massive property crash about to happen, page-29

Boys and girls, the bottom line when it comes to property, is this: it is a market-linked asset, which means, just like shares, it can do one of three things - it can go up, it can go sideways, and it can go down. Make no mistake, property does NOT just rise, then plateau, then rise again.

In the last recession of the early 1990s, property prices slumped (some suburbs lost as much as 50% on their previous record median prices), and there was generally no real upward movement in house prices until the end of 1996. Many property investors lost out big time, either not being able to keep up with loan repayments and being forced to sell for less than what they originally bought, or just running out of patience with an asset that was giving them no real growth, and selling so that they could invest their money elsewhere - the sharemarket was the main benefactor of this shifting off funds.

Since 1997, when house prices started to move again, anyone fortunate enough to have owned and held a property through the tough times, (and then anyone who subsequently bought property between say 1998 and 2002) has seen a substantial capital gain on their investment.

Such a return on residential property has never before been seen in this country. The fact that one of the most remarkable runs on the sharemarket came to an abrupt halt in 1999/2000, with the bursting of the tech bubble; the subsequent global fear and uncertainty that lingered after September 11; and the accounting scandals that followed in the U.S. have all helped exacerbate and prolong the housing boom.

Who would have believed at the time, that in four or five years they would have more than doubled their money? No-one. Yet today, with the benefit of hindsight, most of these 'clever' property investors - or lucky buggers - which ever way you want to look at it, will claim that they are geniuses. The scary thing is that most of them think they have this game down-pat and they will double their money all over again in the next five years.

Right now, there is a lot of smoke and mirrors re: what is actually happening in the local property market. There are different views being presented about what state the market is actually in. Although several commentators believe the market is (and will continue to be) slowing, we are also getting conflicting data that says prices are actually up this quarter compared to last.

People in the real estate industry would have us believe that the worst is over, and the market is now taking off again. Personally, I laugh at these suggestions, and think we haven't even seen the start of the end for the property boom.

Think about it: we have had 2 interest rate rises in Nov and Dec 2003 totalling a 0.5% increase from record low interest rates in this country. Hardly enough to put an end to a property boom the likes of what we have just gone through. The honchos down at the Reserve Bank keep on patting themselves on the back, claiming that they have successfully put an end to the overheated property market, with their 'careful' monetary policy. They believe they have successfully deflated the property bubble. I think they are kidding themselves.

My personal opinion on the current state of affairs is that the latest figures showing price increases are an indication that the market is ever so delicately poised. Very similar to what happened in early 2000 with the stockmarket crash - although the financial commentators warned that a tech bubble had formed, the majority of investors ignored the warnings, believing that the market would just keep going. In the last few months prior to the bursting of the bubble in April 2000, the market was out of control - the All Ords index exhibited almost vertical growth... and then it hit the skids...

Putting things simply, what does the property market consist of? Like any market, buyers and sellers. A seller wants a certain price for their asset - if a buyer comes along and agrees to pay the price, you have a sale. At the moment what we are seeing is the beginning of a stand-off between buyers and sellers. Most people putting a property on the market at the moment would at first be asking for last year's price plus a bit more - as they want to get top dollar for what they have. Although generally, buyers are a little more hesitant to cough up the cash now than they were twelve or fifteen months ago, there are still some dimwits out there who are prepared to pay the asking price. But not as many as before. Some sellers are unable to find a dimwit to buy their dump, and so they keep looking, and eventually, many end up just pulling it off the market. Hence, we now have less sales, which is showing in the slowdown in activity.

But with the recent backslapping that the Reserve Bank is engaging in, publicly stating that they are happy with the way the housing market is 'coming off the boil', and indicating that they would need to see evidence of inflationary pressure and house prices taking off again before increasing rates further, we now have a confused general public at large, and a somewhat (ill-founded) renewed confidence in housing.

I say ill-founded, because lo-and-behold, just this week, we have had evidence of both rising inflation, and rising house prices, which now tilts the scales in favour of a rate rise this year. Personally, I think it is inevitable, and should be done sooner rather than later. In fact, I reckon the Reserve Bank should have increased interest rates at least twice more since the end of 2003. They need to realise that piss-farting around with one or two small rate rises in two years, is not going to put an end to this ridiculous (and in my view) unwarranted increase in property values. But I say this not just from the point of view of arresting the property boom, but also of keeping some sort of order on the sharemarket front - the move from 3,500 to 4,100 pts has been very quick, probably too quick...

I reckon they should increase rates three to four times in the next 12 months. Such an increase in underlying interest rates from 5.25% to say, 6.25% would not be all that bad - the probable scenarios are that property values will generally fall across the board by 15-20%, resulting from a bigger stand-off between buyers & sellers, and the fact that some property owners maybe forced to sell due to not being able to meet their loan repayments. That's not such a bad thing - some of these hotshots might be worth $2m instead of $2.5m. Then again others who got in pretty late and are geared to the eye-balls might be left without a roof over their heads... But that's life... Timing, that is knowing when to buy and when to sell, is crucial, in all markets... If you've doubled your money in the last few years, don't be greedy, sell while you can get a good price...

A lot of heavy property investors out there say there is no pressing need for an interest rate rise - if it were to happen, too many people will be hurt, blah, blah, blah... Well, that's life... Spare a thought for the thousands and thousands of first homebuyers out there. How hard is it for them to get into the market nowadays?

Yep, I reckon a rate rise (or four) would be just great - just to put the fear of God into people and bring some sanity into our world again. And you know what? I wouldn't be all that surprised if the first one was announced this week...