Where to for house prices in 2013?

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The usual suspects are talking up the prospects for Australian property prices as the New Year approaches, with permabull and Australian Property Monitors senior economist Andrew Wilson forecasting 3-5 per cent growth nationally, and BIS Shrapnel managing director Robert Mellor calling for between 2 and 8 per cent growth for Sydney.

Such calls range from just equal to, to well above, the expected rate of consumer price inflation. So they’re a return to the usual property mantra that house prices always rise faster than consumer prices because of the “fundamentals” of (a) a rising population and (b) tight supply.

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About Steve Keen

I am Professor of Economics and Head of Economics, History and Politics at Kingston University London, and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous private debts accumulated globally, and our very low rate of inflation.
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20 Responses to Where to for house prices in 2013?

  1. ken says:

    I have seen an opinion that there was no oversupply of housing in America. What has happened is that a large proportion of the population has encountered a large drop in income, and has resolved that by reducing their housing costs by moving in with relatives, friends or sharing.

  2. Jim Ellis says:

    Two points,
    1. Apologies if this has already been posted.
    Slight appearance by Steve early on and then again later. Nothing new to regular readers.
    2. Please remove Jovial from your list. The email address is now out of date.

  3. TruthIsThereIsNoTruth says:

    There is an interesting interplay between mathematics and psychology here.

    Looking at figure 2 the thing that stands out to me is that the Australian price curve is the most convex. So it’s first derivate has experienced the largest change and unless you take only the last quarter to approximate it, you can say that the 1st derivate is larger than the Japanese curve, with US being the lowest, ie fastest dropping.

    This is where a certain mathematical inevitability kicks in. This might be resonant to those who appreciate theories fundamental to calculus. If a function in time is continuous and is lower than another time continuos function, and its first derivative is larger, it is inevitable that they will at some point cross. From a purely mathematical perspective, the most obvious analysis of the 3 charts is that if the trend continues Australian prices function will soon be above the Japan.

    This is where we leave mathematical analysis and the psychology of wishful thinking kicks in. On the current trajectory, it was mathematically inevitable that there will be a period of time where one could make the naive interpretation “it’s on par with that experienced in Japan’s long slow melt”.

  4. cliffy says:

    Happy New Year to all.

    Is the argument here that the ability to create money out of thin air is an economic inefficiency?

    If that is the argument I can’t agree with it.

    Because a medium of exchange should consume the least amount of resources as possible.

    I mean what is the argument that supports the statement that the ability to produce money out of thin air is a bad thing?

    – that money should cost a lot to produce?
    – that every transaction should have as large a transaction cost as possible?

    That money can be produced out of thin air is a plus.

    Isn’t it?

    Tell me I’m wrong and why.

  5. Lyonwiss says:

    @ Cliffy December 31, 2012 at 7:06 pm

    Money has another important property which is “a store of value”. If “money can be created out of thin air” (I do not accept this), then money can be infinite and therefore has no value. This contradicts the definition where money (however defined) is also a store of value.

    My assertion is: “anything which is potentially limitless and can be created out of nothing cannot be a store of value”. The widespread confusion arises from defining money only as “a medium of exchange”. In the next few years, we will understand much better the need for money to be a “store of value”.

  6. Derek R says:

    But where do you draw the line, Lyonwiss? If I pick up a nugget of gold from a stream bed, what’s the difference between that and creating a note “out of thin air”?

    And money made out of gold is “infinite”. Are you saying that that means that gold coins have no value and cannot be a store of value? Surely not.

    Likewise if the government issues monetary notes which expire in a hundred thousand years what’s the difference between that and notes which don’t expire. And if a hundred thousand years seems too long, what about notes with an expiry of a hundred years, or one year, or a month, or a day? You seem to be saying that the potentially limitless notes would be worth less than the ones which expire tomorrow. Well, I know which I’d rather have as a store of value.

    So I’m a little unsure that I understand what you are saying. Care to clarify?

  7. TruthIsThereIsNoTruth says:


    Your most likely intented definition of value is the ability to maintain the purchasing power of your surplus funds. That is, you have earnt more purchasing power now than you care to spend and would like to allocate those funds for future use or even increasing purchasing power via investment growth.

    In a global context, although numbering millions, it is only a very small minority of the population that is lucky enough to generate surplus spending power, the store of value question is a rich person’s dilema.

    Spending power can be interpreted as the extent to which one can indirectly or directly exploit the world’s resources, whether it be enviromental or human labour. Popular economics and finance is very much concerned with this, and hence would be more accurately termed as a theory of exploitation.

  8. Lyonwiss says:

    @ Derek R January 1, 2013 at 2:24 pm

    You asked, “If I pick up a nugget of gold from a stream bed, what’s the difference between that and creating a note “out of thin air”? The obvious difference is you cannot just “pick up a nugget of gold”, whereas you as a central bank can just print a note.

    Money from gold can never be infinite, unless you have the philosopher’s stone. According to some estimates, the total amount of gold which has ever been mined in history is about 173,000 tonnes. As the easy nuggets have already been picked up, the real cost of gold production always increases, which prevents over production, particularly if gold price is kept low in economic terms.

    @ TruthIsThereIsNoTruth January 1, 2013 at 2:42 pm

    You said, “it is only a very small minority of the population that is lucky enough to generate surplus spending power, the store of value question is a rich person’s dilema.” What do you call the savings in pension funds around the world, if not “surplus spending power” postponed for consumption in retirement?

    The $1.4 trillion of Australian superannuation belongs to over 10 million workers. Similarly in other countries. Their future purchasing power is being robbed by emerging inflation. That is why many investors and retirees are looking to preserve their purchasing power by holding real assets, such as precious metal and real estate. This behavior has little to do with exploitation or Keynesian “animal spirit”.

  9. impermanence says:

    “If I pick up a nugget of gold from a stream bed, what’s the difference between that and creating a note “out of thin air”?”

    There is no difference. This is where the abstraction of labor-value into its money-form seriously breaks down. Money can be added to, or detracted from, whereas, labor-value is work performed and can not be altered.

    Much of the funny business [stealing] that goes on in this world happens right here, without anybody paying much attention to it at all.

  10. TruthIsThereIsNoTruth says:


    What percentage of the human population is covered by a pension fund?

    Deferred spending power, particularly for retirement, implies a materialistically comfortable existence without having to work for that. Which in turn implies that that deferred spending power is a reserve on future production. A very large proportion of this production is performed by workers who work only to survive and therefore are not earning a surplus income which can be deferred for their retirement.

  11. mahaish says:

    “Their future purchasing power is being robbed by emerging inflation.”

    where is this emerging inflation ?

    how can there be , when most economies in the western world have impaired household and corporate balance sheets

  12. mahaish says:

    we’ve been expecting emerging inflation or hyper inflation in countries like japan for over 23 years now, because their central bank and treasury have gone nuts printing yen.

    still waiting 😉

  13. cliffy says:

    With regards gold v other current forms of money in terms of how they inform the “out of thin air” question, the fact is that if we to cost up the bringing of something into existence to a point where it was acceptable as a general medium of exchange within a particular money system those costs would run from very little [close to “thin air”] to very much.

  14. cliffy says:

    However there are also costs associated with money post that point [new money created now what].

    In fact if we were able to track and individual dollar from it’s creation, exchange, and at times destruction, we would see a range of particular dollar and portfolio of dollars associated with particular positions emerge.

  15. cliffy says:

    that is … “a range of particular dollar, and portfolio of dollars, costs associated with particular positions emerge.”

  16. koonyeow says:

    Title: The Seen, The Unseen And The Non-linear

    Agree that the western world has impaired household and corporate balance sheets (the seen), what is unseen is the connection between the accounting world and the physical world. Impaired balance sheets does not mean zero level consumption; it only means lower level of consumption, relatively; but lower level of consumption is being partially countered by declining product-returned-on-resources-invested and rising population. We should not use a linear model in a non-linear world (the chart that looks like a hockey stick). A non-linear world only looks linear until we hit the turning point. An imaginary example of a turning point is if Saudi Arabia destabilizes and oil price goes through the roof.

    My personal interpretation of ’emerging’ is: it will, but not yet (if we look at the accounting world and the physical world as a whole).

    Beware The Problem of Induction in a non-linear world (or that Black Bird may peck you off-guard).

  17. cliffy says:

    I imagine it is these other costs that is of interest to those engaged in this debate.

    Like most things a single position is high risk, and a multiplicity of positions is full of complexity costs..

  18. Lyonwiss says:

    @ Mahaish January 2, 2013 at 1:17 pm

    With globalization and free capital flows, Japanese inflation is exported through the Yen-carry trade to other countries, with some of the cheap money ended up inflating Australian house prices. Much of Australia’s current account deficit is due to financial flows, representing foreign debt growth to finance consumption.

    When I say emerging inflation, I really mean emerging world-wide inflation, where few countries are spared. Inflation has already emerged in food, oil, precious metals, other commodities and asset prices such as in government bonds, but they have not been measured in consumer prices in some countries due to (a) inflation export and (b) data manipulation (eg excluding volatile prices).

  19. kalman says:

    There is a big differences between the USA and Australia, the USA had a problem with their Subprime lending, this was around 10% of loans, this played a part in expanding the bubble.
    Here in Australia we don’t have the 10% subprime problem, here we have around 80% of borrowers subprime and also our real-estate is around 250% more expensive than at the height of the USA Ponzi boom. We will have a devastating collapse of around 75% in nominal terms. Here on the Gold Coast QLD prices have caved in during the last two years, a minimum of 20% and some 60%.
    Please don’t think that people are flooding Australia buying our expensive produce, services or assets, that is only a real estate’s wet-dream, if you drive around you can see all the businesses going bust thanks to the overinflated AU$. Every country is doing its best to devalue its currency to help kick start the economy, it is amazing how stupid our government is to be the only place on earth to do the opposite, I can understand the average knucklehead citizen cheering this on, so they can spend more on eBay but they will lose their job because of Australian competiveness.
    This phenomenon manifested itself predominately as a result of our ” Lucky Country Status” meaning we had such a good life here, astronomical wages, 0 % unemployment for people who want to work, massive handouts, basically we are the Fat lazy sloth of the world. You see when you live in a Country where there is war or was in your lifetime, or a country where people starved to death like India, China, Pakistan most of the world, than you are a bit more humble and realize that you need to work for money not just expect it for nothing like during this Real estate Ponzi Scheme. Australia and Canada are the last ones still standing in the dark, we will realize during the next 20 years what the consequences are of this massive over spending and arrogance.
    If you can sell up now and walk away with a small loss just do it, it is better to be on Zero and free than to be bankrupt and a Zombie , you won’t even be able to rent after that!! If you can walk away with a profit than buy Precious Metals and rent for 5 years, wait until there is blood on the streets. Just like there is on every other country now.

  20. daggett says:

    Whislt the Chinese economy is obviously dysfunctional in ecological terms as well in conventional economic terms, it is nowhere near as dysfynctional as the Australian ‘economy’ which is built upon:
    (1) exporting non-renewable mineral resources, that rightly belong to future generations as well as this generation, in rapidly expanding quantities; and
    (2) a growing housing ‘industry’ which, by definition, cannot add to our balance of payments surplus.
    The Chinese economy could not have achieved the balance of payments surplus that it did if China had also developed a housing sector in preference to a manufacturing sector.
    Whilst building more houses on the vast plains surrounding our major cities can conceivably help reduce housing pricess or at least slow down the rate of their increase, it can only possibly do so by adding to our balance of payments deficit and by adding to urban traffic congestion and to other social and ecological problems.

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