Australian (ASX) Stock Market Forum

Want a house bust = get a recession

Jump to new
K

kincella

Joined
29 June 2007
Posts
1,742
Reactions
0
interesting.....
the old saying of 'be careful what you wish for in case it comes true'
in this case wishing for a housing bust, means a recession will follow.....

extract........................

It may not be the most definitive economic indicator but it does point to the importance of psychology and how it can defy the laws of economics. Leamer says that housing cycles provide an almost perfect forecast of recessions, with their peak typically three to four quarters ahead of the rest of the economy. Only twice since World War II had there been a housing collapse in the US that was not followed by a recession: during the Korean War in the 1950s and the Vietnam War in the '60s, when huge increases in defence spending propped up activity

***and this extract about Perth
Leamer found one measure of how much on Google. The searches for "Great Depression" soared in response to media reports of the comments. They went up most in the US, while the second largest volume of searches was in Australia. For no apparent reason, Perth topped the list of the world's cities.

http://www.theaustralian.news.com.au/story/0,25197,25149537-7583,00.html
 
Re: want a house bust = get a recession

as if ?
....property did a dead cat bounce in 07....but some of you didnt see it until 2008....facts...it topped dec 03 to Mar 04.....almost 5 years ago....
and you will not recognise it rising again, until its too late.....

lets see...the deposit guaranatee gets watered down, stocks going lower, interest rates going lower.....where to put the money....under the bed ???
no..we know where its going....
 
Re: want a house bust = get a recession

To my understanding, if you look at history then recessions don't cause housing busts. It's the other way around, real estate crashes cause recessions and this time seems to be no different.:2twocents
 
smerf ????
the article clearly states, first comes the house bust then comes the recession....only twice has that NOT occurred...Korean war in the 50's the Vietnam of the 60's...not sure how you can read that any differently
the extract..........................

Leamer says that housing cycles provide an almost perfect forecast of recessions, with their peak typically three to four quarters ahead of the rest of the economy.
 
Re: want a house bust = get a recession

kincella said:
interest rates going lower.....where to put the money....under the bed ???
no..we know where its going....
Click to expand...

yep - US treasuries, gold and term deposits.

kincella said:
property did a dead cat bounce in 07....but some of you didnt see it until 2008....facts...it topped dec 03 to Mar 04.....almost 5 years ago....
Click to expand...

Yep, and what happens after a dead-cat bounce? Are there statistics to say that all real estate booms bottom out after no more 5 years long?
 
Bill..thanks
Wonder if all those that were screaming for the house price crash....had it occurred to them they would then get a recession...lose their jobs...and most of their money in the stock market too???

would they still have wished for it, if they had known the consequences ?

by the time it happens again...which it will, in some form or another....I guess we will have another new generation, following the same pattern....

seems this forum is again proving what has been known for yonks......95% of the population hold just 5% of the worlds wealth......that accounts for the bears views on here
but there is less than a handful of us positive people here....and yes...5% of the population hold 95% of the wealth.....
similar to other forums I visit....
 
kincella said:
Bill..thanks
Wonder if all those that were screaming for the house price crash....had it occurred to them they would then get a recession...lose their jobs...and most of their money in the stock market too???

would they still have wished for it, if they had known the consequences ?

by the time it happens again...which it will, in some form or another....I guess we will have another new generation, following the same pattern....

seems this forum is again proving what has been known for yonks......95% of the population hold just 5% of the worlds wealth......that accounts for the bears views on here
but there is less than a handful of us positive people here....and yes...5% of the population hold 95% of the wealth.....
similar to other forums I visit....
Click to expand...
It's about forecasting, not wishing, that a house price crash would occur.

It was obvious that houses were at historically high valuations (valuation as distinct from price). And it's pretty well established that markets cycle from high valuation to low valuation and back again, that's what's happened throughout history.

Based on that, it was probable that house valuations would fall at some point. It wasn't a case of wishing, but predicting, for those who saw trouble ahead.

An analogy. Smurf doesn't really like Winter. It's the worst season in my opinion and I just don't like it. And yet, despite my lack of liking winter, it was a fairly warm day in Summer when I cleaned the flue, checked the firebox and baffles and ordered a load of wood.

Pessimist? Or realist? Argue all you like but I'm convinced that after Summer we will get Autumn and then Winter. That is what has historically happened and I see no reason to believe that it won't happen again this year. Hence I've spent some time and money preparing on the assumption that there will indeed be a Winter this year and I will need to use heating.

What about the risks? If I'm wrong and we don't get Winter ever again then I've spent a couple of hours messing about cleaning and checking plus a few hundred dollars on wood. All that will be wasted if Winter never comes. On the other hand, if I hand't prepared and Winter did come, then I'd be cold and miserable for several months, probably falling ill as a result. Considering the risks and looking at the historic probability of there being a Winter in any given year, I decided it was sensible to be prepared for it.

Much the same with those who foresaw the housing bust. They foresaw a nasty situation ahead. Whether they "wanted" it or not is irrelevant, they'd worked out that it was coming and planned accordingly.

I first heard about the US mortgage lenders situation and impending demise of the major investment banks, General Motors and others back in 2002 (repeat, 2002) when I realised that all wasn't right with the economy and started doing some research. Now, I'm no economist and nor am I naturally a pessimist. But it's foolish to ignore the termites and pretend that the building won't eventually fall down even if you don't know when it will happen. I saw some dust, noticed a few cracks, decided to investigate what was going on and found we had some serious problems. No point in denial... :2twocents
 
Smurf
If you pick GM's demise etc any more we should know about except the housing which is commonsense.
 
Smurf - there's a difference between preparing for the winter that you know with 100% confidence will come (of course some are milder or worse than others), vs preparing for your home town to be covered by a mile of ice due to the onset of another ice age, which has maybe a 0.01% chance of occurring in the next 12 months :)

Those "forecasting", and therefore preparing for, across the board 40%++ house price declines etc are in the "preparing for ice age" camp in my book.... If you are just settling in for a soft market period with "typical" recessionary price falls (heavily dependent on city/suburb/region etc) followed by the inevitable next upturn (ie summer), then I would put you in the "preparing for winter" camp.

PS: Did you get out/stay out of property and the share markets in/since 2002 based on your concerns from back then?? Anyone who did missed out on some pretty serious capital gains.....

Cheers,

Beej
 
Beej said:
PS: Did you get out/stay out of property and the share markets in/since 2002 based on your concerns from back then?? Anyone who did missed out on some pretty serious capital gains.....
Click to expand...

Then was nothing like the crisis going on now, government nationalisation of banks (and massive ones at that), trade collapsing, unemployment to levels not seen for decades o/s. Things won't quickly return to the days of old. I would think it's pretty obvious by now this is nothing like the early 2000's.
 
gfresh said:
Then was nothing like the crisis going on now, government nationalisation of banks (and massive ones at that), trade collapsing, unemployment to levels not seen for decades o/s. Things won't quickly return to the days of old. I would think it's pretty obvious by now this is nothing like the early 2000's.
Click to expand...

Oh yes I agree - I'm not saying that now = early 2000s, far from it! I was referring to Smurfs post where he stated that he became aware of the issues that led to the current crisis way back in 2002, including potential collapse of GM etc. Just pointing out that forecasting is a black art, and even if you spot issues that turn out to be real, getting the timing right in terms of entering/exiting markets even armed with that knowledge is far from simple, and getting it wrong, no matter how right you might turn out to be on the fundamentals, can have a very high opportunity cost.

Cheers,

Beej
 
I am amazed at the lack of confidence...worldwide....its all about panick...and every man and his dog is having his say...about panick..and their lack of confidence.....its like a chorus....all wanting to jump in and get their name in print.....
now where was it that the saying is....if everyone is applauding you and your ideas... you must be on the wrong track....

well thats what comes to mind to me....

and this article last week...:)...it really only applied to 4 states...
but now...everyone on the net..can say US housing is so bad...we must be next in line....
extract .............................

THE breadth of the US housing crisis for the average American is being overstated, according to a study released yesterday.

While foreclosures have booted millions of Americans from their homes, the study from the University of Virginia shows the trouble is mostly focused on four states -- California, Florida, Arizona and Nevada -- where home prices were the most overheated in the US housing boom.

http://www.theaustralian.news.com.au/business/story/0,28124,25139421-25658,00.html

and Richard Branson....says the downturn will breed billionaires....if you are game,, and brave...and not too wooosy.

http://www.theaustralian.news.com.au/business/story/0,28124,25158688-643,00.html
 
Why is a recession / depression, a normal part of the business cycle to clear the mal-investments, are so bad??

Or more specifically, why is a housing bust such a bad thing?

Most people are afraid of it and are in denial because they are insecure. And they are insecure because they have committed too much into "booming business cycle" both emotionally and financially. Any changes to the cycle would be a big shock to them because most are either unprepared or are in too much debt. And human HATE changes.

Just carefully listen to your own words and emotions, and you will know whether you are really insecure about the GFC and is a firm believer in absolute optimistic thinking. (and not being a realist)

So no, it's not a matter of wanting a recession / housing bust or not. One would wish that we had a stable economy without all these boom and bust. Unfortunately though, no one can avoid the consequences of human greed and fear.

Instead of wasting our time trying to debate whether we should have a recession or not, we should instead focus on how to PREPARE ourselves for this when it inevitably comes. So stop worrying about things that we cannot control in.
 
Temjin....
It does not really worry me....am self employed and part time retired....have sufficient funds and income, am not over committed on debt...my housing debt is less than 40% of the market values...
the houses I own are in the under 400k range...aka fhb range..so if I did want to off load...it would be easy...
I am a realist...been living thru the past recessions and crisis since the 70's...
it a been there done that attitude for me.....I am basically immune to it...

its all the others that worry me...they are worrying unnecessarily....and bombarded with fear and scaremongering.....
some people will lose their jobs and suffer hardship....but not everyone is in that boat....
some make it sound like its going to be so bad and last for years....
there is probably a year of pain for some.....but a year of wonderful things for property owners with a mortgage.....interest rates down to 2% sometime this year...absolutley stunning for some of us
 
Beej said:
Those "forecasting", and therefore preparing for, across the board 40%++ house price declines etc are in the "preparing for ice age" camp in my book....

PS: Did you get out/stay out of property and the share markets in/since 2002 based on your concerns from back then?? Anyone who did missed out on some pretty serious capital gains.....
Click to expand...
Note that I'm talking about valuation rather than price. Relative to rents or wages, both of which are very relevant to housing affordability, house values are at historic highs. As with the seasons, when you are at one extreme it's logical to expect the situation to head in the opposite direction sooner or later.

That's in the same way we had the major US stock indexes at very high []valuation[/I] levels in 2000. Based on historic cycles, it was no brainer to predict that we would see 10 - 20 years of trouble ahead until we got back down to a P/E somewhere between 6 and 10 based on actual (not forecast) earnings. Then the DJIA or the S&P500 will be good value with a high probability of being a profitable investment.

But at the moment, based on fundamentals, the US markets are still in a secular bear market that has some years to go. Yes there will be huge rallys during that time, but overall the markets have produced a loss in real terms (after inflation) for a decade now and we're not finished yet.

Excellent opportunities for trading the index or investment in individual stocks but buying and holding an index fund or any similar strategy won't work in this environment.

As for me, no I didn't get out of everything. My gold (the metal not stocks) has done quite nicely and I'm confident that, unless the economy really does collapse, my long term oil investments will ultimately be highly profitable.

Based on fundamentals gold and oil should be in a bull trend and the US stock market in a bear trend. Gold and oil are thus far doing very much better than the US stock markets with both up more than 200% over the past decade even after the oil price collapse. Meanwhile the DJIA, S&P500 and Nasdaq have been duds over that time.

Housing? Well I do live in a house and no it's not rented. But to be honest I consider it a useful (rather essential) item just like a car, fridge or furniture. If I find out tomorrow that my car has dropped in value to $1000 but it still runs fine then that's not going to stop me driving it. Same as if the house crashes to $50K then it's still going to provide shelter and a place to live. I really couldn't care what the house, car or anything else that is a consumer item turns out to be worth since I've no intention of selling to rent.

Obviously I'd have a different view if I'd bought additional houses as investments, but I haven't done that since it seemed poor value to me. Give me a 10% rental yield (market average) and then I'll consider houses as an investment.

As for General Motors, just think about it. Huge fixed costs for pensions etc and couldn't make a profit even during the boom. To me, that's a sitting duck just waiting for a downturn to wipe them out. Fair enough if a business isn't overly profitable during a downturn, but it's entirely different when it can't make a profit during a boom unless it's a true counter cyclical industry like debt collection etc which GM isn't. Based on that, for me it's been a question of when rather than if GM goes broke (or gets bailed out).
 
Kincella,

Thanks for the article. Due you haveany information concerning housing bust cycles and recessions in Australia, as to often we have heard Australia is different to America.

I would agree with Smerf. I can wish for housing to go up or down, has little effect on the market. I do believe that overall sentiment to which way a market is trending can effect the market but overall it is the greater macro economic factors that effect housing trends.

The recession we are heading into is largely to do with credit, the effect is a change in the housing market. How credit is effecting my business. I am in Malaysia at the moment and off to Singapore to attend furniture trade shows. Overall everyone in the industry is seeing a downturn in sales, this is largely due to the fact that people can no longer get credit to purchase from the banks in many countries. Result, lower sales, workers laid off, manufacturers not buying more investment properties as they are more concerned with keeping cash flow in their business to ride out the global recession we are now in. Most of the good operators have been through this before, and while their sales may be down for a few years, they see it as an opportunity to grow again in the future as many operators will leave the market due to being overleveraged in debt. Unfortunately as things are getting bad, many manufacturers will sell their sole to get money in, this is a short term approach and they will not last long.

Again, I can wish for what ever I won't but with good research and careful planning and being realistic, I will come out of the situation in good shape.

I think this also applies to those who invest in property. If they have been realistic in the property investments and can meet their commitments when times are tough, they will come out the other end of the recession in good shape.

I must pull you up on one thing, just because interest rates might go to 2% does not mean your investments are in good shape if they are devaluing, it just gives you a better chance off reducing any potential loses when times a tough.

Funnily enough, I have been speaking with overseas investors that are looking to invest in property in Australia when things have settled down again. They are looking at a long term approach and do not expect to become rich over night. Many of them are millionaires, but have made their money in business and invest some of the profits in property. They strongly believe that property long term is a winning, but do not put all their eggs in one asset class.

On a side note, here in Malaysia a subprime problem is brewing. Low doc, special deals, 50 year loans, introductory interest rates etc as still being offered. Quite amazing given whats happening around the world.

Cheers

Benjamin
 

Similar threads

MrBurns
Brace for a hard landing
Replies
7
Views
4K
Bushman
Bushman
R
The Financial Endgame
Replies
18
Views
9K
qldfrog
qldfrog
Top