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People Construct Fantasies Around Whatever The Asset Bubble Is

A report from ABC News on Australia. “One of the policies the Coalition took to the election was a scheme to lower the amount first home buyers need to save to buy a property. Prime Minister Scott Morrison said it would enable first home buyers to access the market with a deposit of only five per cent.”

“‘The reality is we can only help first home buyers if someone loses, which means prices probably have to fall,’ said The Grattan Institute’s Brendan Coates. ‘The reality is quite a lot of those people will never get access to this scheme because they may struggle to ever be able to afford a loan based on bank regulations around how much you’ve got to be able to repay.'”

“The scheme is currently capped at 10,000 borrowers, approximately 10 per cent of the Australians who bought their first home last year, meaning not everyone eligible for the scheme will reap the benefits of it. ‘It means the policy’s … going to be fairly irrelevant, it’s not going to do a lot to boost home ownership,’ he said.”

“JP Morgan chief economist Sally Auld said encouraging first home buyers to enter the market in a period of uncertainty could mean some of them might end up owing more than their property is worth — something known as negative equity.”

“‘In a market where at the moment house prices are still continuing to fall and the sort of one to two-year outlook is reasonably uncertain, I’m not sure that encouraging a cohort of buyers without an established credit history to take out loans at a high loan-to-value (LVR) is sort of hugely sensible. I mean, the point with this is that the money ultimately has to be paid back,’ Ms Auld said.”

From Nine News. “A record number of empty apartments, a growing shortage of buyers and tenants and record new supply has created an unprecedented phenomenon: ghost tower syndrome. There are currently 9446 apartments listed for sale in Sydney with more than 20 per cent – or almost 2000 of them – new.”

“In addition to record numbers of apartment listings, Sydney is also experiencing a glut of rental units looking for a tenant, says My Housing Market chief economist Dr Andrew Wilson. The carnage is widespread from the city to Parramatta, Liverpool, Ryde, Chatswood and Bankstown.”

“There are currently 16,201 units listed for rent in Sydney – up more than 50 per cent over the past year – reflecting unit vacancy rates rising sharply from 2.1 per cent to 3.3 per cent over the same period. Dr Wilson says buyers are still wary of the market and numbers are down 30 per cent compared to last year.”

“With a decline in new tenants due to the recent surge in first home buyers, a sharp decline in migration and more new stock continuing to flood the market, it will be a lengthy process to absorb record unit listings, with many new apartment buildings likely to remain ghost towers, he says.”

From News.com.au. “House prices in some ‘non-aspirational’ outer suburbs could fall by 85 per cent and there is ‘no conceivable reason why some don’t go to $1,’ according to a hedge fund boss. Bronte Capital founder John Hempton, who went undercover with investment expert Jonathan Tepper in 2016 to investigate poor lending standards, says it’s ‘stupid’ that a house in Rouse Hill where ‘it’s grass to the Blue Mountains’ could be worth $1.4 million.”

“Speaking to The Jolly Swagmen podcast, the renowned short-seller said the ‘fantasy was deeper’ the further they went from the CBD, with Rouse Hill in the north west the ‘centre of the Sydney property bubble.'”

“Mr Hempton recalled how he and Mr Tepper, posing as a gay graphic designer couple with ‘low and variable’ income, travelled around Sydney talking to lending officers, mortgage brokers, real estate agents and developers to see how much they could borrow.”

“‘It was pretty clear bad practice was ubiquitous and the further you went from the centre of Sydney the worse it got,’ he said. ‘In particular if you went north and west. Norwest Business Park, Kellyville, Rouse Hill, they were surreal, whereas if you went south and west they were just wacky.'”

“Bank underwriting standards limit borrowing to 6.8 times income, but the pair found the real number was more like 7.2 and in some cases up to 10. ‘The expression they used, and we kept hearing it again and again and again, is, ‘I know a bloke who can get things done,’ Mr Hempton said.”

“‘If you wanted to borrow eight or nine times your income they would send you to someone else who knew all the loopholes and was playing fast and loose. The blokes who could ‘get things done’, there were tricks for doing it, mechanisms for faking. They would tell you where the eaknesses were in banks’ monitoring. The most extreme one was fake tax returns, literally software to develop them.'”

“Lending standards were ‘bad everywhere’ but ‘the further we went away from the CBD the more insane the bank branch officers or brokers were,’ he said. ‘It wasn’t even a little bit worse, it was a lot worse. The fantasy was deeper. People construct fantasies around whatever the asset bubble is. I expected the bubble to be in the inner part where houses are expensive. I completely changed my mind. The bubble is in the outer part. It affects ordinary people. ‘”

“Mr Hempton said it was a ‘joke’ that the median house price in Mt Druitt was over $1 million while the median household income was about $55,000. ‘You walk down a street with about seven or eight pawn shops in Blacktown and the houses just around the corner from the junkies and the pawn shops were $900,000,’ he said.”

“The question, he said, was ‘who was buying’ all the housing in Mt Druitt and adjoining Rooty Hill, ‘neither of which is salubrious.’ ‘The answer was people who were eight suburbs back towards the city who were buying because they couldn’t afford a house where they wanted to live so they were just leveraging up rental properties in the hope they would get enough money to buy the house they actually wanted.'”

“‘What astonishes me is nobody grows up desiring to live in Rooty Hill. You live in Rooty Hill because you can afford it and that’s what happens. It’s not an aspirational place. In non-aspirational places houses were trading at 17 or 18 times income, and lending officers were telling you to draw your credit card to the max,’ Mr Hempton said.”

This Post Has 32 Comments
  1. ‘The reality is quite a lot of those people will never get access to this scheme because they may struggle to ever be able to afford a loan based on bank regulations around how much you’ve got to be able to repay’

    This election and the media reaction was pretty interesting from a bubble watching perspective. The conservative who won, was the REIC guy. But only a bit, as this 10k loan cap shows. From what I gather climate change was a bigger issue, and like a lot of countries, the winner took the rural areas, the loser the metros.

    But the REIC media has the spin flowing. We’ll see. Can 10,000 first time borrowers soak up many tens of thousands of airboxes, with tens of thousands under construction? Will it reverse years of horrific loan fraud, recently exposed by the commission. The banks still have to make sure the loans can be paid, and are plain blacklisting many areas. And yesterday we read about an FB couple who lost 100k Australian pesos on a freaking lot in Melbourne!

    The last link is worth reading in full.

    1. With thousands of airboxes available , maybe we can transfer our homeless and new immigrants to Australia. At least it would be better than the old ghost towns .

      Na, the people down under wouldn’t go for it.

    2. They will bulldoze the empty houses before allowing them to be auctioned off to sensible people who stayed on the sidelines and saved their money.

      1. Yes because creating fake equity in homes to promote spending is more important to globalists than affordable housing. You have to break a few eggs to make an omelette or to create worldwide socialism.

      2. They will bulldoze the empty houses before allowing them to be auctioned off to sensible people who stayed on the sidelines and saved their money.

        I *think* that’s correct. Specifically because maybe they can find a way to make bulldozing inflationary. While the alternative is clearly deflationary.

  2. “Lending standards were ‘bad everywhere’ but ‘the further we went away from the CBD the more insane the bank branch officers or brokers were,’ he said. ‘It wasn’t even a little bit worse, it was a lot worse.

    Thank goodness we have Maxine Waters, Senator Running Deer, and our policymakers, enforcers, regulators, and hard-boiled Real Journalists with their shared commitment to exposing and combating fraud, enforcing the integrity of the financial system, and safeguarding the public interest. We can all sleep soundly in our beds knowing such stalwart champions are on our side and are resolutely preventing Australia-style abuses among our own mortgage lenders.

    /sarc

  3. In non-aspirational places houses were trading at 17 or 18 times income, and lending officers were telling you to draw your credit card to the max,’ Mr Hempton said.”

    “Non-aspirational places.” Sounds like neighborhoods where hope goes to die.

  4. “Lending standards were ‘bad everywhere’ ” –

    Well, I can see where this is going with the end game being bank failures, but that assumes that the banks that made the loans with “lending standards [that] were ‘bad everywhere’ ” would be liable for their own risk-taking and losses, and not be bailed out by unsuspecting taxpayers (i.e. moral hazard). It turns out, that assumes a lot. Let’s see how this plays out “down under”. Call me cynical, but I’ve seen this rodeo before.

    http://wallstreetonparade.com/2012/08/how-treasury-secretary-geithner-foamed-the-runways-with-childrens-shattered-lives/
    How Treasury Secretary Geithner Foamed the Runways With Children’s Shattered Lives
    By Pam Martens: August 29, 2012

    Neil Barofsky’s new book — Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street

    “For a good chunk of our allotted meeting time, Elizabeth Warren grilled Geithner about HAMP, barraging him with questions about how the program was going to start helping home owners. In defense of the program, Geithner finally blurted out, ‘We estimate that they can handle ten million foreclosures, over time,’ referring to the banks. ‘This program will help foam the runway for them.’

    “A lightbulb went on for me. Elizabeth had been challenging Geithner on how the program was going to help home owners, and he had responded by citing how it would help the banks. Geithner apparently looked at HAMP as an aid to the banks, keeping the full flush of foreclosures from hitting the financial system all at the same time. Though they could handle up to ‘10 million foreclosures’ over time, any more than that, or if the foreclosures were too concentrated, and the losses that the banks might suffer on their first and second mortgages could push them into insolvency, requiring yet another round of TARP bailouts. So HAMP would ‘foam the runway’ by stretching out the foreclosures, giving the banks more time to absorb losses while the other parts of the bailouts juiced bank profits that could then fill the capital holes created by housing losses.”

    “We’re essentially continuing a system where profits are privatized and…losses socialized,” – Nouriel Roubini

    “The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks.” – Lord Acton

    “And remember, where you have a concentration of power in a few hands, all too frequently men with the mentality of gangsters get control. History has proven that. All power corrupts; absolute power corrupts absolutely.” – Lord Acton

  5. Jan 20th 2017

    House = republican$u
    Senate = republican$
    Pre$ident = republican$

    What was your que$tion?

    ” …with their shared commitment to expo$ing and combating fraud, enforcing the integrity of the financial $ystem, and $afeguarding the public intere$t. We can all sleep soundly in our beds knowing such $talwart champion$ are on our side … “

    1. Don’t try to make this a red/blue issue. Both parties are captured by their globalist billionaire donors. Both serve only their .1% puppet masters, not the public interest.

      1. Yes both having a meltdown over a Chinese trade war. However, initial unemployment claims are at a fifty year low and that ignores the population increase. But for the border that the globalists refuse to close and the other bad globalist trade deals, the working class would be enjoying unprecedented prosperity. Thus the full court press to get Trump out before even some of his critics on this board realize he has the right policies.

        1. I’m almost hoping that they can force Trump out. If Pence keeps the same merit immigration and MAGA-type policies, he’d be elected more easily than Trump will.

          1. But that is the big if. I do not believe he is as opposed to globalism as Trump

          2. But that is the big if.

            Agreed. Trump is the only one I see who could possibly get and keep the presidency for a couple of terms willing to take on the establishment. Not because he has some genius master plan, but because he seems to have an instinct for fighting back against whoever tries to take him out. Everyone else seems to get scared and fold as soon as they figure out what they’re really up against.

          3. I’m almost hoping that they can force Trump out.

            How?! Impeachment, resignation and assassination are the choices. Not enough votes in the Senate for impeachment and Trump won’t resign.

      2. “Both serve only their .1% puppet masters, not the public interest.”

        Absolutely. And there is no chance of this changing without (to start with) campaign finance reform.

      1. “If you don’t read thenewspaper, you are uninformed; if you do read the newspaper, you are misinformed.”

  6. “I’m not sure that encouraging a cohort of buyers without an established credit history to take out loans at a high loan-to-value (LVR) is sort of hugely sensible.”

    Now that prices are dropping like a turd in a well, banksters are suddenly distancing themselves from what were standard operating practices during the height of mania price appreciation.

  7. Isn’t a China trade deal in the bag? I’m having a hard time understanding why Mr Market’s underwear is in a knot over trade concerns…

    1. I’ve recently suggested this was unlikely to happen now, after people have persistently but needlessly worried about it for thirty years. But when the facts change, I change my mind.

      The Financial Times
      US Treasury bonds
      Trade war sparks fears of China weaponising US Treasuries
      Recent $20bn sale of US debt could not be explained by typical ebb and flow of Beijing’s holdings
      Beijing’s sale of US Treasuries last week amounted to China’s largest retreat from the market in more than two years
      Joe Rennison and Colby Smith in New York
      3 hours ago

      It was an unnerving piece of data for investors last week, buried halfway down an esoteric spreadsheet released by the US government that tracks how many Treasuries foreign investors buy and sell.

      China, the largest foreign creditor to the US government with total Treasury holdings in excess of $1.2tn, sold $20bn of securities with a maturity exceeding one year in March, according to US government data. The sales amounted to China’s largest retreat from the market in more than two years.

      The move came shortly before tensions over trade between Beijing and Washington heated up again, with the US slapping additional tariffs on the country’s imports and Chinese officials retaliating with measures of their own. What is more, the sales could not be explained away by the typical ebb and flow of China’s Treasury holdings that result from managing its large reserves to keep the currency stable.

      1. “But when the facts change, I change my mind”

        My thoughts are like the leaves of Autumn, they fall with the change of reason’s …

      2. Alternative Fact$!:

        U.$. manufacturing PMI $lump$ to nine-year low in May

        MarketWatch |Published: May 23, 2019

        Even more ominou$, the firm’s survey of U.S. service-oriented companies such as bank$ and retailer$ $lipped to a 39-month low of 50.8 from 52.7. $ervice companies employ about four-fifths of all U.S. workers.

        What happened: The growth in new orders from both domestic customers and foreign buyers declined and firms “put the brakes on hiring,” IHS said.

        Big picture: The ongoing trade war with China and resulting tit-for-tat tariffs has taken a toll on American companies. They’ve lost some sales, had to find new suppliers and are generally hesitant about what to do next because of trade tensions.

        1. Manufacturing was still growing in April and the trade tariffs on China will mean the supply chain adjustment will move from impulse speed to warp speed. The Chinese know it and the Chinese government statement today was designed to put maximum pressure on the stock market and Trump. The initial unemployment numbers which are more current than the April numbers shows the fundamental strength in the economy

    2. As long as Trump is President a Chinese victory is in the bag but a trade deal is up to China. It can play Korean era propaganda movies while the supply chains in its countries move overseas if it wants. However the days of $500 billion plus trade surpluses with the US are over. China so wants Obama back. Joe Biden will work, since they know that family can be bought off but Obama was money in the bank

  8. “The question, he said, was ‘who was buying’ all the housing in Mt Druitt and adjoining Rooty Hill, ‘neither of which is salubrious.’ ‘

    Uh yeah, I concur….word a day calendar…

  9. Two gays walk into a mortgage broker…and get a mortgage 10x income!

    #####

    “Mr Hempton recalled how he and Mr Tepper, posing as a gay graphic designer couple with ‘low and variable’ income, travelled around Sydney talking to lending officers, mortgage brokers,”

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