This depends on the system (and I don’t know it well), very few are able to truly & consistently trade profitably on volatility alone during a sustained decline. Does the fund publish regular stats on cash-ratio?

Just went looking, to no avail. Did find that despite considerable volatility over the past 3-months (Chart Here), the fund is down around 2.5%. I certainly wouldn’t be borrowing against the IPs considering the global outlook is still slowing growth…

F.[cowboy2]

Just remember that in the last downturn, prices in rural areas plummeted. 50% off was common in rural Victoria from Warragul to Mallacoota… The problem is that recession hits these areas much harder than larger population centres. A mid-sized employer (say an abbatoir / roof-truss manuf / sawmill closing down can see a dozen families leave. Then state gov’ts tend to cut the size of public services during bad times. And the largest employers in regional towns? Department of Human Services, Regional Health Services, Department of Sustainability, Primary Industries, Parks, Centrelink, etc etc. All lose staff, with cascading effects on food services, retail etc. And of course city-folk stop visiting and the tourist dollar dries up.

Just to put the rural thing in perspective. And how do I know? Because I’m a country-boy. Thus the hat. Yeeha!

F.[cowboy2]

Supply and demand eh?
Let’s look at some facts. Taking 1998-2003, a 5 year sample. Nominal house prices rose by 76% at a national level. During this period:
– the average rate of net natural population increase (births – deaths) was 120k per year
– the average rate of net migration (incoming – outgoing) was 117k per year
– the average household size fell from 2.7 to 2.5 persons per dwelling

…that should cover pretty much every source of underlying demand growth I can think of. So, at 2.5 persons per household, natural population growth demanded 48k dwellings per year. Net migration demanded 47k dwellings. Shrinking households demanded 55k dwellings per year. A total of 150k dwellings total additional demand per year (in round figures).

And the building industry constructed… an average of 157k dwellings per year.

Supply exceeded underlying demand. Evidence of this can be found in vacancies, which rose strongly over the period.

The more relevant supply-demand equation occurs at point-of-sale, and is largely unrelated to underlying demand. On one side, we have house sellers, on the other, house buyers. This supply-demand equation is much more prone to imbalance, which is why house prices don’t move in a linear fashion for very long.

Demand (buyers) come in 3 forms:
– First time buyers (FTBs)
– Movers
– Investors

History tells us that a balanced situation resulting in involatile prices generally consists of 20% FTBs, 60% movers, and 20% investors on the demand side. On the supply side are 20% who move to retirement homes or pop their clogs, the same 60% movers, and 20% investors. These figures are approximate, and subject to small variations based on demographics, changes in incentives for investors, public housing etc. But basically, it’s a balanced equation. It may look out of whack, because ‘surely 20% of people don’t go to nursing homes or die each year?’, but it’s important to remember that only 5% of the total housing stock is turned over in a stable (non-boom) year.

In other words, roughly 1% of the population die and are replaced by newborns, 3% move house, and 1% buy an investment property.

So how did this supply-demand equation change over the 1998-2003 period?
Demand side:
– First time buyers fell from 17% to a low of 10% of buyers
– Movers fell from 58% to 44% of buyers
– Investors rose from 25% to 46% of buyers

So clearly if a demand-side imbalance had occurred, it was driven by investors. Also interesting, but hard to define, is the Mortgage Equity Withdrawal (MEW) effect. MEWing for property investment adds to the demand side, without adding to the supply side. This imbalance alone, given the high number of investors doing it, is enough to push prices higher, and consequently increase the equity available for further MEW… while rising prices make most home-owners less inclined to sell for fear they miss out on further capital gains.

I agree, it’s all about supply and demand.

F.[cowboy2]

It’s not about the size of the wallet, it’s about the flashiness of the car he leases…

Actually the average wage was around $42,500 at my last check. You can’t look to average-full-time-male-earnings when a large proportion of the population is neither male, nor employed full-time.

Currently rising at 4.4%pa. In 10 years this totals a 54% increase, although subtracting inflation (as other costs will rise), more like 0.9%pa / 9% over a decade. Assuming the economy stays strong, despite reports from the gov’t & rba that “growth is moderating” (read – the economy will be weaker in the future than it was in recent past).

I certainly do![tongue]

F.[cowboy2]

By that logic, somebody buying in Melbourne in 1989 for $184k would have made money selling in 1999 for $243k (REIV medians) would have made money? $114k in rent (ABS 3br Melb), $216k in interest costs, plus rates, maintanance, insurance, PM fees…

This article?
http://www.smh.com.au/news/national/homes-lost-as-rates-bite/2006/09/09/1157222376383.html

You needn’t have! We have a variety of opinions here, and a variety of ways of expressing them. I found your’s amusing – I can and do take the peas out of myself regularly, so you’re really just saving me the hassle! [grin]

Hi Elka,
Here’s where I tread carefully. Every investment carries some risk, and I’d hate to ever find I’d encouraged even a sole person to lose money on a poor investment. I can only speak of my own plans, and urge others to do their own research. Just make sure this research is not based on the false assurances of others, and do not underprice risk.

So as you mentioned, I’m planning to sell my beach-house, my current PPOR. It’s done well by me over the last couple of years, via land appreciation, and with the little house I had built it should nett me around $100k. I know, peanuts to many, but this represents about 2.5 years of post-tax earnings to me, and frees up my original capital to the tune of another 3 years. Effectively, I can invest this at inflation rates, and retire 5.5 years early, with the only sacrifice being a lifestyle one – the loss of my holiday house. But I think I can do better than that.

I still have a few bits & pieces to finish – fences, gardens and painting mainly, so the plan is to have it ready for sale over the summer holidays when the population trebles.

So where to park the loot? Well, I’ll have to set aside $5,000 as escrow for my bet with Mr. Yardney that median house prices in Melbourne will not be above $736,000 in 2013. I’ll also be backing my bet that higher interest rates are coming by keeping a chunk of cash in a high-interest savings account. Imagine if I could get 8% gross or 6% nett in a couple of years… I’ll back my bet that the RBA will lean towards higher inflation (trying to clandestinely inflate away our debt problem without crashing assets) by purchasing a pile of extra gold sovereigns and maple-leafs. I’ll keep an eye on the numbers out of the RBA / ABS, the gold price (particularly over the next 4-5 months) and the AU/US exchange to judge the effectiveness of this strategy and decide what level of additional exposure to take. I’ll buy a few select share parcels (‘buying the market’ or even a blue-chip basket definitely look like poor plays at present).

I’ll waste a bit. I’ll need to build a new shed/workshop at the other house. Maybe a scooter (fine, laugh, whatever, I’m not a proud man!) for cheap commuting around town, and it looks like an O/S holiday is on the cards next year.

But here’s the credibility-destroyingly-funny bit; I recently stumbled across the most amazing block of vacant land – a real ‘one of a kind’ for a rock-bottom price. More than this I will not say, as I’m already fairly paranoid that I’ll lose it if another party shows interest (although I have my eye on another almost as good). But yep, I may well be buying a bit more dirt.

Oh dear. That should bring out some confused faces…

F.[cowboy2]

Of course you can withdraw voluntary contributions from super – which I assume is what we’re talking of here, as direct investment in houses is near impossible under compulsory contributions.