Forum Replies Created
- I believe Australia will not experience a recession
What?! Are you saying Australia will never experience a recession again? The business cycle is a fact of life. We’ve had boom and bust since the beginning of time, and as long as Australia remains a free market economy we will continue to have booms and busts.
Just Announced: Our trade deficit blew out again this month.
Trade gap bulges on record imports
http://finance.news.com.au/story/0,10166,15186410-31037,00.html“AUSTRALIA’S goods and trade services deficit with the rest of the world grew in March to $2.7 billion, the second-highest ever, and imports soared to a record $16 billion, new figures released today show.”
Connecting the dots:
Big deficit means lower AUD, means more inflation, means higher interest rates.If statistics and graphs can prove any given argument, can someone please send me a link to anything at all showing house prices anywhere in Australia likely to rise over the next 5 years?My local real estate paper features a “projected capital growth” page for each suburb. Without fail they predict 15% growth for my suburb every year. The source of this prediction is http://www.homepriceguide.com.au.
Funnily enough the local McGrath agent put a leaflet in my letterbox this week with a section called “Overview of house and apartment prices in your suburb”. The YOY change for my suburb was minus 14.92%. The source? http://www.homepriceguide.com.au
What I’m saying is you can take any prediction from anyone involved in the real estate industry with a grain of salt. They will always tell you that prices will always rise. Ever met an agent who said now was not a good time to buy? Me neither.
Without pointing any fingers, a mortgage adviser or a developer is hardly likely to have an unbiased opinion.
No-one ever said that property is finished as an asset class. Five years from now might be a very good time to buy real estate, but blind freddie can see where we are in the cycle at the moment — at the top of a very big cliff.
I wonder why you left out this bit Foundation?“This point is more relevant now in the U.S. than it has been before because of the sudden recent rise towards 40% in the use of floating rates.”
The point the author is making (BTW the author is the chairman of GMO that has $82 billion under management) is that historically Americans have always favoured fixed-rate mortgages. Floating rate mortgages and interest-only loans are relatively recent phenomena in the U.S.
Obviously this makes American property investors more vulnerable when interest rates rise.Trends change with technological advances and changes in comsumer spendingHmmm, sounds very “new paradigm”. Don’t tell me, don’t tell me … its different this time?!
The people who are think for themselves are the ones who swim against the tide, not with it, and this real estate boom has been of tsunami proportions.
The surveyed collapse in consumer confidence immediately post rate rise?Snap! [biggrin]
So where is support for a decrease in property prices of 45% over the next 12 months?I didn’t say anythingh about property prices falling 45% in the next 12 months. I quoted a news report saying building approvals for apartments in NSW fell 48% in March.
As for March rate rise having a big impact try this:
Consumer sentiment down 16.5%
http://www.smh.com.au/news/Business/Consumer-confidence-rocked-by-rate-rise/2005/03/09/1110316081715.html
“The last time confidence dropped so dramatically was in April 1990 where it fell 15 per cent, just ahead of the unfolding recession.”dmichie, that article does not support your claims. Why do you persist in posting it over and over and over again?My claim was that real estate markets overshoot on the downside during a crash, which the charts in that article clearly illustrate (in the UK, US and Australia)
In the next few years it will all be about preservation of capital. 6% in the bank (with capital guaranteed) is better than a 20% loss of capital with a 4% yield in property.
In the next 18 months, I believe real estate will trend back to the prices it should have been had we not had a boomWhat do you mean by “trend”? For property prices to get back to the long-term average income multiple in just 18 months you are really saying there will be a crash. The optimistic view is that property prices will stabilise and incomes will (eventually) catch up, but that would take a decade or more. The reality will probably be somewhere inbetween.
Remember all markets (yes, even real estate markets) tend to overshoot on the downside when there is a bust. i.e. prices go below long term average.
You can see some examples of what I mean in the charts here:
https://www.gmo.com/NR/rdonlyres/E5E95346-EA7F-4583-9A8B-9939A9789615/460/JGLetter_1Q05_ALL.pdfWhat opportunities do you think this poses for the saavy investor?At this point the savvy investor would sell everything and put it in the bank.
The RBA didn’t increase rates because the CPI is under control (for the moment). Also, the March hike (seemingly) had such a big impact on the economy they need to be extremely cautious about moving too fast.
Its the expectation of ever-increasing prices (or lack thereof) that will turn the market, and the market has turned. People are no longer attracted to property investment because the capital gains have vanished (or are going backwards) and the yields are crap.
The US cash rate is 3% not 4%. As the gap narrows there may be some pressure on the AUD, but it also depends a lot on commodity prices, demand from China etc. Problem is, if the AUD does fall, that means all those imported consumer items we love will become more expensive, which feeds into inflation, which increases the chances of the RBA raising rates.
If you take the “tradeables” out of the CPI number, you’ll see that domestic inflation is running at 3.7%. So if the AUD reverses (or just stops appreciating) inflation will take off:
http://smh.com.au/news/Business/Why-we-mustnt-rouse-the-dragon-of-inflation/2005/04/29/1114635747704.htmlfoundation, excellent post.
You can get the M3 numbers from the RBA website:
http://www.rba.gov.au/Statistics/AlphaListing/alpha_listing_m.html
Download some Excel spreadsheets and make yourself some charts.The RBA chart pack has some good stuff too. Check out the housing affordability charts. Wow!
http://www.rba.gov.au/ChartPack/I agree with foundation that the housing bubble was an unintentional side-effect of central banks trying to engineer a “soft landing” from the shocks of the tech wreck and 9/11 … or as “The Nation” more colourfully put it:
The current housing bubble is the bastard offspring of the stock-market bubble of the mid-1990s… The boom has been sustained by sensationally low mortgage rates, thanks principally to the willingness of China to buy vast amounts of US Treasury bonds despite their low or negative yields.Find some more supportive articles and I may listen to you more attentively.Hmmm … how about this one?
http://www.theaustralian.news.com.au/common/story_page/0,5744,15173332%255E601,00.htmlor this one:
http://www.news.com.au/story/0,10117,15171900-421,00.htmlWhile apartment approvals fell 21per cent nationally in March, the biggest fall was in NSW, where approvals almost halved – falling 48 per cent in one month – to their lowest level in more than three yearsThe record (>7%) CAD is not a bad thing and I suppose the 80c Aussie dollar is just dandy? You really are deluded. The high dollar is a tragedy for Australian exporters, but I guess it means home owners can buy imported goods with “equity mate” loans. Sure it keeps the economy humming along (for a while) but even you must see its unsustainable. Australians don’t save anymore so where are those equity loan dollars coming from? Yep, foreigners are lending us money so we can buy their goods.
I’m never going to convince you of anything, so I simply ask that you read the article I posted:
https://www.gmo.com/NR/rdonlyres/E5E95346-EA7F-4583-9A8B-9939A9789615/460/JGLetter_1Q05_ALL.pdfWhy am I doing this? Because young Matt will find himself with negative equity in some crap apartment unless he is extremely careful.
I’ll leave you with this quote:
“Homes, as a result, have become private ATM machines, providing their owners with magical, unearned cash flows for purchasing new sports utility vehicles, making down payments on vacation homes, and financing increasingly expensive college educations for their kids. Second mortgages and home refinancings, according to a Wharton Business School survey, have generated an astounding $1.6 trillion in additional consumption since 2000.The great American housing bubble, like its obese counterparts in the UK, Ireland, the Netherlands, Spain, and Australia, is a classical zero-sum game. Without generating an atom of new wealth, land inflation ruthlessly redistributes wealth from asset-seekers to asset-holders”
The ultra-low interest rates of recent years has created the greatest mis-allocation of investment in human history, and you think this is a good thing?!
Will property speculation solve our current account deficit problems? Hmmm, I think not. No, all it has done is create massive indebtedness, debt that serves no good purpose other than to fill the pockets of real estate speculators.
You cannot run an economy like this forever. Huge amounts of money that would otherwise be invested in productive enterprises is being absorbed by real estate. We cannot sell our absurdly overpriced houses to other countries. Its a giant house of cards that must eventually come crashing down, just as the dot com bubble did.
Look at some of the charts in the link in my previous post. Do you really think current house prices are sustainable? Do you really believe house prices can keep growing at a much faster pace than incomes?
https://www.gmo.com/NR/rdonlyres/E5E95346-EA7F-4583-9A8B-9939A9789615/460/JGLetter_1Q05_ALL.pdf
BTW, this comment had me laughing out loud:
“Have you ever considered the money they spend on things like solicitors, conveyancers, building inspections, depreciation schedules, renovations, property management, real estate salespeople…”
Hmmm, those professions sound like the foundation for a productive, internationally-competitive economy (not)“Any thoughts on investing in CBD apartments?”
Oh lordy lordy, is this a serious question? This must be some kind of troll, no-one could be so mis-informed as to be seriously considering investing in CBD apartments … could they?
Matt,
Complete your degree, become a productive member of the communinty, and contribute to the economy. Property investors are speculators who make no contribution to the productive capacity of the economy, and simply drive up house prices beyond what first home buyers can afford.
This is a once in lifetime housing bubble, not too dissimilar to the dot com bubble of the late 90s. By the time you are earning a salary as lawyer investing in property will look as silly as 1999 dot com prospectus does now.
You don’t think this is a bubble of dot com proportions? Read this:
https://www.gmo.com/NR/rdonlyres/E5E95346-EA7F-4583-9A8B-9939A9789615/460/JGLetter_1Q05_ALL.pdfYep, sure sounds like the manic buying frenzy typical of a bubble — “I better buy now or I’ll miss out”. No more beachfront blocks eh? Australia has more coastline than any nation on earth with only 20 million people.
Besides, whatever is happening in Queensland and WA is months behind Sydney. Sydney leads the market, and the market is falling here, beachfront blocks included.
AUSPROP, I can guarantee you the Sydney market ain’t gonna boom anytime soon! A slow grinding decline over 4-5 years is more likely.
Did you read the “Crisis of confidence” article in this weekend’s AFR? Property in the $1M-$4M range is taking a tumble in Sydney and Queensland with falls of up to 33% since the 2003 top.
You’ll need an AFR subscription to read it, or see p26 of the printed edition:
Crisis of confidence hits luxury market
http://afr.com/premium/articles/2005/04/21/1114028481153.htmlSome quotes from RE agents in the article:
“But for a high-quality apartment to show a 33 per cent fall compared to what was paid in 2003 … I would not have anticipated it”“It is probably the biggest crack in the market I have seen”
“We are desperately trying to keep prices up but they definitely have dropped”
“The Sydney auction clearance rate was 37 per cent [last] week. That is low.”
“People believe that the value of property doesn’t decrease, it just keeps going up, and that’s not the case at all”
AUSPROP, here are a few reasons why I think it is different this time:
– Real property prices are well above their long term trend line
(see http://www.cis.org.au/policy/autumn05/autumn05-1_clip_image002.gif)
– Rental yields are at historically low levels (the P/E ratio for real estate if you like)
– The percentage of investors in the real estate market is at an at all time high
– The CGT changes in 1999 fuelled the property bubble, just as money flooded out of tech stocks and into real estate
– Negative gearing is more popular than ever, because the point at which the 48.5% top marginal rate kicks in has not kept pace with growth in incomes (bracket creep)
– Interest rates worldwide have been held at artificially low levels since 9/11
– Australia has had 14 years of unbroken economic growth, and we are well overdue for a recessionAnd BTW, this property bubble is much bigger than anything that happened in the 80s.
Yes AUSPROP house prices never fall do they, except ummm Japan, and the UK, and …
You guys really do remind me of the dot com spin merchants of the late 1990s … “there’s no bubble because this is the ‘new economy’, old rules about fundamentals no longer apply”
