Another bust prediction. .....

Aussie homes ‘40 per cent overvalued’, The Economist

And for once:
He's not selling courses CHECK
Hes an aussieCHECK
He hasnt been saying the same thing for yearsCHECK
He doesnt have a financial agendaCHECK
He knows what he is talking aboutCHECK

Im no expert but when people like this start to talk about it, it does create doubt in my head

Is china just propping something unsustainable or the inevitable up?
Surely at some point when cg outpaces wage growth something has to give

 

The article states a full bubble bust is 20% likely. So the heading is pretty sensational for his actual view point (I know nothing of the author).

I take a very simple view on house prices and their sustainability. Most people tend to buy the most expensive property they can afford. i.e. bank says you can have 500k most people look at properties for 500k.
Based on the above median house prices are basically a function of household income and interest rates, which is pretty much where they are tracking from what I've seen.

Obviously some places over and under perform.

If interest rates spiked 3%+ without any significant wage growth it would be very interesting to see what would happen to house prices.

 

Here is a graph, house prices over the past 30 years seem to be just under 25% of household income +/- 5%

 

Just look at the all the fast-buck mining towns and their numerical performance for anyone that was led up the clean garden path,40% is water on the white hot BBQ plate as many have,and always repeat the same lineup frequently,"IF" Australian RE is overvalued by 40% as some think and for the last 25 years it's only been going one way,then the question to ask is what rare event or spike will cause everything to go down 40%??..

 

I love the Economist but they have been beating this drum for over 10 years now.

I'm fully aware of the perils of 'saying this time is different'....but...this increase in house prices has been IMO too prolonged and sustained to be part of a normal bull/bust paradigm.

 

Well according to them we were 56% overvalued 5 years ago...

PM - Australian house prices 56 per cent over valued: The Economist 04/03/2011

Housing economists have predicted 9+ of the last 0 collapses/bursts/implosions. It's a good article but News naturally sensationalized it. There's still about 15% FHO applying for finance which is lower than than recent years but pretty much the same as 12 years ago which, surprising coincidentally, was when the last "boom" peak occurred.

 

Perspective...

Term implosion is correct for some areas, while at same time is NOT correct for other areas.

Term over-priced is correct for some areas, while at same time is NOT correct for other areas.

Term under-valued is correct for some areas, while at same time is NOT correct for other areas.

Prices do change for reasons, so need understand what may cause price changes, and in which direction.

Need is to recognize the differences, why one area may be imploding, another over-priced, so as to recognize when an area, or a single property, may be over - or under, longer term average price trends.

Property prices are like cherry prices up and down in seasons...

 

the way I see it , this time ive been noting and observing what the slowdown or down turn in sydney has been

and its not a single event or announcement or legislative change,

I personally think that with real estate, gut feeling, market sentiment and HERD is what drives it in terms of deciding to purchase or not, so a real emotional feel.

when there is an announcement that all banks will put up their rates for example, people say "oh this isnt a good sign"

but I think that when a prospective buyer overhears someone at an inspection say "oh shall we buy now or not, im worried, hte market is about to crash"

they hear this over and over again, it builds up and negative sentiment stays in their mind and this is what starts the downturn of things,

obviously economic factors play the key est role

 

Good sign for the stake holders in the Banks when they start to bang up the rates,but with all the media non investing complexity theorists that are out there and people follow their every paid word,and if you assigned maybe 50% probability too each page they write in a simple linear combination you would end up with personal problems of a deep pathological nature and sit there all you life and do nothing,your best off just anchoring you gut to what the others can't or refuse to see..

 

Its a bit hard to make a blanket call for the entire market.

Each pocket will behave differently, some will fall in value, others will rise.

The main thing is that as an individual you manage your risk, have lots of cash (liquidity) and lower your LVR if you are worried. Risk is a part of investing and if for some reason these predictions come true, and you lose everything, its not the end of the world. You still have your health, if your partners on board your marriage gets stronger, you learn from the experience and it makes you more resilient ....... and we live in a first world country...... how lucky are we?

 

True a bit hard to blanket statement

But if all the major markets are dropping by 50% there wont be any areas that are rising!

 

There are always areas that rise. Even in the US when their property market was crashing, there were still areas, like parts of Texas and South Dakota (?) that were doing well due.

Remember, where there is challenge, there is always opportunity

 

Good points @Kate Moloney. Australian real estate market is lazy speak for Sydney and maybe Melbourne.

..and I think it was North Dakota as the timing of the GFC coincided closely with the beginning of the Shale boom. Now the opposite is happening. ND is dropping while most of the rest of the nation recovers.

In Canada, Calgary is dropping while Vancouver still rises. I thought Perth would be a 'Calgary' but Perth has shown to be a lot more resilient (diversified?) WIll be interesting to watch Vancouver as a potential bellwether for Sydney.

 

Do you mean the person who wrote the article in The Economist or Dr Shane Oliver?

 

No. I think vancoyver is much more like brisbane than sydney...except briabane has sugnificantly lower valuations. Vancouver does not have the economuc strengtg that sydney has. Ie number, ttpe if jobs and types if companies that hire.

 

I think the Sydney property boom peaked about 12 months ago.

One year on and there is no sign of a bust even though banks are clamping down.

Unemployment hasn't spiked.

Rates are low.

Things are still sweet. Carry on soldiers!

 

Vancouver is (in property investment terms) very similar to Sydney, so I like to keep an eye on what goes on in that market. Sure, it is cold, has half the population of Sydney, and is on the other side of the world, but the markets are relatable.

 

Had a good afternoon JDP?

 

Just look for the areas that are affordable, desirable, in demand and capitalise on them. Also look at 'next spot areas' with opportunity.

That's all I've been doing. I don't get caught up in all this eco-nonsense. I've been hearing it from day 1. But that's just my opinion, I know many don't share it. Horses for courses.

 

you gotta be careful with that approach!

what happens like in shares you get caught up in ignoring everything?

I bought some blue chip shares in 08 and put a fair decent chunk of money into it,

it dropped 50% in 1-2 years and now is still below my purhcase price

if I knew what I know now, I would have analysed the market a bit more and poissibly been more cautious, and look at my position now 8years later and still BELOW purchase price!