Will the "bubble" pop?

I am relatively new to the property market and never seen a major correction.

Question for the seasoned investors who saw few cycles in Australia, don`t we have alarm bells out there?

Lending is going to the roof, never had so much OO lending in the last 20 years. Lending indicators, May 2021

I am with Matusik , price will keep growing for another 1 / 2 years and then we will have a long flat line, no major corrections.

What do you think?

Few interesting articles I recently read.

Matusik Missive - 140 years of house price data

What can’t last, won’t: Six reasons to expect residential property price gains to slow

 

What do you consider a 'major correction' and when do you think was the last one?
There were corrections in 2018, and again in 2020.
What did you think then?

 

My own 0.05c.

- Very unlikely we are in a bubble
- Prices will pull back at some point. Whether that pullback will be higher than current prices or lower, no one has a crystal ball. It's impossible to know.
- The probability of a nationwide crash is extremely unlikely.
- State wide crash equally unlikely.
- City crash also extremely unlikely.
- Will certain suburbs experience 10-25% pullback from the top?, very possible.
- Do we have a lot more to go for the booms? Its impossible to know. Anyone who says they know is dreaming.
- Should I buy now? If you think you can identify value and it fits your risk tolerance, then you decide. Personally, I would tread very carefully if buying now.

 

Who knows what’s going to happen next. I think the national governments of western countries are no longer in control of their economies and the monetary system. The system has been detrimentally distorted on purpose.I think we are going to be in a market of extremes where people who are up to their eyeballs in debt will be crushed and those in control will collect.

 

Yes

 

I doubt there will be a 25% reduction in any of the capital cities and well-placed regionals. I think there's a higher chance of hyperinflation than deflation.

 

Sydney not so long ago had a significant retraction in certain suburbs. And that wasn't even from the very top of the market. So a 10-20% retraction from the very top for certain areas/stock types (only known in hindsight) is very possible imo. And likely.

 

The case for a 10%-20% retraction in Syd (or for that matter any cap city) is incredibly remote (below 5% in my dictionary) .... Especially so, when RBA has been at pains of-late highlighting IR to remain at these levels for the next 3/4 years and with APRA/ RBA incredibly aware of the damage their intervention did in 2017 and therefore the future of economic recovery is inextricably interlinked with the housing market - Remember 60% of economic activity is consumer spending which is a direct result of appreciating housing values ...

 

I'm not talking about Sydney as a whole, only certain suburbs and stock types, from the very top of the boom prices. I see that as something which is very possible to happen.

 

There is no bubble! There are genuinely very few people who are locked out of property markets.

Just because most can't buy in their preferred suburbs, it doesn't mean they can't enter the property market at all because it's somehow inflated.

This entire affordability/bubble fuss comes from millennials who see their boomer parents living in $2m houses which they bought for $100k and then expect to buy in the same street. They don't realise that the trendy suburb in which they want to buy next door to their parents was a dump when their parents bought the family home 30 years ago and was only gentrified 10 years ago.

Buy wherever you can afford and move up the property ladder!

 

Home ownership levels are falling as the table above shows. As prices rise there are more people stuck renting for longer as they need higher deposits. I think we're fine as long as interest rates remain low. The lack of wage growth across the economy is concerning though but the RBA has speculated this may rise due to a lack of immigration induced by COVID.

 

..... the one thing we can predict is interest rates will increase. The only debate is whether it comes sooner or later.

I hope the bubble develops a slow leak and lands softly

 

It could be a very long time! Look at Japan- 30+ years of low interest rates .

 

I suspect we might see some inflation in the short term, so in the next year or 2, before it again falls below levels most central banks consider healthy due to the same structural factors that have been present over the last few years (low wage growth, the dampening effect of technology etc).

 

Firstly, in order to believe that a bubble is about to pop, you first have to believe that a bubble even exists.
I am not convinced of that. What I am seeing in the areas I am looking, appears to be genuine inflation. Yes, it will likely be hit with a period of stagnation after the growth stops (I don't know when that will be), and some areas may see a small dip. But that is All a normal part of the property cycle. I don't think there is going to be any 'crash'.

Home ownership is falling. I do wonder how much of this is due to changing societal and cultural norms though. People nowdays tend to place more value experiences and immediate satisfaction, and YOLO.
Actual priorities and personal values have shifted over the years.

Affordability is an issue, but it is not the biggest issue when it comes to buying a home. The problem is that people want the modern instagram lifestyle AND they wantvthe flashy house. And too many are not willing to sacrifice the lifestyle to get the house, or build up to the flashy house slowly.
Generations ago, what was considered a 'good lifestyle' was way less expensive then what most would consider a 'good lifestyle' now.

People just want more, and they have been brought up think that they can have more, but no one stopped to instill in many that in order to get more, one must first have less and go without.

I get it. I am gen Y, a millennial. I love my lifestyle now. And I wouldn't give it up now that I have it.
BUT unlike a lot of my peers I did go without back when they were already living it up. When they were travelling the world, and shopping, and eating out, and drinking; I was at home with my babies, doing our budget, stretching the dollar, and stuffing what I could away for investment. We were living a lifestyle far below that of our tenants.

But just because home ownership is dropping, doesn't mean the property market won't continue to perform. People still need places to live. And if they don't own, then they need places to rent. And lets face it, its not like the government is going to step up anytime soon and actually provide housing for those in need. Vacancy rates are rediculously low.

Its a supply vs demand issue. Until supply increases dramatically and demand lessens, housing prices are not going to burst.

 

What surprises me is we have an echo chamber for positive outcomes for property when:

1. We are in middle of a surprising upturn;
2. Predictions were drop of 20+ .... predictions were wrong;
3. Reason for predictions ( pandemic ) not resolved.

Did we learn nothing?

Reality check anyone?

 

Who knows what prices will do. Early in the covid crisis many (including myself) thought that price would fall sharply. That they surged is enough to humble me. Occasionally we are proven right on market direction and timing but how do we know if we are right now?

Have a diversified portfolio of assets and when you buy a house/unit make sure it is good value in the current market based on its characteristics, not based on expectations that property will outperform in the future (and therefore justifying paying a premium in the current market).

That means most of our attention should be on what is the price now. That is actually quite difficult to discern. After studying the corelogic indices and applying it to the market I operate in, I find them almost useless. Likewise median prices etc given compositional effects. Also there is huge variation within markets. In a given week you will often find someone who paid 10% or more for what is essentially the same thing.

And if you can add value (renovations; knockdown rebuild; subdivision; property development etc) do so as capitalism rewards risk taking and effort particularly where it is difficult and final outcome sort after.

True sustainable wealth creation is through alpha not beta. That is adding value and meeting market needs not merely leveraging up and taking on a greater exposure to the inevitable price swings.

Having said all that, I like being exposed to assets in general, whether it be property, stocks or Cocal Cola vending machines. Anything that does something, that is useful and if inflation hits, or bitcoin takes over, can raise its prices or switch to pricing in another currency.

And in Australia unfortunately we have to pay attention to the tax treatment of investments since that heavily distorts outcomes.

Questions on whether the bubble will pop etc is a mug's game as the question can hover for decades before the market eventually 'corrects'.

 

I'd rather be a mug than keep head in sand.

Risk is made up in part of impact and likelihood....so even low likelihood scenarios should be considered.

Leveraged ppl should defend against the bubble scenario .... at least to some extent.

Echo Chambers ( though) are for mugs.......and sheep.

 

That I agree with. You should be aware of the historical volatility of the asset class you are investing in and have some appreciation of whether a downturn could be larger than historical precedent.

You then make sure that you can weather the swings in your net equity holdings in your investment given your leverage.

Apartments are more volatile than houses so you should have less leverage for an apartment than for a house for example for a given risk tolerance.

Tourist areas can be more volatile. Investor heavy areas can be more volatile. Understanding the risk profile of your investment is more tangible than predicting exactly what it will do over the next year.

 

We are in furious agreement!!