House prices are a matter of opinion whereas debt is real.
Mervin King, former Governor of the Bank of England.
The fun continues apace in Australia as people too young to have ever experienced a significant downturn are coming to terms with the first in their adult lives.
Our old friend, The Pwoperdee Doctor, is calling on the Reserve Bank of Australia to cut interest rates, not for him, you understand, but for the sake of the kids;
And later this week, more questionable content from The Doctor;
His content sometimes seems suspiciously like financial advice. This, for example, seems to be encouraging first time buyers into a falling market;
Since when was instant negative equity ‘The Great Australian Dream’?
Here’s a question for The Doctor; would you advise a close relative of yours to buy their first property today or wait a while for the falls to flatline? If not, be prepared for a little legal action in a year or two seeking a contribution from you for giving poor advice when someone sitting in a 2 bed apartment finds it’s now worth $100k less than they paid for it.
Over at the Sydney Morning Herald, a media outlet that previously relied almost entirely on its property listing subsidiary for any chance of making a profit most years, reality is starting to sink in.
One has to enjoy the circular nature of Finder’s Graham Cooke’s logic and his demonstration of a Nobel Laureate’s mastery of mathematics;
Yes folks, that’s right; if property falls by 20%, people who bought recently with a 20% or less deposit will be in negative equity. I bet he had a team of monkeys up all night with calculators working that out.
Actually, it’s worse because stamp duty is several percent depending on the jurisdiction so negative equity is achieved earlier.
This is all so unexpected, of course. Nobody could have seen this coming.
Which reminds us of Taleb’s classic chart from ‘Black Swan’;
Meanwhile, theres an interesting bet on between the Kouk and Tony Locantro;
Specifically, we are wagering $15,000 to $2,500 that Sydney or Melbourne or national wide house prices will or will not fall by more than 35 per cent from their peak at any stage before and up to the December quarter 2021.
At the current trajectory, Stephen Koukoulas will lose $15,000.
Of course, no market ever moves in a straight line and, as we saw in 2008, expecting any government to simply let markets run their course in a downturn is a very naive position to take.
It’s far more likely that interest rates will be cut, regulators will be told to ease lending restrictions, banks will be reminded who really owns them and the Millennials will be encouraged into another generational wealth transfer over to their parents’ generation.
By the way, this is all happening at a point in the economic cycle where money should still be made. The USA is unlikely to go into recession in 2019 and that should have been good news for the Australian economy. That the mood seems not so cheery in the “Lucky Country” speaks volumes.
If you’re about to buy your first property, why not wait until you’ve seen 3 to 6 months of no falls in prices, just to be certain you’re not jumping in a year too early?
Ask a financial planner (a good one, not one who relies on selling you “products”) whether some physical silver or gold might be a good thing to own right now, perhaps? Ask also about uranium mining shares.
After all, there’s always an inherent risk to catching falling knives…..