Harry Dent, the American financial newsletter writer who wrote “The Great Crash Ahead – How to Prosper in the Debt Crisis of 2010-2012”, is in Australia and saying that our real estate bubble is set to burst. He thinks there’ll be another worldwide economic downturn in 2012, and this will cause Australian real estate values to fall back to where they were 10 years ago.
“People in places like Sydney or Tokyo or Miami say, ‘Hey, real estate can never go down here, we’re a great place, everyone wants to move here, there’s not much land for development’, and what I say is that is exactly the kind of place that bubbles.”“Outside Hong Kong and Shanghai, Australia is the most expensive real estate market in the world compared to income.”
– The Age, “‘Tsunami’ to hit Australian real estate”- Harry Dent
So who is Harry Dent?
“The basis of Dent’s research is the highly predictable nature of consumer spending based on a family’s formation pattern: minimal spending as young adults, increased spending while rearing children, peaking their spending as their children leave home, and then slowing spending during the last 15 years of working life (48-63) while saving more and preparing for retirement.In the late 1980s, Dent forecast that the Japanese economy, then the darling of the world, would soon enter a slowdown that would last more than a decade. In the early 1990s, he predicted that the DOW would reach 10k. Both of these predictions were met with much skepticism, and yet both eventually came to pass.
In Japan, Dent was using their peak of 45-50 year olds (1990–1994) as the beginning of a long slowdown. In the US, he used, and continues to use, the peak year for 48-year-olds, 2009, as the top of a long term growth pattern.
… snip …
Dent popularized the baby boomer spending wave theory. According to him, after baby-boomers’ children leave home, they begin paying down debt and saving for retirement, which means spending less. That means that the stock-market should peak sometime between 2007 and 2009. This is based on his observation that spending peaks at around age 50 for individuals, the average age for a family’s children to leave home.”
- Wikipedia
Does Harry Dent get it wrong?
Yes. Here’s some criticism from the same Wikipedia entry:
“Dent has been criticized also by many economists for being downright wrong in several of his predictions. In fact, www.maxfunds.com, a financial reporting site awarded him the The “Ultimate Charlatan” Award. They write:“The worst investing advice usually arrives near the top and bottom of stock market cycles. Demographic trends guru Harry S. Dent is making the rounds again, and touting his latest book, The Great Depression Ahead: How to Prosper in the Crash Following the Greatest Boom in History ….” In his 2006 work, Dent predicted,
“The Dow hitting 40,000 by the end of the decade, the NASDAQ[‘s] advancing at least ten times from its October 2001 lows to around 13,500, and potentially as high as 20,000 by 2009 … The Great Boom[‘s] resurging into its final and strongest stage in 2007, and even more fully in 2008, lasting until late 2009 to early 2010.”
Of course, those who read The Roaring 2000s, Dent’s 1999 masterpiece, should soon be buying each of us a turkey with all the fixin’s. According to the book, only a year remains before the Dow breaks 40,000 and the Nasdaq hits 20,000, at which time we’ll simply amplify our fortunes by shorting stocks in the coming depression. We can’t underestimate how big this final move up will be before the depression kicks in, since The Dow and Nasdaq are currently quite a bit lower than they were back in 1999 when The Roaring 2000s was published.”
- Wikipedia
So what does this mean for Australian real estate?
Well, it’s hard to tell if Dent will be right or wrong. We should definitely not see his prediction as necessarily right as then it simply becomes a self-fulfilling prophecy. He has been very wrong before, and he may well be wrong again. I have a couple of questions for Harry Dent to consider:
Has he looked in detail at the Australian property market?
What does he know about property prices here, and the difference between our mortgage market and the USA?
I suspect he doesn’t know a whole lot about real estate in Australia, but is just looking at the global figures and throwing Australian real estate in with everything else. That doesn’t mean he’s wrong – Australian property prices may continue to decrease, but I wouldn’t accept Harry Dent’s explanation just because he said so.
Take a look at how many empty houses are sitting in Brisbane. Sellers desperately waiting for prices to improve… the crash has started and it will continue. Easy credit started this boom… and the days of easy credit are over. Prices are simply too high. You do the math…
Roger, thanks for your comment.
The things is, for a crash to happen home owners have to be willing to sell their property at that lower price. What I’m hearing is that a lot of home owners are removing their property from the market if they can’t get the price they want. They’re just going to wait it out until they get the price they want.
So is it possible for the home owners themselves to prevent a major price crash by hanging out for that higher price point?
i think alot depends on china, i was watching one report on cnn ,they were telling factories increase the worker salary 25 percent in one year because of inflation in china, still its not enough, many factories closing there, next 4-5 month make or break time for china. we know china is a buyer for Australian raw material. also there housing market is over valued. in 2008 recession, china inject the money, but this time its going to be hard for them. usa and europe is already under debt crises.
Kashif – I think you make a very good point. If China splutters, we could be in trouble. I heard an interview with an economist this afternoon who felt that China should be ok … even if growth there slows from 10% down to 7%, they are still doing very well.
However, I do feel that the resources sector in Australia, which seems to be propping up a lot of our economy, is too dependent on Chinese investment.
Interesting comments Darryl. There appears to be a lot of concern from the pro-growth lobby in relation to plummeting real estate movement. Historically, the PGL has been a vociferous proponent of high immigration as a tool to foster demand as well as lobbying the government for buyer assistance. The logical conclusion of these efforts is progressively lower disposable income from the 2nd speed of our 2-speed economy and inflated prices. The PGL continues to promote this agenda as well as lobbying the government to reclassify land in areas such as Melbourne’s green wedges and of course release more land to prop up their flagging industry offering the promise of cheaper housing. But this will of course just continue the downward spiral – I’m unsure why the PGL do not comprehend this – but I guess it’s hard to walk away from a strategy that has worked for decades. In the meantime, housing stocks appear to be at record levels and increasing. Add to the mix, the ongoing financial crises and recent and future job losses and the real possibility that we are now in all probability entering a “post-growth” stage (largely as a result of looming oil shortages and indeed shortages of materials across the board) it is hard to imagine that real estate will ever return to it’s former glory – in fact it seems highly likely that there will be a substantial collapse in real estate value while farmable land commands increasingly higher premiums. Of course, the last part of the puzzle is that understandably, buyers are realising that debt is very hard work. If the planet is going into chaos, then the last thing you want to do is to go into significant debt to buy something that is likely to drop significantly in value as people are now finding. I think sellers would be wise to seriously consider offers over 2/3rds of what they think their property is worth. That’s probably still a good deal in light of current indicatiors.
I cant believe that people are letting this guy Harry Dent tell us what to do – WHO IS HE and why has he been given so much publicity the media has a lot to answer for – I have heard enough!!!! Harry fix your own country first…. and leave us alone. It’s people like him that cause so much doom and gloom and part of the reason we have so many houses not selling if we listen to him we will not get anywhere – we have to keep things ticking over. Stop selling us short. America is in a b.. mess and we will follow if we don’t stand up on our own feet. I am sick of these people making us feel useless and dont start me on our government either……..
Actually, I have many times more than enough to put down a down payment on a house. Possible two if I really wanted to. I’m NOT going to buy a house this year, probably not next year either, because the houses are WAY WAY over priced. It’s the simple. I know for a seller it must be nice sitting on a $250K house and flipping it into $420K. But for the buyer, we’re getting a sub-par “Deluxe Apt” with a whooping TWO bedrooms. WOW, could life get any better LOL for a sad life in a cheaply made tiny apartment what once, long ago, was a nice city.
I’m highly skilled and more than well traveled. I’ve seen 3 story houses in Japan for $100K less than a “Deluxe Apt” in our great trend setter Australia. Sydney USED to be a wonderful city, now it’s dirty, overpriced and, sadly, not very Australian anymore. I’ve see houses in San Francisco for HALF the price of cheaply made ugly small apartment in Brisbane.
I’ll keep investing in silver and gold and ANYthing other than a house in Australia until the price drops at least 35-50% lower. Or, lucky for me, I’ll simply leave Australia and buy a house outright in Canada or elsewhere. Even in this depression people with highly skilled technical jobs can find work pretty easily overseas.
Hi All, I’m going to see Harry tomorrow in Brisbane and looking forward to alot of the other speakers/commentators that will be giving thier insight too. I am going as a way of increasing my education about economic matters and as an owner of a number of properties, I want to hear both sides of the”story” – from people saying we will go up like the past (they often have vested interests) to those who say prepare for the worst. I am concerned more for the people who are buying investment properties now with incomes that could be affected by the coming financial downturn and then are left with houses that are dramatically lower in value than when they bought (I have a friend in that position now – has bought 3 houses using his super). The banks then only have to have a hickup to then look for loans on their books that don’t value up to thier criteria and we have some very stressed people…..I bought houses 10 years ago so am not concerned about the drop in value but I am selling some now to give me some liquidity so that I can buy in again at a greatly reduced price in an area I would really like to live in. You may not agree with Harry (hard not to with his mostly accurate record) but I think we should be open to listening to all sides of the argument and being informed so we can make better decisions for our selves and our families. I have talked to pleanty of people over the last 4 weeks about Harry and NO-ONE has even heard of him (including property developers) so I don’t think he will have any bearing on the AUstralian market or talking us into recession – he is just observing economic cycles and markers and coming to fairly accurate conclusions.
Thanks for your comment, Peter. I’d be interested to hear what you learn at the Harry Dent presentation tomorrow, so if you can please let us know what you learned, and what you thought of the seminar.
Hi Peter, thank you for your comment. I suppose I seem to remember a time (maybe I’m an idiot) when the goal for us Australians was to have ONE nice house a nice family to live in it. Not to be a landlord or flip houses for a fast buck. That’s how it seems things are now. I find it a little depressing. It’s interesting how some jackoff in the USA named Greenspan could be so powerful so as to alter the social contract here in AU. To alter the very thing that used to make our nation wonderful, if not great.
I’ll be happy to support my wife’s small business and look forward to the day the property crashes so as to buy ONE nice home to raise a family in.
Peter did your perspective change after attending Harrys conference? Thx James
I for one believe that house prices will crash here in Australia. I don’t think that anyone can deny that we do have a big bubble which was fueled by easy credit and speculation that prices would go up forever. It got to a point that it does not make any financial sense to put your hard earned money in a house anymore. People are constantly stressed about interest rates even when they are low as they are now. I don’t agree with your comment that vendors will simply wait out for a better price because if they do, they could lose the today’s opportunities for today’s prices which are still high. If they wait, they can potentially lose everything they thought they had. A lot of people simply can’t wait out too long because they are hurting financially and they thought that if things got bad, they could simply sell the house and make a big profit. We all know now that’s not true. I know a friend who bought in Brisbane in 2008 for 450K. Then he spent another 30K on solar power and renovations. He has put his house in the market a few months ago and the best offer he got so far was 350K. He needs to sell. Another reason why I think there will be a crash here is exactly because a lot of people here think that real estate never goes down in price (**only in AUS**) and it’s just impossible and have the ‘we are better than everybody else’ attitude.
Darryl,
You asked if it’s possible that home owners themselves can prevent a major price crash by hanging out for higher prices.
Sure, if it’s a primary residence for living purposes and the person has a solid job even if negative equity sets in. If China were to have an economic correction due to its easy money policies, which will happen one day as nothing travels in a straight line forever, the results will have knock on effects in Australia’s mining sector and economy overall. That’s when jobs might be lost and would put primary new home owners under a lot of pressure in paying off mortgages.
http://www.safehaven.com/article/13982/analyzing-the-australian-dollar-up-down-and-under
What people need to understand is that easy money is created by the RBA with commercial banks using that money to lend out fractionally in a multiplying effect which is similar to a tsunami of liquidity that sends out false signals to business who overbuild and consumers who overspend going deeper into debt. However once this liquidity saturates any market whether stocks, bonds, houses or what have you, it recedes slowly at first and then pops in a crash leaving overcapacity of supply and satisfied demand. Not all sectors of an economy inflate or deflate at the same time.
The people who can least afford to hold out are those that have speculated and are now in possession of two, three, four or more properties and interest payments. There comes a time when there are no more buyers willing to pay higher prices or take on more debt in flipping houses back and forth to each other. The greater fool theory becomes manifest. That’s when it’s game over no matter how much easy cash the banks have on offer. Deflation in housing prices sets in.
This is Harry Dent’s deflationary depression bugaboo where in my opinion he is wrong. Having said that, he is correct about the Australian housing market being in a bubble and sooner or later correcting. His thesis is that, similar to what’s mentioned above; there are no takers for the debt that has flooded the worldwide economy. Where Harry goes wrong is:
1. Governments around the world are willing and ready to print as many currency digits into their computers as needed to keep the game going. They can spend quadrillions buying their own debt, supporting stock markets, providing welfare, in hiring people, waging war, etc. There are few politicians willing to level with the people and stop the spending. He should visit Mugabe and have a chat.
2. Harry sees the world through dollar colored glasses. Where his deflation will come from is not in dollar terms but in precious metal terms. People need to start pricing things in terms of gold and silver to get a more accurate picture of relative value over time as no paper currency has survived the test of time. In fact, you can check this out for yourself, oil, cars, food, etc., are cheaper today in terms of gold than 30, 40, 50 years ago and getting cheaper as metals prices move upward due to money printing. There is massive deflation afoot just not in dollar terms. He’s right for the wrong reason.
There will be an inflationary economic depression in many countries and it’s already starting with Ireland, Greece, Italy, US, Spain, etc. We will have massive, if not hyper, inflation in currency terms but deflation in precious metal terms. Think about it, with 2 billion Chinese people wanting a western lifestyle and being urged by their government to buy gold and silver, demand for the precious metals cannot keep up with the 2% yearly supply. This is highly deflationary as there is less real money in the world for people to chase goods and services as opposed to paper money where there is an unlimited supply.
Highly recommend Michael Maloney’s book:
http://www.amazon.com/Rich-Dads-Advisors-Investing-Financial/dp/0446510998
As people figure out their money is being inflated away by overprinting and debt issuance, aka housing bubbles, they will run to real things, tangibles, commodities, metals, etc. that keep their value. What Australia has experienced recently is massive dollar inflation in housing, now comes the deflation.
Bryan – I would have to say that I struggle to work out how houses aren’t tangible. And how are the people going to buy all these other tangible items you mentioned. I know the last time I bought a couple of hundred tonnes of iron ore it was a real bugger to store in my apartment.
Furthermore to all you property pessimists,
Property prices are a function of the economy (including input costs) and lending policy. In Australia we have well-regulated lending policy which means that we did not have a spree of building funded by irresponsible lending practices prior to the GFC which, in the US for example, led to a huge oversupply of property, which had been over-valued by the same irresponsible lenders.
If you would like an explanation as to why a house costs what it does in Australia the following real life eg from a recent Brisbane property development site (developed by an experienced and successful property developer) may assist:
A 600m2 site had 3 x 3-level 3 bed 2.5 bath double garage townhouses put on it. These were 180m2 homes each, not the tiny boxes may of you refer to.
The Land cost – $550K
Demolition and site clearing cost $30K
The construction cost – $650K
the development cost – $120K (council fees and infrastructure charges over $50K, external consultants approx $45K)
The agent’s commission cost around $45K
Marketing cost $20K
Bank Interest cost $95K
GST cost $45K
The properties were sold for $515 (some 8% lower than he had expected)
Leaving the developer with a profit of $65K. Not worth the risk of him doing a similar site again in this market again.
If Harry Dent is right and we are about to suffer a huge 50% housing crash then guess what – the developer’s land is going to cost him $275K which would result in the developer in the above example being able to sell at only 17.46% lower = $525K – ($275K/3) = 433.34K. The only way he could sell at Harry Dent’s 50% reduction was if all his input costs reduced to a level that shrunk his input costs. Unless all tradesmen are about to halve their rates and and all suppliers do the same our prices are going nowhere.
To add to this we have pressure on housing brought on by an ever-increasing population and as we don’t have the aforementioned oversupply this is putting further pressure on the housing supply.
But hey sit on the side-lines if you like quoting internet buffoons who have predicted “10 of the last 2 recessions” while your rent balloons to such a point where you need to start thinking about buying and then join the herd as they all rush to buy at the same time.
Chris,
Think about it this way, paper money is a tangible thing to a certain
degree however when produced in too much quantity, other tangibles are
dearer and valued by the public demanding a higher price. A person who
owns their house without debt has a tangible thing for sure. A person
loaded with mortgage debt has less of a tangible thing in hand because
the person owes future work hours to pay it off. As some will find
out, those future work hours are not so tangible therefore neither are
their mortgaged houses. Keep in mind going forward that the can is
being kicked down the road with no honest solutions, for now, being
offered about the GFC.
People should buy other tangibles like they buy houses, with money and
preferably without using too much debt to finance it.
Over issuance of debt by the banks aided by the first time home buyer
subsidization by the State has funneled huge amounts of money into the
housing sector. This has been increasing the price of homes and length
of mortgages to the seeming benefit of other areas of the economy with
less inflation and subdued prices. Ditto in the US. The more something
is subsidized, the more it costs and therefore provides better returns
for the banks in the way of interest income. Understanding the supply
and demand dynamic of credit and housing, there are only so many homes
that buyers are willing to bid up until the market corrects due to
overproduction and debt saturation. Prices usually don’t go up
forever. If they do it’s called hyperinflation.
I’ve heard people argue that they cannot put oil in their pockets as
a useful medium of exchange, eat gold and silver or, as you state,
store a hundred tones of iron in your apartment.
Price per ton of iron ore: US$136 x 100 tons equals US$13,600.
Price per ounce of gold: US$1,606 x 8.5 ounces equal US$13,600.
Price per ounce of silver: US$29 x 469 ounces equal US$13,600.
This is why precious metals were invented and solves your stated
problem pound for pound. Looks like gold wins hands down ounce for
ounce and silver being the better value.
You mention anecdotal evidence which seems at first glance to go
against your premise of a stabilizing housing market in Australia due
to a future fall off in supply because of rising input costs. Let me
explain, costs are increasing due to inflation of the worldwide money
supply as well domestically for most everything including land,
materials, food, fuel, fees, etc. Peoples’ incomes are, on average,
not keeping up with that inflation nor are people getting a real rate
of return on interest after subtracting inflation. Could this not be
part of the reason property developers are having to sell at lower
prices to meet demand due to an ever increasing cost of living for
most people who can longer afford to buy inflated homes?
In this current inflationary environment now covering other sectors of
the economy, housing demand will suffer and seems to be following in
lock step with what happened in the US just before the GFC. It no
longer paid to build, fix up nor flip properties as costs increased
beyond what people were willing to pay. A developer, or a mortgage
holder for that matter, can only hold on for so long before having to
declare bankruptcy due to a margin call that cannot be met. That’s
when the banks foreclose and take control of property and start
selling at reduced prices to clear inventory which only adds further
downward pressure on prices. Is immigration going to fill these houses
too?
I don’t live in Australia, but hasn’t the mindset of getting in
before prices get too high dried up and people are now waiting for
lower prices?
[…] way will the property market go? According to Harry Dent, real estate prices in Brisbane and Australia are about to come crashing down. Now we have Mr Zigomanis from BIS Shrapnel who has forecast a stable market before a 7 per […]
The markets contains sellers and buyers, and most sellers want to buy, I want to buy but can not because prices are out of hand and will crash to 1980s prices soon. But I also own a share in a property and I am pushing them to sell now or be prepared to hang on for 10-20 years. But they want to sell in two years because they are stupid. If I had my way we would have sold 2 years ago. POINT IS POEOPLE ARE STUPID AND NEED MONEY AND SELLERS WILL SELL AT ANY TIME. MY INVESTMENT PARTNER SOLD A HOME FOR 70,000 AND IN THREE YEARS IT SOLD FOR 300,000 AND THE SAME NUT WANTS TO DO IT AGAIN. THE ABOVE ARGUMENT IS CRAP PEOPLE ARE STUPID ENOUGH TO DO WHAT THEY WANT WHEN THEY WANT AND NOT SMART ENOUGH TO DO WHAT IS BEST
mate sell now get out as quick as you can .
But do not keep the proceedings in your bank u could u could loose it. Australia does not have a great economy other than steel, Steel collapses everything else will. I ve been in the real estate market now 22 years but this time there’s no chance . Banks lent developers big sums with little assert in order to gain big mortgagees for the banks by creating the Famous supply and demand question. We suffer the normalcy sindrom. So everything will be normal anything to the contrary is depressing toooo hard to handle .
You dug holes in the ground sold the dirt to China and India, destroyed manufacturing, made a nation of salespeople selling imported products to each other at inflated prices in order to become “rich”. Housing was top gear! Get in debt and buy…. price is irrelevant as the (mantra) property price doubles every 7 years. Negative gearing, what a wonderful invention. We are speculators so with the government help we’ll transfer wealth to our own pockets from other people. The Ponzi scheme has come to an end eventually. Rejoice as is the best thing that has had happened to you. Nevertheless some people that bought to the end of the Ponzi scheme will suffer and most of the speculators. For the rest though there are only benefits coming with a house price collapse.
China is our golden goose & China has being on a spending spree to he point where there is now 70million empty home units in, a city to house 1million people sits empty, the Chinese property bubble is already in burst mode with prices falling month on month, this will be the hump that brakes that back of Australia’s economic miracle, mass unemployment means mortgage repayments won’t be met & repossessed houses will flood the market & house prices in Australia will collapse & it’s only just getting started. Everything the government try to do by piling more debt on top of current debt will only delay the day of reckoning and make the fall much worse.
More grist for the mill:
______________
Oz job market weakens as firms cut costs
Australia’s jobs market is weakening as businesses look to cut costs to cope with a worsening global economy, economists say.
“The economy outside mining has been quite week so companies have had to start laying people off to get their costs under control.”
“That suggest for 2012 there will be weaker consumer spending, greater downside risk for businesses and this is of course even before the full impact of the European debt crisis.”
Redican said he believed the board of the RBA would cut the cash rate again at its next scheduled meeting in February, taking it to four per cent.
http://www.stuff.co.nz/business/world/6110355/Oz-job-market-weakens-as-firms-cut-costs
______________
It’s not just a European debt crisis but a worldwide one and the only way they will tackle it is with more debt; inflation through money printing and eventually higher prices. As unemployment and prices for goods and services increase, homeowners will have an even harder time making ends meet and paying off their mortgages. As if prices weren’t high enough already, going forward, The RBA will lower interest rates to flood more liquidity into the market.
It never friggin stops does it.
The media doing whatever it can to distort the truth.
Quoting private firm saying House values, have wait for it,
increased in 2011.
http://www.theage.com.au/business/property/home-values-rise-for-first-time-in-2011-20111230-1pf28.html (with no comments to rebuke how convenient! )
But go look at The State Revenue Office data (each State has its equivalent).
The actual sales result for each settled property settlement is there shown.
This takes normally 3 to 6 months to show. They’re shocking truths.
So, any figures relied upon are just that, unreliable and out-of-date.
Australia’s bubble is bursting — and it’s a wipe out of massive biblical proportions.
Steven Keen is highly respected, and knowledgeable.
But real estate agents, property spruikers love to ridicule him, falsely. Do not trust them.
Just take a look at the very fragile nature of the US and European economies. It will only take a small hiccup in 2012 for the herd mentality to set in and we will be in trouble. Greece, Portugal and one or two others are sitting on a mountain of debt which has not been fixed and will likely never be fixed resulting in default. This will probably be the precursor to another crash. My guess is around mid year.There will be great opportunities for those cashed up.
Ten,fifteen years ago,Australia was attractive for lot of UK and European people,for which was very interesting to sell their properties in UK and Europe on a top market prices and invest in Australia on a 1990. Price level,which,off course,boosted houses demand and automatically the prices,and these days,with a average income of around $60000 per year,and the prices of everything around us(food,bills,real estate…)we can’t say that our country is attactive to imigrate and bring money in?!And that will slow economic growth and this trading beetwen properties will stay just as a rich people’s game….
The property boom ended in 2003 in most cases.
Things haven’t gone up in the same way since then. (nearly 10 years ago) This is normal in Australias property cycle.
The last 18 mths to 24 mths property has either dropped or not moved at all.
If we keep hearing from these jealous Yanks that would love for Australia and the whole world to be in the same position as the states right now, all it will do is load up investors with bigger property portfolios.
Also, if you want your own home, go out and buy it as everyone that owns one has done. Please don’t wait until “The Crash” or wish a crash upon the hard working risk takers that have a mortgage. OR WE WILL PUT YOUR RENTS UP.
Unfortunately there are more pessimists out there in the world than than optimists. As soon as the things get a bit challenging the pessimists all seem to come out of the woodwork. If you look at property historically over the last 100 or so years in Australia property values (especially the quality properties) have doubled every 7-10 years. Obviously at present prices seem to be flat, however, once interest rates start coming down and rental yields start going up that will entice investors (new or existing) investors to get back into property investing.
As a business involved in property advisory, Zen Property Consulting believes things will be definitely start to pick up in the next few years as Europe starts coming out of recession. Presently, there are some really good buys in the marketplace at present. Remember that people have to invest their money into something. Generally, real estate offers investors a fairly safe haven provided that the property is bought in a good location, etc. Unfortunately because prices are down there is always that temptation to buy something cheap and go for value over investment quality. See value doesn’t build your wealth it is
investment quality.
Zen Property has recently launched its own property blog and provide buying tips, properties we’ve rated using our Zen Property rating System, general commentary and market updates for 2012. Our property blog is http://blog.zenproperty.com.au.
All markets throughout history have boomed and busted. Gold, stock markets, oil, corn, wheat, sugar, commercial property and guess what else….. Property for you and me! There is no way around this simple fact. Look through the last decade, last hundred years, last thousand years. The tulip bubble of the 1600s, South Sea bubble in england – 1700s, dot com bubble. We’ve had property bubbles before too. This is nothing new. Anyone that is old enough – the early 90s property decline. My uncle sold a 2 bed unit on the sunshine coast in the 90s for $80,000 because,” Property has gone no where but down for years”. There was also property bubbles around the world in the 60s/70s which popped and left everyone dumbfounded and broke. There was the post depression property bubble in the 30s/40s all around the western world.
I really don’t get how people can’t accept that property is boom and bust just like all asset classes and it has popped and bubbled before. This is nothing new!! Some people act like it’s so new and “omg, what will happen”. Search the net for bubbles, past property bubbles, past stock bubbles and you will see they are a part of our economy because of banks and our own greed.
Yes I believe property is a good long term investment. If you hold onto it for the next 20-30 years chances are you will be richer then today, but…… No market, including the property market, goes up without significant humps along the way. Normal declines are 30-40% and this will happen to Australia too. Yes we are a growing country, yes our population is growing, yes people would like more supply. Butttt, in the USA and Europe they all said the same thing in 2006 but prices do get to a point of ill affordability and banks get wind of this and start taking away the credit to protect themselves. This in turn leaves little chance of more bull years and people start to move away from buying property, cause 1) They can’t afford it (ask around – who can afford it) and 2) banks won’t lend like they used to.
My advice: If you can’t take a 30-40% decline over the next few years and hold on till we pull up which could take another 5-10 years from now, you should sell now.
Zac… Property prices double every 7 years do they??? My Grandad bought a house in 1960 for 30k. It’s now worth about $900,000 and is going down. By now it should be worth 3.8 million. Whats going on, will someone please give my Grandad the extra money? And in 4 years time it should be worth 7.6 million. I have a feeling that may not happen.. hmmm. 2023 it will be worth 15.2 million. 21 years after this it will be worth 121 million and another 21 years later it will be worth a BILLION dollars. hmmmmm. Anyone else think the 7 year double may not be true?
Most people fail to understand that a house is a depreciating asset that must be maintained, similar to a car, less it break down and fall into disrepair. After 100 years or so, a house must be torn down and built a new. How will that old house be worth millions in the future? It’s a matter of house inflation more than value. The land on which the house sits is more the value asset over time.
What you mention the business cycle which today is way out of whack to due to over issuance of money on a grand scale. What used to be a 7 year cycle is now closer to a doubling of that if not longer. Like all cycles, there is a time for inhaling and exhaling. The problem is that policy makers try to prevent the natural correction from taking place and make matters worse, if not extending them, by not letting the markets breath properly.
For those who tend to project current conditions off into the future ad infinitum:
“Study the past if you would divine the future.” -Confucius
Well I want to enter the market but cannot as simply cant afford to pay $4000 mortgage+tax+utilities or $48000 per annumm on a $90,000 p.a. income it is simple maths and I dont earn very less by most people comparisons…more so i am not able to save the 20% on a $450,000 i.e. $90,000 after paying $22000 rent on my income….all the big economist and speculators please bear this in mind….and so I continue to rent hoping it is going to get more affordable
I believe the housing market complexity to a small degree has been warped by ever increasing salaries for professionals (Harvard report confirms this). To many chiefs and a more impoverished working class. Rents cannot climb much more as the minimum paid workers just have to live in run down property or live on the street, killing investor returns further. (I work with street people so I know. The Qld Government and the Feds have to keep pouring in more money to help get roofs over peoples head. I call it investor welfare.) A friend I know within 2 years out of Uni as an engineer bought 3 homes. 4 years out sold 1 and bought a million dollar home. This is obscene. Working hard is not a defense. I am trying to buy a simple home for myself(Hopeless). I value a home based on a small rental return even though I will use it as my principal place of residence. I am shocked at the almost non existent rental returns in country Qld. I estimate houses are 30 to 40% over valued. Rates and Charges to feed the public service useless feeders, take a big chunk of the returns. Sellers are holding BUT my money stays in the bank as I am catching up to houses prices.
Greed in this country is rampant and the Governments keep chucking in grants and welfare support that the investors crave, and get at the end of the day, still leaving poor returns with inflated house prices. The dog chasing it’s tail effect. Hello the Greek meltdown. Dynamics suggest Australia is heading for a big crash, though it may be delayed due to the mining boom that feeds the profits of overseas corporates. I recently did a Uni survey on mining. Omg the Dons have no idea. Their estimates in relation to secondary jobs created by the mining boom is laughable.
Add to this dying manufacturing and a PUBLIC workforce including Government funded “Private” agencies” of nearly 50% “public servants” and we have a non productive nation producing “Monkeys with Clipboards” as I call the non thinking class working for Government.
Yes we are not the USA, we are worse in different ways !
You may think that we are somehow immune to what is going on around the world but Australians would be wise to shed the arrogant “it won`t happen to us attitude”. I see many people buying property with money they don`t have and both HAVING to work just to keep up with the mortgages. On top of this is private school fees each year for usually more than one child and rising costs just for utilities etc. What is with buying property and only paying the interest? The banks have you by the nuts in this situation and they will and can do what they please. Do any of you have extra time to work a third job to pay for a rise in interest rates? Best not to talk about the Americans and so-called extravagant lifestyles as many here are way over their heads in debt. Better pay close attention to what Mr Dent is saying…it is already starting to happen!
Laurent that’s a classic truism baby!
What’s now?
The hidden property crash…The scary side of owner occupied loans is easily calculated. Modest $380,000 loan acquired in 2008 @ 7.2%. The owner will have paid $125,000 in repayments by now reducing their principal by a measly $16,000 to $364,000. The property market drops by 5% and they sell this year for $361,000. The total cost for 4 years = $112,000!!! or loss terms
$380,000 + $125,000 = $505,000 (Break even)
$361,000/$505,000 = 71.4% price deficit since 2008
In 1986 I purchase my first house for $95000.00 no garage, no carpet, no aircon, no central heatting, no land scape, driveway, no dishwasher or theart room. The intrest rate was 13.25% and went to 17% and I did not get a first home grant or baby bonus etc and i didnt drive the latest BMW. I was earning about $15000.00 per gross.
I really dont know what every body is complaining about, you guys have it easy compared to your parents. The biggest problem is you all try to run before you can walk.
My addvise to you all dont buy at auctions the prices are always inflated and there are always dummy bidders in the crowd.
If the Agent doesnt print the price on a add dont call them its a ploy to get numbers.
If you follow these two tips the prices will come down and it will keep the agents on there toes and you have control.
The best thing to do is wait till you can afford it and then buy and that goes for most things.
There are 26 houses on my block….13 on our side of the street and 13 on the other. There is ONE child on the entire block. Because of Harry’s theories, I began to research the demographic problem. It is real and it is scary. Schools are closing down all over the world. In one area of Tennessee, enrollment is down by 70%. Not only is Harry Dent correct, so are the USCCB,(Catholic Bishops) who have trying to reverse this trend for decades. Japan is officially dying, China is a disaster waiting to happen. Without immigration, Europe would already be living in a new dark age. Go ahead, google “demographic” and “decline”, with every country in the world.
Interesting…. it is nearly two years since the last post here & what has happened in that time.
US recovery & not only no wipe out in Aussie property but things again looking quite positive.
Just amazing how a negative topic brings the spooks out of the shadows. OK so it could crash tomorrow, the truth of the matter is the market will decide these things, not you or I.
Thanks for your comment, Robert. Now Harry Dent is at it again, saying that Australian real estate will crash in 2014. Will he be right this time?
Has Dent any backbone, has he no shame ? Only a sociopath can be so far and a way off of the mark of what is happening in the marketplace. DOW down to 6000 in the first qtr. of 2014, and further down to 3000 ? What a rubbish ! Pull a tail between legs out of shame and try to crawl away form the spotlight Harry…but, not our Dent, who will keep on trying to paddle his articles and spread more garbage, feeding on/living off naïve and insecure folks who may act on Dent’s idiotic ideas and repeated calls: Wolf, wolf, wolf ! Even the small kids know how the story ends.