January 08, 2004 | Graham

Are the High Priests of the free market really atheists?

This article in today’s Australian tends to reinforce my view that the housing boom was starting to slow under its own weight without the need for an interest rate rise. Supply of investor stock apparently peaked in March last year.
Mind you it’s hard to get a straight comment out of the housing industry. How do you square Harry Triguboff’s statement that he will continue to build 1,500 units per annum (admittedly down from 2,000 last year) because there is “no over-supply” with his prediction that 30% of Sydney buyers will default on off the plan sales? It doesn’t matter that he ascribes the potential defaults to the unwillingness of banks to lend – this is still a prediction of a surplus of stock over purchasers, which is the definition of over-supply in anyone’s terms.
It can probably be explained by the fact that while real estate agents and developers will be the first to tell you about the virtues of the market, they are also amongst the first to put out their hands for government assistance when the market slows, or looks like it might slow. They don’t really believe in the market at all.
When they do put out their hands they are torn by greed. They know that government assistance will put money into their pockets, but they also know it won’t do this if they scare off all the buyers. So they are simultaneously in a permanent state of denial in both directions – whichever way the market is going.
Governors and board members of the Reserve Bank also have to fall into this atheistic category. If markets really tend to self-adjust, then there is little need for them to do too much most of the time apart from go to lunch. In the case of real estate, if the major reason for raising rates was to kill off the housing market, they arrived at the deathbed about the same time as the under-takers. Of course that won’t stop them from claiming the credit. If the market peaked in March, as the article claims, this was well before anyone was talking up the chances for an interest rate increase, so the first paragraph which says“the mere talk of higher rates deterred property investors and heralded the likely end of the three-year housing boom,” can’t be right. I wonder how it got in there? Surely not as a result of spruiking to journalists (took three to write this article) by the inflation guardians desperate to defend their position and reinforce their reputations for omniscience and omnipotence?

Posted by Graham at 1:54 pm | Comments Off on Are the High Priests of the free market really atheists? |
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