Well reader, I have to say it, today your editor read the most ridiculous article we’ve ever read on Australia’s now-popped house price bubble.
And believe me, that takes some doing. There’s been a heck of a lot of rubbish written over the years, but the article we read today trumps the lot.
What makes it worse is that it wasn’t written by some half-baked real estate agent or a rabid property spruiker. No, it was written by someone who many believe is one of the most respected financial journalists in Australia – Robert Gottliebsen.
As his biography on the Business Spectator website points out:
“When it comes to Australian business media, one name is synonymous with trust, integrity and depth of knowledge that surpasses all others, that name is Robert Gottliebsen. Robert Gottliebsen is an Associate editor for Business Spectator and was the original AFR Chanticleer and founder of Business Review Weekly (BRW) Magazine.”
He’s a commentator that many in the mainstream respect. Although based on the article he wrote yesterday, he looks to be past his sell-by date.
In his article Mr. Gottliebsen expressed sympathy for a view put forward by Bendigo and Adelaide Bank chairman Rob Johanson. Mr. Johanson was commenting on proposals by the socialist Green Party to prevent Australia’s banks from raising rates any higher than rate moves by the Reserve Bank of Australia (RBA).
Mr. Johanson said:
“None of us… who can remember trying to buy a house in the 1970s would want to have to go through or go back to that situation for funding.
“With my wife I bought my first house in 1967 and I remember vividly what it was like in the 1970s. Getting a housing loan from the bank was extremely difficult and as a result house prices were very low because you had to assemble deposits many times current requirements.”
Mr. Gottliebsen then offers his opinion on what makes the current Australian housing market so special:
“It might not be intentional, but in Australia banks have developed a unique system to keep dwelling prices high. They are liberal in granting housing loans, so there is a strong consumer demand for houses.”
We’re dumbfounded, but we’ll continue:
“By restricting the supply and boosting the demand, banks keep dwelling prices high. If the Greens’ proposal were enacted and we had further increases in the cost of funds overseas – which many are predicting – then the current high house price arrangement would be blown apart…
“I am delighted that neither the government nor opposition are going down that path.
At least we should be grateful for one thing from Mr. Gottliebsen’s truly mind-blowingly dumb article, and that’s the admission from a mainstream insider that the current housing and banking relationship would be “blown apart” if it wasn’t for house price manipulation by the banks and government.
But of course, it’s too late to worry about that. As I wrote earlier this week, the house price bubble has already popped and it’ll be blown apart regardless of whether the Greens’ policy gets up or not.
But quite frankly we find it extraordinary that not only would a banking executive claim it was terrible that people had to “assemble deposits” to buy a house, but it’s equally bizarre that a so-called respected journalist would cheer the fact that Aussie banks have “a unique system to keep dwelling prices high.”
Clearly they prefer how the market is rigged right now. Where those – we’ll assume – such as Mr. Johanson and Mr. Gottliebson who bought their homes in the 1960s and 1970s and who have benefited from two decades of loose bank lending and cheap credit feel weak at the knees at the thought of house prices returning back to their pre-boom levels.
Much better for house prices to remain high, for banks to be “liberal in granting housing loans”, and for current homebuyers to be paying 60% or 70% of their income in interest to the banks… banks such as Bendigo and Adelaide Bank.
I mean think about it. Think about the difference. In the 1960s or 1970s buyers would have saved a deposit. They would have had money sitting in a bank account accumulating interest.
Importantly, they would have been debt free. And, they would have had savings set aside for a rainy day or to put down as a deposit for a house.
Today, buyers are bribed and suckered in to the market by banks such as Bendigo and Adelaide Bank thanks to artificially low interest rates and taxpayer funded giveaways such as the first home buyers bribe.
And rather than having a healthy bank balance of savings for a rainy day or for a deposit, well, they’ve already got a house so they don’t need a deposit, and with 60% or 70% of their income going on mortgage repayments they don’t have a bean left to put towards savings anyway.
They’re living the life of a pauper, but at least they’re doing it in style… if that’s possible!
But don’t worry guys, because apparently in Australia “banks have developed a unique system to keep dwelling prices high.”
Don’t you believe it. The market has cracked and the baby-boomers who thought they could profit at the expense of youngsters going deeply into debt will soon find the smile wiped off their faces.
Perhaps Gottliebsen’s name used to be synonymous with trust, integrity and depth of knowledge, but not after that article. We thinks it’s time for Gottliebsen to hang his head in shame and hang up his boots to let someone with a bit of common sense take over.
Cheers.
Kris Sayce
For Money Morning Australia
Most important story of the week…
Our in-house technical analyst and Slipstream Trader Murray Dawes offered his views on the crisis affecting the European Union and how this could ultimately lead to its demise. Click here for more…
Monday: The trend is telling you that more and more properties are going up for sale, but fewer and fewer are being sold. You can expect this to get worse as sellers become ever more desperate to flog off their over-leveraged properties… Click here for more…
Tuesday: “I can’t believe it, he’s broken it!” said Slipstream Trader Murray Dawes to your editor last week. “Who’s broken what?” we replied. “Bernanke. He’s broken the market”, Murray responded with a look of disbelief on his face. Click here for more…
Wednesday: If you watch the hapless analysts and commentators on CNBC or Sky Business Channel today, they’re likely to talk about a bloodbath on the markets, or that the falling stock market is bad… if only it would always go up. The reality – as you might expect – is much different. Click here for more…
Thursday: Warren Buffett may be a great investor He may even be the greatest investor of all time. We’re certainly not going to knock someone who has overseen a stock price rise from USD$6,000 a share in 1990 to USD$119,310 a share today. But as good as Mr. Buffett is with his stock picks, it shouldn’t be forgotten that he’s an establishment man. Click here for more…
Friday: The Federal Reserve has announced that it will pump another $600bn into the US economy by the end of June next year to try to boost the fragile recovery. That’s $75bn a month – much more than most analysts expected. In this free ‘QE2 Tutorial’, Kris Sayce lays out a battle-plan for Australian investors to profit as some of this keyboard-produced cash floods the ASX in 2011. Click here for more
{ 5 comments }
Spot the difference –
Exhibit A)
RG –
“It might not be intentional, but in Australia banks have developed a unique system to keep dwelling prices high. They are liberal in granting housing loans, so there is a strong consumer demand for houses.”
KS –
“At least we should be grateful for one thing from Mr. Gottliebsen’s truly mind-blowingly dumb article, and that’s the admission from a mainstream insider that the current housing and banking relationship would be “blown apart” if it wasn’t for house price manipulation by the banks and government.”
And Exhibit B –
RG –
“With my wife I bought my first house in 1967 and I remember vividly what it was like in the 1970s. Getting a housing loan from the bank was extremely difficult and as a result house prices were very low because you had to assemble deposits many times current requirements.”
KS –
“But quite frankly we find it extraordinary that not only would a banking executive claim it was terrible that people had to “assemble deposits” to buy a house,…”
Yeah youre right RG lacks credibility.
Not sure why you have such a problem with the column, having read it it makes complete sense.
The argument is that the loosening of lending criteria led to an increase in assets prices, particularly real estate which you would agree with.
The column then goes on to say that given the GFC two things can happen, either lending standards are tightened which means that there will be less borrowings and, therefore, less money being spent on assets which will lead to the inevitable decrease in asset prices or lending standards are maintained and more money is lent keeping asset prices high.
The author then goes on to argue that a hybrid of the two has developed where it is tough for property developers to get credit but not so for home borrwoers and this has had the unintended consequence of keeping assets prices higher than they would otherwise have been.
The author then concludes that he prefers the more lending option then the tighter leanding option. Each to his own.
Frankly it is well argued. Personally I do no agree with it, we should take our medicine now and go back to tighter lending standards, we can delay the inevitable for a while but the pain will come and it will cost more.
I guess Portugal is now up thanks to Ireland agreeing to an EU/IMF bail out. Not sure what they hope to achieve with these bail outs, the markets seem determined to test EU/IMF’s resolve here and they simply do not have enough money to bail out everyone. Germany’s right on the money here, keep whatever money you have, you’re gonna need it!
Further proof of the meddling scumbags at the RBA:
http://www.theaustralian.com.au/business/property/rba-intervened-to-avert-housing-slump/story-e6frg9gx-1225958005881?referrer=email&source=AusBus_Lunch_email_nl&emcmp=AusBusLunch&emchn=Newsletter&emlist=Member
Kevin B – I agree with your assessment.
Unintended consequences…
JB – of course they meddle, that is their charter.
Comments on this entry are closed.