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Don't be Fooled by Aussie Housing's Death Fart
We don't know if it's true or if it's an urban myth.
But according to the tale, when a person turns up their toes to meet their maker (or fall to eternal damnation), shortly afterwards the body releases pent up gasses.
This can make it seem like the dead body is exhaling from the mouth or...hehem...from somewhere else.
In these moments, mourning relatives can wrongly think that their dearly departed loved-one has miraculously come back from the dead.
As we say, we don't know if this really happens or whether it's just an urban myth (although seeing as Money Morning is the undertaking profession's financial newsletter of choice, we're sure to get some feedback on this. Send your comments to [email protected]).
But it's not only in dead bodies that you see this phenomenon. As we'll show you today, the 'death fart' has fooled mainstream economic analysis into thinking a housing recovery is on the cards...
As this report from the Smart Company website notes:
'With the other major index providers now releasing their September quarter data, we can start to see a firm pattern of recovery emerging in Australia's housing markets.'
It's worth noting that Tim Lawless wrote the article. He's the national research director for RP Data, a housing index firm.
Mr Lawless isn't the only one excited by the Aussie housing 'death fart'. Writing for Business Spectator, economist Stephen Koukoulas says:
'House prices are climbing higher, reversing what were steady falls from early 2011 through to about May this year.
'According to the RP Data series, house prices have risen 1.2 per cent so far in September to be 2.7 per cent higher than levels at the end of May...
'There are good reasons to think that house prices will continue to move higher.'
Oops! What's that sound we hear? Ooh, it's unmistakable.
Here's Why Mortgage Money is Dead Money
Just a month after Mr Koukoulas trumpeted the Aussie housing recovery (he wasn't the only one, even former housing bears are starting to get bullish), RP Data released its October data:
'Dwelling values across all of Australia's capital city housing markets, except Perth and Darwin, fell over October, interrupting a four month recovery.
'The RP Data-Rismark Home Value Index result for October recorded the first month-on-month decline since May 2012, with the eight capital city aggregate index falling by -1.0 per cent over the month.'
So much for a recovery. In fact, according to RP Data, since the start of the year, house prices in the five major Aussie capitals are down 0.2%, and down 1.2% since the same time last year.
That doesn't sound like a big deal, but for homebuyers who expected 7-10% annual growth, and that house prices would double every seven years, it is a big deal.
Because not only have house prices not matched these gains...they've fallen. That has compounded the loss. And for each year prices don't go up it means more interest payments down the drain.
The housing spruikers used to say that 'rent money is dead money'. It turns out that in a falling housing market, 'mortgage money is dead money' too.
But look, we can't really blame the housing spruikers. It's the nature of markets. The market raises your hopes and then disappoints you.
You only have to look at a chart of the Aussie stock market over the past three years to see more false hopes than you can shake a stick at.
How Homebuyers Lost $65,000 Last Year
But the stock market is different to the housing market. The average Aussie has a much bigger exposure to housing than they do to shares. And what's most frightening is that whereas loans to buy shares have fallen off a cliff since 2008, the amount of mortgage debt has gone up.
But that's not all. As Mr Koukoulas states in his article:
'Let's go back to early 2011. There was a $500,000 house that you wanted to buy and your annual household income of $100,000, but the house was just out of reach. Fast forward to the middle of this year and in that 18 month period, the house price has dropped to $465,000 while your income has risen to $106,000. Clearly, it is increasingly attractive for people to dive in and buy that house and that is happening now.'
We'll make two comments on this lame attempt to talk up Aussie housing.
First, we don't know a single person who would buy $465,000-worth of shares on credit in this market...especially not on a household income of $106,000 (we assume this is before tax income).
And yet that's exactly what the housing spruikers want the average Aussie to do. Take out a half-a-million dollar loan to buy an asset that in all likelihood will be worth less in one year than it is today.
This brings us to the second point. Mr Koukoulos imagines the homebuyer who missed out on buying the $500,000 home. But what about the homebuyer who did buy the home?
One year later, the home is now only worth $465,000...plus they've paid interest on the mortgage (say a $450,000 mortgage) of about $30,000. So in the space of one year, the homebuyer has busted $65,000, wiping out the deposit money that may have taken them 10 years to save!
Call that an investment? Give us a break. We make no apologies for saying that is a rotten, rotten, rotten investment.
You've Got to Stay Clear of This Stinking 'Investment'
Of course it's only natural for people to look on the bright side, and hope for a recovery. That's true in stocks and it's true in housing. But that doesn't mean you should blindly throw all your cash (plus more that you've borrowed) into an investment just because you hope things will get better.
As a speculator, we know all about risk. We know that small-cap stocks in particular are as risky as heck. We would never dream of telling people to borrow hundreds of thousands of dollars for a risky investment.
Heck, we wouldn't tell investors to borrow hundreds of thousands of dollars on the bluest of blue-chip stocks. In fact, if you're patient, as Nick Hubble shows in his recent report, you can get the benefit of compounding returns without going into debt and without taking unnecessary risks.
Yet borrowing huge sums to buy over-priced housing is the kind of reckless behaviour and irresponsible advice you see in the mainstream press almost every day.
Bottom line: Investments should make you money. That's not to say all investments will make you money, but that's the goal. One thing's for sure, borrowing to buy an expensive house is the easiest way to lose cash hand over fist.
Let's make something clear. In terms of speculative growth the housing market is dead. Full stop. You should ignore any tiny whimper or gust of apparent recovery you hear.
Don't be fooled into think the Aussie housing market is still alive, because as you'll see over the next 5-10 years, what you've heard from the housing market today is nothing more than a housing 'death fart'...
And we'd recommend you avoid being in the general vicinity of one of those at all costs.
