House prices
Cool VJ, and I used to work as an options trader (over a decade ago now) and the market convention was to quote and trade options in terms of implied vols instead of their price. The implied vol smile and term structure has motivated a huge amount of research in finance and mathematics including ARCH, GARCH and (Markov switching) state space time series models, and more complicated options pricing models than the Black-Sholes model (I may or may not have published research in this area..)
Ignore the BTC noise and delve into the heart of this article.
Strap yourselves in folks as we’re in for a bumpy ride at the back end of 2023!!
https://cryptohayes.medium.com/patience-is-beautiful-9434fd04a9a2
Do us a favour and summarise that article will you Don?
By the way, the author sounds like an excruciating bell end in that most American of ways.
There’s a lot of fluff in there. Like, trying to be smart here but it’s actually pretty dumb:
When the “debt to productive output” equation gets out of whack, economic “laws” break down. This is similar to how water changes state at what would appear to be random temperatures. We can only know the behaviour of water through ex-post observations and experiments, but not by theorising in an ivory tower.
I agree flollo there is a lot of fluff in there but his economic hypothesis is interesting to say the least and has some level of sense to it. Albeit I do believe the US gov will do everything humanly possible to avoid the outcomes he says will eventuate. Particularly when he’s suggesting the death of the US dollar.
But hey once they turn on the printing again the stock market will rally like no tomorrow and I still believe this will happen before an almighty economic global crash.
I’m not buying the death of the US dollar. What exactly will replace it? Crypto? No chance. Most businesses and individuals can’t afford volatility in international transactions. I was a kid who grew up with Deutsche Mark as a second god. I learned about the inflation from my parents, grand parents who never believed in any other currency and they always kept a hidden stash of good old Deutsche Mark for emergencies.
Same with the dollar, people can speculate as much as they want but dollar is a de facto currency to get shit done on this planet. It would take several generations for something to replace it. And if someone is to challenge it they would have to turn on the printer x 100 and give up on control of their currency. Quite the opposite of what China is doing for example.
So, when someone says that dollar is going down later this year all I can do is laugh. That is exactly someone sitting in the ivory tower, not transacting and getting shit done across the globe.
As for the recession, yeah it will probably come but we’re quite isolated down here. And when it comes to housing our occupancy is extremely high. There is just not enough and the options are limited. You look at the US, Europe and there are many empty houses, towns.. You can go and buy a house in some shitty area in Detroit for peanuts. Empty villages in Southern Italy…Not the best places for many things but it brings the average down. Some regions are suffering from incredible levels of unemployment (Spain, Italy, Greece, Southern parts of the US..), it doesn’t take much to trigger dramatic events. And I believe these articles are a serious warning for those markets. However, they don’t always eventuate in Australia.
Replace the US dollar ? What with ? Gold dinar . Just joking, talk like that can get ya killed .
God i wish i knew where it was, but some podcast the other day was talking about the future of USA dollar and USA debt over history and even the gold aspect.
Edit: I remember now, must have been in this podcast
"James Rickards is an American lawyer, economist, investment banker, speaker, media commentator, and author on matters of finance and precious metals. He is the author of seven books including his latest, 'Sold Out: How Broken Supply Chains, Surging Inflation, and Political Instability Will Sink the Global Economy."
link from before
https://www2.asx.com.au/markets/trade-our-derivatives-market/derivative…
note Friday's candle
here's one for Flollo, subject is the thread's underlying appreciation of architecture, brutalism, and alternatives - great read!
This is a real place. It is a housing estate called Les Espaces d'Abraxas, built near Paris in 1982.
— The Cultural Tutor (@culturaltutor) June 3, 2023
And it's one of the most important buildings in the world... pic.twitter.com/mOOTJTmcQD
and a multifaceted story - optimism, despair, renewal perhaps: arch daily's take on the Park Hill estate:
https://www.archdaily.com/791939/ad-classics-park-hill-estate-sheffield…
Both my father and self worked in the built environment; these structures, their intentions, and their resultant history were a matter of strong interest and quite a bit of debate. What do you reckon? Should we go this way to solve today's homelessness and rental crisis again building them social housing, or do so with a different types of structures, because 'once bitten twice shy'?
The Cultural Tutor is great. His long tweet on Hieronimus Bosch was very good, I thought.
Twitter is a treasure trove of learning.
VJ, I was chatting to a friend last night who’s got a long professional background in project managing new builds - big hotels and resorts in the US, university campuses here etc. She’s recently had to reluctantly walk away from managing a project on rent-to-buy social housing because the State government action doesn’t match the rhetoric. I wish it would.
Be interesting to see how the new series of Utopia tackles housing politics?
(Rob Sitch about to come on RN)
Interesting seeing the big four banks forecast of rates and cuts over the coming year/s. personally I think CBA is dreaming in the near term.
https://thenewdaily.com.au/finance/finance-news/2023/06/04/interest-rat…
ANZ looks to be the most realistic IMO.
velocityjohnno wrote:
here's one for Flollo, subject is the thread's underlying appreciation of architecture, brutalism, and alternatives - great read!
https://twitter.com/culturaltutor/status/1665062046310838273
and a multifaceted story - optimism, despair, renewal perhaps: arch daily's take on the Park Hill estate:
https://www.archdaily.com/791939/ad-classics-park-hill-estate-sheffield…
Both my father and self worked in the built environment; these structures, their intentions, and their resultant history were a matter of strong interest and quite a bit of debate. What do you reckon? Should we go this way to solve today's homelessness and rental crisis again building them social housing, or do so with a different types of structures, because 'once bitten twice shy'?
We should absolutely go this way. I say it without any hesitation. And it's not just about social housing but first home owning as well. I wrote about this before, rather than subsidising through first-home owner grants we should use the funds to develop properties exclusive to first home owners (where no others can buy). They would need to keep it for something like 7 years but they don't need to compete with others in the regular market. It is nothing new, already been done in other places.
As people will start complaining about the buildings I will respond that we are already building a huge amount of buildings. Go to Melbourne and have a look. But the problem is that they're all targeting some 'luxury living' crap. Remember old, simple brick units (60s, 70s I guess?). When was the last time someone built something like that? It seems like we are gold-plating every project in this country. We need more simple, efficient buildings with exclusive rights for low-income renters and prospective home owners.
donweather wrote:
Interesting seeing the big four banks forecast of rates and cuts over the coming year/s. personally I think CBA is dreaming in the near term.
https://thenewdaily.com.au/finance/finance-news/2023/06/04/interest-rat…
ANZ looks to be the most realistic IMO.
Sounds about right don. But like all things in economics - you have to 'assume that other things remain unchanged'.
etarip wrote:
VJ, I was chatting to a friend last night who’s got a long professional background in project managing new builds - big hotels and resorts in the US, university campuses here etc. She’s recently had to reluctantly walk away from managing a project on rent-to-buy social housing because the State government action doesn’t match the rhetoric. I wish it would.
Nothing new there. Based on my experience, project timelines follow electoral cycles rather than logic (which itself is a source of inflation). Bonuses then follow those timelines. Every government wants to take its 'victories' to the next election, even when it defies common sense. They don't care if they turn the whole industry upside down.
Island Bay wrote:
The Cultural Tutor is great. His long tweet on Hieronimus Bosch was very good, I thought.
Twitter is a treasure trove of learning.
IB I had the good fortune to see an exhibition of Bosch in Milan earlier this year. Staggering detail in his work and an almost exhaustive journey into the darkness of the mind.
AirBnB out of control
https://www.theguardian.com/australia-news/2023/jun/04/people-are-going…
GuySmiley wrote:
AirBnB out of control
https://www.theguardian.com/australia-news/2023/jun/04/people-are-going…
That’s very sad reading the homeless numbers down here. Especially when you realise how many homes sit empty for 48-50 weeks of the year.
Pretty obvious the numbers living in cars down on the foreshore sadly
https://thenewdaily.com.au/finance/finance-news/2023/06/05/interest-rat…
Be very interesting to see what plays out today. My money is on yet another 0.25% rise.
Boom, there you have it....cash rate cracked the 4% barrier......5% before end of FY24 IMO
Well, we see if that stymies the nascent property rebound.
They really are driving with the foot on the brake and accelerator now.
Don’t forget that we have the federal election roughly 2 years from today. They will slowly start putting more fuel on the fire.
Now check out the 30 day interbank cash rate:
https://www2.asx.com.au/markets/trade-our-derivatives-market/derivative…
I think gsco and I have discussed whether the market or the CB determines IRs, well looking at the chart the CB definitely did today. What's most interesting is the move down in price (ie, up in yield) on Friday (and Wednesday), pointing in the direction of where the rate rise would eventuate. Chicken and egg. Chicken laid it today.
Does the body rule the mind
Or does the mind rule the body,
I dunno
Interesting that the market's forecast for yesterday's interest rate decision was out up until the 11th hr.
It has been quite a rate hiking cycle:
Aust cash rate up 12 times & +400bp over 14 mths..the fastest tightening cycle in the last 30 yrs
— Shane Oliver (@ShaneOliverAMP) June 6, 2023
Roughly half the size of the 1988-89 tightening when the cash rate went from 10% to 18% but back then the household debt to disp income ratio was only just over 1/3rd current levels pic.twitter.com/hizgGCgbkg
GSCO or VJ.
Has there even been a time during this part of the rate hiking cycle when Real Estate prices have gone up, like they are now (or have been in the last 2-3mths)?
A lot of discussion was held about the need to increase the rates so fast. However, not enough discussions was held about the need to cut so low during Covid. And keep it so low for so long, in addition to the enormous fiscal stimulus.
yes FR can plot say the cash rate (blue) against property price monthly changes (black):
<iframe src='https://d3fy651gv2fhd3.cloudfront.net/embed/?s=rbatctr&v=2023060605…' height='300' width='600' frameborder='0' scrolling='no'></iframe>
property prices were going up during the pre-GFC rate increase cycle, but generally they don't (can see that they get pretty battered by rate increases)
and the previous rate increase cycles were also not as aggressive as this one, so I'd conclude it's a bit of an anomaly that property prices are also going up right now
Also FR, being in WA at the time, the WA cycle seems to go later than the east and so yes, the most hectic WA mining boom house price rises were taking place into that rising IR environment that ultimately delivered the memorable fatal rate rise for John Howard, about 1 month before his government was voted out.
Flollo you are right, those 5000 year low rates were the insane spark that ignited the current mess, the coup de grace of QE if you will.
GSCO: "Interesting that the market's forecast for yesterday's interest rate decision was out up until the 11th hr."
Totally, you've got to watch closely to see where the late money flow is being bet. Learned that from my dear old Dad's horse betting system, he'd be on track, have done all his analysis beforehand, would qualitatively watch each horse as they were displayed as a sort of 'nervousness filter' and finally gather around the bookies to see where the final flow of bets went (and how they hedged this between themselves). The ability of the crowd to discern the correct result beforehand is a fascinating phenomenon, I'm sure there's tons of study to it. I'm not a better in any way, but last time we used it nearly a decade back Bro and I cleaned up on a track/field setup we had no idea about at some place about 20 or 30m south of London, completely alien equestrian environment... Paid for nice lunches, pints, got to throw money in the air on the finish line lol
Getting a little political now,
https://www.macrobusiness.com.au/2023/06/rba-screams-slash-immigration-…
This one's really good, and plays into the idea of the RBA acting as the opposition. They are noting that with increased numbers, productivity per capita is going down. Ie, less innovation delivering productivity gains per person.
QUOTE
"What does the bank say about productivity? It told us just last week:
“The amount of capital that on average we have to work with is one of the drivers of productivity growth.”
“We do need to increase the capital stock in line with the number of people in the country and that requires high levels of investment. And if we don’t do that, then we’re going to struggle”.
“If we’re going to have 2% more people in the country, we need 2% more capital, and that requires investment by business and investment by government”.
“Solving the housing problem, I think that’s the single biggest thing we could do. And then we’ve got to build the transportation infrastructure to support that.”
“Are there 2% more houses? No”.
This is called capital shallowing. As the RBA suggests, it happens when you forcibly grow your population without a plan to accommodate it.
We saw this phenomenon across the last cycle as cheap foreign labour displaced investment and automation. Now we have less capacity on the supply side owing to COVID stimulus, and the RBA is clearly concerned the shallowing is driving inflation in areas like housing, business investment and energy.
In short, the RBA is now hiking rates as a direct attack on Albo’s mismanaged mass immigration program.
This exposes how ideologically corrupt Albo’s plan is to deliberately run mass immigration into supply-side bottlenecks in order to inflate rents and house prices for vested interests.
I agree with Jim “Chicken” Chalmers when he says “It’s for the Reserve Bank and its board in the usual way to explain and defend the decisions that it takes independently but I think out there, in the community, people who are under pressure, will find this decision hard to cop and they will need help understanding it.”
The RBA should spell it out. Something along the lines of: ‘The Albanese Government has no plan to accommodate its lunatic mass immigration wave and we are forced to hike rates as a result.’ "
Phil Lowe couldn't have been much clearer in his last public utterances.
I wonder at what stage the regressive left will wake up and realise they're being had as a bunch of useful idiots.
gsco wrote:
Interesting that the market's forecast for yesterday's interest rate decision was out up until the 11th hr.
It has been quite a rate hiking cycle:
https://twitter.com/ShaneOliverAMP/status/1665994150779715585
I think that twitter graph and commentary sums it all up really. Unprecedented!!!
flollo wrote:
A lot of discussion was held about the need to increase the rates so fast. However, not enough discussions was held about the need to cut so low during Covid. And keep it so low for so long, in addition to the enormous fiscal stimulus.
Free money does wonders for the free world!!!
On another topic, I think people in this country are extremely obsessed with their homes. As a nation, we spend an enormous amount of time in our houses. Other than a few pockets, our suburbs and cities are dead after 6-7 PM as everyone is just staying home. So, the value we attach to housing is extremely high.
This is in contrast to many other places. I was never home when I lived in Europe. It was normal to go eat dinners even at 10, 11PM. Everyone around me was spending a lot of money on looking good (clothes, fashion, cars…) rather than on home looking good. There was just no property obsessed culture, it was a place to sleep and that was it. Even sleeping on a couch was good enough.
Here everyone seem to be obsessing over housing to absurd levels. And god forbid it’s 2 bedrooms instead of 3 or there is no lock up garage, must be a particular postcode…Honestly, I don’t see prices going anywhere as it’s so built into everyone’s minds; they would rather starve than cut on housing. You would assume some cash poor could sell a house and buy a unit but will they?
gsco wrote:
yes FR can plot say the cash rate (blue) against property price monthly changes (black):
<iframe src='https://d3fy651gv2fhd3.cloudfront.net/embed/?s=rbatctr&v=2023060605…' height='300' width='600' frameborder='0' scrolling='no'></iframe>
property prices were going up during the pre-GFC rate increase cycle, but generally they don't (can see that they get pretty battered by rate increases)
and the previous rate increase cycles were also not as aggressive as this one, so I'd conclude it's a bit of an anomaly that property prices are also going up right now
The blind leading the blind really. It's a massive FOMO combined with people with alot of post Covid Cash thinking this is now how life is (free flowing cash) so lets buy lots of expensive houses and it doesn't matter if we're buying at a premium because property prices ALWAYS go up!!!
This is really a game of chicken now to see who blinks first.
Record immigration which is driving up demand for housing and adding to inflation and an RBA which now seems determined to keep hiking rates for as long as it takes.
Who will blink first?
I can't see how it will be the RBA - it's not their mandate - house prices. rates will keep increasing - mums and dads at the bottom of the pyramid will go bust force sell. investors and boomers buy. will not impact house prices with any significance. immigration will continue to rise. incentives, policy and property friendly taxes will not change. somewhere in all that rates will settle at some point. wash rinse repeat.
"This exposes how ideologically corrupt Albo’s plan is to deliberately run mass immigration into supply-side bottlenecks in order to inflate rents and house prices for vested interests."
I wonder if all those people who were saying "but, but, Labor's different!" are reconsidering.
I hope so.
Seems like Labor may well oversee one of the defining eras in Australian economic and social history.
AndyM wrote:
"This exposes how ideologically corrupt Albo’s plan is to deliberately run mass immigration into supply-side bottlenecks in order to inflate rents and house prices for vested interests."
I wonder if all those people who were saying "but, but, Labor's different!" are reconsidering.
I hope so.
Seems like Labor may well oversee one of the defining eras in Australian economic and social history.
Yep, looks like a shitshow is brewing!
For all their Faults however, Labor did receive a hospital pass.
House prices - going to go up , down or sideways ?
Opinions and anecdotal stories if you could.
Cheers