Hi kincella thank you for printing Bill Gross of PIMCO fame and ability. I am just throwing some more points together not writing an essay here - perhaps for discussion because debt markets are the key to real estate not supply and demand as is commonly thought.
Interest rates are a little misunderstood IMO. Yes rates to stay low for some time I have this firmly in my model (see how I go) but that is official rates - ex-CB's like our OCR set by the RBA. No debt fueled growth in the economy to push up rates - less demand except from governments propping up GDP, and trying to stop a hard landing on their watch.
The consumer is on low speed now and business can see there is not much point to invest - both delevering. Demand for money is less and just as well because we have crowding out caused by bond maturities and the need to stimulate. This all points to low rate environment.
Then you have the bank stress as they need to attract deposits to add reserves (offer an acceptable rate on deposits) and they need to try to engineer a soft landing. To do this they need lower mortgage rates to reduce defaults just for starters.
As credit gets tighter from crowding out many borrowers get shut out or the credit spread gets wider and wider just like what we have already seen in Greece, Portugal, Ireland and now Spain shut out. This has happened for many banks throughout the USA and Europe - shut out, can't get funding and gone. Distressed sellers in abundance pushing down values.
This is what we are seeing here now it has just started and a lot more to play out. Even with low rates if you have a $500k mortgage or construction business and you lose income you string it out until you finally default. Scarcity of buyers limits the opportunity to cut before default.
Falling rates here still a way to go IMO. This is attracting bond investment as there is still upside and this is keeping AUD up - partially at least. This hurts the real economy at this time - it makes the adjustment we keep hearing about worse.
