Another article predicting Australian property to crash

Supply and demand will be the biggest factor as well as continued wage growth combined with comparatively low interest rates. 

I'm not a crystal ball polisher but it seems to be holding up ok and looks that way for the foreseeable future, but who knows whats really going on behind the scenes???

He's in good company then. Every financial player worth his salt is saying the same things. Humans like to stay positive and talk up their chances even in the face of adversity. The problem with that trait is that it often means we hang around too long for our own good. There is a theory that crowd think has a way of generating the most correct decisions but what is often ignored by the promoters of this theory is that it lends itself equally to group tragedy – think lemmings.

Just because Dent is a vocal supporter of a crash prediction does not mean he is wrong. This current global financial crises was seen years even decades in advance. What has always been difficult if not impossible to predict has been timing and severity. A quote from that article seems extremely reasonable to me and many others who choose to look ahead with a more realistic view.

"Australia is probably the best place in the world to survive this, but we do think Australia will not escape as well as it did from the last crisis (in 2008),'' Mr Dent said.

Dent isn't predicting doom and gloom for Australia but warning that deteriorating global financial conditions will adversly affect Australia to some extent or other. There are many who will think that if they just shrug this off as another alarmist prediction they will be alright. In other words a head in the sand approach will see them through.

They will be the least prepared, the worst affected and the most surprised when financial distress comes knocking on their door.

A simplistic and inaccurate assumption at best.

Your reaction is the typical over reaction and lack of understanding of how things will affect people. Dents 30 – 50% reflect estimates of decreases in some markets but not all. The US provides a model of how some areas and markets get hit hard while others are barely touched. Those parts of the market that are hurt the most can expect corrections in the 30 – 50% but that may only affect 40% of the entire market.

A generalisation that doesn't tell us much. There's been plenty of booms and busts over the last century.

The reality is that it can boom in one area (mining towns) and bust in others (Melbourne)

Property speculation never really took off until the 70's when currencies where delinked from gold and went full FIAT. Property values only rose on comparable debt creation.

The vast majority of property investors (60 – 80%) in real terms not nominal made bugger all out of the 70's – 90's credit boom.

You can argue that Dent is promoting his book and himself but be careful about throwing the baby out with the bath water. Currently EM currencies are collapsing with several in dire starlights (Turkey, Argentina, Venezuela, Brazil, Indonesia, Malaysia, India, Ukraine, China), DM's in difficulty (Japan, Sth Korea, France, Spain, Portugal, UK, Italy), manufacturing contracting on consumer exhaustion, growing unemployment trends globally on weakening global demand.. I could go on and on about how many seriously bad economic problems are manifesting themselves with little or no good economic news to counteract current trends. You would have to be blind as a bat and eternally optimistic to not see a serious global economic situation is developing.

Supply and demand may be aspect of price determination but there are other more powerful forces that can determine prices. There is no shortage of property as the industry would have the market believe. That myth gets debunked regularly. The demand spigot is controlled by many players such as developers who along with other industry players try to generate a perception of shortages to motivate demand. But at the end of the day demand can only be energised if liquidity remains available. The US property market saw severe corrections in many of its markets when liquidity froze. Even when liquidity was restored the markets continued to decline even though demand existed and literally 10's of 1000's of homes (supply) have been virtually abandoned.

We are currently seeing price influenced by federal and State fiscal policy, RBA rate controls and bank lending criteria. Add to that foreign hot money flows and construction markets targeting foreign investors and you get a far more complex picture.

The world is full of optimists and very few realists. There are many here who think that because a bust was called some years back and that it hasn't arrived yet, that we have escaped the bullet. What they don't realise is that we are already in a bust. It's here and it's real. Just because one hasn't been touched by it yet doesn't mean one won't be touched by it in the future. We are still in the early stages of this bust and there will be situations that are completely opposite to bust conditions. Property markets in AU are largely intact and performing as usual but that's not due to healthy fundamentals but distortionary fiscal and monetary policy that is, for the time being, maintaining the status quo. The full effects of this bust won't be felt until those supports become so unstable that they collapse.

F.Wiley's article provides a view on why this bust will be so much more destructive than previous ones.

Not only has the global, non-defense budget balance dropped to never-before-seen levels, but it’s falling along a trend line that shows no sign of flattening. The trend line spells fiscal disaster. It suggests that we’ve never been in a predicament comparable to today. Essentially, the world’s developed countries are following the same path that’s failed, time and again, in chronically insolvent nations of the developing world.

Look at it this way: the chart shows that we’ve turned the economic development process inside out. Ideally, advanced economies would stick to the disciplined financial practices that helped make them strong between the early-19th and mid-20th centuries, while emerging economies would “catch up” by building similar track records. Instead, advanced economies are catching down and threatening to throw the entire world into the kind of recurring crisis mode to which you’re accustomed if you live in, say, Buenos Aires.

…the good news if one can call it that…

On the bright side, a fiscal disaster should help trigger the needed changes. Every kick of the can lends more weight to the view expressed by some that the debt super-cycle – including public and private debt – needs to go the distance, eventually reaching a Keynesian end game of massive collapse. At that time, we would expect a return to old-fashioned, conservative attitudes toward debt.