Re: Top of the cycle?
Reply: 2.1.2.1.1.2.1.1.1.2.1.1
From: Kevin Forster
Here are my thoughts
There are so many factors to consider when considering the property cycle.
The first is the movement of money in the economy - is it going to the share market or into the property market. A certain amount of money is always going into both markets due to the superannuation guarantee. Is discretionary investing money leaving the share market? I think so thus fueling the property boom somewhat but as markets don't go from boom to bust overnight we won't see a sharemarket boom or a property bust in the next 18 months.
The pull forward affect of the FHOG is enabling people to buy now when they would've bought/built later. Also its allowing people to buy bigger as you don't have to save for stamp duty, conveyancing, etc but use the grant. Once the grant is finished then a slow down will occur in the construction industry. People will still buy properties to live in, maybe not as big, so it could be that certain types/price ranges of properties will experience drops but others may simply grow slowly or stagnate.
Interest rates will probably be the biggest cause of a bust in property, specially in areas where there is a high vacancy rate. But how big a rise will cause a bust? Maybe 1-2% or even 3-4%. Generally we probably won't see too much more of a drop in rates and rates will most likely be stable until June 2002 with at most a 0.5% rise. Even if rates rose 1% probably a bust wouldn't occur. Once rates start rising above 1% more a trickle of properties would come onto the market then if rates keep rising, more properties being up for sale until we get to the bust scenario. The time frame for this will be greater than 18 months more likely in the 2-3 year time frame.
The best and worst thing about property is that its an illiquid security. People, being people, will tend to sell liquid securities such as shares and mutual funds to fund vacancies, repayments on the property, so once interest rates start to bite there is a delay before the fire sales begin.
Other factors are the federal election and who's promising what? This impact is unknown. Tax changes either way can either lengthen the boom or shorten it. World economy is another unknown.
If you exit now to wait for the bust, you could be waiting for 2-3 years or even longer. What do you do with your money in the meantime? Invest in shares and wait for that market to boom, get out and go back into property when all the property investors are moving to the sharemarket - Contrarian Investing. Fixed interest securities could get eaten away by inflation and there are no tax advantages.
Just my thoughts
Kevin
