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America is crazy, but good crazy

January 20, 2021 by Jon Giaan Leave a Comment

Most of the media has completely misunderstood what happened in Washington…

America is dead. It’s done for. Throw a flag over the coffin. It’s all she wrote.

The “failed coup attempt”, the “insurrection”, the “riot”, the “mob” or whatever you want to call it – is the first crack in a great nation splintering to pieces.

Time to give up on America and all start learning Mandarin or Arabic…

That’s the vibe, right? That’s the general gist of what we’re seeing in the ABC or the Guardian or even Nine and Seven.

It’s the end of American democracy.

What a load of rubbish.

If I have to read this one more time I’m going to put on my horned shaman hat and occupy Woolworths.

Let’s unpack it a little bit.

First up, let’s be clear about what we’re talking about.

We’re talking about a protest, maybe a ‘riot’ at best, but only in isolated moments.

Yes, some people at the (rally / protest / dance party) were there to overthrow the government. That’s what they came for.

But one lone nutter does not a revolution make.

And it sure as heck wasn’t a ‘coup’. I think you need at least one tank to call it a coup, and generally you seize the media channels at the same time as you seize the institutions of power.

That didn’t happen and there was no attempt to make it happen. As I said, Trump’s calls for insurrection were pure posturing, and it’s why it only took a few hours for him to turn around and throw all of his “insurrectionists” under the bus.

“We love you… but go home.”

And yes, it highlights divisions in America.

Yes, it reminds us that there are some people with some pretty radical ideas. Many of those people have guns.

But that’s America for you. It’s all on show.

America is that crazy uncle who has decided to stop pretending he’s crazy.

China, Russia – they’re your prudish aunties who keep any hit of madness violently supressed under a barrage of benzos and charity work.

The riot in the American capital was not evidence of American democracy failing. It was evidence of it working.

It was evidence of diversity of opinion coexisting – of the nation’s most radicalised being able to blow off steam, and the organs of government just chugging along and doing what they were supposed to do.

American democracy was tested, and I reckon you’d have to say it passed.

And at what cost? A death toll of just five people, and most of those not even direct.

When you’ve got a million people dying of starvation, then call me up and tell me about a nation falling apart.

Yes it was messy. Yes it was ugly. But that’s America for you. It’s all on show. It’s not trying to hide it from you.

And that’s what makes America great.

From strength to strength. 

JG

Filed Under: Blog, Uncategorized

We’re not post-Covid just yet

January 18, 2021 by Jon Giaan 1 Comment

Covid still has us under the thumb… That’s good and bad.

I’m starting to feel there’s a bit of confusion or some wishful-thinking in the way most people are reporting where we’re at with Covid.

Now, I’m probably talking market analysts more than the mainstream media here, since I read more market reports than I do newspapers.

But a lot of analysts seem to be talking like Covid is a done deal. That we’ll get a vaccine in a few months and job done. Hang a banner off a battle cruiser.

But it’s not looking like that to me at all. First, Covid is on the back foot, but it’s not out of the fight yet. Second, the damage to the global economy has been pretty brutal, and those scars won’t heal over night.

Let me show you what I mean.

First, the UK outbreak continues to look a bit scary to me. The numbers of infection and deaths is pretty ugly, and heading in exactly the wrong direction:

But it’s Covid’s ability to mutate and throw an entire economy off the rails in a matter of weeks that’s really scary.

And maybe a vaccine helps here, but if Covid keeps mutating, how long before it mutates beyond the reach of our vaccines? (That’s a technical question and it might have a simple answer, but I don’t know what it is and I’m pretty sure most economists don’t either.)

And this renewed outbreak in the UK (and China too I might add), is happening in an economy already punch-drunk on the first wave.

Take a look at global GDP. It’s down about 8 or 9%. Our major trading partners are down over 5%. That’s a depression-like contraction in output.

And large chunks of the world are still in lockdown. This is Goldman Sach’s “Effective Lockdown Index” which shows how much of the world is still in lockdown.

China is doing best, but still 10% of its economy is in lockdown. The rest of the world is worst (Australia is probably better), and some regions are going in the wrong direction. (Come back, Western Europe, come back!)

Like the RBA above, Goldman reckons Covid is still dragging the economy down about 9%…

The US is holding up, perhaps surprisingly well, but GDP is down a colossal 20% in the UK and Western Europe.

So I don’t know. I’m generally not a glass-half-empty kinda guy, but there’s not a lot to get excited about here.

This is a picture of a world still pinned down under the thumb of a virus. I don’t know how much hope we should be putting in untested vaccines, but even if they’re wonderfully effective, there’s a lot of healing that will need to be done.

I certainly don’t think we’re at the stage of looking through things to the post-Covid world, which is what a lot of economists seem to be doing.

Now, this is both a good and a bad thing, depending on how you look at it.

It is bad for our general way of life. It’s a pain, and the economy is going to take a long time to recover.

Perversely though, it’s probably a good thing for asset prices, as floods of easy money keep gushing into the system.

Take a look at the American Financial Conditions Index. It’s the easiest financial conditions ever.

That will light a fire under asset prices.

Let’s hope there’s enough of us left to enjoy it.

JG

Filed Under: Blog, Uncategorized

No BS: 2021 is already a jumping castle

January 15, 2021 by Jon Giaan 1 Comment

No B.S Friday: Sometimes like just bumps you around…

Running is one thing.

Running on soft sand is another.

Running on a jumping castle is another again.

And running on a jumping castle while some massive bastard jumps up and down around you is a completely different kettle of fish.

Generally, with the people I’ve mentored over the years, I find myself talking a lot about running on soft sand.

That is, how do you sustain traction and momentum when things become a bit of a slog – when you ‘ve got to put in twice the effort just to hold your usual pace?

And for most of us, it’s the soft sand that kills us.

Take New Year’s resolutions for example. They’re easy in the first couple of weeks. The calendar’s clear, you’re feeling fresh from the break, you’re super inspired. It’s like running on a spring-loaded sprint track.

But then things get hard. The ground beneath your feet begins to get soft and unforgiving. The weekends start filling up with obligations – kids birthday’s and trips to Ikea. You remember that your day job is frustrating and saps your energy. You’re not even sure how much you want what you thought you wanted anyway.

Once you hit the soft sand, you’ve got to dig a bit deeper. You’ve got to tap your motivation and keep it on tap. You’ve got to become efficient in your strategy and translate intention into habits. You’ve got to leverage the knowledge and experience of others.

This is all stuff I’ve written about before – the disciplines of soft sand running.

But sometimes life gives you something else entirely. Sometimes it feels like you’re on a jumping castle with a bunch of massive fat blokes and you’re fighting just to keep your feet.

I’ll be honest with you. That’s what it feels like for me right now.

As you know, a key element of my business is events. What’s the outlook for the events sector right now?

A bunch of fat blokes on a jumping castle.

Covid is still loose, and the situation is still fluid. It’s impossible to build concrete plans.

Thankfully, we began the pivot towards online several years ago, so we’ve done better than many people in the space. But still. I’m asking myself how much longer we’re going to stick with our ‘temporary’ response measures.

At some point I’m going to have to say, nup, this isn’t an exception anymore, this is my core business. At some point I’m going to have to make that call.

When?

Four fat blokes on a jumping castle.

So what can you do?

I think it’s like my Grandmother used to say: When life gives you jumping castles, jump around.

The truth is that life is unpredictable. That’s actually what makes it fun. It’d be kinda boring if everything you ever wanted to do just flowed without a hitch, all the time.

So I think you have to hold tight to your intentions, and keep committed to progress.

But sometimes you also just have to acknowledge that you’re on a jumping castle, and these blokes are going to bump you around for a bit.

Whee.

So far, 2021 is giving us more jumping castle than sprint-track.

That’s ok. It’s all part of the mix.

And at the end of the day, whether you find it frustrating or fun, it’s all up to you.

Have a great year everyone.

JG.

Filed Under: Blog, Friday, Uncategorized Tagged With: nobsfriday

Revealed: what really happened in America

January 12, 2021 by Jon Giaan 4 Comments

No B.S Friday: What really happened in America… (I reckon)

So Trump’s downfall was as fascinating as his rise. I’m going to show what the death blow actually was, and why it was so easy to march a mob into the American capital.  

Oh, but yeah. This is the first blog of the year, so I guess I should start with something to mark that.

So, have a great year everyone. Believe in yourself. Pull the finger out. Make the most of the opportunities etc.

I’ll come back to that Friday, but I wanted to jump in to this because if I’m honest, I’m not thinking about anything else right now. It’s just fascinating.

Ok, so this story starts with a puzzle: why was a rag-tag mob of protestors able to waltz right into the parliament of the most powerful nation on earth?

How does that happen? There is literally a military unit devoted to keeping the congress safe? They didn’t anticipate that they’re might be trouble at a protest that has been telegraphed for weeks?

No. It doesn’t add up.

Business Insider says that this is proof that it was an actual coup attempt. They quote someone in charge of similar operations in Europe who said, “We train alongside the US federal law enforcement to handle these very matters, and it’s obvious that large parts of any successful plan were just ignored.”

Right? To me, it’s just not tenable that it should ever have been that easy.

So, was Trump actually trying to execute a coup?

I don’t believe that for a minute.

First, you don’t try and seize the reins of power by marching an unruly mob into parliament. That’s just not how the game works and Trump would have known that.

Second, if marching a mob into parliament actually was part of the play book, where was the follow up act? In particular, where was the tightly-managed media strategy that Trump has become famous for?

No, it was clear that Trump had nothing. He was surprised as anyone.

And to me, it looks like Trump got played.

Like a boss.

I reckon Trump expected the protestors to simply get turned back at the gates – like every other sane person on the planet.

And to me, I don’t think the coup was ever Trump’s end game. I don’t even think he’s serious about hanging on to power.

Look at it through a business lens. He was positioning his brand and cultivating his followership. That’s why he had to fight the idea that he ‘lost’ the election.

 If you ‘lose’ the election, then it’s off to retirement you go. However, if the election is stolen from you, then you become the ‘king in exile’, and the only choice for nomination in four year’s time.

And so that’s what Trump’s game has been. Build up the stolen election narrative to hang on to his relevance.

And it was working. It was working well.

But then Trump became responsible for marching a mob on parliament – the ‘coup’, the ‘riot’, the ‘insurrection’ or whatever the media latched on to.

Once that happened. The optics became terrible.

Remember, Trump is an optics-driven strategist. I know first-hand. It’s something that happens to you when you manage a marketing department. You become focused on the optics.

And remember during the Black Lives Matter protest where he posed outside of a church waving a bible?

Incredible optics. To his fearful Christian conservative base, it was a signature moment. In the midst of chaos, he was to be an anchor of faith.

But then this happened:

Yup, that’s a bare-chested figure with horns sitting on the throne, flexing his biceps.

(For the record, that’s a self-declared ‘hyper-dimensional being’ called the Q-shaman. Yep. “Shaman.”)

This was now Trump’s America. He was not the hero defending the little old church under siege. He was the one ushering the barbarians and the hordes of darkness in through the gates. And they looked like this:

You’ve seen the photos.

Fearful America was not happy.

Trump tried to put some distance between himself and the scene that night, but it was way too late. Like, they’re literally wearing your hat with your name on it. How much distance could you ever possibly get?

And so I think this is the end of Trump. His base won’t desert him, but for moderate Republicans he’ll be remembered as the dickhead-in-chief who almost led a pack of dickheads (optically speaking) over the wall of American democracy.

And I’ve got to think it’s an inside job. I’ve got to think that there was someone on the inside who undermined the defences of Congress enough to let that mob in – who knew that once they were in, they were unruly and ugly enough to create some terrible visuals.

Just leave the cameras rolling.

And this is why it’s such a boss move. It hit Trump where it hurt. Right in the optics.

For four years, Trump has dominated this side of the game.

But this week, he got his MAGA hat handed to him.

Wow. I hope the rest of 2021 is going to be as fascinating as the first six days.

JG.

Filed Under: Blog, Uncategorized

No BS: Uncle Jon’s Xmas Message

December 18, 2020 by Jon Giaan Leave a Comment

No B.S Friday: Are we really so far apart?

I’ve been reflecting on 2020, and one of the things that stands out for me is how fractured the world feels like it has become.

This trend has been in effect for a few years now. Social media algorithms have given us thought-bubble isolation, which has created a very polarised political landscape.

We’ve stopped talking to people who don’t agree with what we think. We tend to think their idiots or just plain evil. Why would you even be friends with them.

That’s been going on for a while. But it really felt like 2020 took it to a new level.

There were people who were supportive of the Covid response and lockdown. There were people who thought it was all a massive government conspiracy.

Both sides stared yelling at each other.

The UK is rolling out vaccines as we speak. Pretty soon we’re going to have vax’ers and anti-vaxers yelling at each other, you can guarantee it.

The US election shows a nation cleaved almost down the middle in terms of numbers, and both camps seem to be living in entirely different universe, with Trump himself in a universe all of his own. There’s leather seats. You should see the leather seats. Beautiful. Everyone tells me how beautiful they are.

So far, the Australian political landscape hasn’t balkanised in such an extreme way. I think Aussies are just too pragmatic. They want to get through the Covid crisis. Politics can come later.

But you can bet politics is coming at some point. We’ve got thought bubbles in Australia too.

In some ways it makes me angry. It’s a shame that the system is set up in a way where media producers are incentivised to produce more and more partisan content, driving the wedge between people wider and wider.

It doesn’t surprise me that autocratic states like Russia and China see this as a weakness, and are happy to add fuel to the fire where they can.

A nation divided is a nation conquered.

But it also makes me sad. And it’s the anger that makes me sad.

I’m mean, look at the people who were pro-lockdown and anti-lockdown.

Are they really that far apart?

I mean, one wants us to lockdown, because they want everyone to be healthy, because that’s a beautiful thing to imagine.

The other wants us to resist lockdown, because they want everyone to be free, because that’s a beautiful thing to imagine.

They are both motivated by a vision of humans living beautifully together. They might be operating on a different understanding of how the world actually works, but when it comes down to it, they’re motivated by the exact same thing.

That’s an incredible thing to have in common, right?

So why are we yelling at each other? Why are we angry? What’s with the insults? Leave Karen alone.

Why can’t we come together and appreciate what we actually have in common, and begin the conversation there?

So I guess this is Uncle Jon’s Christmas Message.

Try not to be dicks to each other. Please.

There is so much we have in common – that every human has in common.

We are so much closer than they would have us believe.

So come back and rest in this miracle.

We are all just beautiful people, trying to make the world a beautiful place to be.

That’s something to be grateful for.

Merry Christmas and Happy New Year everyone!

JG.

Filed Under: Blog, Uncategorized Tagged With: nobsfriday

No BS: Why I won’t stop

December 10, 2020 by Jon Giaan

No B.S Friday: It’s been a strange trip. This is what I’ve learnt.

Today is my 1,000th blog.

When I started out about seven years ago, I didn’t really imagine I’d end up here.

I was just going to bang a couple out and see how it went.

But I started numbering them, just to keep them organised and well, today, that number kicked over to 1,000.

*sound of champagne popping

And what have I learnt?

Well, there’s three lessons I’ve taken from this endeavour.

1. The way of the drip-drip warrior

More and more I’m appreciating the power of small, but steady and consistent action. It really has the power to change your world.

If I had set myself the task of writing a 1,000 blogs – which is something like 750,000 words, or 10 novels (take that Tom Clancy!) – I don’t know that I ever would have got there. It would have been overwhelming. It would have been too much.

But if you spread that 1,000 over seven or eight years, making a weekly practice of just chipping away at it, you’ll get there before you know it.

I remember at my parent’s place there was a leaky tap, that over the years bore a hole in the concrete. One drop doesn’t do much, but enough drops over a long enough timeframe, can have tremendous power.

And I think this is something we need to remember in our wealth journeys. It’s not about the flashy, swinging for the fences deals you can pull off. It’s about whether you can just keep moving forward, one day at a time.

This is the way of the drip-drip warrior, and there is great power in it.

2. Daily practice, daily grounding

There’s something very grounding about having a daily (or almost daily) practice.

It’s like it provides an anchoring planet that the rest of your life can orbit around. I don’t know. It kind of helps me know where my feet are.

And it’s also awesome to have something that gives me such an immediate feeling of accomplishment. It doesn’t matter how good the piece is. I got it done. I found something worth writing about, and I got a result.

It’s very satisfying, and it helps reinforce my self-belief that I am an achiever – I get things done.

There’s power in that.

3. The well is bottomless

Finally, if you had asked me what I was going to write 1,000 blogs about, I would have had no idea.

I don’t think I would have even thought it was possible – to come up with that much original content.

And in the early days, I was very worried about running out of ideas.

Now though, I never worry about running out of ideas.

I genuinely believe I could write for a 1000 years, and still find fresh and interesting things to talk about.

But that’s not about me. That’s about the universe we live in. It is one with infinite detail, and where each detail can be viewed from infinite perspectives.

The well we draw from is bottomless.

It’s the same for everyone.

And if it’s one thing I’m grateful for, it’s for a practice that keeps me coming back to the well to see what’s on offer today.

It’s kinda marvellous.

Anyway, this is all to say thanks for following along. I definitely wouldn’t be doing this if people weren’t picking up what I was putting down, and all the great comments and feedback I get really keeps me going.

So thanks for everyone for reading. I sincerely hope that I’ve given you some food for thought and some encouragement in whatever journey you’re on.

Here’s to another 1000.

JG.

Filed Under: Blog, Friday, Uncategorized Tagged With: nobsfriday

What? Construction is booming too?

December 8, 2020 by Jon Giaan

The worst fears for the construction industry won’t come to pass. In fact, all their Christmases have come at once.

One of the interesting things about the way that this year has panned out, is that much of it was not as expected.

That’s not surprising. It’s been a pretty crazy year. But it tells you just how hard it is to forecast forward with all that much accuracy in times like these.

I’m particularly thinking here about the outlook for construction.

When Covid first broke it looked like it was going to be a bit brutal for the construction industry. There was a demand-side hit as credit froze and people bunkered. There was also a supply-side hit as there were major disruptions to the construction supply chain. 

Putting those together, people were expecting construction to fall to some of the lowest levels in history. This chart here shows the Housing Industry Association’s (HIAs) forecast, which had commencements falling 58% from their 2018 peak.

But all of this was before the HomeBuilder incentives.

And those incentives seem to have done their job.

Data from the Australian Treasury shows that nearly 500 applications for the federal government’s HomeBuilder grant were approved each week in November!

It’s a huge ramp up. It was less than 20 per week in July.

The Treasury now expects 40,000 applications for the grant to be submitted by the end of December, well above the initial forecast of just 27,000.

From The Australian:

Figures obtained by The Australian show uptake of the government subsidy has already exceeded the initial Treasury estimate of 27,000 by December 31, and is expected to hit 40,000 — 50 per cent higher than forecast — by the end of the year…

Treasury officials did not anticipate the number of first and new home buyers that applied for the first round of $25,000 grants to underwrite the construction of new homes or major renovations.

According to the Treasury data, the number of grants being approved has risen from less than 20 a week in the first month to almost 500 a week in November…

Australian Bureau of Statistics data released on Thursday showed a 65 per cent increase in the value of new home loan construction commitments between July and October compared with the same quarter last year.

The rise in construction finance commitments is unprecedented. Take a look at the boing-boing in this chart here:

As detached house dwelling approvals launched to a 20-year high in October:

There’s a question here about to what extent the grants are just incentivising and ‘pulling forward’ construction that was going to happen anyway.

We’ll know in March – when the scheme is slated to end (although we’ve heard that before).

It is possible that there’ll be a gap in demand once the scheme ends.

But that doesn’t mean it wasn’t a good thing. This was exactly the idea. A temporary measure to get us over a temporary lull in demand.

And it seems to have done a stellar job of that indeed.

How good is this government?

JG

Filed Under: Blog, Uncategorized

Hey? Boom has already started?

December 7, 2020 by Jon Giaan

We’re going to wake up in January are realise the property market has been booming for months

Ok, how did that work out for us? 2020 I mean…

The year is almost done. For a while there it was looking hairy. Some economists were talking about prices falls north of 30%.

That looks a bit silly in hindsight, doesn’t it?

But I can understand it. Things were scary. It felt like the wheels were totally coming off.

At any rate, as 2020 comes to a close, it’s starting to look like the property market has come through 2020 practically unscathed.

Nationally, prices are down less than 3%.

Amazing.

How did we do it?

Well lower interest rates certainly helped. As did the mortgage deferrals that stopped a rush of panic sales onto the market.

Those things helped the market keep its head.

And at the end of the day, the property market rode on the coat-tails of the broader economy, which held up much better than most people expected.

And that meant that what happened in your property market really depended on what was happening in your local economy.

Consider the capital city breakdown.

You can see that when it comes to price falls, it’s really a story for Melbourne and Sydney.

Prices were essentially flat in Perth, while they were actually up a decent amount in Brisbane and Adelaide.

(Not a bad outcome given it was the middle of a pandemic.)

Melbourne was obviously impacted by the lockdown, and Sydney was the city most exposed to a slowdown in immigration and overseas student numbers.

And given Sydney and Melbourne account for 60% of the Australian population, and 70% of the housing stock by value, falls there dragged the national averages down.

But the national average actually disguises what’s going on, on the ground. Because really, outside of Sydney and Melbourne city areas, our property markets are all picking up.

Take a look at this chart here, which looks at the distribution of price growth across our capital city and regional areas.

It shows you that price falls have been largely contained to the capital cities, while price gains have been largely concentrated in regional areas (with Brisbane being a bit of an exception.)

So what that tells me is that if you can look through the lockdown in Melbourne, and through the collapse in immigration and student numbers in Sydney, our underlying property market is actually already starting to heat up.

It’s the same story when you compare units and houses. A lot has been made of the fall in rents in our capital cities, but when you break it down, you can see its almost entirely a unit story.

Rents for detached houses are actually up 1.5%!

Again, the apartment market is concentrated in Sydney and Melbourne, and some blocks are entirely dedicated to student accommodation.

So this is consistent.

But the story that emerges for me is that our underlying property market has already turned the corner, and is starting to heat up.

Sydney and Melbourne are lagging the country, and that’s helping to hide what’s really going on.

But if you look through it, the government support packages and record low interest rates are doing their job.

And the property market enters 2021 with a full head of steam.

JG

Filed Under: Blog, Uncategorized

No BS: A conspiracy theory I believe in

December 3, 2020 by Jon Giaan

No B.S Friday: what if we’re looking at this problem backwards?

I try not to get too cynical.

It’s very intoxicating. It’s a drug.

But I’m trying to give it up.

It’s hard not to get cynical in times like these.

Remember, cynicism is the belief that people are motivated purely by self-interest; when you are distrustful of human sincerity or integrity. (That’s the dictionary definition, so let’s go with that.)

It’s not hard to see how even the most gentle-hearted could end up cynical in a world like this. People seem to be entirely selfish turds. Integrity is thin on the ground.

Humans are war-mongering monkeys, obsessed with sex and status.

But still I think there is a difference between understanding people and the world in a clear-eyed way, and falling into a cynical world view.

Because the way I see it, most cynicism is a bit lazy.

Cynicism allows you to avoid having to examine the facts on their merits. It allows you to just cut straight to your default setting – a bitter distrust of the human species.

And this has been in full display during Covid.

All nuance, all detail, all reality has just been swept aside by a rush to believe that people are just garbage.

“Of course the government is lying to us about Covid. They are inherently evil and want to eat our souls.”

“Of course the protestors are idiots. They don’t care about our rights. They are just being selfish.”

Cynicism excuses you from any further thought or analysis. It just allows you to throw it all in the basket labelled “Evidence that people suck.”

Job done. Move on.

And I think a lot of the tension we’re seeing right now comes from this cynicism. It comes from people who have fully bought into the idea that people are horrible, and now see everything through a lens of confirmation bias.

So the point I’d make is that cynicism gives you a false sense of rationality.

We think that if we have reached the conclusion that people suck, then we have reached bedrock.

If we’re given the impression that people are nice and do nice things, we are suspicious of that. We look for ulterior motives.

Once we find them, and the data seems to suggest that people suck, then we feel like we’ve reached the end of our line of inquiry. No need to look any further. This must be the true reality.

But why do we think that?

Why are we so ready to believe that people would want to deceive us into believing that people are actually good, while we’re not open to the idea at all that someone might be deceiving us into thinking that people are crap?

Surely it’s in someone’s interest to have us all cynical and isolated?

Why do we never say, “It looks like this is a case of people being selfish weasels, but then that IS what they want us to believe.”

If we think it is possible that there is some vast conspiracy out there, hiding us from the full extent of the world’s evil, why are we not open to the idea that there is a vast conspiracy out there trying to hide all the goodness in the world from us.

What is it asymmetric?

Why do we value cynicism over faith?

So look, I don’t know what the truth is. But nobody does.

All I’m saying is that it is easy to be cynical. It’s lazy to be cynical.

So why not hold the faith and choose to believe in something more beautiful.

And what do you think might happen if we all did that?

JG

Filed Under: Blog, Friday, Uncategorized Tagged With: nobsfriday

Why didn’t housing bust?

December 1, 2020 by Jon Giaan

The story of how property dodged a bullet

I remember in the early days of Covid, some economists were predicting property prices to be smashed.

I think it was even CBA who were talking about falls of 30-40%.

Well, that didn’t happen. Right now, prices are down about 5% in Sydney and Melbourne, and that’s as bad as it gets. Nationally, they’re down just 1.7%!

You’d have to think that’s a pretty impressive result, right? The biggest disruption to the market in 100 years, and all it costs you is a few percentage points of growth.

Meh. Whatever.

And look, I’ll be honest. I never thought we’d see prices fall 30% – not in a prolonged way. I thought we might see a bit of panic selling and prices dip pretty sharply in the short-term, but we didn’t even get that.

So how did we do it? With the benefit of hindsight, how did the property market make it through unscathed.

This is the questions that Eliza Owen at CoreLogic was asking herself the other day.

Basically, she reckons there’s three reasons.

The first is, not surprisingly, super-cheap money.

The cost of borrowing money is probably one of the most important factors influencing property values. Over 2020, the RBA have reduced the official cash rate target (which influences lending rates) by 65 basis points, to 0.1%.

In a bid to stimulate economic activity, the reduced cash rate has lowered bank funding costs, leading to record low mortgage rates. This relationship has held up historically, with RBA research previously suggesting that a 100 basis point reduction in the cash rate can lead to an 8% increase in property values over the following two years.

I think you probably have to add in money-printing at this stage here, but this is right. Nothing influences property prices like the price of money.

The second thing that saved us what a systematic program of mortgage deferrals, which stopped any forced sales going to market.

In the case of large-scale mortgage debt, ongoing arrears can lead to forced sales, which in turn fuel risks associated with higher supply in the housing market, lowers values, and higher rates of negative equity, where the borrower sells their property for less than what they owe the bank.

Mortgage repayment deferrals have acted as a temporary stopper on this vicious cycle. Those that did not want to sell amid economic uncertainty due to an inability to repay their mortgage, did not have to. This may have contributed to very low levels of stock throughout 2020, which only reduced further amid stage 2 restrictions from March. The low level of stock on market likely helped to insulate dwelling values during this time.

That chart on the number of listings is pretty telling. The market will end up having one of its quietest years on record.

The final reason Owen points to is the fact that this downturn was actually different. It wasn’t wide-spread. It was concentrated in certain sectors.

A third, important factor that may have insulated parts of the housing market is the specific nature of the economic downturn. Severe job loss across hospitality, tourism and the arts resulted from the purposeful slowdown of ‘social consumption’.

The chart above shows that those working in food and accommodation and arts and recreation, have seen devastating job loss through the pandemic. However, those working in this industry are less likely to have mortgage debt.

The decline of employment in these sectors likely contributed to severe pockets of rental income decline, but the investor servicing debt may be able to hold on to the asset while it is temporarily vacant.

So basically, most of the brunt of Covid’s economic impact were borne by renters, and the home-buying segment got through relatively unscathed.

Put it together, and you’ve got to pay credit where credit’s due. The government response, both on the monetary and fiscal side, helped the Australian economy get through this pretty well, and Australia’s property market rode along on the economy’s coat tails.

Good result, chaps. Good result.

JG

Filed Under: Blog, Uncategorized

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