I bet you're confused about what's happening in the economy right now.
I certainly am.
Reading all the headlines, you'd think we're on the cusp of a property crash and diving into another global crisis via a double-dip recession. Run for the hills!!
Add an election to the mix and you've got a recipe for massive procrastination.
So what can we make of it all?
Let's see if I can help…
I think the Reserve Bank of Australia went way over the top with its interest rate hikes. We went from a 3% cash rate to 4.5% in just 6 months.
This was a massive 50% increase and the most aggressive in the western world.
So why did Glen go so hard?
He had eyes only for the property market and the only way he could stop it was by using interest rates as his evil weapon against his perceived property boom.
He's thinking was… Slow down the property boom and we've got a chance at improving the housing affordability of everyday Australians.
Since his crusade 6 months ago, he succeeded in putting a pause on property prices, but only after 6 months of solid real estate gains in most markets.
…and this week, we receive evidence that is he has also killed affordability with the following headline, “New Home-Starts Fall a Further 5.2% in June”
Some uneducated investors see those type of headlines and think we've got a serious problem.
Here's what I think…
The down-turn in new home sales is by and large the product of the end of the government stimulus for first home buyers and the increase of interest rates, which has led to the following problems…
The lack of available land… Chronic lack of development finance leading to a lack of development activity… Council planning regulations taking far too long to release projects… Infrastructure delays in new development areas.
All of this will mean one thing.
That the housing shortage will continue to increase and prices will continue to push upwards… and the people most disadvantaged from this are the ones that the RBA boss, Glen Stevens is trying to help… those who are trying to buy their first home.
So all the shenanigans going on right now will push the expanding population into the rental market.
What does that mean?
Rents will significantly go up in the next 12-24 months.
Great if you're a property investor, not much good if you're a tenant.
So what I'm saying here is that there will be no property crash – full stop.
What we'll see over the next several years is single-digit growth across many markets and if you're smart and savvy within certain markets, you'll be able to achieve much better than that.
You see, when most of the stats are quoted, they're typically an average of all markets. So if we see 6% growth on average, it would not be unusual to have certain areas within property that have grown by 25%…
On the flip-side, some areas may fall by 10%.
That's why I think you need to stay on top of your game, stay invested in areas that are likely to grow faster than others.
…research, research, research…
On another subject, and that is clearance rates, I often have a lot of fun with this sort of data… But here's something you probably don't know.
The clearance rates that the average investor seems to hang off every Monday morning reports only 20% of property transaction nationally.
That's right, just 20%.
So does it really mean anything?
Here's something else that you need to know – all it really shows is people selling and buying.
12 months ago, we might have had a clearance rate of 55% with 400 properties on the market. In the current climate, we've got clearance rates of 67% with 900 properties on the market.
All this stuff is just noise to fill up newspapers and get your attention.
The macro picture (long term) is still so strong for property in this country that you'll kick yourself if you sit on the fence again.
Interestingly, I was listening to professor Keen the other day and he is still ranting and raving about the 40% drop in real estate. The guy doesn't give up.
He said that his initial prediction of a 40% drop was over a 10-15 year period… Not 2 years after the GFC hit. He was misquoted.
He also said that the fall would be from peak to trough.
What that means is, let's say real estate has gone up 30% in the last 3 years since his prediction and it falls down by 30%, then Mr. Keen is right… Because real estate has fallen overall by 30% and it's created a new peak and trough. (Economists are never wrong – they'll find a way).
Confused, aren't you?
It's just more shenanigans by economists who are perhaps too close to the data for their own good.
My last point for today… What about a double-dip recession?
Here's all I have to say about that…
It seems to me that everybody has almost guaranteed themselves that this is going to happen. From my experience, when the mainstream press and the man in the street are talking about a double-dip recession, then it's likely not to happen and in fact go the other way.
Now of course in Australia, we never went into recession. And considering that I don't think the global economies are going to go into a double-dip recession – I think it puts us in a good position going forward.
Just think contrarian (always go the opposite direction of the herd – most people are generally wrong).
They're my thoughts.
Probably needs to be said, I failed high school, never did economics, wasn't very good with maths, have absolutely no financial planning background – so everything I say here is basically my opinion based on my results (8-figure real estate portfolio, 7-figure stock market portfolio, 8-figure business).
…so please, before investing see a certified financial planner or follow the smart money.
That's all for today.
Signed with Success,
P.S. So what do you think? Jump on your soapbox and let the rest of the Knowledge Source people hear your views below.