real estate to hot up on stock market depressd, page-34

I can't see property going higher.

First, as others suggested, when the boom started, interest rates were lower and asset prices much lower. Most people just can't afford to leverage any more they already are. Plus we are heading into a period period of stagflation with a central bank who will put the inflation target aboce all else. I can't see demand picking up much, other than through immigration.

Second, last time we had easy access to cheap foreign finance, both because of the very low interest rates overseas and because risks in australia were perceived to be low (we'd just survived the Asian crisis after all and were growing strongly). Our housing market took off when the stock market, interest rates and the world trade centre in the US fell. Nowadays, our main banks, and importantly, the finance companies who securitise the loans and sell them overseas, are going to find it much more difficult to continue financing overseas. If the U.S can't trust their own mortgage backed assets, why would they trust ours any more. Also, the Japanese who are funding a large part of our current account deficit are renowned for being terrified of capital losses. We are still somewhat of an economic backwater in most foreigners eyes and are likely to face higher premiums on foreign borrowings. Also, I can't see the balance of payments being magically resolved, so we are going to have to pay more just to keep funding our current account deficit at current levels. Raising funds domestically is not going to get cheaper either, given the inflation outlook.

Third, in the outer suburbs, people are already over-leveraged, maybe not as much as in the U.S, but prices are falling in some places. In the inner city, it will be interesting to see what happens if bank and financial firms face falling profits and start cutting back on their staff (think Citibank in the US). Added to this, we have a slash and burn federal budget coming up which will not only constain demand on top of the credit crunch, but might mean a few bureaucrats loose their jobs (they tend to live in the inner city). If there is a major recession, I think it will probably hit hardest in the inner areas of Melbourne, Sydney and Brisbane. There, the dependcy on the services sector - particulary retail and financial service - is higher and there is less scope for industries in the major cities to benefit from commodity prices - which will continue to remain high as India and China continue to industrialise - and a falling dollar.


I really can't see how the demand for housing is going to increase or how financiers are going to get the money to satiate any increased demand.

Energy, commodoties and gold are the places to be IMO...or cash. The skill in the next year or so might be choosing the asset class that falls the slowest.

Oh well...there goes my lunch break.