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 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.
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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 The email address is now out of date.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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