From the UK : money week, roundtable, below the golden balls of London : http://www.dailyreckoning.com/home.cfm?loc=/body_headline.cfm&qs=id=4349
“James Ferguson: I think you are all getting this the wrong way around. What do you think caused the economic recession of the early nineties? Do you know that unemployment was at a decade-low at the top of the last housing bubble? People were having exactly the same conversations and saying you cannot have a crash because unemployment’s so low. Unemployment is always low before a crash. House prices go down first, not last. And before housing goes down, what happens? Housing liquidity plummets. The first sign of a housing crash is a year of transactions diving through the floor. Like this one for instance.
Mortgage approvals are down 40% year on year. What was on the market for £800,000 is now not selling at £690,000. You haven’t seen that fall in the statistics yet because that house at £690,000 is still not in the data. And it won’t be until it sells. Then it will be clear that prices are falling and everything else will follow. Every single time that housing collapses, within twelve months unemployment goes up by at least 40%. This is what happens. Why? Because suddenly we have fewer house purchases. That means fewer white good sales. Not only that, but any money that has been used through mortgage equity withdrawal to finance consumption disappears completely. All these supports to the economy just disappear./”
interesting Obiwan.
Cheers
Steph.Success is 1% inspiration and 99% perspiration.
House prices go down first, not last. And before housing goes down, what happens? Housing liquidity plummets. The first sign of a housing crash is a year of transactions diving through the floor. Like this one for instance.http://quote.bloomberg.com/apps/news?pid=10000006&sid=aU1nlxf_.Lvk&refer=home
““When you see job creation, people feel stronger about how they want to spend their money. When they do that, it bodes well for housing.'”
imagine these 2 guys running into each other at a party – it would be a hoot
Extensive list of ‘Off The Plan’ property available for sale in Perth.John – 0419 198 856
ausprop the article you quote refers to the US, I was referring to the UK property market in mine.
The UK seems to be 6-12 mos behind us and the US is still in a property boom (2 years behind UK)
I really wouldn’t say the UK boom is 6-12 months behind Australia, prices have been falling there just as surely as most cities here for the last 6-12 months (this is obviously the market as a whole – not individual properties and areas).
How can I qualify this ? I sold my property in London exactly 12 months ago when I moved here, Melbourne. It is now on the market for some 7% less than they paid me and still not selling.[ohno]
The only difference I can see is prices have stabilised somewhat here, although still a buyers market – I have just entered the property market here so I hope so anyway. This rebound is probably at least 6 months ahead of the UK.
There appears to be way more confidence here than the UK in the short term future of property prices in each respective country.
D
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I spent most of my wages on women, booze and fast cars. The rest I wasted. – George Bestthe market may be at different stages but the point remains that their economic theories are completely divergent, one argues chicken and egg, the other egg and chicken. It highlights the fact that theories are just… theories. It was widely touted in 2002 that the property market was finished, that things are different this time, the aging population will see less demand for housing, the economy is cooling, the GST will kill everything, the sky is falling down, interest rates are going to go through the roof, deflation will collapse the large economies etc etc. For better or worse very little of that occurred and with the benefit of 20/20 hindsight we should have bought all that we could see / afford.
Extensive list of ‘Off The Plan’ property available for sale in Perth.John – 0419 198 856
Hi Obiwan,
I tend to agree with Ausprop. The Australian property market although in a post boom period, is in a fairly sound positon.The Australian economy is strong, with China GDP growth and demand for Australian mining output set to continue for a number of years.
Property yields are low, but they will improve whilst capital gains remain modest and rental demand strengthens along with population and wages growth. Then capital gains will overtake yields in new property cycle. [cigar]
Tasman
ausprop, yes i guess you can argue anything. However it is actually very difficult to act against the majority. To do this you have to concieve of how it could be different to the majority view which can be extremely compelling. Social proof is an amazingly concrete feeling reality. Arguments here can be useful and provide you with the mental leverage to act against the herd.
I elected to follow the herd wrt CGT. I sold in 2001 and when things did not move down I jumped back in again in late 2002. I think it is highly important when the market does not move in the majority expected direction. In this case despite the negative consensus things moved up, this is a strong indicator that the maket is robust and set for more appreciation. I realised I was wrong and switched. When the market indicates a clear bottom in what seems to be a declining market, I will be jumping in again. Heck I could be wrong but the fact that it is very tempting to reinvest now, to me indicates we have not reached a bottom.
with the uk market, our market certainly feels more steady at the moment, maybe the UK will get to a bottom earlier.
fair comment obiwan – tho all this chopping and changing can be expensive in such an illiquid asset class, especially when tax is applied to the until then unrealised gains.
off course this talk of bottoming out is confined to the east coast; certainly no dip on the west nor signs of a slow down. It is important to remember that ‘property’ is not really a singular market. there are markets within the Perth property market for example.
Extensive list of ‘Off The Plan’ property available for sale in Perth.John – 0419 198 856
that’s the only time I’ve been chopped in/out in this cycle (90’s-now). I take the cost at the current time without a retrospectoscope. I thought there was more downside than upside before the GST. This changed after the GST and I was better off re-entering at a higher price with exit and entry costs than staying out. I guess what you gain from being out is less capital at risk and more information. The bullish signal after the GST was an essential piece of information for me. My risk management is : I figure I can afford to hold PPR and 2 other proeprties in the long run. Given my wealth and current income, this is how much I decided I could hold comfortably as a long term investor. The rest is speculation and capital at risk.
RE is not a single market but you may find that you are only 6-12 months behind what is happening on the east coast. Everyone in Sydney found it inconcievable that proeprty would decline by 20% 12 months ago. It’s a lot more concievable now, but a 40% decline still seems inconcievable.
I think that whilst the developed countries continue economic growth, then it’s populations will continue to use credit, which has never been easier or more affordable, sadly. This is what is allowing the undeveloped world to grow. It’s a win-win like never before, and will continue, IMHO, for as long as the developed world can ‘carry’ the load of developing these countries by buying their comparitatively cheap goods. Every thing hinges on that!
Bottom line…as time goes on, and the more the west can get the 1.3B people in China, (for eq) to work, which improves their capability to continue to work, then things will continue as they are … until these undeveloped countries are forced to lift their prices. Thats the time to really start worrying, IMHO.
No one can afford to allow inflation and interest rates to come along and spoil the party. However, there is not enough control on how people spend their credit which leads to a frightening current account deficit.
I think the RBA is really wanting to scare people out of spending, which is good at the moment, but it has a flow on affects on RE prices. We need this pause to take stock and to rationalise expenditure on nonproductive/speculative/wasteful purchases.
Once people start seeing stability in interest rates, and start to divert their spending into their debt out of fear, then I think RE prices will again start to consolidate and rise.
The good thing for Australia is as the undeveloped world continues to grow, they will increasingly need our resources.
Relax, and have a properous new year.
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