another us shock lurking in commercial propert, page-3

IMO local house prices will be above what is reasonable from a pure investment perspective, so long as:
- individuals continue to have a strong preference for ownership rather than rental (the great Australian dream of owning your own home)
- the government favours lending for housing over other loans via banking capital adequacy
- fiscal policies are supportive of home ownership (e.g. first home owners grant)

I can't see any of these things changing over the next 10 years:
- Phil Ruthven and others have espoused the benefits of renting for at least 20 years and predicted such a change, but hasn't happened IMO
- can't see the goverment changing the capital adequacy rules over the next few years given that our major banks have successfully navigated the GFC and they wont want to make changes that push them to raise funds in current market conditions
- Longer term the fiscal leverage of stimulating the housing sector to aid economic recovery is too potent an economic pill for them to give up. Remember hearing Don Stammer speak a few years ago and indicated that the first home owners grant had a multiplier effect of 27 times. That is, for every $1 granted, $27 of activity was generated. At first I thought this was garbage but given that many use the grant and essentially borrowed 100%, the numbers made more sense.

Anyway, whilst housing will be cyclical, IMO, it will continue to reflect these market distortions and preferences, rather than rational financial arguments.

However, if we see mass unemployment, then we could see a major dip, but expect it to be short lived and premium over rational financial numbers to return once employment picks up.

Just my thoughts, and DYOR.

Cheers
PViews