why there is no bubble - UK

[L Bernham]

Hi all
Somebody showed me this and I thought it was worth posting.
Funny and interesting view of UK market. Some similarities with Aust
***********

Many people have been comparing the housing market bubble to previous market bubbles such as pre-the 1929 Wall Street Crash, the 1997-2000 “tech stocks” bubble, the south sea bubble and the tulip bubble. Of course this is absurd. There are clear differences between the two, which I shall now demonstrate in a comparison between the 1929 bubble and the present housing market:

Past Bubble: Prices of stocks soared to record levels with no sign of coming down again
Present Housing market: Prices of houses soared to record levels with no sign of coming down again

Past Bubble: Everyone and his aunt got involved in the market, even the shoe shine boys were buying stocks
Present housing market: Everyone and his aunt got involved in the market, even the shoe shine boys were buying to let

Past Bubble: The market became a national obsession, with whole sections of newspapers filled with watching its every move and bestselling books written on how to get rich quick from the market
Present housing market: The market became a national obsession, with whole sections of newspapers filled with watching its every move and TV programmes made such as “property ladder”, “location location location” and “the million pound property experiment”

Past Bubble: In the early stages of the boom it was emphasised that stock values were based on fundamental underpinnings such as real companies, and at the end of the day people would always buy the products of these companies
Present housing market: In the early stages of the boom it was emphasised that house values were based on fundamental underpinnings such as real estate values, and at the end of the day people would always need somewhere to live.

Past Bubble: It became common to buy stocks on margin without having to pay the normal price
Present housing market: It became common to buy houses on 100%+ mortgages or using self certification loans without having to fill in the normal forms

Past Bubble: Then when margin wasn't enough derivatives were traded to allow investors to gear up even more.
Present housing market: Then when mortgages weren't enough off-plan deposits were traded to allow investors to cash in even quicker.



Past Bubble: In the middle stage of the boom stock prices were justified by a new paradigm
Present housing market: In the middle stage of the boom house prices were justified by a new paradigm

Past Bubble: Investment trusts were created to help people cash in on the boom without buying actual shares.
Present housing market: REITS, and SIPPS were mooted to help people cash in on the boom without buying actual shares.

Past Bubble: It was claimed there was a shortage of suitable stocks which justified both the bubble and the bringing to the market of dozens of useless new ones.
Present housing market: It was claimed there was a shortage of desirable houses which justified both the bubble and the building of tens of thousands of identikit new build Georgian style houses in Ashford.


Past Bubble: In the later stages of the boom it became more important that stocks went up, than whether they paid dividends or that they had any fundamental value whatsoever.
Present housing market: In the later stages of the boom it became more important that house prices went up, than whether the tenants paid any rent; or that they had any fundamental value whatsoever.

Past Bubble: Companies without any redeeming features, or even a business plan, came to the market and were given wildly optimistic valuations.
Present housing market: New build flats without any redeeming features, apart from being open plan, came to the market and were given wildly optimistic valuations.

Past Bubble: Biased commentators appeared in newspapers, talked up the market and denounced the naysayer's
Present housing market: Biased commentators appeared on television, talked about loft conversions, and denounced the naysayer's


Of course there are some similarities:

Past Bubble: The government did nothing for fear of causing panic.
Present housing market: The government did nothing for fear of causing panic.

Past Bubble: It was all the Federal Reserve's / Banks / Governments fault
Present housing market: It was all the Federal Reserve's / Banks / Governments fault

Past Bubble: It wasn't my own greedy self's fault
Present housing market: It wasn't my own greedy self's fault

But at the end of the day the key difference is this:

Past Bubble: The market crashed and burned, causing misery to millions.
Present housing market: The market gently slowed down, and we all lived happily ever after

[Thommo]

Don't laugh!

[willair]

Considering all of the above,with the exception of Taxation refunds.
Good luck
willair..

[L Bernham]

In Australia we will live happily ever after because of tax refunds.

The UK will live happily ever after because of a lack of land

The US will live happily ever after because they 'said so'

[Bill.L]

Hi all,

LB, it's good to see your back on the doom and gloom bandwagon.

Just in passing though, in our local area, the number of vacancies has declined remarkably recently as investors have stopped purchasing property(according to the PM who manages our local property). Throughout the second half of last year and early this year they had about 20 vacancies(houses) most of the time. Today this number is down to 7.

Sorry to let a few facts get in the way of a good story. :rolleyes:

bye

[Mr Turkey]

LB, the greatest gloom and doomer was Roger Babson. He called the crash of 29 but he started calling for a crash in 26. By the time 29 came around nobody took much notice of him. On Sept 6 1929 he was reported on newswires as saying something like "Sooner or later a crash is coming and it will be tremendous. Men will be out of work and factories will close down. There will be a great depression". The market gapped down a little forming what was later called the "Babson break". The next day a stock broker bought add space to ridicule him.

Anyway does anybody know the cause of asset bubbles? And if they did what should they do?

[Sim]

Anyway does anybody know the cause of asset bubbles? And if they did what should they do?

I don't know the economic theory, but I thought most "bubbles" were caused by a combination of greed and fear. Greed in looking for quick returns in an irrational market, and fear of missing out on the quick returns everyone else is getting.

What to do about it ? Easy - don't get greedy, and don't follow the crowd.

[Garry K]

Reminds me of the 2000/1 Tech Bubble, when it was announced there was a new way of doing buisness (ie it was different this time) - and you'd better get on the wagon fast.

Top prices paid for companies that didn't actually do anything, and had no income, often just an idea, and just burnt shareholders funds to zero.

Housing can be oversupplied too, but usually you still have an asset if you can hang on to it ie don't over gear.

Fun to read article, but overly simpistic. :)

GarryK

[Aceyducey]

Turkey,

Asset crashes have been discussed previously in this forum do a search & you'll find out about them.

So you're still a fence-sitter LB :)

Enjoy your trolling!

Cheers,

Aceyducey

[qaz]

L Bernham, do you have any numbers macroeconomic numbers to back up your theory?....or is it all hear say?. Maybe if you posted the median yields and compared rates of net CG return (take into account inflation and interest rates) this cycle to the last cycle and cycles before maybe you wouldnt be laughed at so much.

[see_change]

Remeber Guys

We are talking about L Bernhum, the expert share trader , who buys shares and THEN decides to investigate the company.

I really think that sums up his level of experience

See change

[qaz]

My post above does bring up some interesting questions for me though. Does anyone have those numbers?. Anyone know the yields at the peak of the 80's late property boom?. How much the average median house price rose since the previous boom?. How much was that CG after inflation?. How interest rates differed (real rate after inflation and considering how how highly geared home owners and investors were). If someone were to find out the answer to those questions we might actually have a bid of a clue as to whether probably can crash (though its looking less and less likely with every week).

[Fester]

Now you guys are starting to scare me! Maybe I had better dump all my properties quick while I am still ahead!! :D

[Thommo]

Now you guys are starting to scare me! Maybe I had better dump all my properties quick while I am still ahead!! :D
So the good times will roll on into infinity! Can you present a logical argument to support your one line put-down?

Thommo

[always_learning]

Clearly OZ realestate generally has not had a history of boom and busts like stock markets, more a cycle of boom and then stagnation. Bust's in OZ have seemingly been confined to certain markets (Gold coast high rise, premium/status, built for investors)

However this time could be different :confused: , or it could just well be history repeating itself ;) . Whatever happens I am sure everyone will have a good 'after the fact' reason for it!

[Aceyducey]

If the economy collapses due to a property bust, you're no worse off owning property than not.....

Cheers,

Aceyducey

[Thommo]

Clearly OZ realestate generally has not had a history of boom and busts like stock markets, more a cycle of boom and then stagnation. Bust's in OZ have seemingly been confined to certain markets (Gold coast high rise, premium/status, built for investors)

However this time could be different :confused: , or it could just well be history repeating itself ;) . Whatever happens I am sure everyone will have a good 'after the fact' reason for it!
Actually AL we HAVE had a collapse. It took half an hour to find the reference so please enjoy;

http://www.somersoft.com/forums/showthread.php?t=16366

Thommo

[Fester]

So the good times will roll on into infinity! Can you present a logical argument to support your one line put-down?

Thommo

Thommo, I was being a little facetious! Now being serious. I did a lot of share trading up to the “tech wreck”. Most of my portfolio was the “dot coms”. I really found it quite exhilarating at the time and it became like betting on the nags! Things were really going good and I was doing very nicely. I dumped them all the very day of the “tech wreck”, lost some but lucky I got right out when I did because some of the companies are now non existent or worth only a fraction of their previous highs! Some drops, well 100%, some 99%. I can’t imagine my properties having a drop of similar proportions if things go wonky! And I am in for the long haul, so as long as tenants want to rent them then I am ok.

Cheers, Fester

[Thommo]

That's OK Fester! I was aware you were being a little mischevious, just unsure precisely how.

Anyone who traded the .com bubble and got out early is worthy of my respect.

Peace!

[Bill.L]

Hi all,

Sorry to bore those who have heard this from me before, but qazwsx did ask!!

We owned an IP and sold at the height of the boom in 1990 in the Melbourne suburb of Mulgrave. It was a very average 3bed brick veneer. The property was bought for $44000 in '81 and sold in '90 for $110,000.

Interest rates for us were fixed at 13.5% and we paid out the loan early. When we first bought rentals were around $70 per week(it was our PPOR at first). By 1990 rental return was $120 per week. So yield in 1981 was 8.25%, but by 1990 it had fallen to 5.67%. Obviously in both cases to purchase such a property would leave one very negatively geared.

The same property today would cost around the $240-260k to purchase and the rent would be about $190-195 pw, so the yield now is ~4%. I have kept an eye on prices and rents in the area.

We can deduce that the cap growth for this property was just shy of 11% pa between '81-'90 and about 6% pa since '90 til now.

I like to use this as a real example of the cap growth and not "median" prices, as the type of house that is "median" has changed a lot over the years, and of course any house you purchase will essentially remain the same unless you spend vast sums on extensions.

Hope this helps

bye

[Thommo]

As a comparison, I just checked the charts of our four big banks.

ANZ and WBC go back to '90 when they were at a peak of $6. Now approx $18. You could have bought these in '93 for $3-4/sh which gives about 600% cg.

CBA gives 600% gain since '92 and poor old beleagured NAT a mere 400% since'91.

I haven't checked these figures but a buy and hold strategy would have these banks now giving you a 30-40% fully franked dividend on the original stake. Remember this is a passive investment with no holding expenses. Had you held in a mutual fund, their charges are less than a PM's.

I hate cherry-picking examples too and don't normally do it but there are hundreds of thousands of Aussies who took Paul Clitheroe's (and others) advice "Don't put your money in the bank, buy the bank".

An elderly Aunt put a small amount into Channel 9 when they opened in Townsville (wasn't elderly then) and her investment is now worth well in excess of $100k and her divs allow her to live more comfortably on her pension. Real estate would have been an impossible dream because banks just did not lend money to single women.

I'm not sure why I keep sticking my head up like this but what the heck! There are many roads to Rome and we can't all travel the same one. It would be crowded and smelly:(

Thommo

[geoffw]

These damn bank stocks do really well unil I buy them :(

Your point is well taken.

My own dabbling in shares did not produce stellar results. My dabbling in RE has given me good results. The good times are over for now, but I'm now far more comfortable with RE. That's just me.

I continue to try share dabbling through my SMSF.

[nic]

Bill.L

Do you know what it was worth at the bottom of the cycle (and when did the bottom occur?)

Nic

[Aceyducey]

These damn bank stocks do really well unil I buy them :(

Your point is well taken.

My own dabbling in shares did not produce stellar results. My dabbling in RE has given me good results. The good times are over for now, but I'm now far more comfortable with RE. That's just me.

I continue to try share dabbling through my SMSF.
Let me know when you're buying so I can purchase some puts :D

Did you buy NAB recently?

Cheers,

Aceyducey

[Les]

G'day nic,

I'm going to attempt to attach a file that:-

1. Might answer your question to Bill.L
2. Could be useful anyway.

Someone had earlier provided a link in Somersoft (somewhere) - it gives the median vaalues of major cities from '81 to '02

Here I go.....

Regards,

Edited later:- Didn't work, nic - file too large. I'll look for the link and post that if I can find it.

As a short answer, the file showed that between 1981 and 1990, the Melbourne median didn't "drop back" in any of those years, and, minimum growth in any year was ~5%, with some years climbing at > 20%

[Les]

Well, I found it nic, but, unfortunately it is now a dead link (at least, it didn't work for me) - but this was the post that referenced it...

http://www.somersoft.com/forums/showpost.php?p=51147&postcount=2

Sorry,

[Bill.L]

Hi all,

Nic, we could have bought similar around '92-95 for ~$95k. So yes there had been a decline, but sale and repurchase costs would have eaten most of that away, not to mention the time taken to look again and the "worry" that we were buying into a falling market.

Thommo,

"ANZ and WBC go back to '90 when they were at a peak of $6. Now approx $18. You could have bought these in '93 for $3-4/sh which gives about 600% cg."

It sounds wonderful for the banks, until you realize that you could have bought them in '84 ish at the $3-4/sh as well. For 10 years they went nowhere if you had held for the "long term". For the next 10 years will it be a repeat of '83-'94 or '94-'04, or something different!!

Les,

I also have those median price figures somewhere but I don't like using them.

bye

[geoffw]

Let me know when you're buying so I can purchase some puts :DAll the money going into the SMSF this year is going in tax. My provisional tax this quarter is greater than by total tax last year- so I'll be flat out paying that, let alone buying more (unless I sell my NAB :D )

Did you buy NAB recently?Nope. 18 months ago. They are B&H, but I'm not optimistic.

[nic]

Bill.L, that's about 13.6% drop in price (not adjusted for inflation though). That's what you would expect after a boom I think.

Les, thanks for the reference. I went directly to Steve Navra's website, and the median prices table can still be viewed under 'News and Articles'. By the way, another article I found through that website quotes Dr John Hewson as saying that house prices in Australia are 40% overvalued and the housing market is on a brink of disaster.

http://news.ninemsn.com.au/article.aspx?id=3232

That opinion would vindicate some people on this forum ;)

And it reminds me of an old joke that has nothing to do with real estate -

In 1917 Russia was poised on the edge of a cliff. But after the socialist revolution the country made a big step forward... :D

Cheers
Nic

Edited: Guys, don't read too much into my smilies - they are all over the place, I still haven't learnt how to insert them properly.

[Les]

G'day nic,

I went directly to Steve Navra's website, and the median prices table can still be viewed under 'News and Articles'.

Thanks for that, nic. I'd also done that yesterday (by following the searched link I posted) and couldn't find it. The key is in what you said (above) - "I went DIRECTLY to Steve Navra's site" - and there it was (a completely different layout to the old link).

So, for others, try navra.com.au and go to "News and Articles" then "NFS articles" (or something like that...)

Thanks again...

Regards,

[GreatPig]

All the money going into the SMSF this year is going in tax.
And I thought super was supposed to be a tax-effective vehicle :rolleyes:

GP

[willair]

L B,
With this period of optimism in property,some owners have already taken
pre/emptive action and sold i know several which have gone down this road
they where too heavily geared from the start,but they still made serious money in the time frame that they invested in,some people say that if massive selling activity comes into play than naturally this pushes property down,i dont think so most i see inside this fourm are in for the long haul,i spent to day out in the brisbane valley and from what i have seen today one market slows another is just starting to climb thats the problem i see in the next year or so if you open your eyes and mind the money will always rain on the investor,just one simple question L B what part of the investment tree are you
investing in at present,i hope you are not still sitting at the investment bus stop waiting to find the fare on the ground..
Good luck LB
willair..

[geoffw]

Let me know when you're buying so I can purchase some puts :DI told you I was holding NAB.

So if you had bought puts, you would have made a squillion.