"Sales of new houses have slumped to their lowest level in six years after NSW and Victoria recorded big drops in activity in the wake of last month's interest rate rise... The weakness in the freestanding house sector was underpinned by falling activity in the eastern states, as new house sales fell 29 percent in Victoria and 14 percent in NSW," comes more news from today's paper.
There's not much to add to the housing story, except, perhaps the reminder to take what housing and realty organizations have to say about the market with a lick of salt. Or a big salt lick. Housing bubbles can unwind in a slow-motion way, or they can pop quickly. George Karahalios, a property developer in San Diego explains in a recent letter, "Though the Nasdaq 5,000 bubble took years to form, it took only months to unravel. So far the housing bubble seems to be following that precise road map."
By the way, six years after its peak, the Nasdaq is still barely half recovered, closing yesterday at 2.435. Karahalios continues, "As normal housing cycles take a few years to hit bottom, it's curious that so many central bankers have been so quick to declare that 'the worst may well be over' in this housing cycle. But given the fact that central bankers have never operated their printing presses more efficiently than today, I interpret their 'prognostications' as evidence of their intentions."
Karahalios means by that that central bankers everywhere (though he is talking mainly about North America, the U.K. and Australia) will try to soften the blow of falling housing prices and rising rates with... lower rates. How they will do this without sparking the kind of inflation it is their primary charge to avoid, we have no idea. But there is good news in all of this for hard asset investors.
"The antithesis of investing in equities," Karahalios continues, "is investing in hard assets. Because via the banking system money flows through the economy unevenly, some hard assets (such as real estate) benefit from the increased liquidity long before others. Hard assets that yield no dividends, such as the precious metals, are often the last to benefit from increased liquidity, and in fact perform the best during brief periods of increased Fed tightening as investors flee leveraged assets during such times."
Yes... yes, we are going to float the idea of gold again. We'll let Karahelios do it for us, "Given that the return on equity has now been forced to extremely low levels across nearly every asset class, precious metals are poised to gain disproportionately from any Fed easing. Thus, for the foreseeable future, I am expecting the precious metals to compound at a greater rate that equities did during their last great bull market run."
He said it, not us. But it makes sense.
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About the Author
Dan Denning is the author of 2005's best-selling The Bull Hunter (John Wiley & Sons). He began his financial publishing career in 1997 and has covered financial markets form Baltimore, Paris, London and, beginning in 2005 Melbourne. He’s the editor of The Daily Reckoning Australia and the Publisher of Port Phillip Publishing.
Comment by Mark Dettmar on 6 January 2007:
Watch the USA, large price drops are happening and more is on the way.
I am one of the luck ones, I have a four bedroom house with a low mortgage though not through anything that you want to thank the government for.
You can only hold off a natural cycle from occuring for so long. The large property companies have so much invested and so much to loose. Aussie prices would have dropped quite a lot more already if there was not a false economy going on all over the western world, Australia included. Government policy current and past is to blame for the overally inflated prices that make no sense in a low inflationary, low wage environment (low increases, low in relative terms). People supposedly have more than ever, well I would agree with that in part. MORE DEBT than ever before.
You meet baby boomer generations that try to say it is all relative, relative to what? They are in a situation where they are asset rich and that is not enough for them, they want more and more, sold to them by their own greed and if they do have that horrible human trait then it can soon be generated by a so called financial advisor from an industry that needs greater regulation to keep it in check with other western nations.
Wages increases are almost worthless with the spiraling costs of the so called Australian dream being taken out of the grasp of even supposedly well paid corporate career minded people.
Slowly a new middle underclass is being created that will create a strange social environment for the future. How can you be dragged into aiming for that so called greate corporate job when your rewards will not even allow you to purchase your own tiny unit. Where is it all heading -Asset poor, cash poor, well educated, socially disolutioned middle class Australian paying their hard earned dollars on renting a property from the unhappy, want everything socially disolutioned asset rich baby boomer generation, and if that is not enough you can also pay more of your hard earned cash on paying for their health care, and to top it all off we will now clamp down on every possible avenue that you used to have to earn a little tax free money, those days are gone and when you retire you will have to pay for your own health care because the asset rich generation would have spent the whole lot by then - Anyway it's all relative (NOT).