You are not considering the whole picture. The following might interest you.
- State and Local Government are actively restricting the supply of new housing via greater restrictions and a slow approval process.
- Skilled / wealthy immigrants are being actively sought to keep the market pumped. They buy in Sydney and Melbourne, and the sellers in turn buy elsewhere. Buy limiting the supply of new housing, high prices can be maintained. My suspicion is that the current market downturn is due to the difficulty in attracting enough immigrants to keep things pumped. Changing world demographics will make things harder still.
- The exit tax was introduced, I believe, to slow the rate of private sales. Why? Because there is an oversupply of new housing, taking measures to reduce supply will maintain higher prices.
- The increased number of people seeking rental accomodation drive up rents. Governments help to maintain high rents with rental assistance schemes.
- High immigration is having a disastrous effect on Australia's trade balance. Increased mining exports are expected to offset this, but are independent of population. In fact, high immigration dilutes the wealth derived from mineral exports.
The doomsayers like goldbars should look at all supply and demand factors. Instead, they limit their analysis to interest rates and investor demand. The most critical determinants of price mentioned above are ignored.
Doomsayers like goldbars would think of themselves as contrarians who can see, and profit from, the idiotic behaviour of investors. The problem I have with this idiot driven market theory is that their is little evidence for it. There is, however, a great body of evidence to support the idea of government policy driving prices higher.
Billy
"You dont know what gobs is on about, Mike? In the '70s it was not uncommon to see tradesmen living in homes worth about 1.3 times their annual income. Similar homes are now about 6 times annual income. The implications for disposable income is remarkable, as the following hypothetical shows. In the following highly simplified examples, a loan is paid off as quickly as possible, and subsequent savings appreciate at 5% ahead of tax and inflation. Approximate asset value is calculated after 30 years.
Case 1 Annual income: $60k House price: $80k Deposit: $40k Interest Rate: 6.5% Weekly savings: $400 Assets at 30 years: $1.1 million in savings plus house, delivering over $50 kpa in additional income after tax, and inflation adjusted Interest paid on Loan: $3065
Case 2 Annual income: $60k House price: $360k Deposit: $40k Interest Rate: 6.5% Weekly savings: $400 Assets at 30 years: One house, less a mortgage of $263 k Interest paid on Loan: $543 k
Certain parties benefit greatly from case 2, so it is not surprising to see an orchestrated campaign by the beneficiaries to convince people that inflating house prices is a wonderful thing. Markets will self correct in the long run, as distorting the market becomes progressively harder eg. finding enough skilled/wealthy immigrants to keep the market pumped."
