Discussion in 'Property Market Economics' started by TJamesX, 27th May, 2015.
where are you seeing deleveraging?
As per OP - I'm saying the assumption that continued exponential real growth (like the last 50 years) will not hold - not even at 1%. I think next 20 years will be 0%... at best
Collective households cannot take on any more debt and need to repair their balance sheets. In 08/09 Aus private credit peaked, but household debt kept growing - I think this will turn now as well.
Even the RBA lowering rates will no longer provide any real economic stimulus. This is the long debt cycle peaking for the Aus economy;
As per video here;
Aggregate incomes will stall and maybe fall due to rising unemployment and the relative debt burden will increase. There is no mining sector equivalent to make up for a fall in demand economy wide and the gap will have to bridged by the Govt. Which will mean the budget deficit has the potential to explode (just like the US).
Again this is all IMO
Even in US asset prices have risen in real terms recently
Off the bottom yes, but they are still a long way off the real peak 10 years later. I don't think they'll get back to the real peak for at least another 10 years, maybe longer. This is the best I could dig up - I don't know how to resize images
I think Aus 2015 = US 2006/07 (but probably not as bad peak to trough)
If that's what your analysis tells you then so be it. But your conviction is just so strong, that it surprises me you aren't hedging the market in some way. If you're not hedging, then at the very least I can only assume deep down you hope it'll crash so you can buy. I mean otherwise who on earth takes such a keen interest and does all this analysis if you aren't either betting for or against? You say you don't have any skin in the game or really intend to. I don't believe it to be honest, even if you don't see it yourself. You don't need to pretend to play the objective observer - tell us what you really want. If I had to guess, you've been flamed a lot as being a doom and gloomer in other places so you've learned to masquerade behind a veneer of objectivity.
There's nothing wrong with making the predictions you're making, my point is I don't believe you're really on the sidelines. Deep down you want in. And a crash would help with that. And, that's all well and good - hey, maybe you'll be right. But...just come out with it.
Would like to see how London and Manhattan real prices compare
Many cities in Australia are already down 20-30% in real terms
Are you referring to mining towns as cities?
Hobart is the only one that comes close (from the capitals):
The ABS seems to think we'll have an extra 10 million people in Oz by 2035.
Do you think they will have any effect on house prices ?
Of course. Show me a graph of Mt Isa. And Gold Coast.
Neither of which are capital cities of any of the states in Aus?
You are comparing London/Manhattan with Mt Isa and Gold Coast? lol
But aren't both included in the general definition of "Brisbane"? I could be wrong but I often see people describing "Brisbane" as all of greater Brisbane, one huge pot.
How can Mt Isa be considered part of Brisbane, do you know how far it is from Brisbane?
lol sorry I was thinking about another mountain. Mt Cootha? Or something. My bad
EDIT: nope not Mt Cootha. There's another one down south, maybe 30-50k's. Can't remember the name!
You may be overlooking something.
This is a significant factor.
I would say a majority of market psychology at the moment is driven by 'how much can I service' by banks, individuals etc which means you can really pay a lot for an asset if you are confident the price will at worst stay flat (ie I can always sell for what I paid)
I think this psychology will transition to 'how am I going to pay this debt back' - then everything changes. Servicibility doesn't drive the asset value any more because the underlying collatoral value is now in question.
OK fair enough - full disclosure on my motivations
I would likely benefit from a market fall in some way if I upgraded PPOR in the near future (which may be on the cards)
Beyond ownership of PPOR, Investment in property is not something I'm looking at relative to other investments - and would only consider in a price crash scenario (which I don't think will happen). But the understanding and analysis is important from the perspective that I think debt markets in Aus will drive sentiment and opportunity across all asset classes, equities, cash, real estate, private investments, FX. So in this sense, households, real estate and debt will be the primary driving force in our economy for the short to medium term IMO.
.... and always interested in the collective wisdom and insight of the SS community
If the markets falls, the value of your PPOR will fall too. No difference now or then really.
I would have thought these two questions are the first two questions you should ask yourself.
As for hoping for a PPoR upgrade after a crash; with rates so low and not going up anytime soon, not many higher-end homes will be sold of in a firesale like when rates spike up suddenly, and/or a stock market crash where a few highly leveraged, higher end players might have to liquidate.
The stock market crash might occur tomorrow - is your only hope in the near future, I'd say.
Or; keep watching your selected area really closely; a distressed sale might happen next week, and you need to be aware of it and be able to act immediately.
Interesting article. I think the challenge will be around cashflow. Those who have a good cashflow base and can ride it out will be ok but those who don't will have big problems.
At the end of the day if you are using air to borrow on air then if the air disappears then your left with more debt than the asset is worth. The same is true for margin lending on share portfolios.
The problem is the amount of debt to income which is now the new norm being the major concern. If someone on an average wage can by a half a million to a million dollar house we need to ask ourselves is that a good thing?
People feel safe when their property is gaining in value but havent really expereicned what happens when they house value falls. My clients who have lost " paper loss" value in their share portfolios can get very emotional and do irrational things. The same may be true when people go to revalue their house and find out its less than its worth, or when they try to sell get less than what they paid for it. I have seen it when I have looked at houses to buy where people are selling the house for less than they paid for 2-5 years ago.
Again, different if your buying the house to live in but like in business if you do not have the cashflow to sustain the property portfolio that is when the trouble begins. It will be interesting to see in Victoria how people react to job losses and the flow on effect on businesses/ suburbs.
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