US Property market predictions

[Garry K]

The following is some comments from a newsletter I receive from Harry Dent.

He is a respected demographic researcher on investmens trends.

Even though it is the US, it is easy to see the trends here in the vacation/retirement regions ala Mornington Peninsula Melbourne, Northern Beaches NSW, Sunshine Coast.

Quote"
Home prices in high-priced markets will slow and decline over
the remainder of the decade, according to the October edition
of the H.S. Dent Forecast newsletter. "Residential real estate may be nearing a long-term top over the next two years with many markets not seeing new highs for decades given the larger decline our demographic indicators are forecasting after 2010," the Forecast said.

The Dent forecasting method is based on proprietary demographic
models that currently show baby boomers are peaking in their
trade-up home buying cycle.


While demographic trends in many locations will put pressure on
high-end residential prices, a strong economy and low mortgage
rates will cushion the decline "until after 2010 when prices will
fall much more substantially," the newsletter said.

In upscale markets, there have been rising prices on declining
volume. "Like in stock markets, you are likely nearing a top,"
the Forecast points out.

Looking to more positive real estate trends resulting from baby
boomer demographics, the Dent analysis points to "continued
strength and rising prices in ex-urban and vacation/retirement
areas" as people in their late 50s and early 60s buy just ahead
of retirement.


"This maturing segment, especially those in their mid-50s to
early 60s will represent a strong force in residential real
estate trends for the next two decades as the massive baby boom generation moves in rising numbers into peak trade-up, vacation and retirement buying," according to the Forecast.


H.S. Dent Publishing of Dallas, Texas helps people to understand
change and anticipate its arrival through its publications,
including the monthly H.S. Dent Forecast. The Dent methodology
is based on demographics, or the study of whole populations. Its
demographic models have consistently proven their ability to
provide incredibly accurate economic predictions.
"End quote.

You can get the full report and more at

Harry Dent

Garry

 

[Peter_Tersteeg]

I was in San Francisco last week. With the decline of the IT industry, the popluation of SF has been shrinking, and both property prices and rents in certain areas have been contracting as well. Other areas have continued to grow in value.

The US has a much larger population base, spread across a much wider area than Austrialia. As a result, there are often areas which may be going against the trend of other parts of the country, whilst in Australia most of the major urban areas tend to follow each other in trends.

It would make for some interesting oppertunities if you were in a position to be able to move from one market to another.

 

[Garry K]

Hi Pt bear

Thanks. That's an interesting point about the different markets - probably what makes it easier in the US to identify trends.

I'm going on the theory that eventually we follow suit, and trying use the information to my advantage over the baby boomer generation might buy.

I was in San Francisco in 1990, drove to Yosemite National Park to see all the lakes. Unfortuantly they were in the middle of a drought and no water. I remember seeing a heap of wind farms (for power). Boy,what an eyesore. I hope tha's not we are going to end up with in Vic.

Garry

 

[MarkB]

US 'boom' spurs rate rise

FYI:

http://finance.news.com.au/common/story_page/0,4057,7623689%5E462,00.html

ONE of America's most important economic officials has sent the strongest signal yet that the US is heading into a boom, providing more evidence that interest rates in both the US and Australia are on the way up.

John Snow, the US Treasury Secretary and one of President George W. Bush's most senior officials, told The Australian's affiliate newspaper in London, The Times, that US interest rates were set to rise in the next few months.

MB

 

[Garry K]

hi pitt St

Does a rise in the US rates necessarily mean a rise in Aus?

After all, there rates are at a very low point.

I guess the expectation is that our economy would continue to grow as well, on the back of demand from the US, and we may need our rates to increase to slow it down.

Wouldn't Peter C be happy to see a fall in the AUD$, which I assume would happen if US rates went up?

Garry

 

[MarkB]

Originally posted by Garry K
hi pitt St

Does a rise in the US rates necessarily mean a rise in Aus?

After all, there rates are at a very low point.

It isn't quite as simple as that.

I don't pretend to understand all the factors, though there is a relationship between the two.

Focussing on purely domestic factors it seems clear to me that interest rates will soon rise.

Developments such as that referred to in that article I posted do nothing to reduce the likelihood of rate increases.

Originally posted by Garry K
I guess the expectation is that our economy would continue to grow as well, on the back of demand from the US, and we may need our rates to increase to slow it down.

Certainly, increased demand in the US will have an effect here.

Originally posted by Garry K
Wouldn't Peter C be happy to see a fall in the AUD$, which I assume would happen if US rates went up?

Other things being equal, a rise in US interest rates would see the greenback rise in popularity.

Currently the $AUD is at about $USD 0.69. I am not sure what other economists think (or even if they have an opinion on it), but I have always believed that an exchange rate of around 70 cents or so is a nice balance between the lows of 50 cents and the highs of 80 cents.

Remember, it isn't just about a low exchange rate to encourage our export sector.

Australian businesses import a lot of intermediate and final goods - a fall in the value of the $AUD increases their cost and hence is inflationary.

As with most things in economics it is somewhat of a balancing act.

MB

 

[paulzag]

There's also

http://www.housing-bubble.com

regards

Paulzag
Dreamspinner

 

[Aceyducey]

Here's an interesting comment by David Novacs about the US market, who runs some very good share trading seminars - well worth the cost if you are interested in the options market in particular.

Yes he is Australian, and is renown for playing the Aust share market all day, then pulling an all-nighter trading markets around the world as they open and close.

The next shock I believe will come in the housing market, especially in the mortgage market with companies like US stocks Freddie Mac and Fannie Mae (the largest mortgage lenders to over 40% of the US market or $3trillion). There's quite a bit of concern about their low levels of cash reserves and their ability to sustain any downside pressure on the housing market. Personally, I still believe this sector has the most potential risk and could easily tip the balance of any US economic recovery - especially considering the prevailing bullish sentiment in the US housing market.

Source: David Novac AUS Market Commentary - 23 October 2003
Site: www.wealthwiseeducation.com

Cheers,

Aceyducey

 

[MarkB]

US home sales off record pace

(the link won't work in a couple of days - you'll have to pay for the article).

http://afr.com/articles/2003/10/27/1067233092833.html

Combined US sales of new and previously owned homes may have eased in September to the second- highest pace on record, economists said just before yesterday's release of two housing reports.

Existing home sales are forecast to have slowed to a 6.3 million annual rate from a record 6.47 million a month earlier, according to the median of 52 estimates in a Bloomberg News survey conducted before a report from the National Association of Realtors.

The Commerce Department is forecast to report that new homes sold at a 1.125 million annual rate after August's 1.15 million. Last month's combined 7.425 million would be second only to the record 7.62 million sold in August.

Real estate industry groups have raised sales estimates for this year as the economic expansion strengthens. While faster growth has caused mortgage rates to rise from record lows, the increase isn't expected to derail housing demand, since job and income gains will keep homes affordable.

"There has been virtually no evidence thus far that higher rates are having a detrimental impact on the housing market," said Ryan Brecht, an economist at MMS International in California.

"An improving labour market should provide an offset to any drag on housing demand that higher rates may eventually produce.


* * * * *

NB - the bolded bit above.

Very similiar to the UK.

Reference: http://www.somersoft.com/forums/showthread.php?s=&postid=79067#post79067


MB

 

[Garry K]

MB

The bold bit - very interesting, and from an economist.

Is this
a) "irrational exuberance" ie a bubble that will burst?
b) a fundamental shift by investors who have been burnt too often by equities?
c) signs of the baby boomer spending power?
d) a general increase in confidence across the board of the US economy?
e) ???


My theory - a bit of all of the above.

Having said that,
a) human nature being what it is, we get greedy and this is possible at some point.
b) "fundamental shifts" in the past have been short lived when the worm turns.

Are humans the only species that try to predict the Future????

I know my Jack Russell only lives for the day, and he seems happy!

Garry K

 

[MarkB]

Garry

I would agree with your list B through D.

Re: A - "Irrational Exuberance"

Be warned - you're talking to an economist whose personal theory is that there is no such thing as "irrational" behaviour (hence no such thing as "irrational exuberance").

Rationality is a concept created by economists to try and help fit the real world into their models of behaviour.

If something doesn't fit their model it is far easier (and more palatable) to label that event or decision "irrational" than it is to admit the limitations of their model (and hence themselves).

I won't go any further than that at the moment - it would take me several thousands of words. I really should right a journal article on the subject (though someone else probably already has).


Re: Rising Interest Rates and the Demand for Money


I am not surprised by that at all.

The bolded quote may be

"there has been virtually no evidence thus far that higher rates are having a detrimental impact on the housing market"

but really what it is saying is this:

"there has been virtually no evidence thus far that higher rates are having a detrimental impact on the demand for money".

That is, after all, what interest rates are - the cost of borrowing money. Purchasing a property is but one of potentially thousands of uses for borrowed money.

As such, the demand for money (loans) at any given price (interest rate) depends on, among other things, the uses of that money.

Money is not like other goods.

As you know (and as mentioned) money has hundreds of potential uses.

One of the first things you learn in economics is that as the price of something increases, the demand for it decreases.

(Remembering that the definition of demand is "quantity demanded at any given price").

Money does NOT always fit this model.

I don't have the reference to hand (perhaps not at all, in fact), but years after the event I still recall what one experienced lecturer said to the class I was in years ago.... and that was that the empircal evidence shows that the demand for money does not neccesarily fall in response to an increase in the price of money (the interest rate).

IMHO, the reasons for that are numerous but essentially reflect the fact that money has numerous uses.

MB

 

[Garry K]

Hi MB

Admitting you're an economist is like me admitting I'm a financial planner. Some things you should keep to yourself.

But at least there are better jokes about economists - like economists have predicted 8 out of the last 5 receissions.

Is it reasonable to say that money is a bit like gold.
I know gold does have some commercial applications, but it seems we just want it because it's gold - and has some intrisic value, and the more its worth, the more we want it.

The gold price is going up but surely there is not really a true shortage of gold, because Central banks have tons of it just locked up in their safes.

Are gold reserves still used as a measure of the value of any given currency?

Sorry, rambling here, but gold facinates me.

I don't own any, but own a few shares in companies that produce the stuff.

Garry K

 

[Aceyducey]

Originally posted by Pitt St
Rationality is a concept created by economists to try and help fit the real world into their models of behaviour.

If something doesn't fit their model it is far easier (and more palatable) to label that event or decision "irrational" than it is to admit the limitations of their model (and hence themselves).

Spot on Pitt St!

It's criminal the way economists in the past have created models & dismissed the reality of how people behave and interact.

If other professionals took this approach think of where medicine, physics or other sciences would be today.......

Or perhaps it's simply that economics is still a very young science and is still going through it's adolescence

Cheers,

Aceyducey

 

[MarkB]

Fed keeps rates on hold

http://afr.com/articles/2003/10/29/1067233200812.html

US Federal Reserve policymakers freeze interest rates at a 1958 low for a "considerable period," vowing to beat a deflation menace even as the economy moved up a gear.

Signs of a longed-for jobs recovery, strengthening consumer spending and an economic growth spurt failed to weaken the low-rates resolve of Fed chairman Alan Greenspan.

Dr Greenspan and fellow policymakers voted unanimously to hold the key federal funds target rate - the rate commercial banks charge each other for overnight loans - at a 45-year low of 1.00 per cent.

Risks to the outlook for economic growth were balanced, they said in a statement.

MB