"We are not in a property bubble"

[JoannaK]

Did anyone watch Business Sunday yesterday?

There was an interesting interview with Bill Moss from Macquarie Bank. He state's that we're not in a property bubble.

Here's the story:

http://businesssunday.ninemsn.com.au/BUSINESSSUNDAY/INTERVIEWS/STORIES/STORY_1997.ASP

 

[Aceyducey]

A good interview.

I find it amusing that the banks say we're not in a bubble, while the media sez we are.

The best bits in this interview are:

BILL MOSS: I think we need to be very clear here, we are not in a property bubble, there's been a lot of media talk, there's been a lot of talk about affordability, there's been a lot of talk about prices trending down, fundamentally the real estate markets in Australia are in equilibrium. Having said that there are a few areas of residential property in Australia that have some problems, but no we are not in a bubble.


BILL MOSS: Generally the market is fine, we are in equilibrium, if you look at residential property in Sydney for example, you will find the vacancy rate in Sydney is about two point nine per cent, that is a very healthy vacancy level, we don't have massive oversupply in this market and it is quite interesting to note that property crashes generally occur because of fundamentals being out of kilter and property crashes usually occur because you have got economic downturn, you have got recession, you have got interest rates running away, with affordability or you have got migration trending down. We have got very good business conditions in this country, we have got migration increasing very strongly and while we have got people moving around the country from one state to another, which is having another effect, generally the whole picture is quite sound.

Doesn't sound like an imminent market collapse to me (worst luck!)

Cheers,

Aceyducey

 

[Garry K]

Thanks JoannaK

It is becoming a more familiar message from analysts.

Still, the media like the "bubble" concept.


Garry K

 

[see_change]

Bubble = fear = increased sales ( of media )

 

[Mikhaila]

The analysts(ANZ & Macquarie Banks) clearly point that we are not in a bubble, well actually it sounds like we are not in a bubble YET. The media IMHO may be doing a very good service by spreading fear at this stage as it is about time for property craze to stop/slow. I wish anything positive to do with the property in the media goes away sooner rather than later, then general population just forget about the topic similar to what happened after the tech shares crash. Prices will stagnate for awhile and than CG resumes slowly.

 

[L Bernham]

Some banks say we aren't others say we are
- take for example westpacs David Morgan who mentioned a couple of weeks ago that Australias properties are overvalued by about 20% .

International banks have identified "Australia's housing market as one of the most vulnerable in the world"

http://www.theage.com.au/articles/2003/11/04/1067708211291.html

LB

 

[Aceyducey]

Originally posted by L Bernham
International banks have identified "Australia's housing market as one of the most vulnerable in the world"

http://www.theage.com.au/articles/2003/11/04/1067708211291.html

On reading the article - this was an international survey of 231 bankers & analysts.

I'd seriously question whether an analyst or banker in another country would intimately understand Australia's property markets, our economic position, social drivers or grassroots trends or be able to make any kind of authorative statement about our position.

I'll weigh more heavily the views of local banks who are in the thick of it thanks. And even David Morgan's comments, to my knowledge, were specifically about certain markets in Australia (such as the apartment market in Sydney & Melbourne) & did not discuss there being a bubble.

Cheers,

Aceyducey

 

[L Bernham]

were specifically about certain markets in Australia (such as the apartment market in Sydney & Melbourne) & did not discuss there being a bubble.

Actually he was referring to houses in general.
I would suggest that if he is saying house prices are 20% overvalue he is subscribing to the bubble theory without actually using the word. Remember they have customers who've bought these "overvalued" properties so they have to be careful with their choice of words.

I'd seriously question whether an analyst or banker in another country would intimately understand Australia's property markets, our economic position, social drivers or grassroots trends or be able to make any kind of authorative statement about our position

Alan Greenspan wouldn't have known much at all about each individual company that made up the NASDAQ either but he was able to accurately advise that prices were irrationally high.

LB

 

[Bill.L]

Hi all,

I am on the side of no property bubble and the evidence I use has nothing to do with the analysts.

On another thread Pitt st. posted the % gains after inflation for various cities median prices. I took it a step further and used a particular property we purchased in Mulgrave in '81 to see where we would be at.

The result was that there was an 82% gain from then to now AFTER inflation, similar to Melbournes median.

However, the cost of money in '81 was 13.5%(at the end of the year when we purchased), now it is 6.25%, less than half.

If you follow the thinking that the cost of money influences the price of an asset, then we are pretty much where we were in 1981!! Now 1981 was the end of a growth phase and prices did pause for a year or 2, but in the next 10 years they rose 150% WHILE interest rates rose to 17%.

So those who saw that property was overpriced and in a bubble in 1981, and waited for a 30-40% fall before purchasing to pick up the bargains, ARE STILL WAITING!!!

bye

 

[L Bernham]

So those who saw that property was overpriced and in a bubble in 1981, and waited for a 30-40% fall before purchasing to pick up the bargains, ARE STILL WAITING!!!

And if you wait , prices will keep going up and you'll miss out forever, so you'd better get out and buy as much as you can now- Property myth number 23

 

[Bill.L]

Hi all,

LB, Please stop showing your ignorance of property investment.
Perhaps you could find some data that proves me incorrect.

Do you disagree that it was a property bubble in 1981??? Why?? Why not??
There were many who thought it was, and they had many legitimate reasons. In fact I was turned off an investment on the Gold Coast in the early 80's as the boom there(of 79-81) could never be relived. Those beachside units in the highrise blocks(3 storey) at $35,000, were just sooo grossly overpriced for holiday places.

Please, come up with some numbers that show how minor things such as affordability are so different now to 1981!!

I know I'll be waiting about as long as you do for your 30-40% drop.

bye

 

[abcdiamond]

Originally posted by Bill.L
Those beachside units in the highrise blocks(3 storey) at $35,000, were just sooo grossly overpriced for holiday places.

Hi Bill,
Have those beachside units really kept going up in value ? or is it just one of those myths ?

If there are any still left at about $35k, would you PLEASE let me know where they are ?

 

[L Bernham]

ME too if there are any left at $35K I will have a couple.

Of course $35K 20 years ago is different to $35K today.

Why did you think they were overpriced though? You should never look at a price and think 'hey this seems to much it must be overpriced' . You should look at the rent return and expected rental increase over the years to get a true depiction of a value.

If you just look at the price you could say a $500K property is more overpriced than a $200K property when the $500K property might have an expected return of 10% but the $200K one only one of 5%.

One key point to remember and that is - Its all relative !


BTW if you want numbers and statistics that prove we are in a bubble now have a look at some of my previous posts.

With regards to affordability a report by the Commonwealth Bank and the Housing Industry Association showed that affordability was at its lowest level in 13 years a few months ago.
http://www.abc.net.au/pm/content/2003/s912019.htm

I dont know about 1981. I wouldnt have thought there was a bubble. was there? I don't really care. I'm looking at if there is a bubble now and right now, there is.

LB

 

[abcdiamond]

I'm not sure about 1981 myself as I wasnt here then, but Bill did say that he didnt buy then because

In fact I was turned off an investment on the Gold Coast in the early 80's as the boom there(of 79-81) could never be relived

He was obviously concerned that prices had gone as high as they could. Maybe that is what he had been told at the time ?

 

[Les]

What IS a bubble????

G'day all, (and especially LB)

LB quoted

I would suggest that if he is saying house prices are 20% overvalue he is subscribing to the bubble theory without actually using the word

Please correct me, if I'm reading you incorrectly, LB - but I take this comment to mean that you believe "20% above true value" constitutes a bubble. Is this a fair summation from the above words of yours?

Why would any (small) downturn not simply be a "correction"? At what percentage does an overvalue become a "bubble"? Or, can a "tiny" bubble simply be "corrected"? Is this a TINY bubble???????

NOTHING about what is happening at the moment comes even close to the "tulip bubble" "tech stocks" or "South Sea Island" (or "ostrich eggs"?) or any of the other RIGHTLY named bubbles. "Tech stocks" were HUGELY over-valued (by 100's of percent) - and the same applied to tulips, etc.

HOW, in the name of sanity, can a 20% over-valuing be compared to THESE ?????????

In short, WHAT constitutes a BUBBLE in your book?????? I keep hearing the word from your lips (sorry, keyboard !!!) - and yet, I really can't subscribe to your theory. Put us out of our misery, LB.

Please, DEFINE a bubble (put values, percentages on it - so we may all understand what you see here).

To me, it looks like the usual old "stair-step" pattern of RE over time.

Regards,

 

[Bill.L]

Hi all,

LB, So you don't have a clue as to what the market was like in '81, so your only concerned with now. So history is bunk(you don't need to know about property booms in the past in this country).

But according to you the sky is falling due to HISTORICALLY low yields. Ummmm.....

You can't have it both ways and be taken seriously, history is either important or it isn't.

bye

 

[L Bernham]

So you don't have a clue as to what the market was like in '81, so your only concerned with now. So history is bunk(you don't need to know about property booms in the past in this country

Is there any chance (even a small one) that you can cut this twisting of words c--p.

I admit I don't know what the market was like in 1981 and all of a sudden - LB thinks history is 'irrelevant' and I'm ONLY concerned with now.

If the evidence is strong based that we are currently in a bubble, which many dont seem to dispute, and I want attempt to find out if its true or not.
So far I've presented plenty of arguements FOR but dont seem to be provided with too much evidence to the contrary apart from being told that we cant be in a bubble as property can only go up and stuff like that.

If you want to rubbish my posts , go ahead , but try to refer to things I've said and we can try and figure out whether its true or not in the correct manner -debating the issue.
thanks
LB

 

[suggo]

LB, answer Les' post!!

I am not convinced we are in a bubble in Queensland, prices were stagnant for a long time and I believe that alot of the rise in prices is actually a correction so to speak. I agree prices are probably now above what they should be in the CBD and suburbs of Brisbane, but I am also of the opinion that it is more the 'Stair-step' pattern as Les has mentioned.

Oh and I didn't think Bill was out of line with the history comment. If you (and I mean anyone) are going to use historical data then I think if someone else uses it in reply it should be considered and not just pushed aside by saying "I'm interested in the now" type comment.

 

[see_change]

Hi LB

Re

Originally posted by L Bernham

If the evidence is strong based that we are currently in a bubble, which many dont seem to dispute, and I want attempt to find out if its true or not.

LB

I don't accept that many people actually accept that we are in a bubble. Most people accept that we are currently in a slowdown , but

that is part of the nromal property cycle

If you were an experienced property investor you would be aware of this, but you arn't, are you ...

Les asked you questions about bubbles. You haven't answered him.

See Change

 

[Garry K]

Originally posted by L Bernham
Is there any chance (even a small one) that you can cut this twisting of words c--p.

So far I've presented plenty of arguements FOR but dont seem to be provided with too much evidence to the contrary apart from being told that we cant be in a bubble as property can only go up and stuff like that.

LB

Hi LB

I refer you to my recent thread "Analyst debunks bubble", wherein I quoted an anlayst from ABN MORGAN AMRO.

This is not the only analysts report I have read in the last few weeks that have said that they don't believe there is a property bubble.

If I have to post the reports in full to have you realise there is another point of view , I will if they are in a format I can copy.

Other than that, you might just have recognise that not everyone, including the people that analyse the property market, agree with you.

Garry K