Property Rents Rising — As Forecast — The Property Market Cycle
Today we turn our attention to the property market. Your regular Thursday editor Catherine Cashmore is taking some well-earned respite. But we can still cover the usual territory!
The real estate wagon just keeps rolling on.
You know Catherine and I have pointed out the opportunities in Perth over the last year or so.
But even I was surprised to see just how strong rental growth is over there.
CoreLogic came out with the latest figures earlier in the week. Perth rents are 16% year-on-year. Boom!
If you take the whole country, annual rent increases are up at the fastest rate since 2009.
Even if you don’t or can’t invest in property directly, the property cycle throws up all sorts of trading and investment ideas.
I happened to be on the phone with my accountant yesterday. He told me he had a bit of spare cash to invest, but all the options on the share market bamboozled him.
Knowledge of the property cycle — which causes the business cycle — can guide you to sectors likely to move in the next 12–24 months.
The proof of the pudding is on the Cycles, Trends & Forecasts buy list right now.
There are eight winning stocks from 10 positions. I’d say the average gain is about 15%. Every stock is about to pay out dividends — important cash flow.
More importantly for me, none of these positions are particularly volatile or wild punts.
It’s the type of portfolio that allows you to sleep calmly and you don’t have to watch day in day out. The cycle — should history repeat — should see this continue for years yet.
That’s not to say they won’t be volatile or impervious to loss. But as bedrock to your financial plan, knowledge of the 18-year cycle is unbelievably powerful.
You would not have been blindsided by 2008, for example, because the cycle called for a big old bust at that time.
The memory of 2008 is fading now. All those new and young hip things in the market don’t remember it and don’t care about it.
The new generation comes in to repeat past mistakes because nothing is done to change the economic system at its base.
I just finished two memoirs. One was the former Fed central banker Paul Volcker. The second was former US Treasury Tim Geithner.
Both make observations on the cause and remedies of financial panics and economic recessions. Both miss the key insight.
They blame the booms and busts on credit booms. These are vital and valid points. But both miss the point that it’s what the credit is created for that matters.
The danger is in mortgage credit…so why then do we, as a society, create so much of it?
Because we are chasing the unearned gains in land.
This is enriching for some, but ultimately punishing for many, leading to instability and economic recession.
Tim Geithner’s book is a long one. He was treasury secretary in the Obama administration.
They came in just as the US economy imploded. He details endlessly the fires they had to deal with: horrendous job losses, foreclosures, bankrupt banks, social unrest, political brawls…and on and on.
And all of it has a root cause in the inability of the West to place the tax base where it belongs…on the rent of land and natural resources.
So we get this fiddling with income rates, super accounts, tax breaks, deficit spending, unemployment, inequality, ‘QE’, stimulus, and the constant need for ‘inflation’…all to keep this ridiculous and destructive system of rent-seeking in place.
It is idiotic. But it’s been going on so long that it seems normal now.
Few people study classical economists.
These men went to great pains to say that the whole point of a political economy was to take the burden off productive workers and get rid of feudal privileges and monopolies.
There’s precious little you and I can do about it to change it. But we can understand it — and grow our wealth from it.
I remember last year one of our subscribers wrote to us to say he had the funds to buy three houses in Perth.
Go back to the rental growth I showed you. There’s likely plenty more coming up.
Perfect proof a little bit of knowledge can become a whole lot of capital gain.
Editor, The Daily Reckoning Australia
PS: Australian real estate expert, Catherine Cashmore, reveals why she thinks we could see the biggest property boom of our lifetimes — over the next five years. Click here to learn more.