Underlying Demand During a Housing Shortage

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There is an impressive amount of garbage in today’s headlines to sift through. Most of it, of course, is rubbish. But there are probably two main takeaways from the last 24 hours: don’t fall for the earnings recovery story, and housing is still a sucker’s bet in countries whose names begin and end with the letter “A”.

Let’s take the earnings recovery story first. Tomorrow we’re going to have a look at the outlook for Aussie bank earnings. But for now, is there a case to be made for stocks as an asset class? Are they really recovering?

Well, the S&P 500 closed down in New York. But it’s up 57% from its low. That’s impressive. It’s also expensive. The index now sells for 20 times operating profits, which is pretty optimistic, given how crappy the world economy has been in the last year.

“But that was last year,” you say. In the future, things can’t help but be better! And relatively speaking, that’s probably true. Our friend Dan Ferris writes, that, “Last year, the S&P 500 lost $23.25 per share for the fourth quarter. In the second quarter of 2009, 369 out of 478 companies, representing perhaps 97% or 98% of the total market cap, reported negative earnings over the previous year.”

Compared to last year, this year HAS to be better. You can’t get much worse than negative earnings. And with trillions in credit backstopping the financial system and making it possible to generate profits on paper assets, you’d expect to see at least some engineered earnings in the next two quarters that look absolutely dazzling when compared to last year’s numbers.

“So,” says Dan, “for the next two or three quarters, you can expect plenty of reports of vastly improved earnings, even if those results aren’t really so great. As you parse the news and evaluate your own investment goals, keep your head about you and don’t be afraid to spend extra time getting deeper into a company’s numbers, its market, its history, and its future prospects than you normally would. And for Newfoundland’s sake, don’t buy anything that isn’t dirt-cheap.”

Absolutely speaking, the popping of the credit bubble fatally undermined the business models of a lot of heavily leveraged companies, including many, many banks (both big and small). We reckon that the capital cushions of those banks are still in danger from further falls in asset values. Yes, that’s not a popular or even common view. But we’ll expand on it tomorrow.

In the meantime, you can always tell when stocks are out of favour in Australia. Everyone starts talking about what a good investment property is. But Australian housing is not exactly a cheap asset. The Governor of the Reserve Bank, Glenn Stevens, said as much earlier this week.

And this morning, we peeled our eyes over this paper on Aussie houses by RBA man Tony Richards. Richard’s inadvertently made a lot of interesting points. One was that the so-called improvement in affordability over the last year is, “mainly due to movements in interest rates rather than in house.”

He added that, “Mortgage rates are particularly low at present and, as the Bank has noted on a number of occasions, it is not reasonable to expect that interest rates will stay at the current low levels indefinitely. When they do rise towards more normal levels, discussions on housing affordability will again focus more on the level of housing prices relative to incomes.”

That is clever to suggest that when rates rise people will have to find another way to say that houses are affordable. But we reckon when rates rise, as they eventually must, a lot of new home buyers will find out that access to cheap credit does not make a house affordable. It just makes the amount of debt you owe to the bank a lot larger.

The most interesting part of the paper, for our twenty minutes, was the discussion of ‘underlying demand’. ‘Underlying demand’ is the phrase that gets trotted out when the banks and real estate brokers tell you there’s a housing shortage, or when the RBA tells you not to worry about a house price crash in Australia. But what does it really mean?

Richards says the four components of ‘underlying demand’ are population growth, household size, new houses to replaced demolished homes, and demand for “second or vacant homes.” Note that none of these are like the Ten Commandments. They aren’t carved in stone. They are changeable.

By the way, who on earth can afford to own a home they neither live in, nor rent? “Honey we’re going to buy a third home. But we’re not going to generate any rental income from it. And we’re certainly not going to live in it. We’re just going to pay the mortgage on it.”

“But why would we do that dear?”

“Because we can. To show how rich we are. We can afford it. And to support underlying housing demand. What else are we going to do with that money, buy stocks?

Returning to reality, Richards says that a preference for smaller household sizes, along with rising incomes and a rising population all factor in to strong “underlying demand.” But if you spend exactly forty two seconds scrutinising this claim, you’ll find that it simply doesn’t hold up. “Underlying demand” as a bullish factor in Australian housing is a fiction propagated by property spruikers and money lenders.

Take rising incomes. Rising incomes are a function of a growing economy. But in a prolonged recession—or just a period of slower growth, or a world in which wages in the Western world are gradually deflated as the global work force grows (especially in manufacturing)—income growth is going to be harder to achieve across the economy.

And rising populations? Well, it’s always possible for the government to reduce legal immigration if it’s concerned about too many people competing for too few jobs. That knocks another plank out of underlying demand.

And then there’s the preference for smaller households. Of course there’s a preference for having your own castle and being your own King, if you can afford it. But the RBA’s own data show that after many years of smaller and smaller household sizes, the trend is now swinging to larger households.

This could be by preference. After all, living alone has its benefits, but it can be awfully lonely. Or it could be by necessity—children living at home longer to save money or taking on flatmates to ease the pain of higher rates.

But whatever is behind the trend in rising household sizes, the main point is that the elements that go into “underlying demand” don’t automatically suggest a level of demand for houses that will always rise. Quite the contrary, in fact.

And of course one of the biggest factors in demand for housing is the availability of credit via low interest rates. We reckon that when you add a couple of hundred basis points to the current cash rate, you’d take quite a bit of momentum away from “underlying demand” for housing.

How about some reader mail?

Dear DR,

I am no financial wizard, but enjoy reading your Reckonings for the alternative viewpoint you present. There is one thing, however, that (unless I missed it somewhere) you don’t seem to have explained. Your comments would be greatly appreciated, even if you confirm my opening disclaimer.

Over the past twelve months you have mentioned many times that a lot of sub-prime mortgages are due for renegotiation (i.e. upward revision of interest rate) in 2010 or thereabouts. You content that this will be a great blight on the market forces.

But as I understand it, at least one State Supreme Court in the USA (Kansas, I think, from memory) has ruled that sub-prime mortgages may be unenforceable because the holders of this toxic debt cannot prove a link to the subject property. Am I stupid then to believe that, if this is correct, no person whose house is subject to such a mortgage should do any more than sit tight, hang in there, and refuse to pay another dime? In effect, they’re living in a free house.

What would the result be for the banks and loans organizations that issued the mortgages, and the ones that now hold toxic CDO’s? Is this in reality what the Fed’s bailout has been all about? And what about those who have already returned their keys — could they be allowed back in?

Phil Cantrill

Intriguing scenario. Politically, it’s a mess. Financially, we reckon the big issue is the value of toxic CDOs to banks and financial firms. Regardless of what happens to homeowners, those CDOs are due for a haircut. And when that happens, watch out for more bank failures and a second buffeting of the financial system.

Hi Dan,

You do have it bad after your long flight. From your latest letter..”What’s weird is both commodity standard-bearers moved down amidst a flurry of negative headlines about the U.S. dollar.”

24th September was gold options expiry day on the crimex (commex). Gold ALWAYS gets hammered at options expiry. And more so this time around as we had the greatest short position in history, it was bound to be hammered.

Freshen up now you are back. Enjoy your writing.

Regards,

Peter H

Dan Denning
for The Daily Reckoning Australia

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.
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Comments

  1. 1. Where is it carved in stone that interest rates must rise anytime soon? & 2. How does the RBA know where more normal levels are?

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  2. 5% within two years is the target Justin. With the RBA being chuffed it didn’t have to go to zero (and then consider printing money?) We need to keep attracting the foreign money I guess. We sure don’t save much of our own.

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  3. Although in fairness, with 9% of all wages and salaries going into super, we are “saving” a lot I guess – I can almost see the policy makers argument that it could be put to such GOOD use!

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  4. I just love how the RBA takes credit for the mining boom, I mean let’s face it Mr Ed the talking horse could have headed the RBA for the last 5 years and commodities would have still kept our heads above water.

    Greg Atkinson
    September 30, 2009
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  5. Haha, totally agree Greg :)

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  6. Yes, recent RBA forecasts of a.) housing shortages / rents rising, and b.) need for an interest hike; are amusing at best. Interest goes up = fewer build = fewer rentals available = competition for rentals = higher rents. With five year rates at 2.5% here in Canada, you’ve got to ask why Glenn & Co think the answer lies in increasing interest rates… . I mean, investors planning to build homes would jump at the opportunity in a ‘higher rates environment’, wouldn’t they?!~ Duhhhh… ;)

    Biker Pete, Vancouver, B.C., Canada
    October 1, 2009
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  7. The DailyReckoning has it all wrong.

    There won’t be a major house price crash in Australia in the next 2 years.

    Why?

    Because the government is letting foreigners buy everything:

    http://assistant.treasurer.gov.au/DisplayDocs.aspx?doc=pressreleases/2008/107.htm&pageID=003&min=ceb&Year=&DocType=

    Rich foreigners will prop up the Australian property market. That is a major factor that has not been discussed.

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  8. Tom, perilous insight to the oversight by DR, boosting foreign capital and having Aus citizens compete for hosing surely will keep the bubble going and the foreign mortgages will undercut Aus banks….there’s something about such competition mode when Aus families are affected, not a good sign.

    The Feds have been involved in a fair bit of loose sovereignty, banana republic here we come.

    Charles Norville
    October 1, 2009
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  9. Here is a global house pricing comparison. It is a bit fiddly. It took me a while to find the series selector at the top, and work out how to click Aust down the bottom then be patient moving my cursor over the lines to find the Australian one (it was generally at the top).

    http://www.economist.com/businessfinance/displayStory.cfm?story_id=14438245&source=features_box4

    The problem for Australian real estate investors is that it is financed by offshore borrowing according to broken risk/bank capital standards that are now to be fixed including raw leverage limits that will curtail Australian banks & govts ability to pump the market. My suburban consolidation prediction is also now one affirmed by the RBA last week with increasing household sizes, and Bellevue Hill/Double Bay has now the worst rental occupancy rates in Sydney.

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  10. “Rich foreigners will prop up the Australian property market. That is a major factor that has not been discussed.” Tom Sugar, 1/09/09

    Not a premise we’ve ever factored in, Tom. Anyone think we should prevent the Chinese from buying gold, rare earths, thorium, gas, copper, iron ore, etc.. etc… ? Certainly the Hong Kong Chinese who left before China took over raised the $take$ in the very most expensive Vancouver suburbs… and I guess our own quest for a Canadian property might actually be perceived by _some_ Canucks as a negative.

    Shortage of housing is more likely to result from restrictive policies affecting returns of those who build; but it’s also possible that a flood of _new arrivals_ who exceed even the most strict criteria Australia imposes, will keep property buoyant. These people have money, qualifications, expertise in critically-needed skills… and they value secure housing in good locations. They also see Australia in a very, very positive light; having experienced privations many of us can’t imagine. (Wouldn’t it be awful if they smiled and laughed a lot… and really enjoyed their new country? God, it would be AWFUL, wouldn’t it?!!! Worse than Wine Flu!) ;)

    Biker Pete, Vancouver, B.C., Canada
    October 1, 2009
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  11. Our population has just hit 22 million apparently:
    http://news.smh.com.au/breaking-news-national/australias-population-to-hit-22-million-20091001-gcx0.html

    With two thirds of growth being from immigration.

    Here’s a question: Does anyone remember the water shortages we have in Australian cities? Melbourne, Sydney, Brisbane? More people would seem to indicate a lower standard of living.

    Does Australia have the capability to support 50million? Where is our fresh water? What is the cost of desalination? Etc.

    They are not the only issues, but definitely something to think about.

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  12. And incidentally, I ‘read’ that the more inflow of foreign capital to Australia (eg people from overseas buying our property), the higher overseas interest rates will go*. Which is not good for people with mortgages, even if their house increases in price over time.

    *(Not exactly sure how it works, correct me if I am wrong).

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  13. Yeah, it’s complex, Pete. Can’t blame you for not being able to put the Big Picture together. Most people can’t.
    Here’s a suggestion: Write down everything you don’t understand… . Frame all this as Big Questions. Sequence the Big Questions. Do your research. Now type the Best Answers you can find. Ignore all the distracting side issues. Act. :)

    Biker Pete, Vancouver, B.C., Canada
    October 1, 2009
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  14. I was reading a while back that Australia can support a population of 60 million. Water – Nuclear power and desalination if really necessary I guess.

    Foreigners being more able to buy residential property – I can’t see the issue – We make them buy new stuff so it should add to the housing supply – Providing we have the capacity to build it. And if we don’t we can import some more builders. And lots of them become Aussie citizens and voters eventually anyway – Just part of that inevitable 60 million population before Oz is full.

    We don’t hear it talked about by policy makers but it is pretty obvious the fundamental reason our housing costs what it does is the price of the land. With the high land prices being caused by State and Local governments. Which is why they find it so much safer to prattle on about “housing” affordability issues; Rather than “land” affordability issues. But until the real issue is addressed, our dwellings are going to cost a lot regardless of who buys them.

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  15. I am supprised that all the guru coomentators on the current economic crisis never mention economists such as Harry S Dent Jr, who wrote about the begining and the end of the boom. He was out by a year but he predicted the downturn in USA in 2009 back in his book ” the Great Boom Ahead” Seems to me rational thinking has gone out the door. At uni I was taught economic history – but history is the new dirty word. Hmmm

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  16. Land is an interesting commodity, Ned. It’s sometimes worth much more without a dwelling than with one. We’ve watched land prices plateau in some areas, while other lots sold for simply staggering amounts. It may be the emotive factor at work. We’ve made it a primary rule _never_ to be emotionally susceptible to any house for sale. That’s relatively easy. It’s a little harder for the individual who wants to build his/her dream house in a particular one-off location. Record (perhaps very silly) prices have been achieved in some of those instances, by investors whose policy was to purchase property which _only_ the rich could afford to buy later. Yes, holding land like that IS expensive… it’s all cost and no income. When it eventually sells (and it does eventually sell) the sale price _dwarfs_ the original purchase price plus costs.

    In regard to the ‘average-block-of-land’, we know that development costs nearly eclipse financial gain. It is much easier to buy a few good developed blocks, in great locations… and patiently wait until the wealthy phone you. No For Sale sign is necessary. The phone rings one day… and a realtor or the buyer him/herself makes an offer… and the block sells. Probably not as productive as land development, but screw the rich…! ;)

    Biker Pete, Vancouver, B.C., Canada
    October 1, 2009
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  17. “Rising incomes are a function of a growing economy. But in a prolonged recession—or just a period of slower growth, or a world in which wages in the Western world are gradually deflated as the global work force grows (especially in manufacturing)—income growth is going to be harder to achieve across the economy.”

    Pay attention to this.

    It doesn’t matter how loose lending standards get and how low interest rates fall, there’s ALWAYS going to be a limit to how much the banks are going to give away, and that limit is based on income. That limit is also the property price ceiling. Unless of course the banks declare free money/properties for all regardless of income in which case my dog will buy a nice place near the beach, he could use a break.

    Take a quick look at the unemployment figures and resist the temptation to only look at the nice, relatively unchanged percentage. Look at the number of full time jobs lost over the past 2-3 months.

    That’s the problem right there. 45,000 jobs in 2 months. If that trend continues, it will be around 150,000 by christmas.

    Interestingly enough, if annualised (although that doesn’t mean a lot) its 270,000 which is more than the number of jobs they say were saved via the stimulus, so essentially based on fact (although annualised) the stimulus did nothing for job retention.

    I know quite a few people, people I used to work with, who have been retrenched from their fulltime jobs then picked up an hour stacking supermarket shelves while looking for new work in a saturated jobs market due to all this immigration. The clever redefinition of employment has meant many of these unemployed people, incuding myself, do not count to the nice percentage, and that’s why it has remained relatively unchanged.

    So they may say house prices to the moon, and they say prices may remain level for a while before shooting up again, and they may say the next boom is around the corner, but really the limit is income/credit, and to have income to obtain credit you need a job. I haven’t seen a bank yet that will give away 300K to buy a basic house to someone on unemployment benefits.

    If you find one let me know.

    Unemployed samuel
    October 1, 2009
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  18. Ross I really wonder how accurate that house prices graph is? For example in Japan land prices are tracked, not house prices so how did they convert that data to the house prices index? What size did they assume to average house to be in Japan? Or did they simply use land price data?

    Greg Atkinson
    October 1, 2009
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  19. I see a lot of new real-estate agents coming in and selling houses.
    There are the big names opening up franchise two in one suburb.
    And now we have these small time who don’t even have a web site they just use
    Real-estate.com.
    I thought when times were hard and house prices slow that only the big time players would hang in there.
    The point I’m getting at is from an observation that we really have not seen that much of a tough time yet.
    Yes prices did go down but not to the extent that the houses flooded the market, which slows down turn over and the real-estate agency consolidates or the small disappear.
    So we still have maybe up to 5 years of interest rate drops until we get to 0 to 1% like the rest of the world, then the housing market bubble might pop in OZ.
    If that is a possible scenario?

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  20. Greg, why not jump on The Economist’s site and ask.

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  21. Ross I am scared they might bombard me with economist’s goobledygook :) I suspect they just used land prices as a base.

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  22. True enough Biker – The value is in the land. No one thought twice about demolishing Lang Hancock’s mansion when they wanted to develop the land. (Although I gather they salvaged a lot of the fittings!)

    I’m working partly from memory here, but am pretty sure that in the last 15 years, the construction cost of a square metre of housing in Brisbane hasn’t even doubled. While the price of an average house in that time has more than tripled. So it is pretty obvious what is driving the price increases.

    Was talking to a neighbour a while back who is into shares – But he mentioned a bloke he knows who’s strategy is “earn money … buy a block of land, earn more money … buy another block of land …” It has much more to be said for it than most people would realise I think.

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  23. Ross..lol. Thanks, but I already have this data, this is the same as the land prices stuff the Government provides….so sorry, no beers this time ;)

    Greg Atkinson
    October 1, 2009
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  24. Greg, by your question I deduce you have some idea of the problem the Japanese have with pricing city dwellings. So the Japanese do a composite of non city “wooden houses” and city land price. Perhaps you can explain their reasoning?

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  25. “Yes prices did go down but not to the extent that the houses flooded the market…” Rick, 1/10/09

    The two events would be unlikely to occur simultaneously, Rick. Why sell a home when the price is low? Things would have to be really, really bad for thousands to expose themselves to major loss in that way.
    We know there are many folk who would like to sell, if only to make the ‘next move up’… but without the extra roubles they’re sensible enough to not list. Much smarter to hold an asset which provides shelter, in a well-known home.

    With just one exception, we look back at everything we owned and sold for major profit… and think: “Well, we should have held that longer!” :) Our last sale, for around three times purchase price, just before the GFC, will, in time also fall into that category. :)

    Biker Pete, Vancouver, B.C., Canada
    October 2, 2009
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  26. “housing is still a sucker’s bet in country’s whose names begin and end with the letter “A”.

    Are you sure, I hear the Andorra property market is doing well.

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  27. “…housing is still a sucker’s bet in country’s whose names begin and end with the letter “A”…”
    Should we believe an alphabetical classification from a punter who hasn’t yet mastered plurals? ;)

    Biker Pete, Vancouver, B.C., Canada
    October 2, 2009
    Reply
  28. Ross mainly the focus in Japan is on land prices broken into commercial, industrial and residential. This makes it easy to compare areas as you don’t have to worry about what is sitting on the land. When you buy a home you can find out approximately how much the land is in the area and then make a judgement if the house sitting on it is worth as much as the seller’s are asking.

    Now when it comes to housing there are steel framed ones and homes built with wooden frames. I am no expert in this area but there are some tax benefits from building a home with a wooden frame (don’t ask me why) and so these can tracked separately. But looking at these prices alone is not good enough to get a feel for the big picture.

    One thing you might find interesting is that when I was looking to buy a place here a few years ago the reason I was told prices were heading up for new apartments was not because of land prices or demographics etc., but because of the increased steel prices. I wonder why higher construction costs are not talked about that much in Australia when property prices are debated?

    Greg Atkinson
    October 2, 2009
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  29. I read Kris’ daily doom and gloom about the property price crash that’s coming and responded to money morning.
    This is what I wrote, and would appreciate your thoughts as Kris is appearing to me to be like the weather man whose computer screen tells him it’s raining, but when he looks out the window the situation is different. I don’t see how you can generalise about the subject of Australian property to the extent he does.

    “Hi Kris,

    I enjoy my daily dose of your commentary about the Aussie housing market, and how we are all doomed.
    I think such generalisations that all housing in Australia will drop dramatically just isn’t correct.
    I’ve spent the better part of this year looking for a house to live in, and selling my prior house.
    Properties within the 10km circle of any of the Capitals are going to be a safer investment than the outer ring suburbs.
    I’ll give you some specifics, and you tell me where you would rather be the owner of a house.
    I’m from Brisbane, so I’ll comment on my dung pile.
    Murrumba Downs and North Lakes – 2 satellite suburbs of Brisbane about 23 to 25kms from the CBD, and between the 2 suburbs, you’ll find over 300 houses for sale, most of which are your typical 4 bedroom brick and tile properties, so tons of choice for your discerning buyers.
    Then go to Grange, a suburb about 5kms from the CBD, an upper middle class area, where at present, the available number of houses for sale totals 3. Yes, just 3.
    In the peak selling season, I’d rather be one of those 3 owners, compared to being one of 300 out “in the sticks”.
    You tell me, how do you see a dramatic price crash coming in Grange?

    David (Brisvegas)
    October 2, 2009
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  30. Yes, you’re spot on, David. It’s Greg’s point really. There’s no Australian Property Market. There are Australian Property _Markets_. Location is critical. Same story here in Canada… immense variations between provinces. Immense variations based on distances to services and employment. Technology _may_ change this within a decade, but for now you’re completely correct. Even here in Canada, where fuel is still dirt cheap, distance to services and employment remains a vital factor in values… .

    Every time we read an article which perceives ‘property’ as _a_ market, we have a little chuckle. Property isn’t like a gold ingot (identical to almost every other ingot) it’s diverse and (in our view) pretty special! :)

    Biker Pete, Vancouver, Canada
    October 2, 2009
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  31. What’s happening in Albania then?

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  32. The property market is so bad that the government has to bribe the most financially and economically illiterate members of society to buy into the disaster.

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  33. O the delightful irony of the continual presence, on a property blog, of those who have no faith in property! :)

    Biker Pete, Vancouver, B.C., Canada
    October 3, 2009
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  34. Biker Pete…Faith exists where reasoning fears to tread..or at least fails to be heeded…

    Clearly, we are in a period of “discontinuous change”…where the past doesnt prepare us for the future…where assumptions run rife and make asses outta u and me…

    Fundamentals have been shown to be flawed, the whole basis of the free worlds economic system having been brought into question, and where now, bailouts to protect the guilty, seem destined to attempt to preserve the inequitable equilibrium , whist condemning future folk to rampant governmental debts, soaring fiscal overheads, potentially spiralling tax burdens, coupled with inflation, in an insecure job market and reduced services environment.

    The spectre of inflation is certainly threatening the sensible folks savings bases thru abrasive undermining of its spending power. Cash is certainly no safe haven..and now, it might as well be under ya bed, what with the pitiful returns the fat cat banks are giving us. Couple that with the tax burden that interest earned demands, and for sure…the sensible saver of the past is now soon to be punished ..and perhaps significantly.

    People however, as maslows heirarchy attests, will still require, after food and water..shelter. Irregardless of the markets..irregardless of the social turmoil, economic down turns…jast as ones hair continues to grow…(and then fall out as i can attest!)so does the need for a safe and secure haven for our familys exist.

    Property may not continue to show credit bubble epoch based returns…but, it is “bricks and mortar”…it is tangable..and, it does, directly, provide a service to society..which is often, a lot more to be said than the many of companies whose shares one can own..or for example, the bullion market, where research will attest, humans are exploited massivly, in mines throughout the world, in the labour intensive extractive process.

    Residentia Property, gives one the ability to secure ones assets, whilst providing a service to society, (providing shelter). I believe it is one of the only ethical and relativly safe investment veihicles available today.((provided of course that you exercise your obligations as a good, fair landlord)

    Expat Dean
    October 3, 2009
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  35. Oh the delightful irony of those who consider property to be an investment yet can never seem to identify a single period when it is overvalued.

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  36. Completely agree, Expat Dean. :)

    BargeaRsE, some property is overvalued. Some property is undervalued. The delightful irony is that you probably don’t know the difference. ;)

    Biker Pete, Vancouver, B.C., Canada
    October 4, 2009
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  37. Haha, good point bargeass

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  38. Looks like property is getting further into overvalued territory as the RBA is forced to raise rates to combat the stupidity of Krudd’s socialist welfare handout policies.

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  39. Biker Pete, insulting a mans intellegence only belines your own. Bargeass is probably all to familair with a debt to earnings ratio and a borrowers ability to make repayments in an environment that can rapidly change (interest rates forcing repyaments up/down etc).

    The reality is i am 28 have $56k saved and a combined income of $112,000 and i ca’t aford to purchase a one bedroom Flat 12km from the city. Or alternativley a 2 bedroom unit 23km from the city or a 3 bedroom hous 36km from the city.

    I shuld rephrase. We can afford it but it means we have a very tight budget with minimal room for some of lifes curve balls, health, car repairs, house repairs etc. We wouls also have to be comfortable with never having children and crossing our fingers and hoping that property keeps appreciating otherwise face the prospect of living in the above mentioned accomodation for at least 15-20 years.

    This in reality and this in itself makes property overvalued

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  40. Biker Pete, insulting a mans intellegence only belies your own. Bargeass is probably all to familair with a debt to earnings ratio and a borrowers ability to make repayments in an environment that can rapidly change (interest rates forcing repyaments up/down etc).

    The reality is i am 28 have $56k saved and a combined income of $112,000 and i ca’t aford to purchase a one bedroom Flat 12km from the city. Or alternativley a 2 bedroom unit 23km from the city or a 3 bedroom hous 36km from the city.

    I shuld rephrase. We can afford it but it means we have a very tight budget with minimal room for some of lifes curve balls, health, car repairs, house repairs etc. We wouls also have to be comfortable with never having children and crossing our fingers and hoping that property keeps appreciating otherwise face the prospect of living in the above mentioned accomodation for at least 15-20 years.

    This in reality and this in itself makes property overvalued

    Reply

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