It's 'doom and gloom' time (again…….)

I am risk adverse and I expect a downturn, so I am selling down assets and preparing for the worst. However, I haven't seen any evidence we are in a long cycle at all. I have seen an analyst claim the bubble started in 1995 but that was only because he stopped analysing the property cycles from that date. Add the analysis from 1995 to now and we are not in a long cycle. Remember the USA bubble, Japan bubble and Irish bubble only took 3 to 7 years to form. I have never seen a 20 year bubble. It kind of defies the definition of bubble to say it has been building for 20 years. Aren't the last 2 Sydney booms of typical duration? I know this Sydney boom is big, but so was the last one. I would love to see some reliable analytics on why this is a long cycle and not just a normal boom/bust cycle like the last 10.

 

If you see the picture, those "normal boom/bust" cycle are part of the big cycle long cycle...at the end of the day it won't matter what we believe if it happens...

 

I'm not familiar with long cycle theory. Are there any resources to read up about it?

 

When I look at the Australian real dollar prices graph I can see it being relatively flat after the 1890 crash for a long time and then it jumps a bit and again and then around the 1990s it starts the climb. It does boom and then stop and so on and yes, if you look at markets you can see some that fell but overall the trajectory in most of the country has been upward. Prices go up by $20K and then fall by $10K. Then up by $30K and fall by $10K again.

We use imprecise terms like boom, correct for these rises and falls. When is a price rise a boom? When it exceeds inflation? When it is more than x% of the original price in a year?

Overall the graph of housing prices rises steeply after 1995 or so and despite some stalls and drops, the overall trajectory is up.

Regarding property cycles - there is no real evidence to support this concept. People certainly talk about a cycle in the sense of construction beginning, delay until completion, effect on prices but when people talk about a property cycle they cite boom, correction, boom, correction. But when you try to find evidence for this idea, none exists. Some markets around the world are flat for a decade. Others rise and crash and stay flat for years. Japan rises to a bubble and is still deflating over twenty years. The idea of a cycle seems to be pretty much the "eventually it'll will go up again" -- which might be true if you wait fifty years.

I don't think there is any cycle going on in Australia in regard to property. Certainly no evidence for it. After all, APRA makes some moves and suddenly investor loans decline. How can that be cyclical behaviour when it was produced by a regulator? The Government might decide to let a million immigrants in and suddenly that oversupply of apartments vanishes - again, not cyclical behaviour.

A more useful idea is systemic risk. Compare 2005 to 2015. Mining boom going well. Undersupply of housing. Rising immigration. China buying our exports. High dollar. Household debt much lower than today. Now we have the mining boom over, an oversupply, falling immigration, China decreasing export purchasing, a falling dollar and high household mortgage debt.

It can be hard to assign numbers or importance to all of these things but each have an impact on the housing market in a negative manner. It's all very much which straw will break the camel's back?

Perth is already well on the way down due to the end of the mining boom and oversupply. Adelaide will be losing the car industry entirely by 2016 or so.

None of the factors are pushing in the good direction for housing. Start looking at bank capital ratios, the LMI insurer ratios (they're insuring billions and holding about $2.5 themselves) and the picture gets even worse. We saw what happened in the US when the insurers went down.

Systemic risk is the place to look.

 

I think that is the beauty of all of this... How different countries, with different economies, culture, problems etc at the end behave similar and suffer similar economic troubles... The causes might be different but same results.. And that is why economy exist because all human beings are driven by same principles every where in the world...

We cannot have any evidence that the future will be like the past,except to note that the future has been like the past in the past. David Hume

 

There is a two part book about the Australian Property Cycle:

http://macroplan.com.au/understanding-property-cycles-structural-change/

In 2007, Stapledon completed his PhD on the history of the residential property market. Here is some of what he said:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1711224

Philip Soos is a research Masters candidate at the School of Management and Marketing, Faculty of Business and Law at Deakin University. In a 2013 paper he said:

https://www.prosper.org.au/2013/06/12/a-sore-lesson-from-housing-history/#sthash.FFOmlkrd.dpuf