housing survey, page-64

Guys,

let me paint you the picture of the housing price model and why it moves. its very complex but these all tie into it, like dominoe's one hitting the next, if you can understand how the dominoe's are lined up you can see how its going to move.

first of, and very important, RBA raises interest rates to slow inflation, this is because if our prices over inflate we become poor against the other counties.

Now this is really stupid, but for some reason, the inflation rates do not include housing, it includes milk eggs, etc, but not housing, which is where most peoples incomes are tied up in.

if you factor in housing, then inflation is many times higher than the 2 - 3% that they release.

problem is, at the end of the day, the cost of high housing forces inflation up as everyone charges more to pay their bills, look at prices of a hair cut and a pizza in sydney against melbourne for example.

This is why RBA forces interest rates up and has been last couple years.. now we have a double whamy with america being ahead on the housing cycle, creating the subprime issue and you can see that this past month interest rates were risen because of our money being tied up in it. Now ontop of that again Australians have masive credit debt not just with housing but with credit cards as we have been purchasing like crazy.

the problem is, this, as why buy like crazy housing, and then all the goodies around the house from the kitchen to the garden shed, we put a lot of demand on industry. factorys boom, retail booms etc etc..

this creates lots of employment like we see most people have jobs now, so its more people out their buying property and building up debt pushing the economy along keeping it all going.

this past 10 years has helped out china heaps, as we have moved a lot of jobs (as did the americans) over there, so we have been pumping money like crazy to them in wages ang goods that we buy from them, everything is made in china.

this is where china gets their money from so they in turn can boom and buy all our resources like iron etc from us kicking it all along.

now, the problem is at a point the australian population starts to max itself out on buying house's and kit for their homes (TV's Beds's Cars) this can also be helped with interest rate rises as we are seeing..

Reason RBA ups interest rates is to slow inflation, this is done by restricting what peopel can borrow by making it more expensive to borrow money.. this is a simple fact and how its controlled and the RBA openly admits this.

now thing about this

when peopel slwo down buying, boom on purchasing slows down, retail starts to slow down, factorys start to slow down, purchasing of cars starts to slow down. This starts to impact on jobs slightly as companies who were now employing to supply staff to feed the boom now need to start cutting back as its slows off.

Also, as the RBA ups the rates to slow spending, it starts to hurt people who over brought and there is many of them this as the RBA plans slows down spending, which can knock back on into the jobs.

as the rates rise more people on low income who did over spend are forced to sell, this is allready happening and you can see it from time to time on shows like "today tongiht" "60 minutes " and "a current affair"

As well as people who lose jobs cant pay their mortgages and start ending up int he small boat - its happening now but only very slowly. but enough to make it on the odd TV show. but coz its only small its not seen as a real issue (yet)

but what happens here is it starts to all flow backwards. the more people lost their jobs or lose their house the Sell presure on housing starts to build and the less they contribute to the purchasing in the economy.

so the big demand being generated that was creating the buy presure in housing and good over the last 8 years starts to reverse.

the work starts to go, so people cant buy house's as easy, and the ones working cant borrow as much as the rates keep rising.

this is why demand for rentals has gone up, its because of the above starting to push people from buying into rentals as its all they can afford.

Now from here people have sugested housing prices will just become stagnent.

yes this has happened in the past, and has happend in other counties, but it wont happen again, and there is a reason why.

if the prices become stagnent, then wages will rise to put hous pricing back into prespective, this means inflation has won and so wages rose to match. this makes us poor against the rest of the world, which is why the RBA stop inflation.

the only way i can see forward from here is the RBA and banks from subprime raise the cost of borrowing to slow down spending, and for the banks to cover their new costs.

with unemployment growing as people are spending less, so you dont need the jobs to supply the demand, and from the cost of borrowing money, people will be selling housing and investment properties (to either take profits or because they cant afford to hold it)

so instead of people buying a home, and investment property, people will be selling investment property and maybe their homes too.

so the buy strength becomes the sell strength..

the only way the upward boom can keep going is for australians to keep borrowing more and uping credit card debt to fule the boom.