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Less Like Goldilocks And More Like The Emperor With No Clothes

A report from the Daily Telegraph on Australia. “Apartment owners in havens for high-rise units are realising their properties are worth less than they paid for them as rampant oversupply and falling demand send real estate values plummeting. Recent sales figures indicated multiple unit owners made a loss on their investments, with some apartments in high rise buildings selling for up to $150,000 below what the sellers paid.”

“Such sales were particularly prevalent in construction hubs such as the suburbs of North Ryde and Rosehill, near Parramatta. The suburbs were among the few Sydney areas where average prices have fallen below what they were in 2014, according to CoreLogic.”

“Recent loss making sales included three units sold in a North Ryde building complex on Allengrove Crescent. All changed hands within the last three months for more than $120,000 less than what the sellers paid in 2017. The average Sydney home has lost about 15 per cent of its value since the market peaked in July 2017.”

From Domain News. “NAB chief economist Alan Oster said debt levels were concerning, saying general economic anxiety could damage the property market despite its recent boosts. ‘Across the broader population there are signs that consumers are struggling to balance their budgets, there are still some who are getting into further trouble [with their mortgages], and those 90 days past due are increasing,’ he said. ‘That says to us people don’t have enough money to balance the books, and that’s showing in retail sales as well.'”

“‘The biggest downside risk is in the apartment space where you’ve clearly got an over-build. It fell last year and will again this year,’he said. ‘Who knows?’ is the short answer. If you look at supply and demand, it’s significantly over-built.'”

From 7 News. “Australians’ mortgage debt has continued to grow faster than the value of real estate assets, as house prices plummet for a fifth consecutive quarter. The decline in property prices also pushed the ratio of Australians’ mortgage debt to real estate assets from 28.1 per cent to 29.0 per cent, matching the all-time peak reached in July 2013.”

From AFP International Business. “Once dubbed the ‘Goldilocks economy’ for avoiding the pitfalls of the global financial crisis, Australia has seen 27 years of uninterrupted expansion — unprecedented in the developed world. But the outlook appears increasingly bearish, and resilient Australia’s faltering growth could be the canary in the coal mine for the world economy.”

“Like many advanced economies, Australia’s unemployment rate is not too bad, but like elsewhere there has been a troublesome mixture of high personal debt and stagnant wages. In response, Australians are being more thrifty — spending less on eating out, paying little heed to almost constant high street discounts, and, crucially, spending less on rent and accommodation.”

“The downturn has exposed weakness in the Australian economy that had been masked by China’s insatiable appetite for Australian commodities. The economy now looks less like Goldilocks and more like the emperor with no clothes.”

“That’s a big lesson for the rest of the world as it picks up the pieces after the financial crisis, Gabriele Gratton of the University of New South Wales said. ‘The Australian economy didn’t diversify enough and it exposed itself to a situation where Australian households are highly indebted,’ Gratton told AFP.”

“Chinese growth also contributed to the sharp rise in housing prices as both locals and foreigners piled into the market, particularly in the major cities Sydney and Melbourne. But the Chinese economy has been losing momentum in recent years, reducing the demand for commodities and properties in the sun.”

“‘If prices do not collapse, then nothing happens. But if prices do collapse, it will cause the type of (problems) that we’ve seen in Ireland or in Spain,’ Gratton said.”

“With interest rates already so low, stimulus spending could be on the cards. But both the central bank and the government have limited room for manoeuvre. ‘The problem is you don’t have the policy instruments that we can pull now that we pulled in the global financial crisis,’ National Australia Bank chief economist Alan Oster told AFP.”

The New Statesman. “When I arrived in Australia and turned on the TV in my hotel room, I was bombarded with adverts for mortgage refinancing, equity withdrawal and cheap credit cards.”

“In St Kilda, a trendy district in the south of Melbourne, entire streets were covered in boarded-up shops plastered with the logos of various real estate companies. On one street, someone had taken a Sharpie and written ‘lower your rent’ over every sign, and homeless men and women could be found sheltering in the unused doorways.”

“A few days later, I recounted my experience to one of the organisers of the political conference I attended, telling him that all the signs pointed to a property boom that was running out of steam. He nodded in agreement: ‘my house is worth no more today than it was when I bought it two years ago.'”

“Economists failed to pay attention to any of these indicators before the crash, instead dubbing the period between 1989 and 2007 the ‘great moderation’ — a time of high growth, low inflation and generalised economic and financial stability. Only when the boom finally ended did they realise the veneer of moderation had concealed a wellspring of excess.”

“But the financial crisis did not spell the end of financialisation — instead, it heralded another phase of its expansion. Since the financial crisis, property prices in Sydney and Melbourne have risen 105 per cent and 94 per cent respectively. Private debt-to-GDP, which includes all household and corporate debt, has increased from 184 per cent of GDP in 2010 to 205 per cent today. Household debt is more than 200 per cent of average incomes, making Australian households some of the most indebted in the world.”

“Wandering around the conference I was attending, there was a palpable sense of disappointment in the air. In allowing the boom to continue as long as they have, Australia’s political and economic elites have clearly prioritised short-term profits over the nation’s long-term economic health.”    

This Post Has 74 Comments
  1. “Apartment owners in havens for high-rise units are realising their properties are worth less than they paid for them as rampant oversupply and falling demand send real estate values plummeting.

    Attention FBs! Due to structural issues with shoddily constructed skyboxes, management requests that residents of odd and even numbered floors stamp their little feet on alternate days to avoid accelerating the building’s premature collapse.

  2. “But the financial crisis did not spell the end of financialisation — instead, it heralded another phase of its expansion.

    Correctamundo. Rather than flushing the toxic waste from the system, the central bankers doubled down on their monetary malpractice. And now the financial reckoning day, when it can no longer be deferred, is going to be orders of magnitude worse than it would’ve been in 2008 had true price discovery been allowed to impose itself.

    1. The two accusations made here are true. Bubbles in real estate was the plan, and no diversification of the economy was carried out. Look at the US. What actually changed? We just went back to selling each other shacks.

      This link is no longer available at the original site but it is on my blog:

      February 26 2008

      US Fed must put floor under home prices

      “Housing prices in the US must not be permitted to continue falling, says the chief investment officer of a fund with $US750 billion of fixed-income assets under management.”

    1. Brookline is one of the better places to live in the Boston area. Good schools, close to the city but not urban, lots of transportation options, great variety of restaurants. Surprised to see Brookline getting hit this early into the debubbling. Hey, I think I created a new verb there. Anyway, if prices in Brookline are tumbling, the whole Boston area is doomed.

  3. Australia no rece$$ion for 27 year$.

    When the du$t $ettles, they won’t call it: “Great Rece$$ion l”

    It’ll bee referred to as “Great Island Depre$$ion begin$”

    1. The problem is you don’t have the policy instruments that we can pull now that we pulled in the global financial crisis,’ National Australia Bank chief economist Alan Oster told AFP

      The problem Alan is that the Chinese (and others) do not have the ability to build more ghost cities and ghost factories with ever expanding debt like they did 10 years ago. Any stimulus you might conjure up will be wasted and your resting place will ultimately be below where you started.

      1. “The problem is you don’t have the policy instruments that we can pull now that we pulled in the global financial crisis”

        I disagree. You still have lots of ‘instruments’ at your disposal.

        1. Rehabilitate Laundered money
        2. Buy a house get a Green Card
        3. NIRP
        4. 50 year mortgages
        5. Wars

        If all fails:
        6. Helicopter money

      2. You underestimate China’s ability to add more debt and build more infrastructure both in China and in other countries. While it is also being caused by supply disruptions China’s continued demand for iron ore has created a surge in the price

  4. Frugal living = WIN.

    From a recent MarketWatch article:

    “Research has shown that spending cash — the literal act of handing bills and coins over to another person — triggers the same parts of the brain that process physical pain.”

    1. physical pain

      The majority of your research subjects know they do not have enough money saved to feed themselves for a few months. Of course it is painful to spend what you cannot afford! Perhaps buying with a credit card doesn’t immediately feel painful. Later, it does.

  5. “Wandering around the conference I was attending, there was a palpable sense of disappointment in the air. In allowing the boom to continue as long as they have, Australia’s political and economic elites have clearly prioritised short-term profits over the nation’s long-term economic health.”

    I don’t think it’s different here, just a little behind AU on the timeline. Another way to say this: The FIRE/REIC sectors are prioritized over everything else. Why nothing changed in 2008-9: No consequences, no change in behavior. Only Iceland got it right then and threw the banksters in jail. Most on this blog can see “the hand writing on the wall” for the U.S., and yet there’s money to be made by the elites at the expense of everyone else. I don’t think most Americans are aware of what’s really going on. The boiling frog analogy comes to mind. You’d think we’d have learned something from the GFC. I think we’ll get another chance to learn it again soon. “We financialized some folks.”

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

    “It’s déjà vu all over again.” – Yogi Berra

    “The popularity of inflation and credit expansion, the ultimate source of the repeated attempts to render people prosperous by credit expansion, and thus the cause of the cyclical fluctuations of business, manifests itself clearly in the customary terminology. The boom is called good business, prosperity, and upswing. Its unavoidable aftermath, the readjustment of conditions to the real data of the market, is called crisis, slump, bad business, depression. People rebel against the insight that the disturbing element is to be seen in the malinvestment and the overconsumption of the boom period and that such an artificially induced boom is doomed. They are looking for the philosophers’ stone to make it last.” — Ludwig von Mises (1940)

    1. You’d think we’d have learned something from the GFC.

      Sorry, that class was cancelled prematurely by the administration. Previous generations were allowed to complete the full course.

  6. “Housing prices in the US must not be permitted to continue falling”

    Well, why not?
    Excuse me I forgot the rules. The rich will be affected, so…

    Thinking about the illogic (or stupidity, if you prefer) of Bernanke/Yellen, their main fallacy was ad ignorantiam, or “confusing ignorance with impossibility (or possibility) is fallacious.”.
    That printing money is OK because there is no proof that it will cause harm. Of course, this also involves the cherry picking or stacked deck fallacies because they ignore other money printing episodes in history Wiemar, Zimbabwe, etc). The only difference between us and them is that we are a reserve currency. However, being a reserve currency does not resolve the issue of moving from hedge, to speculative, to ponzi finance.

    excerpt:
    the final stage – Ponzi finance. At this point banks make loans to firms and households that can afford to pay neither the interest nor the principal. Again this is underpinned by a belief that asset prices will rise.

    1. On 60 minutes tonight: There’s a class-action mega-lawsuit brewing against the opioid manufacturers and distributors. The allegation is that they essentially did nothing to prevent thousands (hundreds of thousands) of opioid-caused deaths, while profiting enormously.

      Well, how is the FIRE sector and the Fed (private bank) any different in this case? Easy credit & debt = financial heroin. It’s obvious that Senator Running Deer and the CFPC are providing nothing more than lip service (ref.: SEC). I’d love to see something similar against the FIRE sector, but so far it’s not happening. I’m sure Congress has got our back, right?

  7. Photos Reveal AOC Was Crying Over An Empty Parking Lot

    by Tyler Durden
    Fri, 06/28/2019

    Authored by Paul Joseph Watson via Summit.news,

    Newly uncovered photos from the border protest attended by a tearful Alexandria Ocasio-Cortez show that she was crying over an empty parking lot.

    Many have accused the Congresswoman and her supporters of staging a photo-op after the images, taken during a 2018 event outside a migrant “tent city” in Tornillo, Texas, went viral earlier this week.

    The photos show an emotional AOC holding her face and appearing to cry. Her attention appears to be directed towards whatever is on the other side of the fence.

    However, a photo from a different angle shows there is nothing there aside from an empty parking lot and some police officers.

    https://www.zerohedge.com/news/2019-06-27/photos-reveal-aoc-was-crying-over-empty-parking-lot

    This one goes out to Alexandria Ocasio-Cortez

    https://www.youtube.com/watch?v=y8yvnqHmFds

  8. “Apartment owners in havens for high-rise units are realising their properties are worth less than they paid for them as rampant oversupply and falling demand send real estate values plummeting.”

    I’m just glad I am not a Real Estate Investor in Australia right now…

  9. At least the Goldilocks story includes three bears. Where are bears represented in The Emperor’s New Clothe$?

    1. Luckily the Fed is guaranteeing that no more bear markets will ever again transpire.

      The Financial Times
      Opinion
      Can you really prepare for the next bear market?
      Risk management is about smaller positions and rebalancing but liquidity is an unknown
      Amin Rajan 2 hours ago

      “If we were to go through what we did in ’08 and ’09, we’d be screwed,” said Aubrey Layne, the Virginia finance secretary, this year.

      The Virginia Retirement System serves more than 700,000 current and retired public sector employees. It sidestepped the solvency crises that hit its peers in Illinois, Kentucky and New Jersey but its latest stress tests show that if the next bear market were to be as bad as the last one, its unfunded liabilities would double to $12bn.

      There is similar concern outside the US. After the markets nosedived in the last quarter of 2018, it is unclear whether the recovery since then is a revival of the bull market or a dead cat bounce.

      A dozen major economies face negative 30-year spreads against the Fed fund rate, which implies an inversion of the global yield curve. Pension plans are forced into a delicate balancing act between opportunity and caution.

      Quitting the late stage of a bull market could mean missing up to 25 per cent gains, if history is a guide. To be prematurely risk averse is the biggest danger investors face. Besides, bear markets are notoriously hard to predict. Their timing, severity, duration and the speed of their revival have defied predictions in previous cycles.

    1. That is a microagression 401, you can only say that to blue collar workers such as steel workers and coal miners. Steal workers aka bankers and their mouthpieces are not to be told that advice.

    2. This is great all those with TDS will have to work at strarbuxxxx Real reporters who can ask hard questions of the protected “minorities” will have a long career. Funny how no one asked a FB what did you spend your home equity money on? But we had daily reports on those evil banks foreclosing on us and we’ve lived here for 40 years.

  10. if you are in the ‘Gig economy” like driving a Lyft or doing AirBnb —- but for 10-20 hrs a week while you look for a job ….
    are you still considered employed

    ———

    “Like many advanced economies, Australia’s unemployment rate is not too bad, but like elsewhere there has been a troublesome mixture of high personal debt and stagnant wages. In response, Australians are being more thrifty — spending less on eating out, paying little heed to almost constant high street discounts, and, crucially, spending less on rent and accommodation.”

  11. Where’s HA ! ?
    The Fairfax County median sale price is expected to see a 2019 year-over-year gain of about 7 percent,
    We’ll take it

    1. I’m pretty nervous about how gobal corrections will play out in the markets.

      Markets that are based on the “greater fools” concept are crazy and just so 1929l .

  12. A lot of news articles this morning pushing socialism as if it made America great like Medicare that was enacted in the 70,s.

    1. Both social security and Medicare were built like Ponzi schemes which are dependent on exponential population growth. Since they paid out far more to the average person than they took from the person they were widely popular. People only hate losing in a Ponzi scheme very few report a Ponzi scheme that has paid out more to them than they put in. However even government run Ponzi scheme s will fail. The program s could have been made sustainable as their inception but would not have been politically popular. After all the free market could run a retirement program more efficiently which just gave you a reasonable return on the money you actually saved

      1. The greatest generation got the most in terms of not enough pay in to Social security .The fact that they went through the Great Depression and fought the nasty World War ll almost makes it acceptable.

        These people lost their savings in the 1929 stock market crash when Banks failed even if they never played the stock market.

        From that perspective it kept starving older people dying on the streets even if they hadn’t paid in enough years. Yes, maybe a welfare program , but one that might of been justified at the time.

        1. It wouldn’t be that hard to fix social security, but it’s a political landmine.

          I went on a long run yesterday and was speaking to my uncle. He is a chip designer, now retired. Leery of all democratic candidates (except he loves Tulsi Gabbard) and reluctantly voted for DJT. He is absolutely paranoid of a wealth tax and has close to $1 mil in 401k. He kept droning on about the democrats wanting to give free education, free health care, etc. But then he pivoted and spoke about his $4k month SS check and also that his wife (who has never worked) who gets 1/2 of what he gets, so $2k a month. I love my aunt, really. But the amount of free stuff this very wealthy pensioner will get, and his wife, is far beyond anything being proposed by the dems. There are boomers all over the country who are tapping SS this way and getting far more than they paid. SS could be fixed, but not when it means taking away their “free stuff” (e.g. Gimme Dat GOPers).

          1. “But then he pivoted and spoke about his $4k month SS check and also that his wife (who has never worked) who gets 1/2 of what he gets, so $2k a month.”

            How does she draw a benefit if he’s not deceased?

          2. How does she draw a benefit if he’s not deceased?

            Are they no longer legally married? It could happen that way.

          3. How does she draw a benefit if he’s not deceased?

            Legally married. Wives are eligible for up to 1/2 of their husbands SS if husband retires at full retirement age (he will retire at 70).

          4. He is a chip designer, now retired.

            …he will retire at 70.

            One of these things is not like the other.

          5. Wives are eligible for up to 1/2 of their husbands SS if husband retires at full retirement age

            I did not know that. But it does make sense in light of the similar benefit available to ex-spouses if the former marriage lasted long enough.

          6. One of these things is not like the other.

            Retired from his job, living off savings. But not “retired” for SS calculations. As you know, you can delay until 70 to get extra monthly benefits, or you can take it at 62 and get much less.

          7. his $4k month SS check and also that his wife (who has never worked) who gets 1/2 of what he gets, so $2k a month.

            But not “retired” for SS calculations.

            Well then, one of these things is not like the other. I suppose he hasn’t figured out that she won’t actually get $2000.

            If you expect to live to 90, it is probably better to wait. If you go with 85, it is better to take the benefits earlier. It’s simply an annuity calculation.

          8. It’s simply an annuity calculation.

            Exactly. But it is an uncertain annuity calculation because no one really knows how long they are going to live.

            Retirees miss out on $3.4 trillion by claiming Social Security too early, study says
            CNBC
            Sarah O’Brien
            June 28, 2019

            “The study from investment firm United Income examines the long-term financial effects of the decisions surrounding when to claim Social Security. Just 4% of retirees make the generally optimal decision of waiting until age 70 — when benefits reach their maximum amount — to start getting those monthly checks.”

            “Those who expect to live well into their 80s or later benefit from waiting until age 70 to begin their benefits. If that’s not the case, it could make sense to tap them earlier.

            “The break-even age is usually around 81,” Boneparth said.”

          9. Retirees miss out on $3.4 trillion by claiming Social Security too early

            But if they are going to give it all to a nursing home that would have otherwise been paid for by the govt how does that change the calculation?

  13. The maximum possible monthly SS benefit is $3,770. To get that amount, a worker would have earned the maximum taxable SS wage for 35 years, and delayed collecting benefits until age 70. The maximum spousal benefit is 1/2 of his full retirement age benefit ($2788/2= $1,394). The spouse can collect that amount, when they reach full retirement age, whether they worked or not.

    1. I don’t know, he says his check will be $4k. I believe him. He gripes about it though because he says he has paid over $700k into the system in credits between him and his employer.

    2. “The spouse can collect that amount, when they reach full retirement age, whether they worked or not.”

      Okay, so when the spouse reaches their retirement age. Thanks!

        1. The spouse can collect that amount, when they reach full retirement age

          But in the opposite case what happens when the ex reaches full retirement age and the worker hasn’t finished working yet? If they can still claim based on their age, does the benefit grow as their ex continues to earn if not at the max?

        2. Except, when the working beneficiary dies, and sweetie reaches her full retirement age, she’ll collect the greater of her benefit, or his, for the rest of her life!

          1. A lot of older Americans are getting free stuff while decrying the a so-called new crop of socialists. Comparatively it is crumbs to what is currently being redistributed.

    3. The maximum possible monthly SS benefit is $3,770. To get that amount, a worker would have earned the maximum taxable SS wage for 35 years, and delayed collecting benefits until age 70. The maximum spousal benefit is 1/2 of his full retirement age benefit ($2788/2= $1,394).

      I’m not understanding the $3770 versus the $2788. Is that the difference between 70 and “full retirement age”?

        1. The last six years of trying to access benefits for my son, whether it be through government-sponsored programs or private health insurance, have taught me that you’re not supposed to know what you’re entitled to and getting every bit will be a lengthy battle.

        1. OK thanks. I didn’t realize the benefit of waiting until 70 was that big. Makes sense though.

          1. You will get the same amount of money if you live exactly to the age expectancy. Stretched over more or less years. I’ll take the money now, thank you.

          2. You will get the same amount of money if you live exactly to the age expectancy.

            Understood. We keep living longer and longer though. At least for now.

          3. We keep living longer and longer though.
            Ran across both these articles in the past few days; brought back bad memories.

            At 75, Taking Care of Mom, 99: ‘We Did Not Think She Would Live This Long’
            nytimes.com/2019/06/27/business/retirement-parents-aging-living-to-100.html

            Even worse than the financial toll is what it does to your head – it’s a daily preview of your future, unless you get hit by a bus (which I’d prefer.)

            A Five-Year-Old Teaches a Lesson in Grace
            rd.com/advice/relationships/five-year-old-taught-mother-grace/

            Hey, I am fun at parties. I am.

          4. Hey, I am fun at parties. I am.

            You’re and owned a bar. I’m sure you are!

      1. Full retirement age for me was 66, that’s determined by SS, based on when you were born. If you decide to collect at 62 ( or any age between 62 and 66) your benefit is reduced. If you defer collecting benefits, the monthly amount grows ( but will miss collecting the benefits for those years). The spousal benefit cannot be collected until both reach their respective full retirement ages.

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