How Aussie Property Could Turn on Investors Very Badly


It looks like the Aussie housing industry is following Phil Anderson’s script rather well. He predicted a 14 year boom in house prices here in the Daily Reckoning recently. And house prices are surging.

Home loan comparison website reckons applications for loans are about to surge 70% based on how many people are searching for related terms in Google. That would put even more upward pressure on prices.

But if it’s just debt that’s bidding up prices, isn’t that a bad thing for everyone except the banks and the government? Higher prices mean borrowers get the same house with more debt and more taxes. And with more debt comes more interest. Of course, the seller does well. But only if they don’t jump back onto the property ladder at a higher rung.

Tim Lawless from RP Data reckons things are getting speculative in the housing market: ‘It’s being driven very much by investment…Whereas first-growth phase back in 2009 was very much driven by first home buyers, it’s very different in this cycle and it’s very much speculative. About 40 per cent of purchases in Sydney are investment properties.

Being a renter, we like housing investors. They create more competition for renters to choose. But we’re worried because property can turn on investors very badly. Around two thirds of distressed property sales over the last three months came from Queensland, where house prices did take a hit during the financial crisis. That shows what could happen on a national level if things go wrong.

Of course, when you borrow to invest, you leverage your gains. A 5% increase in house prices could mean a 100% return on your deposit. But a 5% drop could wipe out your deposit entirely, and from there on in you’re losing more money than you invested and paying interest for the privilege.

Even if there is a 14 year housing boom, we’d rather sleep at night.


Nick Hubble+
for The Daily Reckoning Australia

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From the Archives…

The Fed Does the Reverse Volcker and Targets the US Unemployment Rate
27-09-2013 – Greg Canavan

How Much Juice can Australian Property Have Left?
26-09-2013 – Greg Canavan

Nothing Lasts Forever…Especially Easy Money
25-09-2013 – Chris Mayer

The Unintended Consequences Brewing Thanks to the Federal Reserve
24-09-2013 – Greg Canavan

The Market’s Declining Response To ‘Open Mouth’ Operations
23-09-2013 – Dan Denning

Nick Hubble
Nick Hubble is a feature editor of The Daily Reckoning and editor of The Money for Life Letter. Having gained degrees in Finance, Economics and Law from the prestigious Bond University, Nick completed an internship at probably the most famous investment bank in the world, where he discovered what the financial world was really like. He then brought his youthful enthusiasm and energy to Port Phillip Publishing, where, instead of telling everyone about The Daily Reckoning, he started writing for it. To follow Nick's financial world view more closely you can you can subscribe to The Daily Reckoning for free here. If you’re already a Daily Reckoning subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Daily Reckoning emails.

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3 Comments on "How Aussie Property Could Turn on Investors Very Badly"

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3 years 19 days ago

And the unit in the center of Brisbane that sold for $450k 18 months, now selling for $330k, whom is kidding who?

3 years 19 days ago

What are the alternatives to investing in property.That is the question.Take Discovery Metals a stock recommended in of the newsletters from your group, as the next big thing.The writer of the newsletter even went to Africa to inspect the resource before recommending.Whathappened? It fell to around 10 cents I think falling from about$1.40, from memory.Fortunately I sold out with a small loss.

3 years 18 days ago
Ah yes! the vagaries of investing Frederick, what to do; an aquaintence once said, only invest what you can afford to lose, if you can’t, then don’t. My best investment was interest rates, when I was making 5% to 8%, not a lot I agree, but it was safe and regular, and the compounding effect is marvelous. Not now of course, or for some time, so I enjoy some, buy gold, and stop worrying. Oh, and all those people who say they are making a killing, someone is not, remember, for some to win others have to lose, otherwise we… Read more »
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