Stop Asking About a Housing Crash

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Cat, meet pigeons, meet oil, meet water, meet elephant, meet room. Meet Phil Anderson.

Back in March we dropped a stink bomb in your inbox. We tendered the following:

If you’re waiting for the Australian property market to cool down before you buy a house…what if you’re waiting for something that isn’t going to happen?

This was – indeed, still is – the contention of leading economic forecaster and friend Philip J Anderson.

If you’re a long-time reader you’ll know that Phil fired this controversial idea into the PPP-sphere for the first time back in 2009 at our Australia in the Red show in Melbourne.

It wasn’t what delegates expected to hear.

And yet…they lapped it up. Phil was mobbed in the foyer at drinks. He never made it back into the auditorium for the second half of the show. Sceptical readers, waiting dutifully for Australian housing to begin its inevitable death-spiral, suddenly wanted to know when they should buy.

Our views on the credit bubble were, with respect, wrong, Phil told us, to our faces. Suddenly, we weren’t the alpha-contrarians in the room anymore.

Banks will create ‘as much credit as is needed’ to support high property prices in a boom. It’s all to do with economic cycles. And right now, we’re in the buying phase of an 18-year cycle: 14 years up, four down, Phil told (and still tells) our readers.

We kept in touch with Phil because we like him. We like him because he deals in facts. He’s not a spruiker. He’s not employed by the government / real estate / banking complex. He’s independent. He has no professional interest in house prices going up OR down.

Mostly he’s a voracious accumulator of economic facts and data. He’s an analyst. He looks for patterns. He extrapolates. And he reports. In fact, he talks all over the world about economic cycles and how to interpret them, how to forecast using them, and how to make money from them. He has done for more than 20 years, boom or bust.

And he does so dispassionately, despite being passionate about his research. That’s why we’re drawn to Phil, even though his views are diametrically opposed to those held by most of our editors. He doesn’t care if you believe him or not. He doesn’t care if we believe him or not.

Because we know his research comes from a place of honesty and conviction, we’re more than happy to publish it. In fact, we’re super-excited to publish it, even though we copped it big time when we launched Phil’s Remembering the Future project back in the first week of June.
 
To remind myself of the stink we caused, I somewhat reluctantly revisited the DR Inbox at arm’s length last week. Here’s a small sample of the printable invective still lurking in there …

  • Unmitigated drivel
  • I reckon you’ve lost the plot and taken a bribe from the real estate industry…
  • Sending out rubbish makes you look a fool…
  • Quite frankly if I changed my opinion on this market as you have I would be considered unstable as a professional.

Some of the unprintable emails stripped the paint from our walls here at HQ. But just to clarify: yes, I did know both of my parents. No, I never realised you could do that with a horse.

But let’s look forward, dear reader. Has the argument for higher house prices moved on since we booted the hornets’ nest?

I wanted to find out. So I called Phil up last week and asked him some of the questions I figured you’d want answering about Aussie housing, about economic cycles, and about what you can expect from the property market in 2014.

Here’s what he told me…

SIMON MUNTON: What do you see happening in the Australian property market in 2014?

PHIL ANDERSON: Steady gains / sideways moves, but those will remain location specific, to do with anything happening with mining infrastructure, the building of roads, rail or ports anywhere, as is always the case. Brisbane looks to be the best buyer’s market. 

SIMON: What do you see happening in the US property market in 2014?

PHIL: continued recovery, but 2014 will be more of a year of consolidating gains rather than country-wide increases in prices. The US stock market is likely to make a retracement in 2014 of the prior five years’ gains; this may make a few people nervous but is a normal part of market behaviour

SIMON:
Why should investors believe in the 18-year real estate cycle?

PHIL: Some years the economy does well, some years it doesn’t. 200 years of US history clearly shows US real estate to be cyclical; this cycle has averaged 18 years (never shorter than 17 years, never longer than 20). The cause of this cycle is still with us, so future booms and busts are as assured as the sun rising each morning

SIMON: Why have we seen a renewed appetite for buying residential property in Australian capital cities this year?

People are making money; they have to put their money somewhere and the Australian tax office is very generous (skewed) towards investing in property.

SIMON:
Has the ability to invest in property within SMSF had a positive impact on Australian property prices, or is that not really a factor in rising prices?

PHIL: I don’t know enough about that topic – probably yes.

SIMON How much credit can banks create to support a property boom? How much is too much?

PHIL: Banks can create as much credit as there is demand. Whilst unemployment stays reasonably low, it is hard to see such demand decreasing. Banks are totally dependent on rising property prices to support further lending

SIMON: Will I have to borrow money on 30 or 40 year mortgage terms just to buy a house In Australia?

PHIL: This may become a reality after 2019. Most mortgages, however, are paid off by Australians well before this time, for various reasons.

SIMON: What effect does foreign investment in Australian housing have on residential property prices?

PHIL: this is clearly distorting markets, especially inner city housing and flats, and anything built new. This situation is going to worsen in the next decade. Get used to it. Governments now, worldwide, have become totally dependent on rising house prices and all the taxes associated with property. Real estate itself has now become a world-wide game, with international payment easy, travel to visit the place very easy, and the world’s wealthiest 10% generating income like never before.

SIMON: What would you say to someone who told you: ‘I’m waiting for the housing market crash before I buy property?

PHIL: This reminds me of the four women at the table, each discussing their idea of the perfect man and waiting for him to show up. Like that’s ever going to happen. Queue the next shot, 35 years later and the four women have turned into skeletons…

SIMON: Could there be an Australian house price crash in 2014?

PHIL: Anything is possible. The cycles, however, indicate this to be unlikely. Rising productivity, increased technology developments and massive energy price reductions coming out of the US make this exceedingly unlikely. Even asking the question itself, which a number of people have been doing for years now – since the last one in 2008 – make it unlikely. When people STOP asking the question, this is when it will happen. 

So there you have it dear reader. If you’re waiting for house prices to drop before you buy a place, you know what to do:

Stop asking about a property market crash!

Enjoy the holidays.

Sincerely,

Simon Munton
Assistant Publisher

PS: If you want to read Phil’s argument for higher property prices in Australia, in greater detail go here.

PPS: Phil will be speaking at World War D, our mega event next March. If you don’t know anything about our 2014 show, go here. There are a handful of tickets left.

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The Daily Reckoning offers an independent and critical perspective on the Australian and global investment markets. Slightly offbeat and far from institutional, The Daily Reckoning delivers you straight-forward, humorous, and useful investment insights from a world wide network of analysts, contrarians, and successful investors. Founded in 1999, The Daily Reckoning is published in 7 countries with a worldwide readership of almost 1 million people.
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10 Comments on "Stop Asking About a Housing Crash"

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Ross
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There is essentially nothing in the prospects to be considered other than the availability of funny money wholesale funding to the banks. The racket works. It washes foreigners dodgy paper and facilitates the export of their inflation (as it did with Japan in the 80’s to Australian commercial property). It facilitates the continuous transfer of Australian assets by means of the current account; and it lubricates the dollar export trade in inflated commodities which in turn completes the loop for debt funded US consumers buying merchandise that they can’t afford from peoples that buy our commodities. No Fed / Wall… Read more »
Jason
Guest
Pure fiction! 1. Oil rises by $20 per year, so 31/12/13 price of $100 becomes 31/12/14 price of $120. How much can the world economy take before buckling under. High oil prices added to low dollar equals more fuel costs to drive from Bubbleville to the city. More to transport goods and imports (as a vassal state and colony Australia makes very little other than rocks), combine that with ‘productivity’ increaes, which is a term used by a minority of monicle-wearing, Bollinger-scoffing rich people for low wages and cheap immigrant labour and Australians on the dole because they are ‘too… Read more »
Jason
Guest
Pure fiction! 1. Oil rises by $20 per year, so 31/12/13 price of $100 becomes 31/12/14 price of $120. How much can the world economy take before buckling under. High oil prices added to a low dollar equals more fuel costs to drive from Bubbleville to the city. More to transport goods and imports (as a vassal state and colony Australia makes very little other than rocks), combine that with ‘productivity’ increaes, which is a term used by a minority of monicle-wearing, Bollinger-scoffing rich people for low wages and cheap immigrant labour and Australians on the dole because they are… Read more »
Jace
Guest
The housing market is continually propped up by negative gear policy, plus the increase in foreign investors. Even so, if the bottom falls out of the market (new home buyers turn away) the rest of the market will get pulled down like a stack of investment dominoes. Like always it’s just a matter of when. If Phil is all about the facts then how can he not see the USA’s oil economy resurgence is very short lived… Fracking wells have on average a 12-18 month life and if you look at any map of how much they have already tapped… Read more »
Rick
Guest

At first I was as infuriated as anybody else that you were publishing Phil’s theories on housing cycles, but I now understand whether you agree or not, it would have been almost negligent not to make this information known.

Grayem
Guest

Dint someone once mutter,,,, what goes up, must come down?

tony
Guest
I can see where Mr Anderson gets his concept from and it is feasible when looking at it his way with analytical data etc. but, I really have to agree with Jason and Jace. They actually make a more rational argument on this housing bubble subject and I hope they’re right(somewhere between the 2 of them). This real estate increase has got to stop as does the obscene increases granted by Govt. (and it’s various regulatory bodies)on things like health insurance ,electricity, water and the obscene fuel prices society is paying. Things cannot keep going up as they are in… Read more »
tony
Guest

Also, can somebody explain the rationale behind the media etc. continually using the U.S.$ oil price to inform us on when it is the Tapis(Singaporean)price which dictates our Aussie prices. Since most, if not all, of our imported(as our own sweet crude is exported elsewhere)fuel is refined and dictated in price from this powerhouse of a little Island???!!!! It is the Tapis we pay for is it not? So why keep feeding us this US price when it is irrelevant to us!?

Jason
Guest
America is the driver of the planet’s economic growth and it prices in West Texas Intermediate. Australia buys the more expensive Tapis crude from Singapore because Australia is a subservient vassal state that is ruled by dachshunds, terriers and pugs who lick boot and have no spine to be an independent nation and thus it makes no effort to select what oil to purchase. Also WTI oil is ‘sweet crude’, low sulfur content and thus eaiser to refine into useful fuels where as Tapis and Brent are more mixtures. Extraction costs in this post peak world are also factors, especially… Read more »
Kevin
Guest

I pray to Lord that the Melbourne housing bubble to burst sooner than later as it’s only beneficial for the banks, real estate agents, developers, overseas money launderers and the government. That’s it! Unfortunately the rest of Australians stand to lose.

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