Although I have always loved to talk about the economy and particularly property on this forum recently the threads have descended into a farce.
Rather than partake further on the existing threads particularly those on Keen I have decided to start a new thread. The idea being that hopefully I can express my views and hopefully start a more sane discussion on the topic, admittedly I will probably fail. To be clear I am not trying to wash my hands of the recent insanity in many posts but at least I have put a halt to it.
The main reason why this discussion has been so difficult is not because of the gravity of the issue being discussed namely the future of the property market but more so the drivers behind some posters.
I for one am a developer, obviously have a perceived bias towards property but in the end of the day I run a business and not part of a religious sect blindly worshiping property.
In addition to developers, there are builders, investors, realestate agents, wanabe economists, home owners and also people who hate all of the above or at very least feel they are spruikers or specufestors.
Many people bring with them a preconceived view on what each poster “truly believes” and see theirs posts in that context. For instance if I post a stat showing price movement to the positive the response is usually, the data is faulty or I am scratching the bottom of the barrel for some good news while ignoring the negative – because the preconceived view is that I am perpetually positive about property.
So rather than scream at one another lets try our best to take a calm approach and see what’s happening today first then predict tomorrow and then the long term.
Today prices have not dramatically fallen. Aside from commercial property funds that are highly geared and forced to sell on a market where there are no buyers, or other funds forced to revalue their book values on commercial properties there has been no sign of “dramatically” falling prices in the residential market.
Volume of sales has dropped substantially but there has been no equally dramatic fall in sale prices. Regardless of ones personal views or anecdotal evidence to the contrary or ones perception of stats being wrong this is the reality today. This is not to say there are pockets going sideways, down and down dramatically.
Is there downward pressure on prices? Yes ofcrouse, Adelaide, Brisbane, NT etc have been very strong markets in 2007 and the fact they are not posting similar growth rates e.g. BRISBANE LGA\SD between 1-3% (last qtr) is proof of this.
The question that should be asked is does this point to a dramatic fall in prices? And no matter how embolden you are with your own views that we are heading for prices falling by 40% its not happening today or tomorrow.
Therefore to assume prices of 1-3% will turnaround to -40% anytime soon is definitely not going to happen regardless of how sound you believe the modeling of one man e.g. Keen is or how sound his theories are. Further more, It’s not helpful to compare Aus to other countries. If you cannot get over not comparing Aus with other countries at least acknowledge that even the US which I am sure most would agree have bigger issues than us in all aspects of their economy. The US posted price falls over the last two years of 17% since peaking in early 2005 and started to fall in 2006, not 40% and its not a “sudden” thing like the media would make most believe i.e. that America just woke up last month to figure out something was wrong.
So prices fell by 17% over a period of 2-3 years? This despite the US being without a doubt the epicentre of the ills of the world today. The price fall when a bubble bursts is it’s most pronounced immediately after the fact hence the analogy of a bubble bursting therefore it would be logical these prices falls will slow and theres even recent evidence of this, read fin review yesterday.
The US experience does not help in anyway when trying to understand the Australian situation. Those who hold the view that we are heading for the abyss will quickly claim “but what makes us so special that the same cannot happen?”. Its not about being special or wishful thinking its simply the facts. We are not the USA, we did not have anything near as a pronounced boom in property prices, nor in speculation and unlike them we don’t have a glut in properties – they cannot even rent them out they are demolishing them.
Now the problem with my assessment is that there will be always figures like debt to income ratios that people will throw up in support to linking Aus with USA but we must at least agree that there are enough factors of difference to warrant the position that a different outcome will be produced in terms of pricing.
Therefore to argue a 40% fall before unemployment has risen markedly, before growth has fallen markedly (in negative) and before crucially prices have fallen markedly then claims such as Keens are “Extreme”.
However many will claim that just because they are extreme doesn’t mean they are wrong. Ofcourse not but more times than not they are and the recent crisis is not a valid example to disprove this view. I for one have not been following the US, UK or Europe so I cannot comment if they have blindly walked into this crisis and ignored the “extremist” views. However the extremist view here in Aus has not manifested itself into massive price falls, not by a long shot.
There’s there perversely almost a wanting by those who are screaming out 40% falls for it to happen, it’s almost as if they are reveling in the prospect of this occurring and this is not helpful. Especially when the likes of Keen have so obviously been contradictory in so many aspects of what he has done personally and what he has advocated.
In short based on the information we have today and filtering mainstream media which are only to happy to scream boom when prices rise by 1% and death and destruction when they fall by 1% we should see the economy for what it is.
The economy will slow, the US, UK and many other developed nations will be in recession either technically or notionally. This will undoubtedly lead to a slowdown in Australia which will put downward pressure on property.
The finer details such as shortage of supply, rental prices etc will obviously play a roll in putting a floor on prices but in the end of the day the tug of war between increasing unemployment, sentiment and economic fundamentals will mean at worst case we will see “real price” falls of 0-10% over two or so years, in best case 0-10% “real price” rises over two years and most likely somewhere in-between. To claim depression at this stage does not even warrant discussion.
However the most important point to take away is any view is an industry view, there will always be suburbs that go up and down e.g. in the last qtr, Manly (Brisbane) dropped by approximately 35% recently however East Brisbane, Carindale etc posted double digit growth 18,25% respectively. So in the end of the day, like investing in the good or bad times only those who approach the game prudently, calmly and without basing their decision on the extremist views will profit. Those that that don’t and jump on each news article or broadcast will fail.
Its simple, investing always carries risk – deal with it.
Rather than partake further on the existing threads particularly those on Keen I have decided to start a new thread. The idea being that hopefully I can express my views and hopefully start a more sane discussion on the topic, admittedly I will probably fail. To be clear I am not trying to wash my hands of the recent insanity in many posts but at least I have put a halt to it.
The main reason why this discussion has been so difficult is not because of the gravity of the issue being discussed namely the future of the property market but more so the drivers behind some posters.
I for one am a developer, obviously have a perceived bias towards property but in the end of the day I run a business and not part of a religious sect blindly worshiping property.
In addition to developers, there are builders, investors, realestate agents, wanabe economists, home owners and also people who hate all of the above or at very least feel they are spruikers or specufestors.
Many people bring with them a preconceived view on what each poster “truly believes” and see theirs posts in that context. For instance if I post a stat showing price movement to the positive the response is usually, the data is faulty or I am scratching the bottom of the barrel for some good news while ignoring the negative – because the preconceived view is that I am perpetually positive about property.
So rather than scream at one another lets try our best to take a calm approach and see what’s happening today first then predict tomorrow and then the long term.
Today prices have not dramatically fallen. Aside from commercial property funds that are highly geared and forced to sell on a market where there are no buyers, or other funds forced to revalue their book values on commercial properties there has been no sign of “dramatically” falling prices in the residential market.
Volume of sales has dropped substantially but there has been no equally dramatic fall in sale prices. Regardless of ones personal views or anecdotal evidence to the contrary or ones perception of stats being wrong this is the reality today. This is not to say there are pockets going sideways, down and down dramatically.
Is there downward pressure on prices? Yes ofcrouse, Adelaide, Brisbane, NT etc have been very strong markets in 2007 and the fact they are not posting similar growth rates e.g. BRISBANE LGA\SD between 1-3% (last qtr) is proof of this.
The question that should be asked is does this point to a dramatic fall in prices? And no matter how embolden you are with your own views that we are heading for prices falling by 40% its not happening today or tomorrow.
Therefore to assume prices of 1-3% will turnaround to -40% anytime soon is definitely not going to happen regardless of how sound you believe the modeling of one man e.g. Keen is or how sound his theories are. Further more, It’s not helpful to compare Aus to other countries. If you cannot get over not comparing Aus with other countries at least acknowledge that even the US which I am sure most would agree have bigger issues than us in all aspects of their economy. The US posted price falls over the last two years of 17% since peaking in early 2005 and started to fall in 2006, not 40% and its not a “sudden” thing like the media would make most believe i.e. that America just woke up last month to figure out something was wrong.
So prices fell by 17% over a period of 2-3 years? This despite the US being without a doubt the epicentre of the ills of the world today. The price fall when a bubble bursts is it’s most pronounced immediately after the fact hence the analogy of a bubble bursting therefore it would be logical these prices falls will slow and theres even recent evidence of this, read fin review yesterday.
The US experience does not help in anyway when trying to understand the Australian situation. Those who hold the view that we are heading for the abyss will quickly claim “but what makes us so special that the same cannot happen?”. Its not about being special or wishful thinking its simply the facts. We are not the USA, we did not have anything near as a pronounced boom in property prices, nor in speculation and unlike them we don’t have a glut in properties – they cannot even rent them out they are demolishing them.
Now the problem with my assessment is that there will be always figures like debt to income ratios that people will throw up in support to linking Aus with USA but we must at least agree that there are enough factors of difference to warrant the position that a different outcome will be produced in terms of pricing.
Therefore to argue a 40% fall before unemployment has risen markedly, before growth has fallen markedly (in negative) and before crucially prices have fallen markedly then claims such as Keens are “Extreme”.
However many will claim that just because they are extreme doesn’t mean they are wrong. Ofcourse not but more times than not they are and the recent crisis is not a valid example to disprove this view. I for one have not been following the US, UK or Europe so I cannot comment if they have blindly walked into this crisis and ignored the “extremist” views. However the extremist view here in Aus has not manifested itself into massive price falls, not by a long shot.
There’s there perversely almost a wanting by those who are screaming out 40% falls for it to happen, it’s almost as if they are reveling in the prospect of this occurring and this is not helpful. Especially when the likes of Keen have so obviously been contradictory in so many aspects of what he has done personally and what he has advocated.
In short based on the information we have today and filtering mainstream media which are only to happy to scream boom when prices rise by 1% and death and destruction when they fall by 1% we should see the economy for what it is.
The economy will slow, the US, UK and many other developed nations will be in recession either technically or notionally. This will undoubtedly lead to a slowdown in Australia which will put downward pressure on property.
The finer details such as shortage of supply, rental prices etc will obviously play a roll in putting a floor on prices but in the end of the day the tug of war between increasing unemployment, sentiment and economic fundamentals will mean at worst case we will see “real price” falls of 0-10% over two or so years, in best case 0-10% “real price” rises over two years and most likely somewhere in-between. To claim depression at this stage does not even warrant discussion.
However the most important point to take away is any view is an industry view, there will always be suburbs that go up and down e.g. in the last qtr, Manly (Brisbane) dropped by approximately 35% recently however East Brisbane, Carindale etc posted double digit growth 18,25% respectively. So in the end of the day, like investing in the good or bad times only those who approach the game prudently, calmly and without basing their decision on the extremist views will profit. Those that that don’t and jump on each news article or broadcast will fail.
Its simple, investing always carries risk – deal with it.
