All Topics / General Property / “The Economist” says market to tank!

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  • Profile photo of wayneLwayneL
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    @waynel
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    I was listening to the ABC this morning and the Ed in Chief for the economist magazine was saying that property in USA, Ireland, Netherlands, UK and AUSTRALIA is grossly overvalued.

    She said that the market would have to come down 20% to restore fair value.

    Oh yeah, she said it isn’t different this time![}:)]

    Cheers
    Wayne

    http://www.tradingforaliving.info

    Profile photo of peterppeterp
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    Originally posted by wayneL:

    I was listening to the ABC this morning and the Ed in Chief for the economist magazine was saying that property in USA, Ireland, Netherlands, UK and AUSTRALIA is grossly overvalued.

    The thing that irks me most is when people make such sweeping generalisations about ‘the market’ or ‘Australia’, when there are so many different geographical areas and housing types. Did she mean CBD flats, suburban houses, country properties or all of them?

    ‘Overvalued’. I would define that to mean that property has had a sustained rise relative to national GDP or people’s ability to pay for them.

    This might have happened in many areas but certainly not all.

    I know a regional city where there was ZERO change in sale prices between 1991 and early 2003. There has probably been a 10-20% increase since then.

    A prospective purchaser with a $500-600 per month upper repayment limit would still have a fair number of properties to choose from, even if they wanted to live near the beach.

    Assuming that their weekly income was around $500-600 getting a loan shouldn’t be a problem and repayments would only be about 1/3 of take-home pay.

    With the $7000 grant they’d only need to find $5-10k for a 10% deposit.

    Thus affordability in this town is good relative to incomes, and would remain so even if interest rates went up to 8-10%. Despite the recent growth, affodability is still better than in 1991 and is still very fair value IMHO.

    And let’s look at average yields. Approx 6-7%. Not fantastic, but not far off long-term averages. And better for the investor now than when interest rates were 18%.

    Oh BTW the population is slowly growing with some major projects happening.

    I’d love someone to convince me why this market is ‘overvalued’, because to me it’s about right with some growth potential still!

    Peter

    Profile photo of wayneLwayneL
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    Well Peter, thats what makes a market, eh, different perceptions of value.

    I see it every single day in the (unmentionableword)market.

    I was just reporting what was said, without offering my opinion, but I tend to agree that in general, prices tend to regress to the mean. At the moment we are unquestionably on the upper extremes of the long term regression channel. Which is exactly what was noticed by those at “The Economist”.

    However, as a Technical Analyst I’ll be the first to admit that markets don’t always correct sharply, they may go sideways for an extended period, which seem to be a higher probability at this point in time.

    Cheers
    Wayne

    http://www.tradingforaliving.info

    Profile photo of brgorriebrgorrie
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    heh but which property market is at the upper extremes ?
    3 bedroom houses in inner sydney, 1 bedroom units
    in ballarat, or warehouse space in Longreach ;-)

    or just the property market in general based on the
    australia wide averages …

    its always entertaining seeing how the media interprets
    realestate … and watching how the crowd reacts to
    the media’s interpretation … :-)

    Profile photo of wayneLwayneL
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    Hey Guys,

    These sorts of sweeping generalizations apply to the capital and major cities obviously.

    I understand your point about “which” property market. It is the same in the (unmentionable word)market. While the major (unmentionableword)s were all tanking in 2000-2003, I can show you smaller capitalized companies that appreciated 600% or more in the same period.

    So point taken in that regard.

    By the same token, I would hardly catagorize “The Economist” in the same league as “the media” you guys refer to. It is not quite the same as The Sydney Morning Herald now is it?

    It is to be taken a little more seriously than The Womens Weekly for instance.

    Time and price will ultimately do as it will. Those of us who guessed right will crow from the rooftops while those that guessed wrong will slink away as unnoticed as possible[:o)]

    http://www.tradingforaliving.info

    Profile photo of thefirstbrucethefirstbruce
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    I have been reading macro economic lit recently. The concern many analysts have is that large Capitalist nations have been relying on growing household debt for much economic growth in recent years.

    They argue that this consumer debt is fast approaching a ceiling because the domestic market cannot afford further debt. i.e. to buy more non income producing homes, and depreciating non productive assets. As domestic markets max out on unproductive debt, then domestic markets around the world will slow consumption. This will slow international trade. Thus, with a slowing of household spending, and slowing in demand from trading partners, industrialized nations are in for significant slowing in growth.

    All this boils back to the point that not all spending is good, even if it props up a nation for a decade. Spending that ensures future economic growth is expenditure on making the production of goods and services more efficient. Doing renos and property booms do not sustain economic growth.

    Bruce
    Mooloolaba, Qld

    Profile photo of BillfromozBillfromoz
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    G’day ….

    The economists making “sweeping statements” remind me of some of my earlier comments. Blue Ribbon Real Estate should hold it’s own but with much slower growth.

    As most of the market is overpriced, in peoples ability to service(particularly the majority of investors) their mortgages given another 1 or 2% rate rise. Then the Domino effect comes into play… most of us will be effected.

    It is too easy to forget that a $100k mortgage with borrowings at 18% several years ago will prove to be a hell of a lot cheaper to service than a $300k mortgage today at 7-8%. Perhaps, $6000 extra pa in interest…. and that is after tax income.

    The economists are right… this is a global situation. Both Australia and the US are spending their increased equity in units and off the plan nightmares together with cars and other consumerable goods. Try a Google search to see what is happening in the UK…. a disaster waiting to happen.

    As you make your profit, when and where you buy, for me, patience for another 12-18 months will pay dividends.

    Let me take you back a few months to the forum guy that I had his fraudulent Docklands Contract terminated after exchange with his full deposit refunded. He was the first…. there are now 27 others in the same boat, totalling $19 million worth of Real
    Estate Deals…. please think carefully as to what Wayne and others are saying… it’s not gossip… it willprove to be real and harder than we can imagine today…. all things come to an end.

    You just have to be patient and wait to purchase BUT only offload if you’re highly geared.

    An occaisional post from …Billfromoz

    Bill O’Mara

    Profile photo of BillfromozBillfromoz
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    Hi
    Seriously…. I am stating what to me is the obvious.
    I have seen properties that sold recently in Sydney and Brisbane that I feel will not fall in value… rents are good and maybe just a 5% CG.

    But I refer to the majority… they are spending too many after tax dollars on property and using the
    “lotto size gains” over the past 7 yrears to buy expensive cars etc etc.

    Like those that win lotto… it is generally gone within 18 months….. just when it’s maybe time to buy again.

    Bill

    Bill O’Mara

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    I agree it is certainly not time to buy unless one knows what one is doing (being able to spot a bargain) AND one is capable to service the loan.

    Where that places +ve cashflow properties I don’t know.

    I guess people have to live somewhere so, provided one doesn’t go in on a shoestring (meaning ‘provided one has some spare cash as a back up), that area may well be the type to be active in.

    As far as wrapping is concerned, similar caution (i.e. having cash reserves) would probably not be out of place either.

    Perhaps being more careful (i.e. do not commit until one has found a buyer and has locked the buyer in) is the way to go.

    Pisces

    Profile photo of wealth4life.comwealth4life.com
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    The underlying factor is that demand in certain markets is outstripping supply, take a look at Queensland and in particular the experts predictions on the growth this year alone of the market between Brisbane and the Gold Coast (Coomera 25%+).
    An expert seeks out denand hot spots, like the stock market some sectors fall while others boom, isn’t that what investing is all about … look for the boom and don’t get caught up in the gloom.
    [email protected]

    Profile photo of wayneLwayneL
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    Originally posted by residentialwealth:

    The underlying factor is that demand in certain markets is outstripping supply, take a look at Queensland and in particular the experts predictions on the growth this year alone of the market between Brisbane and the Gold Coast (Coomera 25%+).
    An expert seeks out denand hot spots, like the stock market some sectors fall while others boom, isn’t that what investing is all about … look for the boom and don’t get caught up in the gloom.
    [email protected]

    Hmmmmmm I seem to recall the same things being said, just before the queensland market tanked in the early nineties. (I lived there at the time)[}:)]

    http://www.tradingforaliving.info

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    A large part of the early 90’s QLD property bust, was due to the significant capital gains fuelled by the frenzy of Japanese money in the 80’s.

    I don’t think there is an artifical boost in the QLD market over the last few years. More like the same factors that have been present in all other areas in Australia.

    James

    Profile photo of wayneLwayneL
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    Originally posted by georgisj:

    A large part of the early 90’s QLD property bust, was due to the significant capital gains fuelled by the frenzy of Japanese money in the 80’s.

    I don’t think there is an artifical boost in the QLD market over the last few years. More like the same factors that have been present in all other areas in Australia.

    James

    Which is exactly my point. IF property prices tank, the sunshine state will not be exempt.

    N.B. We are speaking generally here, the numbers will stack up on some properties, even now. Just be careful on what set of numbers you use. Share investoes tend to use differnt numbers at different times to their own detriment.

    Cheers
    Wayne

    http://www.tradingforaliving.info

    Profile photo of woodsmanwoodsman
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    So what is going to be the catalyst for the decline??

    James

    Profile photo of wayneLwayneL
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    Originally posted by georgisj:

    So what is going to be the catalyst for the decline??

    James

    That is a very good question. Thats why, as things stand at the moment with low interest rates etc, I favour an extended sideways correction, a protracted plateau. Time will eventually catch up with price.

    Previous sharp corrections have been triggered by interest rate raises. Will we see a rising interest rate environment? I don’t know that one, but it is not beyond the bounds of possibility. But not before Dubya goes to the polls.

    Cheers

    http://www.tradingforaliving.info

    Profile photo of woodsmanwoodsman
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    Interest rate increases in early 90’s, was a result of of RBA trying to break inflation, which wasa constant in the Australian economy since the early 70’s. Today, inflation is still within RBA desired band. Income levels are higher and growth is still strong and unemployment low.

    From an overall market perspective 20% is a little pessimistic I think.

    Although if you ask some Docklands purchases today, 20% reduction may have already been achieved.

    James

    Profile photo of wayneLwayneL
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    James

    All that is true, but these things are cyclical in nature.

    Also, underlying the warm and fuzzy positives, is a dangerously high level of credit, as thefisrstbruce has pointed out above…some say a credit bubble.

    Some economists have raised the spechtre of deflation, which is equally damaging. For a really scary read, go out and get “conquer the crash” by Robert Prechter.

    I know people who are so worried, that they are buying physical gold with their ears pinned back. I’m not that pessimistic though.

    I do however hedge my investments to counter that possibility. This is a difficult thing to do with property, so additional caution is in order. It’s not an easy thing to dump quickly.

    http://www.tradingforaliving.info

    Profile photo of richmondrichmond
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    Hi Wayne

    Just did a google search on Prechter, and yes it’s a bit scary… he makes some good points re: levels of debt that people have. When was it written though? I think it was 2002, but you might be able to correct me…

    cheers
    r

    Profile photo of thefirstbrucethefirstbruce
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    Prechter’s book was one I picked up in Mary Ryan’s last week, and couldn’t put down for 15 mins. I recall he recommends gold and bonds or treasury notes within stable democracies if things go awry. Swiss cantonal bonds were one of the favs.

    Bruce
    Mooloolaba, Qld

    Profile photo of liddelkliddelk
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    When I lived in the UK in the bust in the early 90s there was talk of a standard index that reflected average take home earnings and average home prices i.e. average home prices / average take home earnings. The notion was that in previous booms there had always been a bust when this hit around 4.0 and the bust in the market then happened just over the 4.0 mark.
    I read somewhere that in Australia it is currently around 4.5…

    Kim

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