BANK TELLERS CAN’T BRING THE HOUSE DOWN!

BANK TELLERS CAN’T BRING THE HOUSE DOWN!

With this week’s gathering of the ‘brains trust’ it was over to the ‘Governor of Moolah’, and his merry collection of leading economists from all over the world to try and understand the property boom. The rise and rise of the property dollar can simply be attributed to a well managed economy, and the fact that Ausralians love the property industry. Macca has thus far had a very impressive six years as head teller of the Reserve Bank. Inflation has averaged 2.4 per cent a year, and the cash rate has averaged out at a highly respectable 5.18 per cent. Economic growth sits around 3.7 per cent a year and the market destroyer, unemployment, has fallen by 2.5 percentage points. The Governor’s, greatest concern is the ratio of household debt to household income as in his opinion, we have exceeded our borrowing capacity, with household debt to household income having increased from 56 to 125 per cent over the past decade. One must not forget that home prices over the same period have more than doubled, so the increased borrowings by householders have been hedged against the owner-occupied homes. Since the financial deregulation which in turn led to lower interest rates, money has never been cheaper to borrow and as long as banks’ prudential regulations remain the same, the property market will continue on the same path. What is alarming is that we are now starting to experience an entirely new property phenomena, i.e. the owner-occupier property market is drying up. Over the last seven years we have experienced unprecedented property trades, and now home renovation borrowings are at an all time high. It is highly unlikely that once the renovations have been completed, these properties will be sold. Yet again, supply still fails to get anywhere near demand!

As I see it, the main problem is that the Reserve Bank has lost touch with the people and the property market, because the entire structure of the economy has changed. The collection of data for most, is outdated and incorrect. The Home Price Guide for Mosman being the twelve months to July 31, 2003 shows the average price for a home in Mosman hit a record $1,802,375. This figure is actually much higher, as it does not include private treaty and expressions of interest sales. Just in the last week we have exchanged $18,253,000 worth of property and $15,000,000 will be excluded from the average price statistic because the prices are confidential. Congratulations to my brother Richard, as he sold 16 Milson Road, Cremorne Point. Just subtract a bit from $7,000,000. This is the highest sale price ever recorded for a home in Cremorne and Richard has also posted the highest price this year in Mosman, which happens to be the second highest ever recorded in Mosman. It is no wonder that Richard became a Director here from 1 July 2003.

So that the ‘Governor of Moolah’ can get a better idea on what is actually happening to the property market in Australia might I suggest a national property questionnaire, to prevent hostilities at any rate rises. There are so many differentials in the property market today, that only those who play it daily, fully understand it(or think they do). Only a questionnaire will explain exactly what is happening, as every owner-occupier has a different portfolio and you may find that they are better managed than first thought. It is interesting to note that post-recession in 1993, I handled the most “mortagee-in-possesions” in Mosman. It is now ten years since, and for the record we have not had one since!!

It would be very easy to instigate a sharp increase in the short term rates which no doubt would stop the asset price bubble, and introduce a recession. That happened ten years ago and many still bare the scars! One would genuinely hope that more intelligent measures are appropriate in this day and age. Whilst they are still searching for answers, rates should remain where they are. ‘Interest rate terrorism’ is just not the answer. Get out there and talk to the people, you might be amazed at what you learn!! Cheers and clink ^__^

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