What do you make of the most recent bubble talk?

I am finding it more and more difficult to conceive that the interest rates will normalize again. Lets face it, if the interest normalize to the equivalent of say 7%-8% that would cause catastrophic effects to the borrowers cash flow. For one, rents would sky rocket (bad), and in same cases would be foreclosure (worse). Lets keep in mind that the banks don’t want any property crash. Most investors borrow 100% of the funds so the banks and their insurers are actually at risk should there be a crash.

The most interesting thing here is that when property was on the up side and was during the crazed period last year, everyone (the media) was attempting to slow the insanity down. You need to ask yourself why? Why would they want to dampen sentiment? Experience tells me that something else is coming the will drive house prices to astronomical levels.

Remember the housing booms of not so long ago, the same sentiment would be around when house prices doubled? You would hear the attendees of an auction walking back to their cars uttering the words, “That was nuts!”, “Insane!”, “Are you serious?!”, “WTF is happening?” etc. Now, those prices that were so high back then (I’m talking about the the early 2000-2010) have now doubled again!

Back to my question about what will drive house price up again. That answer my friends is simply this, interest rates are going down again! In my opinion, twice this year. Global interest rates are heading towards 0%. And in same countries, its negative. Currently the RBA is sitting on 2%, two cuts of .25% are coming to bring it down to 1.5%; and who knows where we’ll go from there..

Keep your eye on inflation and unemployment figures.

Happy investing.

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Disclaimer: This is NOT investment advice. Please speak to your qualified financial adviser for investment advice.
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There is one key difference between Australia and say the USA, a country that experienced the devastating housing bubble burst. That difference is population rate. Australia is said to be growing by an equivalent of 1 new person every 91 secs. Whereas in the US for instance, the (official) growth rate is slowing down considerably.

So that’s roughly 350,000 people per year for Australia. These 350,000 people need a roof over their head! Wow! Also, people tend to forget that Australia is an infant in terms of its age since the first settlement, so we have tonnes of potential and growth to do.

I agree with the fact that this bubble(I’m reluctant to call it a bubble) ain’t ending any time soon, however, I will dare to say that it wont end at all(given the population growth and borrowing interest rates to remain at current rates or better). We will continue with the usual ebb and flow of any economic cycle, but I doubt that there will be an armageddon style implosion in the Australian housing market (especially in Syd/Melb)

Hi Mark,

Primarily they can reduce interest rates which would most likely have a positive impact on property prices. A significant drop in property prices would have a dramatic effect on the stability of the banking system, so while they want growth reduced and are actively seeking this through various policies they do not want prices going backwards.

In the context of quote above I was referring to anything that happens in the near future i.e. next few years. I probably should have said “problems that occur in the short term”.

Regards

@cattleya not sure the USA is doing that bad. Very positive jobs number today and oil is back up (ridiculous as means speculators raking it in…..consumer not benefitting at all).

After today’s results I think Yellen is a shoe-in to raise rates in June.

Another worrying article from BIS (=Bank of International Settlement aka the Central Bank of all Central Banks)

http://www.telegraph.co.uk/business/2016/03/04/debtor-days-are-over-as-bis-calls-time-on-world-credit-binge/

Quote: “…This provided a “telltale” sign that the financial conditions were reaching an inflection point, accompanied by large depreciations in emerging market currencies and slowing domestic growth.

“It is as if two waves with different frequencies came together to form a bigger and more destructive one”, said Mr Borio. …. But “confidence in central banks’ healing powers has – probably for the first time – been faltering” said Mr Borio. ”

Claudio Borio is the Chief Economist of BIS…

Hope this helps in determining your short term strategy,
Catts
Here to learn the ropes of property investing, not trying to sell anything at all.

We see periods of rises, periods of falls and periods of flat trending prices. Currently in Australia there are markets doing each of these.

I can’t see any systemic changes which will cause a major crash – just more of the same. Much as the previous Sydney peak in 2003, I can see the prices tempering there and values moving sideways until inflation and wage growth creates yet another ‘affordable’ time.

Hi Catts,

I don’t disagree with your assessment of the world economy, although I don’t believe the US is in very good shape at all. The major difference between now and pre GFC is that a large proportion of the risk lays with Governments and Central banks, most of whom have large debts denominated in their own currencies. Countries that issue their own currencies can only become insolvent by choice, as they have the option of creating more money (printing). For there to be a major crisis with Central Banks there needs to be a loss in faith in currency, such as we have in Venezuela at the moment or the Weimar Republic pre WW2, I think we are a long way from that occurring although I feel it is inevitable.

Regards