How do you spot the top of a cycle - analyzing the state of the WA market

[sheiks]

Thanks for sharing the boom and bust article with us, topcropper . The bit that really struck a chord with me is the quote form the Chancellor at the very beginning:

"In the world of efficient markets there are no animal spirits, no crowd
instincts, no emotions of greed or fear, no trend-following speculators, and no
‘irrational’ speculative bubbles."

As someone just embarking on the investment journey, I reckon this is worth printing out and sticking on the fridge!

 

[Kennethkohsg]

Being a contrarian by nature, I am instantly suspicious when I hear those words.

Sometimes it is different, but the vast majority of the time it's not, because underneath the current situation in Perth are two simple factors - fear and greed.

Fear of missing out, and greed when extrapolating current trends. Those two emotions drive every boom (and every bust) and I for one dont think humans will get any better at managing them.

I have spent quite some time reading up on the history of booms and its incredible how similar they all are - going right back to the 1700's. Hence my belief that its never different.

Anyone who wants to bet the farm on the belief that it is different this time - well, good luck.

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Dear Stretchy,

1. I fully agree with your views.

2. If we truly understand what the herd's mentality and instincts and the nature of Man, it will always be the same story - boom vs bust - driven by human greed + fears.

3. The market has always been driven more by the mass investors' behaviours and their perceptions of the markets conditions , rather than by objective facts per se or/and the actual market reality.

4. Consequently, the Perth property market is also being driven by the same human emotions and it will be a matter of time, when the market housing prices moves "prematurely" ahead of its underlying supportiing fundamentals.

5. The more intense the human emotions and the more intense the human emotions, the more "real" they appear and become "irrational" the general investors' behaviours become until such times that the booming market will inevitably be followed by a subsequent bust when it tries to defy the basic laws of gravity.

6. The basic story/outcomes is the same;- the difference is its exact timing when the boom will soon turn into a bust eventually.

7. For your kind update, please.

8. Thank you.

regards,
Kenneth KOH

 

[Alex P Keaton]

I use this word because I define the property cycle as having 3 'phases' being Recovery, Boom and Slump. These words don't mean there will be a Boom/Bust type cycle but these are the 3 phases the property cycle traditionally experiences.

In my research I have found that not all Booms lead to busts and not all Slumps deliver 'busts'. I define a bust as a 15% decrease in values within 5 years. Some slumps have delivered no negative growth but low positive growth for a number of years before the next Recovery arrives, Boom then Slump etc.

Hi Kieran do you still visit SS?

When do you think was the tip of the Perth cycle? I'm thinking perhaps the last quarter of 2006?? What does everyone think??

I bought the last two years sales figures and have noticed some investors got caught out buying ips where they thought they had time to make a killing (thinking the boom would keep going through 2007) only to find that the ip was left on the market for a year. IR rises would have hurt too!!

One person bought a villa in Sep 06 for $336 K and then put it on the market in Nov 07 for $395 hoping to make a nice profit to see it sit on the market for 10 months. He reduced the asking price down to $299 K - $315 K in the end. Then it was sold.

A unit I just inspected tonight was bought by an investor in Sep 06 for $285 K, and 1 month ago he/she put it on the market for $250 K - $265 K, and just last last week (after only being listed for 4 weeks) put the price range down to $200 K - $265. He will make a loss too. It wasnt even renovated. If I bought it it would need a total reno of the bathroom and kitchen. Very old. Would need to spend about $10 K perhaps.

 

[Aaron Sice]

i'm looking to accumulate now - but need to wait for practical completion before refinancing with a more investment savvy lender and gettig out there - so only 6 months or so away now.

 

[Alex P Keaton]

i'm looking to accumulate now - but need to wait for practical completion before refinancing with a more investment savvy lender and gettig out there - so only 6 months or so away now.

in Perth??

 

[Aaron Sice]

anywhere with potential changing demographics from census data, close to private and public infrastructure with a decent land component, possible subdivision potential.

don't wanna bite off more than i can chew, but it's a long standing piece of advice to start in your own backyard as well.

although being able to claim interstate airfares for myself and my dependants is no bad thing either.

 

[silversands]

Hey Bluecard!

...for yourself AND for your DEPENDENTS? are you sure, sounds nice and generous, not words I'd normally attribute to our "taxing" friends at the department!

Regards Jodie

 

[boomtown]

This thread was great reading - thank you for bringing it back from the dead Kim !

 

[Alex P Keaton]

:d

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