stiglitz on house prices in australia, page-30

Hi ranger ... in context and on topic, my view is Stiglitz has made a valuable contribution to the debate which we need to have.

Those with housing investments will not want to hear this.

Stiglitz may not be aware of the extent of demand driven by our Govt sponsored high-immigration policies has fueled the speculative bubble, particularly in residential property.

In previous threads I noted that in Rudd Govt's watch alone over 900,000 immigrants have arrived and given they're not all living in tents on Bondi beach, we can assume that in the main, they all have a roof.

This in turn drove DEMAND in the residential sector that already was being artificially boosted by FHOB and 'speculators' through easy Bank credit.

The residential property sector has been an important part of the Govt's stimulus effort in response to GFC to sustain jobs and the broader economy but is now looking 'over-cooked' to the point of being unaffordable.

Stiglitz is correct when he says a society can become poor due to spec-bubbles ... in Aus up to 40% of household income is required to service mortgage debt.

It is thought that Bank loan-books are currently +60% exposed to property and with the 'spec-bubble' and recent moves to dramatically slow immigration (DEMAND), the sector is looking vulnerable.

My view is that the real estate 'bubble will not pop' because investors typically 'hold and hope' during downturns unlike investor behaviour in other asset classes ... but certainly the probability that property will fall is high.

There is currently no real way to HEDGE against falling property prices and word is that ASIC and ASX are now in development of "house-price indexes" that could be traded (presumably as derivatives) on the ASX.

We hold residential property but not as 'investors' coz we hold the quaint view that a house is basically a 'consumption item' ... simply because it is something we need to live in. Any value over time above holding costs is deferred consumption but that is a different topic.


Cheers ... tight stops.


This is only my view ... read the black stuff.