Where to for house prices in 2013?

flattr this!

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.

Click here to read the rest of this post

About Steve Keen

I am a professional economist 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 debts accumulated in Australia, and our very low rate of inflation.
Bookmark the permalink.

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.
    http://www.positivemoney.org/2012/12/new-documentary-economic-science-and-the-debt-crisis/
    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 The email address is now out of date.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:

    LW

    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:

    LW

    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.

Leave a Reply