…But You Won't See Any Headlines On The 6 O'clock News
We will get to that, I promise… but first;
Here's a couple of news items I bet you didn't pick up over the weekend:
- A man was hitch-hiking on the Pacific Highway. A truck pulled over and gave him a really nice lift all the way to Sydney and now they're facebook friends.
- A child was playing in a park by himself in Brisbane. It was unusually warm and he had a lovely time.
- An Australian woman had too much to drink in Thailand. A local man drove her home and made sure she got into her hotel ok.
Now if you're thinking, “C'mon Jon, these aren't news stories,” ask yourself, why not?
They're events. They are things that happened…
You might be tempted to say, “Well they're not significant. They're not relevant.”
But one of the biggest news stories this month was about 3 women kidnapped and locked in a basement somewhere in the U.S. That led the papers for days. So, ask yourself, what possible impact does this have on your life? Is it relevant? Does it impact on your world at all?
No. It's interesting. It's exciting. It's something to talk about. It's front-page news.
The evening news is half an hour of entertainment. Nothing more. It's a bit of titillation and excitement we let our selves indulge in because we tell our selves that it's good to be “informed”.
But that's like saying it's good to watch horror movies because then you'll be better able to deal with a zombie apocalypse.
(Note to self: Write off “The Saw III” as an educational expense.)
How much of the news is actually useful to you?
Or ask yourself this: how much really useful information neve makes it though your news feeds because it isn't exciting, sexy or horrific?
As a case in point, did you pick up on this? There's a quiet revolution happening in the housing data, and it's going right under the radar.
The housing finance data, released last week by the ABS, show a solid pick up in demand for housing. It's been on a steady upward trend for a while, but there was a real spike in March. It was up a thumping 5.2 percent.
This chart from SQM Research highlights they latest improvement.
They note that it's broken back though the 5-year moving average, and the upward momentum is unmistakeable.
The red dot on this graph also represents SQM's estimate of a sort of steady-state point, where house prices are growing as fast as nominal GDP. That's where we're at right now.
North of that point, prices are growing more and more quickly. That's the territory we're moving into.
And if we break the finance data down, we can see there's been a real surge in owner-occupied finance (note all these numbers exclude refinancing).
Owner-occupier finance was up a stellar 7.2 percent in the month of March.
Investor finance was up a more steady 2 percent in March, but investors have been performing well for a while now, and have been driving the current recovery. Investor finance is now 21 percent higher than a year ago, and is at the highest level since January 2008.
There was even good news for the construction industry, with finance for new homes up a booming 10.1 percent in the month, and 21 percent over the year.
The finance data is a pretty reliable series, so this is all good news for the property market.
And it confirms what I've been saying for a while: the property market bottomed a full year ago, and there's only one way prices are going from here.
And the story's not difficult to understand. Interest rates are at record lows, the world is awash with easy money, and it's getting funnelled straight into asset prices.
Have a look at what's happening to credit data: This chart here comes from Veda's consumer credit demand index.
Year on year, credit demand was up 4.7 percent – the strongest rate of growth since the onset of the GFC. A lot of it was driven by personal credit, including car loans.
So Glenn ‘let the good times roll' Stevens will be breathing a sigh of relief. It took a bit to get there, but there are now clear signs that interest rate cuts are gaining traction – credit is expanding, and home financing is bouncing back.
But this is all pretty normal. This is exactly what you'd expect credit and finance to be doing on the back of record low interest rates.
And maybe that's why it's barely rated a mention in the press
There's no shock value. Nothing sexy. No body parts in the back of the car.
But for investors, this is probably the most important story of the year.
And it won't be long before the EZ money and boom in finance translates into booming prices. Then it might be front page news.
But by then, most people will have missed the boat.
If you wait til then, you'll have missed the opportunity to get in on the ground floor and make some real money.
So now is the time to get involved and get active.
Get in now while people are still worried about things that are happening to people they'll never meet.
Forget the “news”. Real information's what you need.
Brenden says
“Get in now while people are still worried about things that are happening to people they’ll never meet” Love that line!!
Jenny Kennedy says
Interesting, the news is still all gloom and doom! That’s why I love reading your blogs, as you say, information is what is needed. It also shows the economy is not as bad as the media would have us believe.
Regards
Jenny
Ken Wong says
Thanks Jon, I live for your comments. Keep up the good work. I am confident that the housing market will always pass it’s last high, and it is always reassuring to here other knowledgeable comments. Also am a great believer in the past teaching the future. I am 63 years old and remember my father always said ”if you don’t know the past, you will never know the future.” Ken.
Scott says
The bubble never fully burst. The GFC is still in effect its just been numbed the last few years. China is the biggest bubble to burst yet and what effect is that going to have on our economy.
Sorry to sound pessimistic but with EU, US and China economies hang on by a thread the real recession/ depression is still in the making. I don’t have a crystal ball but housing prices are still too high and when interest rates go back to the historic average of 8% expect a bang and fall. Realistically Australians are devoting 70% of their income on a mortgage at the interest rates now. Wait till interest rates climb back to their average or beyond. Housing is a dud investment and has been for over 10-15 years. Unless you are cashed up to buy without borrowing Id not sign any mortgage till at least the current global crisis is over.
Thats just my opinion anyway.
Ken Wong. says
Hi Scott, First of all China never has, and never will, do anything, unless they are 100% sure it will work. Their patience can be measured by the building of the Great Wall. They care about future generations, more than anyone else on this planet. The U.S. economy is starting to look good. Their Dollar is improving recently. I think the problems in EU is all the migrants flooding in and taking all the jobs. This is the case in Greece, according to a Greek back packer I spoke to. Many people have made a lot of money from real estate only a few years ago. The drought has broken so I think you should give Jon’s knowledge a go. Read my email above again, All the best mate, and never give up. Ken.
John Marsahll says
Scott, I am 63 and have seen it all as far as real estate goes, and I recall many comments similar to yours made about all the various issues that have arisen over the years, all the don’ts about real estate. I ignored it all and went ahead with real estate, borrowed to the hilt…and now am looking at a comfortable retirement. I smile a lot these days. Cheers John M
Amin Omran says
Scott, 100% agree, I’m 50 years old and have worked in the Mining Industry for over 30 years now, have seen countless ups and downs and have always warned that the ‘so called’ mining boom we have is a false sense of security due to our industries over reliance on one basket – China. This basket is now so full, (mainly with countless surplus stockpiles of Iron Ore) that it needs to empty before refilling. China’s infrastructure bubble has started to deflate, china’s last ditch effort in late 2012 in the form of printing some more money (may as well do what the US and others are doing) has kept our stock and property prices rising – “temporarily only” and unfortunately that will stop soon. Hate sounding pessimistic as well but this will filter through our economy like a plague, affecting our wages, stocks and most definetely property. Now is not a good time to delve into Property, they are going to fall dramatically before levelling out and eventually (we hope) lift again.
Rob says
Scott… Seriously. I’ve invested in property for 18 months now, I created a 17% yield and capital growth has seen my deposits more than double. Did you do that on paper? With any control over your assets?
Grant says
Amin…… R u serious! 30 years in mining and you still don’t get it. What was the house you live in worth 30 years ago. With your income you could have brought up the suburb by now. If your place is worth $400K it cost $50K – 30 years ago as a rough guide.
I’m in Newcastle and houses are rising at about $500 – $1000 per week depending on the suburb.
But as stated in the blog above – it’s not sexy news, so what if your house goes up $500………. but image if you had a couple or you just brought one every two years of your working life.
30 years = 15 x 500 = $7500 per week growth
Even that’s a bit of coin to a miner. Sorry but miners and their flash cars make me laugh. There everywhere around here, getting finance for crap and maxing out their credit cards.
There is not a boom coming as it is already here. But take your time folks as the optimists amongst us don’t need your money just yet.
Andrew says
My grandfather bought farm land for a pound an acre (0.45 ha) in 1925 (near Holbrook, NSW) but was told by his family that he paid too much. I was offered $2,000 an acre for some of it about 6 years ago at the top of the market. I refused to sell as we are buying more land, not selling. Even today despite the dreadful financial situation of most farmers and that most farmers in Australia are over 60, it is still worth at least $1,600 an acre.
I remember reading in the FARM JOURNAL magazine about 20 years ago that land in England has increased in value by an AVERAGE of 10% a year over the last 900 years. Yes 900 years!!!
One of my great grandfathers bought his house on 1/2 an acre in outer western Sydney, at Ashfield, now an inner city suburb, in the late 1800’s for about 50 pounds ($100). What would it be worth today?
There is always price inflation (money buys less goods as prices go up) AND there is always asset inflation ( price of land / real estate goes up).
I asked my Mother one day why she did not buy more land in the 1970’s when it was only about $100 an acre( it was about $600 an acre at the time.) “Because there wasn’t enough money” was her answer.
Buying a house or land is always difficult as it costs a lot compared to the available income of the family.
LESSON: land/real estate always goes up in value over the long term. The point is to always buy assets (something that earns you more money and /or goes up in value) but to do it safely so you don’t loose what you already have.( if you loose your job, economic crash, borrow too much and can’t repay etc).
Alan says
Mr John Marsahll, aren’t you lucky? The time you reach your 20s and start buying a property is the time the greatest credit expansion in history starts, no wonder you smile a lot these days. Will you keep on borrowing to the tilt and buy a lot more property or encourage your kids to do so? Please do so if you’re really so faithful about aussie housing and we’ll see how you fare in 10 years time.
Con says
I agree with Scott – by any test, property prices are still too high. For those folks relying on history as a guide to the future, I say look again.
Don’t focus on WHAT happened to prices, but examine WHY they went up almost exponentially and then ask if the drivers are still there for that trend to continue ….
In the 70’s and 80’s when many baby boomers entered the workforce, we had very high interest rates (up to 20%) . Every quarter, CPI based wage rises increased borrowing power, leading to higher mortgages and property prices.
In the 90’s and early 2000’s falling interest rates enabled wage earners to borrow more for the same monthly repayment which, guess what, kept pushing prices upwards.
An entire generation has used property inflation as a means to build wealth i.e. buy a property with 100% borrowing, make minimum repayments (interest only, negative geared), get a tax deduction and let inflation build their equity.
By mid 2000’s baby boomers slowed down their rate of borrowing as they prepared for retirement, preferring to shed debt and reduce their commitments.
The GFC then came along to spoil everyone’s party. Goodbye confidence, hello pessimism and doom and gloom.
If you stop for a minute and look at the facts, you will realise all of the factors that were responsible for increasing property prices are no longer there.
No rising wages. No more significant falls in interest rates – they are at just about rock bottom now, for Australia at least. No more baby boomers with an insatiable appetite to borrow. No more gullible investors believing the myth that property will keep doubling every 7 years or so.
The party is over, back to reality.
Don’t get me wrong, all my life I have been a believer in property, having bought my first one when I was 19. I turned a $3,000 deposit on a $17,000 purchase into a $46,000 profit 3 years later when I sold it for $60,000. I did this a few times whilst still in my early 20’s.
Those days are over. Having worked in banking all my life as a lender and a project manager, I live and breathe property investment opportunities, cost-benefit analysis, return on investment etc. etc.
Look at the facts and ask, how is a young couple going to be able to save $100,000 for a deposit on a $500,000 unit and then pay it off whilst starting a family? No can do. It is easier to rent.
An entire industry of spruikers has made a great living selling negative geared investment properties to investors for many years. Since 2009 these salespeople have been trying to talk up the impending return to the good old days, urging people “not miss out” on the next “boom” around the corner.
What boom? A 30 second review of the fundamentals will lead you to the same conclusion ……
I advised our children to forget about buying property and putting a noose around their neck. Life is way too short to be struggling financially just to own a mortgage.
Instead, I encouraged them to rent at half the cost, build wealth via other means, and enjoy all that life has to offer.
It’s some of the best advice I think a parent could ever give their child. Just my opinion, of course.
Ken Wong says
Con, I understand where you are coming from, but your own experience speaks for it’s self. In 1948, a house cost $800, in 1970, $8,350 in Woodridge. Ok, that was hard then but you could pay a house off in 7 years. The problem young people have is that they want what their Grandparents have now. We didn’t have, AIRCONDITIONING, MULTIPLE BEDROOMS AND BARTHROOMS, TILED FLOORS, DOUBLE GARAGES, FLY SCREENS AND SECURITY GRILLS, CONCRETE DRIVEWAYS, CEILING FANS, SWIMMING POOLS, HILLS HOISTS, PRIVATE FENCES, TURF, FLASH LETTER BOXES, DISH WASHES, SPECIAL WIRING FOR THIS AND THAT. Take all that off a first new home and you will see an affordable new home. My other comment is, if you can’t make a $10 decision, you will never be able to make a $1,ooo one. Only millionaires buy $500,000 units, The body corporate fees will kill you. Any cheap house purchase is a bonus as the land developers are the greedy ones. K.J.
Ken Wong says
Hi Con, Don’t you think if you kept your house when you were 19 would have set you up for life. Also, if you now live, breathe and eat property investment, but condemn others doing so, wouldn’t that sound a little bit strange. I hope you’re not talking about shares here because you can live in a house but you can’t eat shares, bonds or anything else if times get bad. Just a thought. K.J.
Ken Wong says
Hi Anne, Glad to see you made a good deal. I helped get my son an investment house for $200,000 interest only and rent pays for it. There are a few good houses like this in Cairns. You just have to be ready to buy. For other peoples information, it is a bonus if you can do renovations yourself too, as Builders charge like property developers. K.J.
ANNE says
Ken’s right. Young people can get into an affordable home even today. They just need to be realisitic about what they purchase..something that is a comfortable roof over their heads, not a ‘keeping up with the Joneses’ McMansion. I just bought a tidy two bed, 1 bath house in Deception Bay for $170,000!! Even 100% borrowing costs are far less than rent. It could be extended later when one could afford it. And even if you buy a house and the repayments are a bit more than what the rent would be, remember your repayments will pretty much stay the same, whilst the rent will always increase.
Alan says
Disposable income is the key here. Large disposable income = ability to finance and fuel a boom. Governments have been throttling income (Victorian public servants are lucky to beat inflation) , with rising fixed costs- rates, electricity, gas, health, insurance. Baby boomers looking to retire will downsize their home and invest in safe assets.
I can’t see a boom anytime soon so gear conservatively.
erica says
i desperately want to invest in another property but with negligable weekly income, even with good equity I am unable to finance.
any suggestions on how to overcome this huge stumbling block
Ken. says
Hi Erica, If things are a bit tight and you are on your own, It’s a matter of moving to a town where there is more work. Tully in North Qld. has a lot of work for women working in banana packing sheds. Also for men. Housing there is quite reasonable at the moment. Good luck, K.J.
jessica says
I used to believe that the prices of real estates always rise up and never go down but in facts, the prices of property in U.S.A. have gone down since some years ago and still down!!!
Dianne Ludwig says
Hi i live in Dubbo and at the moment property is doing really well here and employment isn’t bad but really its all about being in the right place at the right time to nab the bargain, I’m not sure I believe in another boom but I do believe if you purchase at the right price you will eventually make your money both from rentals and Capital gain.
I also believe this younger generation want everything today! It’s incredible, we have done it the hard way, bought inexpensive housing, lived in them ,renovated and then moved on to the next one and we are getting good rental returns on them all, it’s hard work packing and moving and I’m 53 and certainly don’t have a McMansion,, what I do have though I love and it suits us until the next opportunity comes along.
I am always amazed at people who complain about the cost of City living but won’t leave in case they have to live with what they call Bogans in the Country, your pretentiousness will keep you poor, anyway that’s my opinion, if you really want the opportunities they are there, if you want to live in the Cities rent.
Scott says
I think one thing no one here seems to consider is affordability. The average income per household – the average mortgage. Paying off a home for 25 years at 70% of income while interest rates are at historic lows. 30 years ago a mortgage was below 50% average income. This is where the bubble is yet to burst. When people can no afford to pay off their own roof in 5-10 years it wont be a few houses it will be suburbs. Australia got off easily over the GFC thanks to China buying our resources. They are now looking elsewhere and even domestically for their energy and resources. Not only that China has a housing crisis of their own. I recommend you search and watch “Ghost Cities” in China. It will show you a property bubble like the world has never seen before. Beyond 2008 bad. And this is all going to happen and Australia will not be spared. You can go sign a mortgage now and pay half a million for an average house today if you want. In my scenario rent is cheaper than the interest Id be paying to live in my place. Rent might go up but so will interest rates. Difference is Im not owned by the bank and I can walk out of here in a few weeks notice and pay less somewhere else if I want. When housing prices become realistic I would consider buying but the price correction has not happened yet and any boom or rise in values today will only be temporary. It has to either come down in price and become affordable for average people or wages will have to increase to meet the costs. Either way its a bubble bursted.
Im keen to wait another 10 years before I buy if I ever do. Rent is dead money, so is interest on a $500,000 bank loan.
Helena says
Hi Scott,
some people rent and others own. Its always been that way and always will be. When 75 % of the worlds population lives on $2 and under a day we are amazingly lucky to get the wages we do. Its not how much you earn but what you do with it that counts, alongside getting a solid education on investing in property, the opportunities are endless, and l would rather live in Australia then any other place in the World.
Ken Wong says
To all you people with a million dollar education, many have no courage, no common sense, and just not positive enough. I remember in 1971 when my brother got married and tried to buy a house. He went to one of those people for a loan and was told then that he would never be able to afford it because he might get sick and he might get this or that, or the engine in his car might blow up. He went ahead and got his house anyway. This was before he got gray hair too. Some people are managers and some people are not. I think this is why most people with common sense don’t even try to help those who don’t deserve to be helped. Maybe all the Donald Trumps who made there fortunes out op real estate got it wrong too.
JV Perth WA. says
Just have to contradict a comment made that Consumer confidence is at an all time low, that’s just not true.. History has proven humanity can endure far worse than the GFC, this generation has not had to live through war but now in an age where Global information is available to us faster than ever before, we take the worst news from the globe & leave our focus on the bad news, with no perspective on how great we have it in Australia on the fundamental standards of living. MEDIA LOVES BAD NEWS, they propogate fear in the masses, “after all IT MUST BE TRUE IF I READ IT IN THE PAPER/WATCHED IT ON THE NEWS…says the many” I worked in media for 15 years; radio, television & press and I know first hand how they manipulate the facts to send consumers onto the edge of their seats waiting for news of the latest catastrophe.. Don’t fall victim to their scare mongering propoganda! Think for yourself, don’t be a sheep and one of masses who believes everything they are fed from the media. Australia is not the US or Europe, we have mining that is respobsible for 46% of Australia’s exports. We have one of the highest standard’s of living in the world, rated No 4 in the top 10 nations in the world by the United Nations on the most livable countries in the entire world! Our unemployment is low, we have free national Health care that the US and most other Nations do not. We look after our poor and our sick with socially responsible unemployment and sickness benefits, again, the US are not the model humatarians, Australia has signed the Kyoto Protocol, the United nations Framework convention on climate change. The US are responsible for over 50% of the worlds polution yet they refuse to be a part of reducing carbon emmissions, they (the US) do not have free health care for their sick or a national social security safety net for their poor, nor does a long list of other nations. the Aus $ was recently the highest it has ever been. Australian technology innovation and Australian medical innovations are also leading the world.
Property prices have and will fluctuate but you can manufacture growth by renovating and with some research/”time away from the bad news”, you can buy (with the cheapest cost of money from the banks in 3 generations), and buy in an area where there is demand and market growth. Queensland and Western Australia are showing the highest demand at the moment, with 1500 people per week moving to WA from the East, the demand for housing is more than the available housing, creating high rental demand and pushing prices higher as a result. If you can’t afford the mortgage repayments to live in a home yourself, then you can always rent it out, leaving you a stepping stone to your own home by paying the smaller amount of the gap between the rent & the mortgage, look at it like a compusory savings. It’s a great way for our kids in their 20’s to start out, and when they can do some improvements (manufactured growth), and wait until it’s gone up in value enough for it to be used as a deposit on their own home (sell it or use the equity as the deposit). If you can afford to invest, and you have good Landlord’s insurance, why wouldn’t you take advantage of the lowest cost of borrowing in your lifetime and buy something to keep longterm, no matter what the GFC is doing overseas, we have 20 million people in Australia, and we all need somewhere to live, you only lose money if you sell for less than you paid – simple really, don’t sell until you get the return you want, you decide how much money you want to make!
The interest for keeping your money in the bank is negliable and taxed each year. Shares are tanatamount to gambling, and Super is eroded by fees, fees and more fees and is controlled by other peoples bad decisions about which managed fund to put your money in (whichever pays the highest “commissions”/kickbacks), what Super is useful for is using the compulsory work super to pay for your life insurance, important if you have a family. Property has gone up significantly over the long term and will always continue to do so so long as you buy a home in a location that has high rental demand,so if you need to move on, you can easily rent it out and access the equity to buy somewhere else, not the McMansion, but something that has the widest possible appeal, an affordable home, one you can improve on to manufacture growth while the housing prices continue to rise over the long term the GFC will be history.
We live in what can still be described accurately as the lucky Country. Why should we be so micro-focused on the short term gloom and doom, that is the fear the media preach based on other Countries models with entirely different variables.
So stop falling prey to the propoganda, pull your nose out of the bad news media and have a look around. Might I suggest that perhaps our National consumption of anti-depressants would be dramatically lower if the masses didn’t believe everything they read or watched in the media. Reality is perception, so stop taking the media’s perception of the facts as your own. See how well we compare on a humanity level, the fact is we live in one of the best Countries in the world, we don’t live with war or political unrest. For all you gloom & doom junkies, go travelling, see how well we live by comparison. Go to Fiji or India or Asia, see the fear the US citizens live with and God forbid you actually need medical treatment while Overseas. See for yourself and think for yourself. Don’t be just another one of the spoonfed masses!
Ken says
Spot on mate, I couldn’t have said it better myself. The reason most people are objective is because of just one word, JEALOUSY. We must all learn to live by and learn by our own parents knowledge and advice. They have lived through it all. Young ones must stop thinking they are the literal knowalls. My father said a moron is someone who can’t read between the lines of a newspaper. 100% agree with ”you only lose money if you sell at a lower price than the purchase price.” Also you make your money on a renovation when you buy a property, not when you sell it. you must create your own valuations, other wise the only people who make any money is the selling agent. You can help push up valuations by not selling for poor prices. Ken.