Just how bad will this all get ???

[topcropper]

Excellent article.......... skip to the last paragraph

Hey, thanks for that evand. That article is a lot about what I think is happening to the world. Exactly, really. The entire western world has lived and spent beyond it's means. We produce not much anymore, and put everything on credit.

You only have to look at this forum. The main aim on here of half the members is to stop work and never work again.


The credit crunch was just the trigger, not the reason. The west has now pulled the developing world down too, and we are undergoing an asset revaluation. Possibly a few years of deflation, which means positive cash flow is just an illusion. This is no little correction. It is a once in a century thing. A lot of the bulls on here need to be very carefull.


That last paragraph is great, as you said.


Cheers.

 

[evand]

Jonathon Pain is a very switched on guy and a lot of his predictions are correct.

The last 10-15 years has been about growth based on debt, not productivity (as you say).

If that debt fuelled growth had continued, our kids would not be able to afford a loaf of bread let alone a house.

Hey, thanks for that evand. That article is a lot about what I think is happening to the world. Exactly, really. The entire western world has lived and spent beyond it's means. We produce not much anymore, and put everything on credit.

You only have to look at this forum. The main aim on here of half the members is to stop work and never work again.


The credit crunch was just the trigger, not the reason. The west has now pulled the developing world down too, and we are undergoing an asset revaluation. Possibly a few years of deflation, which means positive cash flow is just an illusion. This is no little correction. It is a once in a century thing. A lot of the bulls on here need to be very carefull.


That last paragraph is great, as you said.


Cheers.

 

[Player]

I have heard Jonathon Pain speak in the past a couple of times and, yes he is switched on. He is also quite humble as a person and non-sensationalist. The notion of consumption versus productivity is also what Bill Zheng was talking about when I heard him speak last year, hence keeping buffers with conservative LVR's as hedge to avoid margin calling property that is over-leveraged as prices soften.

He maintains we need to shift to a productivity era. I guess it's pay back time and values need to re-adjust and find their equilibrium.....before the games begin again by the folk with short memories or the teenagers of today when they grow up.

 

[Shadow]

Those 40-50% property price drop predictions will occur in late 2009 and early 2010.

Ah yes, I recognise this approach from my time on the other forum. Every six months the big crash gets postponed for another 6 months. It's always just around the corner, just out of reach, almost there... I can nearly touch it... damn, slipped away again. Oh well, just another 6 months, then property will definitely crash... this time... please?

If you remember the 87 stock market drop it took 2 years before the property market took a hit. This time the biggest shock is going to come when you try to roll over a loan or refinance.

So is this just like 1987? What happened to property prices in those two years?

As for the soft depression I stand by my earlier posts last year;

6. I said unemployment would not go over 6.5% but it may now go as high as 8.5%

But all the other D&G stuff you said would happen is written in stone, right. Your unemployment prediction is the only one you might have to change. Oh and the timeframe for the big crash of course...

Here is the link to that affordability study;

http://www.demographia.com/dhi.pdf

The Demographia survey has been thoroughly debunked by many people on many occasions. There are massive flaws in the Demographia survey. Median house price to median income is a very blunt tool. The survey fails to consider the following factors:

- Disposable income
- General cost of living
- Interest rates
- Rental yield
- Tax incentives such as negative gearing
- Block size (blocks in Sydney are bigger than in London for example)
- Dwelling size and quality
- Proximity to transport and infrastructure

It is comparing apples with oranges.

The other issue with the Demographia survey, is that it only compares Australia with five other countries, yet the media proceeds to claim that Australia is the most expensive in the world. The survey conveniently ignores all the cities in the world with much higher house prices than Australia. For example Moscow, Tokyo, Oslo, Seoul, Hong Kong, Geneva, Zurich, Milan, Paris, Singapore, Monaco...

Here are some alternative studies...

GlobalProperty Most Expensive Cities 2008 (apartment price per sqm):
http://www.globalpropertyguide.com/investm...-cities-in-2008
Sydney - Number 13: US$7,085 per sqm

Mercer Most Expensive Cities (cost of living, including housing)
http://www.mercer.com/costofliving
Sydney - Number 21

CityMayors Expensive Cities
http://www.citymayors.com/economics/expensive_cities2.html
Sydney - Number 24

Knight Frank Survey (prime residential property)
http://www.finfacts.com/irelandbusinessnew..._10010019.shtml
Sydney - Number 8: EU$13,100 per sqm

Overseas Property Mall Survey
http://www.overseaspropertymall.com/proper...tional-markets/
Average home values for select 2,200 square foot single-family dwellings with four bedrooms...
Tokyo - $785,818
Sydney - $683,109

Aneki (most expensive countries to live in)
http://www.aneki.com/expensive.html
Australia - Not shown in the top 20

Most expensive countries in the world
http://www.associatedcontent.com/article/1...the.html?page=2
Australia - Not in the list

Most expensive rental markets
http://www.forbes.com/2008/02/11/properties-world-rent-forbeslife-cx_mw_0212realestate.html
Australia - Not in the list

Cheers,

Shadow

 

[BoatBoy]

Nice list Shadow

Dave

 

[Chris.R_WA]

I can't actually remember the last time I gave Kudos, but it must have been to Shadow...coz I have to spread it around some more first.

Great post and links.

Chris

 

[yorke]

Ah yes, I recognise this approach from my time on the other forum. Every six months the big crash gets postponed for another 6 months. It's always just around the corner, just out of reach, almost there... I can nearly touch it... damn, slipped away again. Oh well, just another 6 months, then property will definitely crash... this time... please?

Doesn't 1.3% down for the September quarter count for something ?
If only the RBA didn't intervene by starting to cut down rates before the crash arrived, or the two faced banks passing the rate cuts despite strong assurances that they were not going to do so, or the government increasing the FHOG despite the large number of protesting emails received by senators urging them not to pass the legislation, or the pesky FHB who after years of waiting for a crash gave up and bought a house spoiling it for everyone else it could have ended in a crash like in some US towns.
Of course it would have helped if everyone in Sydney was working for Chrysler and Chrysler closed shop but that's besides the point.
I've been charting the long term property trend and my 1000 years chart is definitely showing a correction just around the corner, accuracy factor +- 10%.

 

[boz]

Ah yes, I recognise this approach from my time on the other forum. Every six months the big crash gets postponed for another 6 months. It's always just around the corner, just out of reach, almost there... I can nearly touch it... damn, slipped away again. Oh well, just another 6 months, then property will definitely crash... this time... please?



So is this just like 1987? What happened to property prices in those two years?



But all the other D&G stuff you said would happen is written in stone, right. Your unemployment prediction is the only one you might have to change. Oh and the timeframe for the big crash of course...



The Demographia survey has been thoroughly debunked by many people on many occasions. There are massive flaws in the Demographia survey. Median house price to median income is a very blunt tool. The survey fails to consider the following factors:

- Disposable income
- General cost of living
- Interest rates
- Rental yield
- Tax incentives such as negative gearing
- Block size (blocks in Sydney are bigger than in London for example)
- Dwelling size and quality
- Proximity to transport and infrastructure

It is comparing apples with oranges.

The other issue with the Demographia survey, is that it only compares Australia with five other countries, yet the media proceeds to claim that Australia is the most expensive in the world. The survey conveniently ignores all the cities in the world with much higher house prices than Australia. For example Moscow, Tokyo, Oslo, Seoul, Hong Kong, Geneva, Zurich, Milan, Paris, Singapore, Monaco...

Here are some alternative studies...

GlobalProperty Most Expensive Cities 2008 (apartment price per sqm):
http://www.globalpropertyguide.com/investm...-cities-in-2008
Sydney - Number 13: US$7,085 per sqm

Mercer Most Expensive Cities (cost of living, including housing)
http://www.mercer.com/costofliving
Sydney - Number 21

CityMayors Expensive Cities
http://www.citymayors.com/economics/expensive_cities2.html
Sydney - Number 24

Knight Frank Survey (prime residential property)
http://www.finfacts.com/irelandbusinessnew..._10010019.shtml
Sydney - Number 8: EU$13,100 per sqm

Overseas Property Mall Survey
http://www.overseaspropertymall.com/proper...tional-markets/
Average home values for select 2,200 square foot single-family dwellings with four bedrooms...
Tokyo - $785,818
Sydney - $683,109

Aneki (most expensive countries to live in)
http://www.aneki.com/expensive.html
Australia - Not shown in the top 20

Most expensive countries in the world
http://www.associatedcontent.com/article/1...the.html?page=2
Australia - Not in the list

Most expensive rental markets
http://www.forbes.com/2008/02/11/properties-world-rent-forbeslife-cx_mw_0212realestate.html
Australia - Not in the list

Cheers,

Shadow

Gee Shadow!
usually your links are quite a good source.
This time I stopped reading at the first paragraph of the first link:

Most expensive cities in 2008

Global Property Guide
Last Updated: Jan 15, 2008

London, New York and Moscow are the world’s most expensive cities for residential apartment buyers.

Residential apartments or flats in Prime Central London are among the priciest in the world, at US$21,800 to US$36,200 (£10,960 - £18,214 or €16,305 - €27,095) per sq. m. Prime central London include Belgravia, Chelsea, Mayfair, Notting Hill, Knightsbridge, Regent's Park, South Kensington, St. John's Woods, and St. James.

It seems updated last week but the exchange rate are out of reality since at least october, but the exchange stated thare are from last july!!!! and you have to go back well over 1 year to get 10,960 GBP to buy 16,305 euro.
I stop to read as I have no time for crap report

Player:
I have heard Jonathon Pain speak in the past a couple of times and, yes he is switched on. He is also quite humble as a person and non-sensationalist. The notion of consumption versus productivity is also what Bill Zheng was talking about when I heard him speak last year, hence keeping buffers with conservative LVR's as hedge to avoid margin calling property that is over-leveraged as prices soften.

He maintains we need to shift to a productivity era. I guess it's pay back time and values need to re-adjust and find their equilibrium.....before the games begin again by the folk with short memories or the teenagers of today when they grow up.

I have got all those scenario ipothesis also in early december from this interview with Nassim taleb (autor of the black swan). In his view of capitalism 2 he see the shift back to production and the fundamental drivers of the economy.
Anyway, it is hard to know who is the first to come up with those scenario. Prabably this guy is one of the forst that come up with new idea even if I am not sure he is completely right.

EDIT: actually, Shadow I just notice that is 15 January 2008 and not 2009 that is explaining the completely wrong exchange rates, I also believe doesn't make sense to compare prices before the bubble burst.

 

[Shadow]

Gee Shadow!
usually your links are quite a good source.
This time I stopped reading at the first paragraph of the first link:

It seems updated last week but the exchange rate are out of reality since at least october

In the current climate, any survey with some dependence on exchange rates is going to go out of date quickly (but remember that currency exchange rates may also revert to where they were before just as quickly).

I actually linked to eight separate surveys in my previous post, most of which have no basis or dependence on currency exchange rates. And all of which identify many countries and cities where house prices are much higher than in Australia.

I suppose if you did want to factor in the exchange rate, you would of course know that property in Australia is now around 30-40% cheaper to many foreign investors than it was when we were almost at parity with the US dollar.

Cheers,

Shadow.

 

[black dragon]

I concur with Shadow in this case. The demographer study is one of the most dodgiest pieces of research I have ever seen. For starters, the survey is just based on five countries..and that is just the start.

 

[coastymike]

With analysing these lists it is important to determine the purpose for the list and how the ranking are determined.

Mercer Study

Does not take into account average income levels. It includes about 200 items in the figure and this is used for remuneration planning purposes for expatriates. It is not comparing the average income level compared to the 'basket'

Global Propety Guide

Is not a benchmark to income levels. It is a ranking of price per square metre. If this measure was used in conjunction with income levels then I believe it would be a good measure

Knight Frank

Same as Global Property Guide. Doesn't benchmark against income levels

Aneki

Doesn't even tell you the methodology for their list.

Anyway not saying demographica are right. Haven't even checked out their methodology. But comparing a measure against income levels is important and the lists you mentioned are not designed to do that.

 

[boz]

I suppose if you did want to factor in the exchange rate, you would of course know that property in Australia is now around 30-40% cheaper to many foreign investors than it was when we were almost at parity with the US dollar.

Cheers,

Shadow.

Yes, that is correct, to me the low AU$ is the main thing that make me unsure where home prices are going in australia.
But on the other hand you have to understand that to me data of 1 year old and from unreliable sources is of no use, I have to be as much up to date as possible and there are so many source of data to look at.

 

[boz]

I concur with Shadow in this case. The demographer study is one of the most dodgiest pieces of research I have ever seen. For starters, the survey is just based on five countries..and that is just the start.

Hi black dragon,
was that you behind the report on the age about RE agent hyping up the rental market? quite a funny read

 

[nonrecourse]

No you are changing your wording, just for the record you said that residential property prices will decrease 40-50%, not 'property prices' which include commercial, industrial and retail property. Keep it consistent.

When you consider the recent listed property segment of the Market its a given that they are well and truely going to be suffering above and beyond what the residential impact will entail. Point taken anyway thanks

 

[black dragon]

Boz

I think we have them on the run! Great to see Editorial in The Age is winning the war with advertising..for now.

 

[Dazz]

You only have to look at this forum. The main aim on here of half the members is to stop work and never work again.

Can't speak for anyone else topcropper, but I presume you haven't lump me into that category.


I've been on this investing journey to provide me with the choice of working when I want. What I don't want to do is continue trading my daylight hours for a small lump of cash to further the business interests of my employer.


My number one desire is to have control back in my life. To work when I want. Work on what I want to work on. To determine my direction in life - not roll in on a Monday morning and be told that the direction has changed and I am now to be working on something completely different - or worse still, don't bother sitting down, you've just been run off.


That's vastly different from lying on some beach like a sloth for the next 70 years. I reckon if that's your aim, you either won't have the get up and go to get to that level in the first place, or if you do, you'll get such a buzz from the achievement, you won't want to just lie around.


You have already attained what I am working toward. Autonomy and control in your life. Farmers / trademen and small business owners have that autonomy and control. I understand it comes with serious risks and responsibilities. But it's better, IMO, than working for the man.


The thing about this forum topcropper, is that our chosen business, the business of owning property, is a largely "passive" one....as opposed to an active business like a farmer or a tradie.


Would you agree ??

 

[YLC]

Here is the link to that affordability study;

http://www.demographia.com/dhi.pdf

As for the soft depression I stand by my earlier posts last year;

1. Property prices in Australia wide will collapse 40-50% in 2009/2010

9 At some stage we are going to see some form of a devaluation of the world currencies and a link to gold in some form

If you are right about the property prices, I will be able to buy PPOR in Toorak which will be great.

YLC

 

[BoatBoy]

If you are right about the property prices, I will be able to buy PPOR in Toorak which will be great.

YLC

And if he is wrong?

Dave

 

[Shadow]

With analysing these lists it is important to determine the purpose for the list and how the ranking are determined.

Mercer Study

Does not take into account average income levels. It includes about 200 items in the figure and this is used for remuneration planning purposes for expatriates. It is not comparing the average income level compared to the 'basket'

Global Propety Guide

Is not a benchmark to income levels. It is a ranking of price per square metre. If this measure was used in conjunction with income levels then I believe it would be a good measure

Knight Frank

Same as Global Property Guide. Doesn't benchmark against income levels

Aneki

Doesn't even tell you the methodology for their list.

Anyway not saying demographica are right. Haven't even checked out their methodology. But comparing a measure against income levels is important and the lists you mentioned are not designed to do that.

I agree, no survey is perfect. The perfect survey would take the following factors into consideration...

- Disposable income
- Employment rate
- General cost of living
- Interest rates
- Rental yield
- Tax incentives such as negative gearing and FHOG
- Land/Block size
- Dwelling size and quality
- Proximity to transport and infrastructure
- Currency exchange rates
- Economic and political stability

Of course, many of these factors are in constant flux, so a 'perfect' survey is really impossible. The best we can do is look at all the various surveys together - I linked to eight, and Demographia makes nine. Looking at them all we can get a general idea of where house prices in Australia lie compared to the rest of the world.

I have lived in Dublin, Belfast, London and New York at various times in my life, and I know that comparable accommodation in those cities is more expensive than in Australia. I believe the same can be said for Moscow, Tokyo, Oslo, Seoul, Hong Kong, Geneva, Zurich, Milan, Paris, Singapore, Monaco etc... but I've never lived there. I'm sure some other SSers can offer anecdotes based on their time in those cities...

Cheers,

Shadow.

 

[steveadl]

And if he is wrong?

Dave

If the market 'crashes', I get to buy our new PPOR/land near the beach sooner than planned due to it becoming cheaper, if it doesn't crash and continues to rise - I get to buy our new PPOR/land near the beach sooner than planned due to my existing properties rising. Life's good!

Position yourself to benefit from what comes either way. Life is what you make it.