Comments on: Bubbles Always Pop http://www.fusioninvesting.com/2010/04/bubbles-always-pop/ Fusing Fundamental and Technical Analysis with lashings of Behavioural Finance. Investing in Australia and North America. Thu, 02 Feb 2012 06:57:27 +0000 hourly 1 http://wordpress.org/?v=3.2 By: Dank Castle http://www.fusioninvesting.com/2010/04/bubbles-always-pop/comment-page-1/#comment-2416 Dank Castle Sat, 15 Jan 2011 13:17:26 +0000 http://www.fusioninvesting.com/?p=5400#comment-2416 A year ago there was total denial the real estate market was in any bother. Now the recognition is beginning to dawn on the smarter folks that something terribly serious is happening to the property market, but as normal their blind faith is that they will have the oft spoken about 'soft landing'. Ha! No way hose! The bigger the boom, the bigger the bust. The property boom that began here in the late 90s started slowly and snowballed into the biggest property bubble the planet has ever experienced. This crash that's now underway will be absolutely the same. My advice to real estate speculators is panic, NOW! As this year pans out you'll finally recognize property in Australia is dead for generations. This crash is going to be a big one! Dank Castle <a href="http://s4.zetaboards.com/Australian_Property/blog/main/3247452" rel="nofollow">Australian Property Crash Forum and Blog</a> A year ago there was total denial the real estate market was in any bother. Now the recognition is beginning to dawn on the smarter folks that something terribly serious is happening to the property market, but as normal their blind faith is that they will have the oft spoken about ‘soft landing’. Ha! No way hose! The bigger the boom, the bigger the bust. The property boom that began here in the late 90s started slowly and snowballed into the biggest property bubble the planet has ever experienced. This crash that’s now underway will be absolutely the same. My advice to real estate speculators is panic, NOW! As this year pans out you’ll finally recognize property in Australia is dead for generations. This crash is going to be a big one!

Dank Castle
Australian Property Crash Forum and Blog

]]> By: Sean http://www.fusioninvesting.com/2010/04/bubbles-always-pop/comment-page-1/#comment-1785 Sean Tue, 27 Apr 2010 11:09:39 +0000 http://www.fusioninvesting.com/?p=5400#comment-1785 Hi Dean, it's a question I've spent much time thinking about over the last few years as my wife and I have about as much in investment property as stocks. The investment properties have actually done much better in CAGR than the stocks due to the leverage. CAGR for property was low (my guestimate inflation + 1% or less) prior to 1980. Since 1980 it has been over 8%pa. If you bought a house in Melborne or Sydney in 1980 for 60,000 chances are it would be worth 800,000-1,000,000 now. Which is pretty good for baby boomers. After thinking about it, my view is that unemployement is a critical variable in house prices. I think it trumps all the other variables put together. I don't think there is a high risk of a property slump unless there is a signficant turn in unemployment. I think this is what Keen missed. Overvaluations can become higher, particularly if the unemployment rate falls. Even if people are spending 40% of their income on housing, they will still do it as long as they have a job. At 80% leverage, if they lose their job, they end up having to sell the house within 6-12 months unless they have significant savings. I was thinking that we would sell the investment properties before 2014 if there was a 50% increase but it could potentially exceed that if unemployment falls further, the stockmarket rallies further and the commodity boom rolls on. Houseprices are already horrendously overpriced, so how would you describe that level? A 20-30% or greater correction will probably occur at some stage. In the meantime, I'm still a participant in the bubble. Hopefully I won't end up with it all over my face when it pops! Good luck in your assignment! Hi Dean, it’s a question I’ve spent much time thinking about over the last few years as my wife and I have about as much in investment property as stocks. The investment properties have actually done much better in CAGR than the stocks due to the leverage.

CAGR for property was low (my guestimate inflation + 1% or less) prior to 1980. Since 1980 it has been over 8%pa. If you bought a house in Melborne or Sydney in 1980 for 60,000 chances are it would be worth 800,000-1,000,000 now. Which is pretty good for baby boomers.

After thinking about it, my view is that unemployement is a critical variable in house prices. I think it trumps all the other variables put together. I don’t think there is a high risk of a property slump unless there is a signficant turn in unemployment. I think this is what Keen missed. Overvaluations can become higher, particularly if the unemployment rate falls. Even if people are spending 40% of their income on housing, they will still do it as long as they have a job. At 80% leverage, if they lose their job, they end up having to sell the house within 6-12 months unless they have significant savings.

I was thinking that we would sell the investment properties before 2014 if there was a 50% increase but it could potentially exceed that if unemployment falls further, the stockmarket rallies further and the commodity boom rolls on. Houseprices are already horrendously overpriced, so how would you describe that level? A 20-30% or greater correction will probably occur at some stage. In the meantime, I’m still a participant in the bubble. Hopefully I won’t end up with it all over my face when it pops!

Good luck in your assignment!

]]> By: How much above trend are Australian house prices? | Data Diary http://www.fusioninvesting.com/2010/04/bubbles-always-pop/comment-page-1/#comment-1784 How much above trend are Australian house prices? | Data Diary Tue, 27 Apr 2010 03:37:30 +0000 http://www.fusioninvesting.com/?p=5400#comment-1784 [...] house prices ran well ahead of growth in real incomes, real construction costs and real rents (see here). [...] [...] house prices ran well ahead of growth in real incomes, real construction costs and real rents (see here). [...]

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