All Topics / General Property / How much worse can it get?

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  • Profile photo of Steve McKnightSteve McKnight
    Keymaster
    @stevemcknight
    Join Date: 2001
    Post Count: 1,763

    I believe the US credit downgrade will be the biggest financial event
    of our lifetime.

    Why? Well, it's becoming clearer that US domestic and foreign policy
    is unaffordable and unsustainable, and so what we're now seeing
    unfolding is the beginning of the beginning (i.e. the start of the
    start) of the end of the US as the world's leading super-power.

    Already there have been calls for the US currency to be removed as the
    world standard, and you can bet your bottom dollar (if you still have
    one after the market carnage), that there will be international
    political manoeuvring going on that weakens the US on the world stage
    (like what is being reported in the Chinese media).

    Don't get me wrong though… the US isn't a write off. Far from it.
    Their credit rating is still the same or better than our Aussie Banks,
    so it's not like their debt is junk status or anything.

    But what is unmistakable is the erosion of confidence in US
    politicians and US financial markets. And as I've said time and time
    again, uncertainty is the enemy of all investors.

    Yesterday the Aussie market lost 2.91%. Overnight the Dow lost 5.55%,
    the S&P 6.66% and the Nasdaq 6.9%. If you thought that was bad, the
    Brazil market lost over 8%.

    So, what should we expect?

    First and foremost expect to see statements, comments and ultimately
    action by the world politicians and reserve banks to try and reassure
    investors. It's hard to see how that could do anything meaningful
    though because confidence has been so badly shaken that it is solid
    good economic news that is needed, not platitudes from politicians.

    Next, I'm firming more and more in my expectation that the RBA will
    have to cut interest rates, and soon. Caution is the natural reaction
    to uncertainty, but too much caution leads to less spending, and that
    can lead to economic downturn. No one wants that.

    In regards to your own investing, I encourage you to come to the
    conclusion that conditions have changed, and it's certainly time to
    reassess your strategy and asset portfolio to ensure it remains
    relevant to the current financial climate and remains within your risk
    thresholds. As always, the worst thing to do is nothing.

    That's my opinion but what do you think? Have your say below.

    Sincerely,

    – Steve McKnight

    P.S. If you'd like my help and guidance in respect to how property
    investors need to evolve to the new economic climate then book in to
    one of my upcoming one day seminars while spots remain (note there are
    now less than 50 spots left for Sydney on 21st August).

    https://www.propertyinvesting.com/seminars/2011/mcknight-seminar

    Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
    https://www.propertyinvesting.com

    Success comes from doing things differently

    Profile photo of xdrewxdrew
    Participant
    @xdrew
    Join Date: 2010
    Post Count: 479

    This is the market falling properly without any fiscal backup.

    Realisticly this is what it should have done in the first place. But most countries spent to prop up their credit worthiness. Now most countries just dont have the money flows to backup again.

    This produces an 'honest' crash. And thats actually a good thing.

    It means there will be a period without money flowing ANYWHERE. No spending. Businesses will go bust .. jobs will go, and the whole economy will stagnate. Its due .. and its been due for a while.

    Property will flatten out with few buyers. Drops of up to 30% would not be out of the question. But the bounceback with recovery .. will succeed the initial drop. Interest rates will drop .. as demand for goods and services dries up.

    How bad? This crash is not going to be the 1987-1990 crash. Its going to be longer and deeper.

    I dont see it being any longer than about four or five years. But there is really no precedent .. not even the 1929 – 1935 Depression.

    Profile photo of InvestorMickInvestorMick
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    @investormick
    Join Date: 2008
    Post Count: 55

    I believe we will see an interest rate drop next month of at least .25% and another the month after. The RBA will finally see they have been living in lala land and maybe even Julia and Wayne will see our economy, the real economy (not resources) is in a very bad way. This being the case, over time people will feel freer to spend and things may finally begin to turn over the longer term.
    I do pity all those self funded retirees out there at the moment as they are taking a huge hit with the stock market as it is at present. Yes, as everyone knows that to will come back over time but that could be way too long a time for these poor people.
    What will happen to property? I’m with Steve in believing this will eventually begin to turn. I believe the entry level will be the first to do so when rates drop and some of those renters and couples living with family feel prices are pretty low, rates are cheap and savings are close enough for them to enter the market. Watch for some Government first home buyers incentives to stimulate the building industry and prop up jobs and maybe even the carbon tax to be delayed or dumped.

    Profile photo of adimisadimis
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    @adimis
    Join Date: 2007
    Post Count: 7

    "…and he huffed and puffed and blew his house in…"

    People will still need to live somewhere,
    People will still need to eat something &
    People will still need to keep themselves warm & clothed.

    As long as you've built with bricks (Excuse the pun, its not meant literally), then there is little to worry about.

    In fact – "knock knock" –  is that opportunity at our front door?

    enjoy…

    Profile photo of John555John555
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    @john555
    Join Date: 2006
    Post Count: 1
    I heard someone say that it costs more to insure the US against default than Brazil. (Credit Default Swaps). Now Brazil has an S&P rating of BBB. So the US should be BBB or lower. Also in Oct 2010 Brazil last sold government bonds, they had to pay 8.85%, so what should the US be paying?
    Profile photo of emptyvesselemptyvessel
    Member
    @emptyvessel
    Join Date: 2008
    Post Count: 170

    I think the market is over-reacting to the credit downgrade in response to their ludicrous overestimation of the credibility of the 3 big ratings agencies. Remember, these are the ratings agencies largely responsible for putting AAA+ on those vastly complex derivative securities that were ultimately underpinned by high-risk, low-grade mortgages.

    Great article here; http://www.nytimes.com/2011/08/08/opinion/credibility-chutzpah-and-debt.html?_r=1&src=me&ref=general

    All-in-all there doesn't seem to have been any fundamental change in any of the fundamental economics in the U.S. It is still struggling, the growth is anemic to flat. And this is exactly what has been predicted all along. So I don't think it is a surprise. Their leadership is struggling to deal with the debt, no real surprise there, it is, afterall, a monumental problem with no magic bullet answer. Mix in political powerplays and it is no wonder things have gone the way they have. I am not surprised at all.

    I kind of agree with Xdrew. My view is that this is the fall the market should have had without all the sovereign money being pumped in. But I don't agree that it will be deeper and longer. Recession may be approached or touched, but not drawn out over years. More of this anemic growth with a gradual decrease in volatility over the next few years.

    I also agree that this is a good thing. The sooner it happens the sooner we can get on with the next era of prosperity. Survival of the fittest companies will prevail and be stronger on the other side. Do not underestimate the creativity of US businesses and their "low friction" environment for starting up and bringing new ideas and products to market. I have experienced this first hand. I work for an American company that has prospered greatly since the GFC primarily due to great culture, amazing innovation, fantastic vision and great leadership over an extended period. They do think about and approach business in a different way.

    My 2c.

    Profile photo of emptyvesselemptyvessel
    Member
    @emptyvessel
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    Post Count: 170
    John555 wrote:
    I heard someone say that it costs more to insure the US against default than Brazil. (Credit Default Swaps). Now Brazil has an S&P rating of BBB. So the US should be BBB or lower. Also in Oct 2010 Brazil last sold government bonds, they had to pay 8.85%, so what should the US be paying?

    S&P are part of the problem. The market needs to stop viewing these ratings agencies as some sort of all-knowing independent gauge of the risk/value rating of a security. Throw them out, start again.

    Profile photo of hbbehrendorffhbbehrendorff
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    @hbbehrendorff
    Join Date: 2006
    Post Count: 293

    While the stock market is getting hammered im still making massive gains on my silver.

    The world economy should have had a massive crash back during the good old "GFC"  Remember ? when Kevin handed out cheques to everyone for a G to buy a new plasma ?

    Instead of letting capitalism sort out the bad from the good, Our socialist ministers intervened, (stacking the domino's even higher with more debt) which they call stimulating,  See our government says one thing and does the opposite, Stimulating would be lowering taxes, Though they call stimulating making the debt ball chained to our feet even heavier.

    I like this parable

    "To presume that productivity would multiply thanks to government largess is the equivalent of assuming that a thief could aid a convenience store by first stealing $20 from the store, then returning later in the day to spend it. Logic tells us that no stimulation results from money simply changing hands."

    You can't have it both ways, Everybody wants the massive 20% speculative gain on gains every year, They want to use capitalism to leverage themselves and prosper like we do under the free market, But we don't want to get disciplined through losses.

    The losses are far wide and will eventually hit home, Its just a matter of time until it happens, These debt borrowing's, stimulus packages and quantitative easing debacles DO NOT HELP US, they only prolong the inevitable and make the ultimate downturn harder and longer then it has to be. Why do you think the great depression lasted so long and was so painful ? it wasn't just by chance. It was caused by the same interference we have today just in different ways, Back then they tried to regulate food prices and it caused people to starve to death.

    The majority of people including people in top positions of power like Ben Bernanke believe WW2 ended the depression in america though its not true, It was the deregulation caused by the government being "busy at war". If interferience in the markets worked then our economy would be fixed by now, Though obviously what has failed to fix the problem in the past is not going to suddenly work now when things are many times worse.

    When people like me say that "the stock market" or the "property" market is in general overpriced we are called "DOOMS DAYERS" or "DOOM and GLOOM" pessimists, Though I believe people should be looking at the correction as a very positive thing, A way of fixing our economy.

    The sooner the market can be left alone without government interference the sooner prices can change, jobs that we don't need can be lost and new investment can be made for the future which will improve conditions for everyone.

    one example is property, If you work in the building industry like I do then you will obviously know how bleak things are, many builders I know who are old men now have told me that they have "NEVER" in there life seen construction this quite

    7x wage earning accommodation is not affordable which is having a negative effect now on the trades which are linked to this sector, If property crashed it wouldn't be long until our industry could recover.

    We need capitalism to be allowed to take its course, expunge the bad investment, purge the unnecessary jobs and start over fresh much stronger.

    Though I don't think our governments will allow what needs to be done to happen, instead taking us down the very long and dark hole and letting our whole economy sink with the entire ship.

    Profile photo of emptyvesselemptyvessel
    Member
    @emptyvessel
    Join Date: 2008
    Post Count: 170

    Great article here from Robert Gottleibsen; http://www.eurekareport.com.au/iis/iis.nsf/lpages/MEZT-8AP7HW

    He is predicting a mild-disaster and some ways to mitigate your own risk.

    Profile photo of hbbehrendorffhbbehrendorff
    Member
    @hbbehrendorff
    Join Date: 2006
    Post Count: 293
    adimis wrote:
    "…and he huffed and puffed and blew his house in…"

    People will still need to live somewhere,
    People will still need to eat something &
    People will still need to keep themselves warm & clothed.

    As long as you've built with bricks (Excuse the pun, its not meant literally), then there is little to worry about.

    In fact – "knock knock" –  is that opportunity at our front door?

    enjoy…

    You could build 25 million kings palaces in Australia, Though it doesn't mean people are going to buy them

    I have heard this excuse from the property spruikers so many times it makes me laugh. It really isn't a valid reason for anything.

    Lets change your statement to something more REALISTIC so that you can invest based on true principles instead of using statements with no fixture to there variable price limits

    People will still need affordable housing
    People will still need to eat something (Yes thats true, Though it dosent mean there is a shortage of caviar)
    People will still need to keep themselves warm & clothed (True, Though it doesn't mean everyone will buy the latest dada attire)

    While there has been a housing crisis shortage for the past 50 years, What the spruikers have not told you is that the number of people per household has dramatically fallen in this same time period (this strickly goes AGAINST the so called laws of supply and demand for housing which has caused price rises)

    So the truth is that while prices have skyrocketed, supply has also done the same, Which is the opposite of supply and demand

    There is only a certain price people will pay for accommodation (be it rent or mortgage) there will be a cap which I think we have already hit where people realize its unaffordable and stop buying. People will board with others and you will see the number of people per dwelling increase, As is already being seen according to this article today

    http://www.news.com.au/money/property/kids-who-wont-leave-home-put-squeeze-on-families/story-e6frfmd0-1226111394283

    There is over 65 million unoccupied dwellings in China, massive new city's await people to live in them while the population live just outside them in not much more then a garden shed because there income cannot afford the prices the government sets.

    while you are correct in saying that people require accommodation, It will not relate in people paying more then they can ultimately afford.

    Profile photo of kong71286kong71286
    Participant
    @kong71286
    Join Date: 2009
    Post Count: 261

    The last time round it was a flight towards 'Liquidity'

    This time round it will be a flight towards 'Safety'

    Profile photo of hbbehrendorffhbbehrendorff
    Member
    @hbbehrendorff
    Join Date: 2006
    Post Count: 293

    Wow, dollar bellow parity now, Just goes to show what investors really think of Australia in times of uncertainty

    I believe that the swiss franc is the nest of safety investors will run to, Not the aussie

    Check out these charts

    http://aud.kurs24.com/chf/graph/?q=365

    Profile photo of adimisadimis
    Participant
    @adimis
    Join Date: 2007
    Post Count: 7
    hbbehrendorff wrote:
    You could build 25 million kings palaces in Australia, Though it doesn't mean people are going to buy them

    I have heard this excuse from the property spruikers so many times it makes me laugh. It really isn't a valid reason for anything.

    Lets change your statement to something more REALISTIC so that you can invest based on true principles instead of using statements with no fixture to there variable price limits

    People will still need affordable housing
    People will still need to eat something (Yes thats true, Though it dosent mean there is a shortage of caviar)
    People will still need to keep themselves warm & clothed (True, Though it doesn't mean everyone will buy the latest dada attire)

    While there has been a housing crisis shortage for the past 50 years, What the spruikers have not told you is that the number of people per household has dramatically fallen in this same time period (this strickly goes AGAINST the so called laws of supply and demand for housing which has caused price rises)

    So the truth is that while prices have skyrocketed, supply has also done the same, Which is the opposite of supply and demand

    There is only a certain price people will pay for accommodation (be it rent or mortgage) there will be a cap which I think we have already hit where people realize its unaffordable and stop buying. People will board with others and you will see the number of people per dwelling increase, As is already being seen according to this article today

    http://www.news.com.au/money/property/kids-who-wont-leave-home-put-squeeze-on-families/story-e6frfmd0-1226111394283

    There is over 65 million unoccupied dwellings in China, massive new city's await people to live in them while the population live just outside them in not much more then a garden shed because there income cannot afford the prices the government sets.

    while you are correct in saying that people require accommodation, It will not relate in people paying more then they can ultimately afford.

    Dear Sir,

    You've heard only what you wanted to hear… and then proceeded to continue down the path of over analysis & drawing your own conclusions. If you were truly wise you'd have noted that I spelled it out for thee.
    See – "excuse the pun, its not meant literally"

    No-one said anything about building kings palaces, nor was it suggested to invest in caviar.
    These are conclusions that you drew yourself, and are a reflection of you more than anything or anyone else.

    If you are looking for a tip, I'll spell that out for you too – "I'm quite content with my average abode, & my toast and cheese"

    Feel free – analyze that , but please dont make it a case of paralysis by analysis.<br /;-)” title=”>;-)” class=”bbcode_smiley” />

    Enjoy,

    Profile photo of patzpatz
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    @patz
    Join Date: 2011
    Post Count: 1

    will the stock market recover long before the real estate market????????????

    Profile photo of Jaag PropertyJaag Property
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    @jaag-property
    Join Date: 2010
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    Yes Steve, these are unprecedented times we are in. There is an interesting comparison of the US debt, achieved by taking off some of the zeroes, and also a report on some comments from Alan Greenspan -“the US can pay any debt it has because we can always print money to do that. So, there is zero probability of default”.

    http://5minforecast.agorafinancial.com/downgrade-too-little-too-late/

    Profile photo of ummesterummester
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    @ummester
    Join Date: 2008
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    Debt has been growing unsustainably for a long time now – possibly as far back as the 80s. It has to correct. Doesn't matter what is done, the underlying problem has to go away for real growth to resume.

    Only sustainable solution is a deleveraging the likes of which the world hasn't seen since the great depression.

    That's my take anyway.

    Doesn't mean there won't be oppurtunity – just means over-leveraging yourself in this environment is a little foolhardy, be it with property, shares, gold or whatever.

    Profile photo of shoooshooshoooshoo
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    @shoooshoo
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    Profile photo of ummesterummester
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    @ummester
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    Oh, I totally agree with Steve's take that the RBA will lower rates – soon and fast. Have thought it for ages but have just been before the times or overzealous in my bearishness:)

    Surprisingly, I fully agree with most of the stuff xdrew posts lately? They say the crash arrives when the last bear capitulates – perhaps it's when the bulls and bears agree that they are really here?

    Profile photo of emptyvesselemptyvessel
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    @emptyvessel
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    Post Count: 170
    shoooshoo wrote:
    this video summarises the sharemarket: http://www.collegehumor.com/video/6477219/remix-e-trade-baby-loses-everything hilarious!!!

    Gold! Awesome vid, thanks for the laughs

    Profile photo of emptyvesselemptyvessel
    Member
    @emptyvessel
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    Post Count: 170
    kong71286 wrote:
    The last time round it was a flight towards 'Liquidity'

    This time round it will be a flight towards 'Safety'

    Sounds good to the ear, but in reality doesn't mean anything tangible IMO.

    Safety and Liquidity are in the eye of the beholder. [Even I am not sure what I meant by that]

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