I'm calling it... 2015 is the peak

Discussion in 'Property Market Economics' started by TJamesX, 27th May, 2015.

  1. unloadmymind

    unloadmymind Member

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    Not if they're gonna cut rates further.

    Waiting for the ABS capex data today and latest GDP next week...
     
  2. TJamesX

    TJamesX Member

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    This assumes real house price growth is an exponential function @ 3.1%pa. I don't think it will turn out to be... to many fundamentals stacking up against the next 25+ years being like the last 50 years

    [​IMG]

    The only factor to change this IMO would be continued significant foreign investment (ie Chinese) into the local housing sector. But I don't see it happening, govt policy will step in at some point because it ultimately hurts the local real economy.

    I'm tipping the Australian economy to step into its real deleveraging cycle from this year or next. 6 years behind US/UK

    [​IMG]
     

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  3. Deltaberry

    Deltaberry Member

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    Pretty bold statement to make.

    Not sure if there's any country that has weathered much more terrible financial crises except Japan have lower real prices 20 years later. Even Japan may not, given Yen has been deflating faster than houses (you do say real prices).

    Anyway, 2015/16 is probably a peak-ish year and I'm cashing out 3-4 second tier properties (main roads, wrong orientation, second tier part of suburb) for portfolio rebalancing reasons.

    But I think generally people underestimate the impact of the rise of Asia in the next 50 years, and the buying power (ie money) that this will generate in this region as their produce becomes more than Europe combined with USA.
     
  4. TJamesX

    TJamesX Member

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    At 2% cash rates there is a little room to move, but RBA appears to be targeting macro prudential factors against this causing increased liquidity in the housing sector (eg tageting investor loan interest rates).

    If they are successful in this, then I think that will determine the peak. There is no balance sheet capacity in the local economy to take it any further (outside of foreign markets).
     
  5. Deltaberry

    Deltaberry Member

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    Let's just say people in Hong Kong made similar predictions in 2008, 2009, 2010, 2011, 2012, 2013, 2014. All have been caught out.

    The rise of China is something that I think is so hard to quantify.
     
  6. TJamesX

    TJamesX Member

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    Call I'm willing to make in this environment. I think China will be a long term plus for Australian growth, but not enough to turn a deleveraging in the short/medium term.

    I think it is more than probable that the psychology towards the asset class in our market will change in the meantime

    My anectodal view is that the inbound investment from China into Aus has turned from SOE/Institutional (ie company's and assets) to individual (houses) and is driven by seeking asset protection away from the Chinese economy rather than seeking a return on investment.
     
  7. Azazel

    Azazel Member

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    Waiting for the market to crash during that long time?
     
  8. TJamesX

    TJamesX Member

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    Not waiting for anything (I'm neither long or short real estate), investments focussed elsewhere, and probably will continue to be so, but I've always followed the market with an economic interest
     
  9. Paul@PFI

    Paul@PFI Tax, SMSF & Planning

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    Predicting a crash in property like the OP suggests is like one person putting $13trillion on red and NAB, CBA, ANZ and WBC have $13trillion on black. Q : Who is selling at such low prices ?

    Every superfund in Australia would become illiquid. Credit multipliers would reverse. Credit card lending would become high risk and defaults would soar. Who would banks lend to and for what security ? Very much a doomsday view IMO.
     
  10. jerrybee

    jerrybee Member

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    This. The next 30-50 years is going to be the rise of SE Asia and we're going to gain tremendously from it.
     
  11. unloadmymind

    unloadmymind Member

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    National house price statistics is useless.

    People should call whether it's over in Syd Mel Bri etc.
     
  12. TJamesX

    TJamesX Member

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    I agree to a point, markets within markets etc and an individual house will typically fair better than the median in a growing economy due to gentrification.

    But fundementally a rising tide lifts all boats and I think the tide is going through a fundamental shift in this sector.

    No different to some shares doing better/worse than others in a bear market
     
  13. TJamesX

    TJamesX Member

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    For those that can spare half an hour, I strongly recommend watching the following;

    how the economic machine works by Ray Dalio

    I came across this a year ago and its the best explanation I have seen from a non doomsdayer about leverge in the economy and how the economy fundamentally works. This guy is not an economist but invests for the largest hedge fund in the world... and most economists don't get this.

    I think Australia is now entering its long term deleveraging phase which will cause a fundamental shift in the economy across the board. This will need to be managed critically by the RBA and Govt and will require the Govt debt balance to dramatically increase (which is not necessarily a bad thing).
     
  14. Azazel

    Azazel Member

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  15. 2FAST4U

    2FAST4U Member

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    Unfortunately I don't see that happening because the Governement have dug themselves a hole. Thanks to politicians the majority of Australian's are convinced that the Federal Budget/Public Debt is the same as household debt. It's a nice narrative even if it's not true.

    It's more likely we'll have a recession like the Keating era of "the one we had to have" instead of Government intervening and actually restoring jobs, growth, and confidence.

    As for houses peaking- I doubt it. The traditional fundamentals of housing, such as median house to median income don't seem to apply as much anymore thanks to globalisation and foreign investment. Certainly it applies to the rental markets (would explain the poor yields in Sydney even with the low rates) but people with deep pockets don't care as long as they are still achieving capital growth. Look at the astronomical prices in countries, such as Hong Kong, Singapore and China. People give Japan as an example of falling house prices but the difference is they aren't running a population ponzi scheme like our Government. In fact their population growth is negative so once again completely different demographics and market factors at play.
     
  16. Deltaberry

    Deltaberry Member

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    Interesting. The whole concept of leverage would depend on the cost of servicing leverage.

    If you can borrow a lot of money at 0% interest rates, what would you do? Of course that doesn't change a country's economic output, but it changes the relative nominal value between one class of asset (eg properties) and others (eg cash).
     
  17. TJamesX

    TJamesX Member

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    Yep all the media and Govt do is talk about the red line and how its gone up a bit..... no one discusses the blue line because thats a private matter

    The blue line is just about the only thing that matters at this point!

    [​IMG]
     
    2FAST4U likes this.
  18. Deltaberry

    Deltaberry Member

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    Not really I think everyone is aware of the blue line. It depends who the ultimate holders of that debt is.

    The importance of the red line is that it is owed to foreign investors. If your debt is held by the same institutions in the same country it's a different matter because you print the currency.

    Of course none of this changes the fundamental economics of what your nation produces.
     
  19. Shadow

    Shadow Evil Specufestor

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    There is no assumption.

    It was a factual statement about what happened over the past seven decades.

    Earlier rises were stronger than recent rises.

    Prices more than tripled in the decade from 1972 to 1982.

    Plotting it on a linear scale masks this fact.

    And yes, house price growth is exponential - i.e. each year the rise or fall is calculated as a proportion of the base value.

    Even 1% growth per annum is exponential growth.
     
  20. Shadow

    Shadow Evil Specufestor

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    I have an updated version...

    Steve Keen's bad calls and predictions

    01 - In 2006, Keen said we may already be in a recession (we weren't)
    02 - In 2006, Keen said Australia's Private Debt to GDP ratio would exceed 160% by 2007 (it still hasn't)
    03 - In 2006, Keen said Australia will be in recession long before our Debt/GDP ratio falls (ratio has fallen, no recession yet)
    04 - In 2008, Keen said interest rates would be at 2% by 2009, and ZIRP by 2010 (neither happened)
    05 - In 2008, Keen said we would have double digit unemployment (up to 20%) (didn't happen)
    06 - In 2008, Keen said we would have a severe recession, possibly a depression (didn't happen)
    07 - In 2008, Keen said house prices would be down 40% within 'a few years' (wrong)
    08 - in 2008, Keen sold his Sydney home at a cyclical low point, just before prices rose 20% (very bad call, Sydney prices are up 50% since then)
    09 - In 2009, Keen admitted he was hopelessly wrong on house prices after losing the bet with Rory Robertson (he walked)
    10 - In 2010, Keen predicted an accelerating rate of decline in Australian house prices (declines eased shortly after, then prices started rising)
    11 - Between 2008 and 2011, Keen claimed the Australian property bubble began in 1964, 1983, and 1988 (when did it begin?)
    12 - In 2008, Keen said his biggest regret was not buying property at the start of the property bubble in the 1970s (so it began in 1970s now?)
    13 - In 2011, Keen identified 1997 as the start of the 'bubble' (he makes it up as he goes along)
    14 - In 2014, Keen said Australia has a housing bubble because of the RBA rate cuts since 2012 (his latest revised start date for 'The Bubble')
    15 - In 2011, Keen said Australian house prices would fall 20% by the end of 2013 (not looking good, prices rising)
    16 - In 2012, Keen said Australian house prices would rally in 2013 (conflicts with #15)
    17 - In 2012, with Australian house prices well above 2008 levels, Keen said his 40% crash call was 'looking healthy' (fail)