Forums / Property Investing / General Property / Another article predicting Australian property to crash

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  • Profile photo of streamlineinvestingstreamlineinvesting
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    http://www.news.com.au/finance/real-estate/us-demographer-predicts-hit-to-aussie-home-prices/story-fndba8uq-1226816510923

    While I do agree that a lot of property particularly in the main capital cities in Australia (Sydney, Brisbane and Melbourne) are over priced, it is mentioned in the article that it is a large generalisation. There are properties that could potentially suffer in the collapse, and others that would stand strong given the high demand that will continue to be there in the future.

    Curious to see other people's thoughts?

    Profile photo of Colin RiceColin Rice
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    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???

    Colin Rice | CDR Finance
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    Profile photo of PLCPLC
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    Ah the good old doomsdayers, where would we be without them the last 10 or so years?

    Harry must be in town to promote another book or something. He predicted the same property crash in 2012. I suppose if you say it enough times it might come true eventually (dartboard mentality).

    http://www.news.com.au/finance/real-estate/check-out-jennifer-hawkins-lavish-new-mansion-in-north-curl-curl/story-e6frfmd0-1226134187959

    He also predicted a year before the GFC that the American Dow would hit 40,000 by the end of the decade. That worked out well.

    Property may or may not decline in the near to mid term, but I wouldn't be basing it on speculation from any economists. The Bureau of Meteorology has better strike rates in forecasting the weather 14 days in advance than them.

    As Colin mentioned, its about supply and demand.

    Cheers

    Tom

    PLC | Phoenix Loan Consulting
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    Profile photo of FreckleFreckle
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    PLC wrote:
    Ah the good old doomsdayers, where would we be without them the last 10 or so years?

    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.

    PLC wrote:
    As Colin mentioned, its about supply and demand.

    A simplistic and inaccurate assumption at best.

    Profile photo of streamlineinvestingstreamlineinvesting
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    It seems that a lot of economists are predicting a downfall, but there are still some out there predicting that it will just keep going on it's merry way. Who is right and who is wrong? I guess only time will tell…..

    As for supply and demand, well it may be simplistic it still holds true, the Australian government can control supply by only approving a certain number of new dwellings per year, and given the population increase there is a natural increase in demand, the only other variable we have is the foreign investor. At the moment we are seeing an unprecedented number of Asian investors into our country, the article points out this is because they realise China is no longer a safe investment and they are getting their money out as fast as they can. If China does not collapse then I imagine demand will continue to be very high, and provided supply is controlled and somewhat restricted, house prices should continue to soar. If China does collapse, well, at least domestic purchases will have more a chance, but the supply will need to be controlled even further to ensure demand is still there.

    I am no expert, I do not know who is right and who is wrong, but I am still planning on buying a place in Sydney in the next few weeks, I just want to make sure I do not bury myself in debt and buy in a place that is relatively cheap and shows good prospects.

    Profile photo of Colin RiceColin Rice
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    Freckle wrote:
    PLC wrote:
    PLC wrote:
    As Colin mentioned, its about supply and demand.

    A simplistic and inaccurate assumption at best.

    Please elaborate on what is driving growth?

    Sentiment and greed?

    Colin Rice | CDR Finance
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    Profile photo of PLCPLC
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    Freckle wrote:
    PLC wrote:
    Ah the good old doomsdayers, where would we be without them the last 10 or so years?

    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.

    He says we're the best place in the world to survive a crisis yet predicts falls of 30-50%. If that isn't doom and gloom then what is? If he is indeed correct on his supposition then house prices will be the last thing on the mind of the average Joe as they won't have a house to live in due to being turfed out and living on the street.

    Ever since the turn of this century, someone or another has predicted a bubble in the Australian market with dramatic consequences. Those prospective homebuyers/investors who listened to them and held off purchasing due to the fear of declining house prices, would have missed out on huge opportunities to get ahead in life.

    Times have changed since there was the sole breadwinner of the family with the wife staying home to look after the children.

    Of course prices may retreat, they have before and I have no doubt they will again. But to heed the word of those whose predictions are in the self interest of whatever they are promoting at the current time, I will take with a grain of salt. If he is correct, then kudos to him, he finally hit that bullseye on the dartboard.

    Freckle wrote:
    PLC wrote:
    As Colin mentioned, its about supply and demand.

    A simplistic and inaccurate assumption at best.

    How so? It's a fundamental concept of price determination in economics.

    PLC | Phoenix Loan Consulting
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    Profile photo of FreckleFreckle
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    PLC wrote:

    He says we're the best place in the world to survive a crisis yet predicts falls of 30-50%. If that isn't doom and gloom then what is? If he is indeed correct on his supposition then house prices will be the last thing on the mind of the average Joe as they won't have a house to live in due to being turfed out and living on the street.

    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.

    Quote:
    Ever since the turn of this century, someone or another has predicted a bubble in the Australian market with dramatic consequences. Those prospective homebuyers/investors who listened to them and held off purchasing due to the fear of declining house prices, would have missed out on huge opportunities to get ahead in life.

    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.

    Quote:
    Of course prices may retreat, they have before and I have no doubt they will again. But to heed the word of those whose predictions are in the self interest of whatever they are promoting at the current time, I will take with a grain of salt. If he is correct, then kudos to him, he finally hit that bullseye on the dartboard.

    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.

    Quote:
    How so? It's a fundamental concept of price determination in economics.

    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.

    Profile photo of Nigel KibelNigel Kibel
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    The market jumped in many parts of Australia late last year. I know that in Melbourne especially inner city areas did quite well. However the sentiment is not as strong at least not yet. My feeling is that the market will flatten out at least for the first half of the year. The exception may be Brisbane but that is only because the market has been so flat. However that should create strong growth in 2014

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    Profile photo of FreckleFreckle
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    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.

    Profile photo of FreckleFreckle
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    …and there's that country called China.

    How Dangerous Is China’s Credit Bubble for the World?

    However, once that happens, one must immediately begin to worry about Australia's banks, which have financed a giant housing bubble  on the back of the country's commodities boom and in turn rely greatly on short term foreign funding. So there would immediately be a crisis in both Hong Kong's and Australia's banking systems, and it does not take a great leap of the imagination to see how contagion could spread further from them. Naturally many other raw materials exporting countries would also be hit hard, we mainly picked Australia as an example because its banks are so reliant on short term foreign funding, so they would presumably be among the first in line.

    China, the Death Star of Emerging Markets (who makes these headlines up)

    On any list of banking accidents waiting to happen, China is assured a place at the very top. But could a crash there take the entire global economy down with it?

    Absolutely, says Charlene Chu,

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