Our resident property investing expert, Dymphna Boholt wrote a compelling article this morning about her view on the current market climate and what is in-store for property for 2008.
So I thought you would be really interested in her perspective.
With her permission, I’m reproducing the email she sent out to her clients this morning.
Lots of folk want to know what I think about the recent stock market antics.
Here are my thoughts.
If you’re an investor, you’d surely know that the market took a serious down-turn last Tuesday and has come roaring back since.
Now, I have to make an admission here, when it comes to the stock market I’m not a bona-fide expert. Sure, I look at it and my husband, Brian trades it from time to time, so I know where it’s at most days based on my husband’s emotions (and his bank account).
…But I do have a view… And I think you should have too.
I think it’s important that as an investor that you’re not
paralised into just watching and not taking action, but you’re actually looking at opportunities to profit.
This may help…
Sometimes to look for profit opportunities, you have to look at history and see whether you can learn anything from it going forward.
I remember the stock market crash of October ’87, which amazingly is 21 years ago. It doesn’t feel like it, does it?
Now I wasn’t an investor back then, I was working as an accountant in the mining industry. So I never felt it personally, but my industry at the time was devastated.
But I do remember the market reacting and moving money into safe-havens.
First up, lots of people put their money into “cash in the bank”. Interest rates back then were higher of course, however there was an upward trend on rates as is the case now in Australia.
The next commodity that moved was gold. It makes a lot of sense that when people are unsure or afraid, they buy gold, perceived as the only true form of value in a crisis.
Not long after, we experienced the boom and bust of the real estate market. The periods through ’88 – ’91 saw real estate double even in an extremely high interest rate environment.
So what’s happened this time round?
Well, first up… We’ve seen masses of money move into bonds, which is another form of “putting money in the bank”… And this morning on Wall Street, gold hit an all-time high.
Hmmmm…. Isn’t that interesting?
Here’s a little secret. Have you seen a chart of Gold against the S&P200? Now I know you’re not a stock market expert, but if you ever learn one thing about the market, it’s Gold’s relationship against equities.
You’ll see on this chart, when Gold started trending up in October 07, our market started to show signs of weakness.
Remember how I said earlier that you must have a view. I’ve heard a lot of commentators say that this time it’s different, however history looks like repeating.
Let me tell you, it’s not even really history that is repeating. It’s just basic economics. People move from speculation to certainty, and right now it’s no different.
I hear all the talk that real estate prices wont move that much, this time it’s different and that we’re already in a real estate boom anyway. Well, I’ve got my thoughts on that and I believe that we’re going to see a significant increase in real estate prices throughout 2008.
Now, you can sit on the sidelines and just watch what happens… But that’s not what active investors do. They look for evidence, validation, confirmation and with the gold price hitting an all-time high, that’s a damn-good sign for what is about to happen.
They’re my thoughts… I hope they help and clear some of the confusion that might be around at the moment about investing in real estate.
Real Estate Success