Australian Economy Thread

Tigerandahalf

Since there was a bit of debate about prices and the economy in Oz in another thread, it may be better to have a separate thread. Throw in your anecdotes or theory here and sure there will be a bit of debate anyway.
Anyway to get started. There was an Australian economist on Vincent Browne last night. Steve Keen is his name. He is credited with predicting the Gobal Financial Crisis. He says Oz will be the last housing bubble to collapse. He said only time there was so much debt in the world before was pre The Great Depression of the 30s. Gurdgiev that eastern european economist was on as well. He is always pretty negative in outlook. He says Ire will default at some stage. That wiki link in the other thread reckons prices are upto 50% overvalued.

So what do people think? Will Oz perhaps get a softer landing?

Cooperspale

I agree, there seems to be a bubble when the average house price in Melbourne inner suburbs is over and well over in some cases half a million dollars. The craziness of the market peaked in Autumn 2010 from what I read on prices etc in local papers. There are still an awful lot of apartments going up all over and a lot of them are being bought by non Aussies. Chinese, Europeans and quite a few Irish and British amongst them according to a realtor pal.
Docklands is/was a total planning mess where essentially council turned over development ideas for the area to the builders/developers and now it's a bit of a soulless wind channel amidst apartment blocks.

As for Steve Keen, he's known for being a bit of a loose cannon and lost a bet a couple of years back...
http://www.abc.net.au/news/2010-02-16/economist-keen-to-walk-canberra-kosciuszko/333138
I wonder if he mentioned that in the interview.

I will say though that Aussies generally have quite substantial deposits set by before they take the plunge. I hear of 100% mortgage etc but have yet to meet someone who used it

Tigerandahalf

The advantage that Oz has is it can devalue its currency. The dollar is already considered overvalued.
It's interesting how the Gold Coast area is suffering. Dollar too strong and Aussies are going abroad for their holidays as they are getting better value.
Only problem against devaluing is that oil/gas prices would go through the roof.
The big thing is whether you are exposed to a big mortgage. It is stated that mortgage should only be max 4 times your salary. Given that Oz salaries are overvalued that could leave people exposed. Paying 500,000 for a house you would want to be on a salary of 125,000 plus be guaranteed that your pay would stay at that level. How are people on average salary of 60,000 meant to buy a house?

mandrake04

Tigerandahalf wrote: »

How are people on average salary of 60,000 meant to buy a house?

They could

(a) Find a better paying occupation.
(b) Buy a house in a cheaper area.
(c) Marry an Australian whose family owns a few houses.

patma2003

I am actually waiting for that bubble to collapse because it has to... It's pointless spending euro savings when you know the 'eternal' rise must correct.

As for Steve Keen on TV3, it is a pity his Debt Jubilee theory did not get a proper airing.

Print money for the people - capitalise the people directly, not the banks as all they have done is go about speculating with it again. Same problem that kicked it off, only now to dig a deeper hole.

jackbhoy

I pulled out of buying a house in Ireland in 2006 as after a huge amount of research convinced me it was all gonna go badly pear shaped.

In Oz I see a few very different factors to Ireland e.g.
- Interest rates are high enough that RBA has nice cushion to adjust downwards if needed.
- they can control currency to suit their own needs, not like Euro where Germany/France rule the roost
- Real immigration; most people I know that have made permanent move here do so for lifestyle reasons, not like Ireland where half of eastern Europe moved there purely to make cash for few years so the could start a life back home. This should help to stop bottom totally falling out of demand in market
- 100% mortgages exist but are much rarer than they were back home. I was offered 100% mortgage of €450k in 2006 when I was only out of college a short while and had very little savings.

For all that there are lots of similarities as well. The thing is though bubbles come in all shapes sizes and just because one exists doesn't mean it's bursting will have same apocalyptic consequences as back home, a correction of 30% would be huge here but would still only be half as bad as home!

man1

patma2003 wrote: »

As for Steve Keen on TV3, it is a pity his Debt Jubilee theory did not get a proper airing.

Its funny how all the economists are saying, "I predicted the recession but no one would listen"......:P

markymark21

Hey guys, does anyone have an inclination to whether the Aussie Dollar will get stronger/weaker against the Euro? I don't know whether to send my savings home or keep them in my Aussie bank account

catbear

Keen did honour his bet. I think like McWilliams back in 03 on Primetime, Keen is right, but his timing isn't. That's no reason to dismiss his work.

When the GFC hit the Oz dollar went 2/1 against the Euro. But then China announced a massive structural building programme which would need loads of material from Australia. Aus Dollar has strengthened against every other currency since. Australia has debt issues but the Chinese investment boom kicked the debt can down the road. Worse Rudd doubled the first time buyers grant enticing more people into debt.

At the moment I think their housing stock is overvalued when measured by the income/price ratio, negative gearing when you get your head around it, is like section 23 in ireland except you don't end up with a massive supply of empties. Instead you end up with greatly reduced ability to service debt as the government reduces the tax break.
Here's a good chart to muse over.
http://www.economist.com/blogs/dailychart/2011/11/global-house-prices

Ultimately a shock in China is a shock in Australia.

s.c

markymark21 wrote: »

Hey guys, does anyone have an inclination to whether the Aussie Dollar will get stronger/weaker against the Euro? I don't know whether to send my savings home or keep them in my Aussie bank account

The sentiment is that as the US economy recovers, money that has been "stored" in Australia due to the higher interest rates here will be drawn out to be invested in higher interest rates there, causing the AUS dollar to weaken. The big question is when the US economy will begin to recover.

Tigerandahalf

One of the big things for the banks in Australia is who is depositing money in them and how much? Presumably a lot of mining money is being deposited and money from abroad that was deposited to benefit from the growing strength of the Oz dollar. So what happens if there is a decline? Will money leave Oz banks in fear of a devaluation and thus cause major problems for the banks' balance sheets?
There seems to many indicators that things are not right. Overvalued currency, overvalued wages, housing prices getting out of reach of the ordinary buyer and local businesses unable to compete as consumers can get better value abroad or through imports. Other than mining what is Oz exporting? And if is exporting there must be a lot of pressure on exporters. There should be a trade balance between what you import and export. At the moment it seems mining is propping up the balance.
I wonder what effect a decline would have on Australia itself? Would Western Australians and their state be more vulnerable and perhaps need extra support from NSW or Vic.

s.c

Tigerandahalf wrote: »

One of the big things for the banks in Australia is who is depositing money in them and how much? Presumably a lot of mining money is being deposited and money from abroad that was deposited to benefit from the growing strength of the Oz dollar. So what happens if there is a decline? Will money leave Oz banks in fear of a devaluation and thus cause major problems for the banks' balance sheets?
There seems to many indicators that things are not right. Overvalued currency, overvalued wages, housing prices getting out of reach of the ordinary buyer and local businesses unable to compete as consumers can get better value abroad or through imports. Other than mining what is Oz exporting? And if is exporting there must be a lot of pressure on exporters. There should be a trade balance between what you import and export. At the moment it seems mining is propping up the balance.
I wonder what effect a decline would have on Australia itself? Would Western Australians and their state be more vulnerable and perhaps need extra support from NSW or Vic.

I reckon the mining industry has a big infulence in propping up the Australian economy. I know the construstion boom in Melbourne is after slowing down. Whether it is a permenant slow down or not I don't know but there is definately a lull. The other thing that bothers me is the lending burden on everyday Australians. They all seems to have a loan for something or other. Take for instance all the young apprentices, on a relatively poor wage, driving $50k+ utes. Just doesn't make sense to me.

old_aussie

Tigerandahalf wrote: »

Paying 500,000 for a house you would want to be on a salary of 125,000 plus be guaranteed that your pay would stay at that level. How are people on average salary of 60,000 meant to buy a house?

Because the wife and the husband are usually both working

Coileach dearg

old_aussie wrote: »

Tigerandahalf wrote: »

Paying 500,000 for a house you would want to be on a salary of 125,000 plus be guaranteed that your pay would stay at that level. How are people on average salary of 60,000 meant to buy a house?

Because the wife and the husband are usually both working

What about a pregnancy?

Tigerandahalf

old_aussie wrote: »

Because the wife and the husband are usually both working

That's one of the problems of the modern Western world. Both husband and wife are having to go out and work in order to be able to secure a mortgage. Creche fees can quickly eat into a salary. I think you will see more wives or husbands giving up their job and going back into the home. One of them then gets the benefit of the other's tax credits. When you take in savings to be made on petrol/2nd car it makes sense. This could become very popular if one of the partners could work from home, a real possibility with the advent of cloud computing and proper broadband access.
The one thing about the American economy, even when it thrived, the US dollar was always fairly competitive. The Oz dollar is no longer competitive. Similarly the euro is overvalued for countries in southern Europe while it is undervalued for the likes of Germany.
At least Australia has control over its currency and its interest rate.

horse7

we have been to oz many times since 1982, the last trip was 2 years ago,but when we went to price accomodation this year, we decided against the trip due to increased cost involved, mainly motel/hotel/mobile and cabins. theres nothing out there for 200$ or less. will leave it till their bubble bursts.

Sappa

Cooperspale wrote: »

I agree, there seems to be a bubble when the average house price in Melbourne inner suburbs is over and well over in some cases half a million dollars. The craziness of the market peaked in Autumn 2010 from what I read on prices etc in local papers. There are still an awful lot of apartments going up all over and a lot of them are being bought by non Aussies. Chinese, Europeans and quite a few Irish and British amongst them according to a realtor pal.
Docklands is/was a total planning mess where essentially council turned over development ideas for the area to the builders/developers and now it's a bit of a soulless wind channel amidst apartment blocks.

As for Steve Keen, he's known for being a bit of a loose cannon and lost a bet a couple of years back...
http://www.abc.net.au/news/2010-02-16/economist-keen-to-walk-canberra-kosciuszko/333138
I wonder if he mentioned that in the interview.

I will say though that Aussies generally have quite substantial deposits set by before they take the plunge. I hear of 100% mortgage etc but have yet to meet someone who used it

Very nice 4 bed houses in the outer suburbs 15 minutes from Melbourne CBD were going for 200K back in 2004-2005,I was very tempted to go for one but decided against it at the time but was not sure would I be hanging around for the next 10 years,hindsight ehh.
I have mates who own upwards of 15 houses each in Victoria and a fair few are on their second or third house.
Its a replica almost to the madness over here,while I can`t see it going as messed up as Ireland there will be a time very soon when they start to take a big hit on the property.
Ex colleagues on facebook yearning for a southbank apartment at over half a million and will never listen to you that it is not a good idea,ohh well.

irishmover

China.

andrewdeerpark

What is the situation on the Australian economy 2013? Is the medium term as bad as predicted?

I have a few friends over their who maintain that Australia is now at about 2007 Irish Boom to bust timeframe. They are their over 10 years in professional jobs with Australian citizenship status not you GAA jersey bondi beach brigade.

Time to worry about those bank deposits in Australia, if it goes bust the Australian government can impose capital controls and lock your money in the country unlike the EU euro zone. Keep that in mind when hoarding savings in Australia. My advice do not keep to much money in the country in particular with banks that have heavy exposure to property. Australian government already planning for the crisis

Here is the start:
http://www.bbc.co.uk/news/business-23544767

When it starts it will be fast and no one can do anything.

Property and cost of living has just become to dear and its only going to end one way, us Irish should know.

catbear

Every mining boom in Australia's history has ended in a bust. The bigger the boom, the bigger the bust. The mining boom that began in 2003 was the biggest the country has ever seen. It's peak is also long past - the price of Australian mining exports has been falling since the September quarter last year.

Read more: http://www.smh.com.au/federal-politics/political-opinion/its-time-to-make-our-own-luck-20130809-2rnd3.html#ixzz2bcm4HJ00

There's no doubt that there are changes afoot. New user taxes and increased state borrowing here in WA to keep the show on the road after the mining bust. The negative gearing timebomb isn't going to be pretty when sellers stampede for the exits.

gctest50

catbear wrote: »

There's no doubt that there are changes afoot. New user taxes and increased state borrowing here in WA to keep the show on the road after the mining bust. The negative gearing timebomb isn't going to be pretty when sellers stampede for the exits.

Would it be properly slaughtered with :

http://www.theguardian.com/world/2012/dec/20/chinese-mining-peru-corporate-responsibility

Mountain isn't going to stand in the way of determined Chinese

Chinese Army engineers detonated 12,000 tons of dynamite inside Paotai Mountain

http://www.nytimes.com/1992/12/29/world/explosion-in-china-shakes-hong-kong.html

catbear

Australians were shown to have a much higher level of wealth held in property and non-financial assets - 58.5 per cent compared to the world average of 45 per cent and just 38 per cent in the US.

Read more: http://www.smh.com.au/business/the-economy/aussies-the-worlds-richest-people-credit-suisse-20131009-2v7qy.html#ixzz2hC8OdCPI

Someone else summed it perfectly: “Australian’s can afford higher house prices because we’re the wealthiest in the world thanks to high house prices.”
Now that's cult behaviour!

So why hasn't the Australian bubble burst?

Dylan Grice from Societe Generale described Australia as “a credit bubble built on a commodity market built on an even bigger Chinese credit bubble.”

Legend100

the 4 big banks have all had analysts out this week saying there is no property bubble......no surprise there given the lending they are doing!!!

catbear

Legend100 wrote: »

the 4 big banks have all had analysts out this week saying there is no property bubble......no surprise there given the lending they are doing!!!

I remember of the Irish banks telling us back in 05 that we were the richest by assets after the japanese. Lots of asset rich but cash poor around these parts, one aussie was telling me they've got a property investment club in work! Doing the lotto isn't enough for them.

Edit to add this piece of gold from 2006: http://www.irishexaminerusa.com/mt/2006/07/19/ireland_is_the_worlds_second_r.html

Debt as a percentage of disposable income has increased from 89 per cent to 140 per cent in the last five years.

So I wonder what the Australian figure is and how long it can be sustained?

sin_city

Tigerandahalf wrote: »

The advantage that Oz has is it can devalue its currency. The dollar is already considered overvalued.
It's interesting how the Gold Coast area is suffering. Dollar too strong and Aussies are going abroad for their holidays as they are getting better value.
Only problem against devaluing is that oil/gas prices would go through the roof.
The big thing is whether you are exposed to a big mortgage. It is stated that mortgage should only be max 4 times your salary. Given that Oz salaries are overvalued that could leave people exposed. Paying 500,000 for a house you would want to be on a salary of 125,000 plus be guaranteed that your pay would stay at that level. How are people on average salary of 60,000 meant to buy a house?

So, weaken the currency which somehow makes property less expensive?

How does that work? That policy would in fact make property more expensive.

Who considers the AUD overvalued? Not currency traders clearly.

Way too many assumptions and no facts….” Given that Oz salaries are overvalued” Where is that given? By you?

catbear

Tiger and a half provided a contradiction when they postulated that a weaker currency would mean higher energy prices. Australia is also an energy producer so a weaker dollar would mean reduced demand for energy so no real debt erosion via inflation.

Tigerandahalf

There are a lot of things out there that could hit the economy. Like ourselves the banks are a big issue. Who knows what their books are like. Have they lent money to banks/businesses outside of Oz. If there are shocks in those countries outside of Oz it could damage the banks.
A big issue across the world is that banks are interlending to each other, so if one falls it has an effect on them all. Bank deposits could also flee the country if any talk of a downturn takes hold. The banks like in Ireland could be left with a massive hole. What happens then? Does the government prop up the banks or maybe put capital controls on the banks to stop deposit money leaving? Or would the central bank in Oz give loans to the banks to fix their balance sheets, effectively adding more money to the economy.
Any fall in employment would mean ordinary house buyers would be caught with huge debts.
It was said above that the Oz dollar was not overvalued. For me it is. When tourists are finding Oz too expensive and manufactures are exiting the country then the country has a problem.
The banks like everywhere else are causing huge problems because they haven't been controlled enough.

sin_city

Too much pub talk here. I heard this and someone said that.

The economy is doing ok at the moment. If it weren't, lets face it, no one would be coming here.

The banks in Australia are probably in a better position than Irish bank were. The NAB would be a worry out of the 4 as they have more exposure to the UK and Europe than the rest.

I think its great that Irish people are being wary about buying overpriced houses whether they are in a bubble or not.

I am not in the know to say for sure but I would prefer to rent for a while longer instead of buying due to what happened back home.

catbear

sin_city wrote: »

I am not in the know to say for sure but I would prefer to rent for a while longer instead of buying due to what happened back home.

That makes it more than idle speculative pub talk then, that's personal experience. Apply Occam's Razor: all things being equal the simplest answer is usually the right one!

sin_city

catbear wrote: »

That makes it more than pub talk then, it's personal experience.

No, catbear....I'll help you out here.

That was my personal experience and what I am doing. It's not an opinion. It's what is happening in my life.

Someone mentioning I heard this and I remember so and so saying that.....no that's pub talk.

You on your 4th or 5th pint?

catbear

@ Sincity
Well what informs your preference to rent rather than buy?

If it's personal circumstances then that's entirely understandable but otherwise what's stopping you from signing up for property now rather than later, as you stated you may buy at some later stage?

And just to clarify there were people still coming to Ireland for after construction collapsed, they filled jobs that people either didn't or couldn't do. Likewise a property collapse here will hit certain sectors but others will continue on.