Feb 10, 2016 Written by Trail Homes
There is a strange phenomenon currently apparent in the American economy. The New York Times of 19th October reported it like this: click here go to link go here When gas prices fall, Americans reliably do two things that don’t make much sense. They spend more of the windfall on gasoline than they would if the money came from somewhere else. And they don’t just buy more gasoline. They switch from regular gas to high-octane. here Камешково купить закладку мефедрон, кокаин, героин, скорость меф ск, мдма, амфетамин, гашиш, экстази, шишки, бошки, шишки. A new report by the JPMorgan Chase Institute, looking at the impact of lower gas prices on consumer spending, finds the same pattern as earlier studies. The average American would have saved about $41 a month last winter by buying the same gallons and grades. Instead, Americans took home roughly $22 a month. People, in other words, used almost half of the windfall to buy more and fancier gas.
Given that “fancier gas” is broadly known to make negligible difference in the running of a standard vehicle and that presumably there is no substantial need to drive more miles than when prices are higher, this is irrational behaviour.
That humans sometimes behave irrationally should surprise no one. The interesting question is where else might such irrationality appear? Can it affect, for example, house prices?
We’ll limit ourselves to Australian evidence and the history of house prices is a good place to start.
Over the long term the old saying “buy land, they aren’t making more of it” was good advice (although if you’d bought on the eve of the Great Depression 1929-1937 you could be forgiven for wondering what went wrong).
And house prices followed suit. At times prices fell but there were exceptional causes for the worst cases, the Great Depression and the Second World War. And, of course, unless the breadwinner lost a job or the mortgage was recently acquired and interest rates suddenly jumped, there was usually no need to sell so price falls could be accommodated. The great Australian love affair with home ownership continued unabated.
In more recent times home ownership has become even more compelling, if harder to afford for new entrants.
It’s clear that over the last three decades house price increases have very significantly outstripped base rate inflation. Given this prolonged history of continuing much-better-than-inflation price rises it has been perfectly rational to invest in housing. There was a downward move of some significance but it was relatively short lived and soon gave way to the usual upward climb.
But it is necessary to have rising income to be able to pay for such increasingly expensive property. It is also evident that with the fall-off in our terms of trade following the tailing off of the mining investment boom and the reduction in commodities prices, our national per capita income is on the decline.
Given the decline in national disposable income how much debt, in the aggregate, is it reasonable to take on?
And how much stock can the national economy hold when income is reducing?
And how much debt in relation to personal income is reasonable?
The New York Times article quoted above went on to provide a rationale for the strange fuel buying behaviour:
Камешково купить закладку мефедрон, кокаин, героин, скорость меф ск, мдма, амфетамин, гашиш, экстази, шишки, бошки, шишки. There is, however, a pretty good explanation for this kind of pattern. Researchers have found that people treat money as earmarked for particular kinds of spending, a tendency behavioral economists call “mental accounting.” If someone is buying rounds at the neighborhood bar, people tend to treat the money they didn’t spend as “beer money,” and sooner or later they tend to spend it disproportionately on beer. As a result, they end up drinking more beer than they had originally intended.
Earmarking may be what Australian households do with regard to mortgage payments. Except in this case it is a relatively open ended form of mental accounting with households prepared to make the kind of financial sacrifices for housing that they would not make for any other asset, including the bidding up of prices when interest rates fall.
A number of factors have played into this over recent decades:
· Real wages have risen steadily and on occasion rapidly, and
· It is now usual for two incomes to support household costs,
· Attitudes to debt have changed considerably since the 1970s (ask your parents if you don’t recall),
· Banking deregulation in the 1980s provided much more liberal lending by banks, and
· Constraints on land supply and planning requirements by local and state governments artificially restrict land supplies, and
· Pushed up land prices meaning more money https://samuraistuffshop.com had to be paid for housing.
To continue the great Australian love affair with our own homes required Australians to pay more for housing. We were willing to pay because our mental accounting convinced us it was for good reasons.
And until very recently this was probably right thinking. The situation has recently altered however – as the graphs above demonstrate – and perhaps it no longer makes sense for households to continue in the same vein.
It certainly seems that way from a national interest perspective. Further housing price increases, from the collective point view, would be irrational and damaging.
As far back as 2010 the proportion of bank funding going to housing was a concern in that such lending was increasingly at the expense of business. The Australian Financial Review reported then that head of business banking, Joseph Healy, stated that:
Купить закладку кокаин, мефедрон, героин, скорость меф ск, мдма, амфетамин, гашиш, экстази, шишки, бошки, шишки a banking system which allocated capital away from the most productive areas of the economy — business — is ultimately bad for growth, bad for competition, bad for jobs, bad for business and in the end, bad for Australia.
It’s time that our national and state governments cooperated to ease supply constraints and make homes again affordable for the average new homebuyer.