Country Gal, certainly in this area, 30years ago there was still a huge debate
going on as to women working or not. Things were not black and white.
Some women wanted or needed to work, some women claimed that they
didn’t get married to go to work, some men didn’t want their wives to work.
30 years later, the results of those decisions are fairly plain to see.

Smithy, Pericles mentioned that life is relative, very true indeed. Irony can
be mixed with wisdom you know.

You might frown on our “quarry”, but it saves you from living in a banana
republic. The sheep that you relied on before, collapsed some time ago.
ES manufacturing has yet to show that it can compete in a global economy.

Yes Australians have invested in both housing and superannuation. No point
saving money in bank deposits. Inflation takes half and tax the other half,
so people don’t.

Your RBA url shows that owner occupied debt servicing ratio has hardly
changed in the last 10 years. Household gearing is in fact still quite reasonable.
Yes, people with high incomes have borrowed to upgrade their houses.
Australians are clearly wealthier then ever before and love living in flash
houses in suitable locations.

Wiz, with consumers like yourself around, who love their shopping and
their credit cards, I know that I’m onto a good thing with my bank
shares and Westfield shares :)

That living frugally for a bit, has certainly paid off.

.

Yabby wrote: "You might frown on our 'quarry', but it saves you from living in a banana republic."

OK, fine.

We can argue, as a nation, about whether or not we have we have any choice over this, but I agree with Mr Smith that your attempt to prettify this ugly reality, by depicting it as an "export based, globally focussed economy", is dishonest.

---

Yabby wrote: "owner occupied debt servicing ratio has hardly changed in the last 10 years".

I find your resort to isolated facts and data taken out of context also to be dishonest.

The ratio from 1981 until 1996 rose from 12.8% in 1981 to 19% in 1996. Combined with a further increase of 'only' 3.5% in the last 10 years to 22.5% we get a total increase of 9.7% to 21.5% since 1981.

This takes no account of the fact that there are most likely more incomes in each household and also that the loan repayment periods have been extended beyond the old 20 year maximum to 30, 40 and sometimes 50 years.

Even if, in the unlikely event that it were to be shown things were as bad back then as it is today (see below), then all that would prove to me is that things were unacceptably bad back then as well.

---

Here's some more stories about the price that ordinary Australians are now being made to pay in order to support the profligate lifestyles of property speculators, landlords, mortgage brokers, bankers, real estate agents etc:

http://www.thedaily.com.au/news/2007/dec/14/homeless-coast-families-forced-live-cars/
Homelessness on the Sunshine Coast has reached crisis point, with hundreds of families forced to live in their cars because they cannot find affordable accommodation.

http://www.thedaily.com.au/news/2007/dec/14/rent-hikes-trigger-housing-action/
... skyrocketing private rental fees are adding further
pressure to waiting lists. ... rent hikes that in the past five years, have seen the median rent for a two-bedroom unit rise from $170 per week to $260, ...

http://www.thedaily.com.au/news/2007/dec/13/single-mums-accuse-landlords-discrimination/
All they want for Christmas is a place to call home. But for sisters Yvette and Michelle Lallyette, their simple wish is looking more and more out of reach. ...

Well spotted on the debt-servicing ratio, Daggett.

Yabby,

It doesn’t surprise me to find that you focussed on the one aspect of the RBA document that suited your outlook. Certain members of the press did the same thing.

Unfortunately your supposedly reassuring debt-servicing ratio is ultimately dependent on asset-price/debt ratios where the asset-price is a variable (it falls) just like the interest rate (it rises) but the debt is a constant.
Which is why the RBA Deputy Gov. concluded by observing that:

‘ the household sector is running a highly mismatched balance sheet, with assets consisting mainly of property and equities, and liabilities comprised by debt. This balance sheet structure is very effective in generating wealth during good economic times, but households need to recognise that it leaves them exposed to economic or financial shocks that cause asset values to fall and/or interest rates to rise.’

We've been set up for a fall.

Those “flash houses in suitable locations”
are usually the same old houses in the same old locations merely overvalued.

You conclude that : “Australians are clearly wealthier then ever before”
But inflated property values don’t constitute a real increase in wealth. Paying more for the same old assets may suit those that already own them but it represents a decline in living standards for those that don’t - which is why another central bank, the Bank for International Settlements noted that:

“‘rising house prices implied a redistribution of wealth from future buyers to existing home owners rather than a net increase in wealth’..

(‘Households warned against perils of rising debt’ - Fin Review 25/6/07).

Not all Australians are part of the gerontocracy that did well out of that. Its what Wizofaus was referring to when he discussed “wealth transfer” as opposed to “wealth creation”. Deja vu

As for the “Banana Republic” First you need to be a republic. Then you might consider that Australia has the worlds 4th largest current account deficit in absolute terms, despite the mining boom & partly due to our lending institutions borrowing overseas to fund the housing bubble.

- Mr Smith

Daggett, nothing dishonest about export focus in WA. I remind you that we also
have some of Australia’s most efficient and innovative farming industries.
10% of Australia’s population producing 45% or so of exports.

Perhaps its you taking things out of context. I remind you that in 1981, the
Australian financial sector was still regulated, so lack of access to credit was
a major problem. Deregulation of the financial sector means interest
margins on housing loans have dropped from 400 points to 100 points,
to the benefit of consumers.

If you read the document as whole, clearly the RBA is not too concerned
with peoples ability to service their loans. My point remains. Debt servicing
ratios of owner-occupier homes has changed little in the last 10 years,
as the graph clearly shows.

Smithy, the same old houses? I remind you that the floorspace of new homes
being built in NSW for instance, is now 50% larger then 20 years ago. All
around Australia’s suburbs, you will see renovations, redevelopments and
upgrades going on in the housing industry. Indeed, we now live in the
world’s largest houses. In the 60s people aimed for a 3 by 1, now they aim
for McMansions. Expectations have changed dramatically.

Deregulation of the financial sector has meant that over 40% of Australians
now directly own shares, people can borrow to start businesses, etc.

If you really want to help the poor, then shut down the pokies!

Yes, we have a large current account. If Australians had been encouraged to
save more much earlier, they might have done so, we might own more of
our assets, foreign investors less, less BHP dividends etc would be sent off shore.

Instead, our past relatively high marginal rates of taxation and poor tax treatment
of returns on savings, have meant that people have ploughed their money into
those areas which benefit them most, ie upgraded houses, the profits of which
for home owners, are tax free. People see houses as an investment, a fact which
you overlook.

If the housing bubble bursts, so be it, houses will be cheaper

Groundhog Day again.

OK Yab you said :

"If you read the document as whole, clearly the RBA is not too concerned with peoples ability to service their loans".

To begin with the graph you referred to earlier only covers owner-occupier’s loans &
No, they're not too concerned about the current position of middle-aged, rich folks that are carrying a lot of the debt. Although the document concludes by saying that they have left themselves highly vulnerable to a fall in asset-values or a rise in interest rates.

Those two prospects are either inevitable or already happening.

The data (Graphs 8,9 &10 plus text) also reveals that the debt-servicing burden for ‘households in the bottom half of the income distribution’ has increased substantially since 1996.

That’s what comes with trying to compete with the wealthy when the wealthy borrow too much.

And by the way (once again) most homes are not new homes. Most are decades old.
The fact that Mc Mansions are too big does not account for the other 90-odd % of houses.
Renovations don’t triple the price of homes. Sometimes they diminish the value.
Most of the expensive homes in this expensive city are in the oldest areas & the redevelopments (apartments / townhouses) there, though expensive are generally quite small.
McMansions although gross are often low-quality & relatively cheap.

Costello tried that half-smart trick of confusing a phenomenon in the building of new houses with the price of homes across the entire market. And then he stopped – probably when Crosby-Textor advised him that swinging voters were too wise to fall for it.

Your comment about the pokies was by far the best thing you’ve said but it has little or no bearing on this topic.

Beyond that I haven’t “overlooked” anything, least of all the topics that were extensively covered on pages 9 & 11 of this extensive thread.

- Mr Smith

Smithy, yes the graph covers owner-occupiers. Isn’t that who you are concerned about?

What the rba says is that whilst the build up of household debt is portrayed as being
driven by young couples buying their first house, in fact its mainly being driven
by older, richer people who are trading up etc.

Your flaw it seems, is doing what many do. You are trying to extrapolate what
has happenend in your little old heritage suburb as what is happening everywhere
and that is simply not the case.

Yes house prices have risen, but they have risen a lot more in some areas, particularly
yuppy targeted areas closer to the CBD, then out in the battler suburbs, where new
land is still being developed. (like Cranbourne in Melbourne for instance)

Of course there is no way that young first home buyers can compete with double
income high earning yuppies in their 40-60s ! Duh.

Mind you, it seems to me that even in battler suburbs, in NSW prices have risen
faster then in other states. 10 years ago, the Carr Govt was trying to come up with
ways to avoid urban sprawl, IIRC. Less land released, plus passing on quite
significant infrastructure costs per block to developers, would have the effect
of increasing the cost of those new houses.

Despite all this, new houses built in NSW, at 245m2 are still the largest in Australia
and are 53% larger then 20 years ago, so those new home buyers can’t be doing
it that tough.

http://www.abs.gov.au/AUSSTATS/ABS@.NSF/Previousproducts/1301.0Feature%20Article262005?opendocument&tabname=Summary&prodno=1301.0&issue=2005&num=&view=

Renovations in your area might be minimal, but in other areas they are huge. A lot
of those 3 by 1 fibros have been dozed and replaced with modern homes. In areas
with more land per home then your suburb, pools, spas, have gone in. Rooms get
added, upgrades are done, as people know that it increases the value of their
homes and they can sell if they wish, making a tax free profit. That’s a better
investment then a bank deposit, where inflation and tax eat up the lot.