germany and France have much broader bandwidth and dept economically, culturally and in terms of education, innovation and science than OZ.

Frankly there is little comparison between the 2 countries. Look at the climate, the enviroment etc. US was called the land of milk and honey for decades for obvious reasons. Harvard, Yale and the rest of the Ivy league are not there for decorative purpose. Neither are Cambridge, Oxford etc. Industry Captains such as in Banking, Pharmaceuticals etc are in the western hemisphere. OZ just does not have the critical mass.

People migrate to OZ including from the UK for a variety of reasons. These include British customs, legal systems, wide open spaces etc. Though the US has much more including wide spaces, its emigration policies are quite restrictive unless you are on the green card or that you trust your employer really well. One other reason, people get put off by the US is the crime rate and the lack of a welfare safety net especially health.

US is going thru a bad patch, but it has natural as well man-made advantages that far outstrips most countries. Its also has critical mass in terms of population which OZ lacks.

Believe me, their standard of living is much higher. Just look at the laptop that you are using. It likely designed by US but manufactured by cheap labour elsewhere.

Here is the acid test. If you are given a full scholarships in any discipline, board and lodging to pursue your tertiary education in Harvard, Cambridge or UNSW. Which would you pick? Surely Harvard or Cambridge. I am sure you are not going say that its UNSW because you thought that the standard of living is higher.

No doubt that Redbull and the various nicks of the same chap has been spouting falsehood about OZ, lets not fall into the same trap.

ps. no issues if you replaces the US with Russia.

Thanks, I did not realised that things are worst in America. I knew that minimum wages are very low, hence tipping is mandatory over there. I always thought standard of living would be on par with Australia. I never really liked living in the States. One of my former colleague in the States actually said, if he wants to migrate, he would migrate to Australia. Says something about country.

Wonder what the trolls have to say about all this.

 

[scroobal]

Non of the banks in the US have note/currency issuing power. It was taken away long time ago.

Yes. Americans have forgotten this ...

I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.

Thomas Jefferson, (Attributed)
3rd president of US (1743 - 1826)
http://www.quotationspage.com/quote/37700.html

 

[neddy]

One has to be careful when comparing 1st world countries. No doubt they are all streets ahead of Singapore but US, UK and some of the European countries such as Germany and France have much broader bandwidth and dept economically, culturally and in terms of education, innovation and science than OZ.


People migrate to OZ including from the UK for a variety of reasons. These include British customs, legal systems, wide open spaces etc. Though the US has much more including wide spaces, its emigration policies are quite restrictive unless you are on the green card or that you trust your employer really well. One other reason, people get put off by the US is the crime rate.

US is going thru a bad patch, but it has natural as well man-made advantages that far outstrips most countries. Its also has critical mass in terms of population which OZ lacks.

Believe me, their standard of living is much higher. Just look at the laptop that you are using. It likely designed by US but manufactured by cheap labour elsewhere.


No doubt that Redbull and the various nicks of the same chap has been spouting falsehood about OZ, lets not fall into the same trap.

ps. no issues if you replaces the US with Russia.

I believe US is too big to summarise. And I believe a lot of wealth generated by Americans these days are nothing but hot air.

But Americans do have innovations and created things like computer for productivity.

But 10 years after Americans break away from the gold standard, and after all the fashionable MBA theories of making money using BCG Matrix, they are finding out the hard way that a country need to produce real things to be sustainable. Printing paper money out of the air is not a smart move.

But forcing globalisation on the world is smart move by US that is going to backfire.

Looking at the state level, not all states are created equal.
Personally, the midWest is in transitional, most of its industries have been transplanted to China. The rust has set in. That is why people from Cleveland and Chicago are liking it here in Australia.

AS for laptops, the CPU is still designed in USA, but for how long? When the Americans refuse to sell high-tech to India, they came out with its own Supercomputer.

Redbull has one important comtribution to would-be migrants, he scares away the cowards from Australia.

 

[scroobal]

Look at the positives of the US just as what one would do when moving to OZ, Canada etc. Always compares apples with apples. Pointless talking about mid west. You might as well talk about Darwin and Alice Springs.

Lets take one industry - Banking. Every banking product that is available in OZ and the rest of the world originated from the US or the west. Including the systems that run it. Thinks like micro-loan in Bangladesh are not banking products because the ROI cannot be met.

Take the sports industry. Look at Nike, Reebok etc. Pick any industry where Oz is outstripped by the US. It will be interesting comparison.

If you look at the US economy since inception, it always goes thru deep cycles. Remember the great depression. Its their nature. They are risk takers.

I believe US is too big to summarise. And I believe a lot of wealth generated by Americans these days are nothing but hot air.

But Americans do have innovations and created things like computer for productivity.

But 10 years after Americans break away from the gold standard, and after all the fashionable MBA theories of making money using BCG Matrix, they are finding out the hard way that a country need to produce real things to be sustainable. Printing paper money out of the air is not a smart move.

But forcing globalisation on the world is smart move by US that is going to backfire.

Looking at the state level, not all states are created equal.
Personally, the midWest is in transitional, most of its industries have been transplanted to China. The rust has set in. That is why people from Cleveland and Chicago are liking it here in Australia.

AS for laptops, the CPU is still designed in USA, but for how long? When the Americans refuse to sell high-tech to India, they came out with its own Supercomputer.

Redbull has one important comtribution to would-be migrants, he scares away the cowards from Australia.

 

[Satan]

Its pointless to compare US with Oz,Canada, UK, Europe etc. Everyone of these places have advantages and disadvantages. Just compare these places with the dot and see which is better.

 

[IWC2006]

Look at the positives of the US just as what one would do when moving to OZ, Canada etc. Always compares apples with apples. Pointless talking about mid west. You might as well talk about Darwin and Alice Springs.

Lets take one industry - Banking. Every banking product that is available in OZ and the rest of the world originated from the US or the west. Including the systems that run it. Thinks like micro-loan in Bangladesh are not banking products because the ROI cannot be met.

Take the sports industry. Look at Nike, Reebok etc. Pick any industry where Oz is outstripped by the US. It will be interesting comparison.

If you look at the US economy since inception, it always goes thru deep cycles. Remember the great depression. Its their nature. They are risk takers.

FYI, Australia has the 4th largest superannuation fund services in the world just behind US, Japan and the Netherlands. Yes, most banking products are derived from the UK and the US. Australia's stock exchange is only ranked no.12 or 13th in the world, by global scale its very small and GDP is not even 5% of the world scale. Well, what to do, Australia does not have a long history, and its convicts background doesn't serve its backward image that well. Without the resource/commodity sector, the whole country is doomed. Its a very comfortable place to live in but in terms of innovation its nowhere close to UAssA. Just look at the software technology adopted in the workplace is a telling tale. Well, at least compare to 10 years ago its certainly more technology savy then before, but a lot of other asian countries like korea are already surge ahead of Oz

 

[neddy]

Look at the positives of the US just as what one would do when moving to OZ, Canada etc. Always compares apples with apples. Pointless talking about mid west. You might as well talk about Darwin and Alice Springs.
.....

If you look at the US economy since inception, it always goes thru deep cycles. Remember the great depression. Its their nature. They are risk takers.

At first that is what I thought. But you really got to be ruthless and "patriotic" to move ahead. For me, there is not a chance.

In Australia, as long as you got a bit of smarts, you are ahead of the pack already. In US, there is at least another 30 guys who have the same idea and compete with you.

The problems of ganglands and homelessness are really real. And if one fall off the ladder of life, that is where the person will end up, subject to the charity of the rich philanthropists and the social security dept.

Every week, queue up for the check, avoid the shopper trolleys of fellow men, then you will see scavangers/creditors waiting to garnished the checks. If you are lucky, head for the hood's shop for a paid shower, and purchase the necessities.

Thanks to this nasty scenerio, a lot of Americans in leadership will not do the right thing. I am not saying Australia is a saint.

But if an average wage earner used up his health insurance (because of chronic disease) he will need to seek charity to go for an operation, because the hospital has reached its quota of free treatments as well, something is very wrong with the system.

Perhaps I expected something better in the "great" USA. But I was wrong!

 

[neddy]

Well, what to do, Australia does not have a long history, and its convicts background doesn't serve its backward image that well. Without the resource/commodity sector, the whole country is doomed.

Perhaps that is why you find me in Perth. But the question is whether the resource curse is already inflicting upon this country?

We have to be wary of bigger countries who are attracted to the resources of this country. Already, China is trying to checkmate some minerals without conquering this country.

 

[neddy]

Risk-taking US style.

The idea of moral hazard thrown into the fire, we have sub-prime new shoots.
US Fed Housing Admin only requires 3% downpayment for housing. Add to that is Obama's homebuyer tax credit.

Compare that with 20% downpayment for an Aussie home loan and the Aussie's enviable low foreclosure history (33,000 cases in 5 million)

I understand that US pile of toxic mortgages just went up another $1 trillion. Yes, no lessons learnt while those involved are scratching each other's back.

Selfish capitalism at work? The risk takers are ignorant Main St Americans. Talking bout being screwed big time!!!

 

[scroobal]

Not only that, after the revamp of the superannuation scheme its now considered one of the more sustainable scheme amongst the advanced countries. Its a real feather in the cap.

FYI, Australia has the 4th largest superannuation fund services in the world just behind US, Japan and the Netherlands.

 

[Ash007]

More news today. Looks like our health care cost is also lower compared to the UAssA.

http://www.smh.com.au/business/house-prices-to-rise-further-but-theyre-worth-it-says-rba-20091125-jrta.html?autostart=1

House prices to rise further but they're worth it, says RBA
PETER MARTIN
November 26, 2009

House prices to remain high
The RBA believes house prices are to remain high due to population rise, and a culture of home ownership. Ian Verrender reports.
Video feedbackVideo settings
WORRIED that $607,000 is too much to pay for a Sydney house? The Reserve Bank isn't and it expects prices to climb even higher.

In a speech that amounted to a defence of Australia's historically high house prices the Reserve Bank deputy governor, Ric Battellino, told a housing conference yesterday to expect worse and to recognise home buyers were getting value for money.

Prices would climb further because the global economy was growing again and because Australia had entered ''a new upswing'' that would extend its record 18 years of continuous economic expansion.

He said house prices would be boosted by increased population growth and immigration, solid increases in household incomes and ''substantial competition'' for construction industry workers from the mining sector.

Australians had been spending more of their income on housing than ever but had been getting bigger and better houses as a result. Almost half of the $250 billion shelled out on housing each year was spent on alterations and additions, Mr Battellino said.

Around one in every seven new houses built was ''simply replacing existing houses that have been demolished,'' up from one in every 10 new houses a decade ago.

And we're buying holiday houses like never before.

''Census data shows at 2006 there were 8 per cent more dwellings in Australia than there were households,'' Mr Battellino said. ''Presumably, most of this surplus reflects holiday houses and second houses.

''In short, a high proportion of dwelling investment is going into improving the quality of existing dwellings and building accommodation additional to primary residences.

''If as a nation we want to continue to do this, while at the same time providing enough dwellings for the growing population, the overall amount of dwelling investment undertaken will need to increase relative to GDP.''

While there was ''a common perception that house prices relative to household income in Australia are high'', the country's population was ''more concentrated in a few large cities'' than other populations and Australians had more free income with which to pay for housing.

''Australians seem to spend less of their income on non-housing consumption than is the case for US households, with a significant part of this difference explained by lower health costs in Australia,'' Mr Battellino said. ''Australian households as a whole appear to have the financial capacity to sustain a relatively high ratio of housing prices to income.

''It is certainly the case that the ratio is higher now than it was 20 years ago. However, this is largely explained by the fact that lower interest rates have allowed households to take out bigger home loans without increasing housing loan repayments. In turn this has given households more buying capacity in the housing market, which has been reflected in house prices.''

Mr Battellino conceded that not all Australians were getting better housing for their money, noting that first-home owners - typically those under 35 years of age - have experienced a ''noticeable decline'' in home ownership.

''It may be that this is being driven by demographic factors - such as the fact that young people are staying in education longer and delaying the formation of new households but it may also be financially driven,'' he said.

ON THE UP
- The typical price of a Sydney house is $607,000 after climbing $39,000 in the past year.

- The typical price of a Sydney unit is $457,000 after climbing $35,000.

SOURCE: RP Data Research