House prices to stagnate for 'years'

[wayneL]

great so borrow up till the hilt while you can

No thanks. Apart from the fact I have no need to, I have no desire to borrow anything other than responsibly.

 

[tech/a]

I have no problem using other peoples money (Borrowing).
Provided its being used to generate income---not debt.

 

[wayneL]

I have no problem using other peoples money (Borrowing).
Provided its being used to generate income---not debt.

Neither do I, so long as the debt is serviceable under a range of contingencies.

This is where many will have trouble. (and are)

 

[tech/a]

Neither do I, so long as the debt is serviceable under a range of contingencies.

This is where many will have trouble. (and are)

Using other peoples money 101
Should be part of all school curriculum---might learn something useful!

 

[Knobby22]

The problem is that most people are like frogs in a pot on a stove, when it comes too property. When they realise it is getting too hot, they are cooked.

Everything at the moment is pointing to the fact that the stove has been lit.
Loose liquidity, the start of real rising interest rates and a final boil over happening in prices. The shock to me is obvious too, peak oil.

I'm sure we are approaching the nadir in this market.

 

[doctorj]

The Bank for International Settlements (often referred to the Central Banks' Central Bank) released there annual report yesterday. It draws a lot of parallels between now and the period leading up to the Great Depression.

Check it out here: http://www.bis.org/publ/arpdf/ar2007e.htm

 

[robots]

hello,

the thing is the big banks here in Aus arent lending for the so called liar loans, they say they cater for them, but when you get to the paperwork they dont

its the likes of wizard, rams, mortgage choice and all the other "sub-prime" ads you here these days

this will get even worse the slackening of lending standards here in Aus, and if those (the money suppliers) want to take the risk then so be it,

6mths ago a self employed person applying thru' Wizard for eg always paid a 0.5% higher rate, now they r at the same rate as a full doc

thankyou

robots

 

[theasxgorilla]

Not so much interest rates, lending standards.

Ironically, rises in interest rates have resulted in a decrease of lending standards as cash from lower interest rate regimes flood into economies such as OZ, NZ & UK. The banks must get a return on the influx of cash, so throw it at anyone who can steam up a mirror.

Result, muppets overpay for RE.

Hahaha, no more need be said...seems to be how it is.

Still better to be on the asset-bubble conveyor-belt for now though, it would also seem...or?

 

[theasxgorilla]

Using other peoples money 101
Should be part of all school curriculum---might learn something useful!

Ooooh, can u imagine trying to get that one through??? Many a capitalist and central banker probably prefer we don't know so many useful things about other peoples money...stick to house loans, car loans, credit cards and mobile phone plans...feeling adventurous, get a margin loan, buy an IP...try CFDs!

 

[WaySolid]

Muppets probably overpay for shares as well.. Which is why they are muppets perhaps?

One thing I have noted in wealth creation is that a muppet can get financially independant (say 1-3M range) just from being a plodder (and even overpaying) for Australian RE, I know plenty of these people, will this stop in the future? I don't know.

Look.. I have bought two houses in Brisbane this year on 5% yields, nice chunks of land with what I think is great future location potential, yields are under pressure and rising, I am about to realize through a reval a significant increase (20% after costs) in value in the first house. At what point do I transform from a muppet to an investor or should I just call myself Kermit?

 

[robots]

hello,

top effort waysolid, got to be in it to win it

for many people even one property would be helpful, your home, an extremely passive investment

replacement cost of a house is having a huge impact, material companies want massive profits, contractors want massive profits

thankyou

robots

 

[wayneL]

The Bank for International Settlements (often referred to the Central Banks' Central Bank) released there annual report yesterday. It draws a lot of parallels between now and the period leading up to the Great Depression.

Check it out here: http://www.bis.org/publ/arpdf/ar2007e.htm

Here is a report on that in a UK newspaper

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/06/24/cnbis124.xml

BIS warns of Great Depression dangers from credit spree

By Ambrose Evans-Pritchard
Last Updated: 5:11pm BST 24/06/2007

The Bank for International Settlements, the world's most prestigious financial body, has warned that years of loose monetary policy has fuelled a dangerous credit bubble, leaving the global economy more vulnerable to another 1930s-style slump than generally understood.

"Virtually nobody foresaw the Great Depression of the 1930s, or the crises which affected Japan and Southeast Asia in the early and late 1990s. In fact, each downturn was preceded by a period of non-inflationary growth exuberant enough to lead many commentators to suggest that a 'new era' had arrived", said the bank.

The BIS, the ultimate bank of central bankers, pointed to a confluence a worrying signs, citing mass issuance of new-fangled credit instruments, soaring levels of household debt, extreme appetite for risk shown by investors, and entrenched imbalances in the world currency system.
advertisement

"Behind each set of concerns lurks the common factor of highly accommodating financial conditions. Tail events affecting the global economy might at some point have much higher costs than is commonly supposed," it said.

The BIS said China may have repeated the disastrous errors made by Japan in the 1980s when Tokyo let rip with excess liquidity.

"The Chinese economy seems to be demonstrating very similar, disquieting symptoms," it said, citing ballooning credit, an asset boom, and "massive investments" in heavy industry.

Some 40pc of China's state-owned enterprises are loss-making, exposing the banking system to likely stress in a downturn.

It said China's growth was "unstable, unbalance, uncoordinated and unsustainable", borrowing a line from Chinese premier Wen Jiabao

In a thinly-veiled rebuke to the US Federal Reserve, the BIS said central banks were starting to doubt the wisdom of letting asset bubbles build up on the assumption that they could safely be "cleaned up" afterwards - which was more or less the strategy pursued by former Fed chief Alan Greenspan after the dotcom bust.

It said this approach had failed in the US in 1930 and in Japan in 1991 because excess debt and investment build up in the boom years had suffocating effects.

While cutting interest rates in such a crisis may help, it has the effect of transferring wealth from creditors to debtors and "sowing the seeds for more serious problems further ahead."

The bank said it was far from clear whether the US would be able to shrug off the consequences of its latest imbalances, citing a current account deficit running at 6.5pc of GDP, a rise in US external liabilities by over $4 trillion from 2001 to 2005, and an unprecedented drop in the savings rate. "The dollar clearly remains vulnerable to a sudden loss of private sector confidence," it said.

The BIS said last year's record issuance of $470bn in collateralized debt obligations (CDO), and a further $524bn in "synthetic" CDOs had effectively opened the lending taps even further. "Mortgage credit has become more available and on easier terms to borrowers almost everywhere. Only in recent months has the downside become more apparent," it said.

CDO's are bond-like packages of mortgages and other forms of debt. The BIS said banks transfer the exposure to buyers of the securities, giving them little incentive to assess risk or carry out due diligence.

Mergers and takeovers reached $4.1 trillion worldwide last year.

Leveraged buy-outs touched $753bn, with an average debt/cash flow ratio hitting a record 5.4.

"Sooner or later the credit cycle will turn and default rates will begin to rise," said the bank.

"The levels of leverage employed in private equity transactions have raised questions about their longer-term sustainability. The strategy depends on the availability of cheap funding," it said.

That may not last much longer.

 

[wayneL]

hello,

the thing is the big banks here in Aus arent lending for the so called liar loans, they say they cater for them, but when you get to the paperwork they dont

its the likes of wizard, rams, mortgage choice and all the other "sub-prime" ads you here these days

this will get even worse the slackening of lending standards here in Aus, and if those (the money suppliers) want to take the risk then so be it,

6mths ago a self employed person applying thru' Wizard for eg always paid a 0.5% higher rate, now they r at the same rate as a full doc

thankyou

robots

Same thing happened in the US. 'cept now they have nearly 100 mortgage lenders in bankruptcy, hedge funds involved in the securitization of subprime lending falling over, and a RE market showing nominal falls for the first time in decades.

For a view of the future, look to the US.

 

[robots]

hello,

its just a pity that many have no hard evidence of where the good property is at the moment

havent commentators claimed the boom ended in 03 and things have dipped or stagnated since, yet many have seen capital growth of around 10% per year during this time

but hey, keep working on those cfd or option trades or futures contracts in your jocks at 4am in the morning

thankyou

robots

 

[wayneL]

hello,

its just a pity that many have no hard evidence of where the good property is at the moment

havent commentators claimed the boom ended in 03 and things have dipped or stagnated since, yet many have seen capital growth of around 10% per year during this time

but hey, keep working on those cfd or option trades or futures contracts in your jocks at 4am in the morning

thankyou

robots

OK,

So long as you get up and go to work every day away from your home and family, I'll stay home and play the markets in my pyjamas, take days off whenever I like, live wherever I like, associate with who I like, sleep in as long as I like.

:fu:

 

[tech/a]

its just a pity that many have no hard evidence of where the good property is at the moment

Your Kidding!

Good god the Building/developement industry is doomed!

So long as you get up and go to work every day away from your home and family,

Wayne youve not had a few days at my place.
I go to work for a break!

 

[robots]

hello,

its good living that way isnt it wayneL, I enjoy doing the same

i dont have a job wayneL

I like to get up early each morning and go for a ride on my bike into Melbourne, go for a walk around the streets

its fabulous

thankyou

robots

 

[gfresh]

I have been musing over this the last few weeks.. and torn every time.

With the stock market, I think the general consensus is that, it's not so matter of a correction, but when.. So assuming this in the next 12 months or so, my current plan is to mostly get out of stocks and poor it all into 1, or 2 investment properties (i will have at least a 25% on the average family home in qld or vic at least). So many things being thrown around, stockmarket is strong due to never-ending demand from China & India.. and the bull run has a long way to go.. then you have the massive debt levels, subprime fallout in the US, house prices to crash here, etc. So every time I think about one thing, some expert comes out with the other side to the story.

As I see it..

2002-04 generally was the housing downturn in sydney and melbourne especially.. which by all rights in the 7-10 year property cycle, this means 2010 is the next big run (e.g. now is actually the start of the climb, and get in now according to the prop investment literature). But I think the debt levels will swamp many.. as Australia goes into recession this is going to hit a lot of people hard, esp. middle class families.. Jobless rate will climb back towards 10% (and beyond?), interest rates back to 10-11%, times are tough, no luxuries, etc.. I was early 20's through the early 90's with not a rich family so remember what it was like.

So I'm just curious as to how this should effect any timing.. I guess the sort of property I'd want would be around the 'lower' end of the market to begin with, where i'd imagine most of the fallout will be .. new home buyers over-leveraged having to get out, some beginning investors missing the mark, and buying it at the wrong time... lots of houses on sale, many at low prices? OR will these be swamped with buyers taking up the slack due to the sudden affordability? Obviously the two will be quite opposed, and obviously if prices fall, I'd also be caught out too.. this is fine as I don't need massive capital growth to begin with (having a quite sizeable deposit/equity to begin with)

Any thoughts?

 

[lakemac]

There are two keys to capital gain but they are not orthogonal to each other (ie independent of each other) to borrow a term from mathematics.

1. Time
2. The rate of credit creation/destruction.

Capital gain is only possible if you can find someone else prepared to give you more money some time in the future than the money (or effort) you gave away in the past in order to aquire the thing.

The important question to ask here is where does that money come from in the first place...

The second important question is can money be created and conversely can it be destroyed, because if it can be destroyed, guess what? capital gains are next to impossible as there is less money around. Related to that the two keys come in - it makes no sense to get more money sometime in the future if there has been a lot of money created. You might have more money but it is worth less than what it was in the past. If money became like leaves, several deciduous forests would be required just to buy a loaf of bread (with apologies to The Hitch Hikers Guide to the Galaxy).

The trick for a captial gain is to get in before the expansion of credit (I use that word carefully - it has a specific meaning that is different to the term money) occurs, ride the expansion then exit with your pot of money (again a specific term) hold that in a non-depreciating asset until the credit restriction happens and enter again before credit expands again.

So with property the last major expansion of housing credit was back in 1998 and slowed in 2003. That credit expansion is currently flowing into the stock market as we speak (hence bull market).

Due to the continual increase in credit in (most) world markets for the last 30 years (the exceptions are Japan and Germany) over time any investment will ultimately provide a captial gain (key 1 above) as long as the credit keeps growing (again I cite Japan and Germany where this has not been the case and hence asset prices are depressed).

What you want are investments that pay for themselves over a long period of time, positively geared property, shares with dividends, bonds etc. and hope the credit expansion continues in the market you are in.

 

[gfresh]

Very good explanation there.. I probably haven't looked at it this way, and it does make some good sense as to what is/may happen in future.