Bubbles, Busts and the Great Disconnect!

2 minute read

Only a few months ago I was reading an article from a real estate institute over a bowl of muesli. About half way through this article I could not believe the dribble that was being fed. “All of the signs point to a new housing bubble and prices were set to rise. After spitting out half of a mouthful, I realised that what we all need now is a good look at the figures, just to see what could have possibly have supported this notion.

In fact there was nothing to support these comments, it was just another way this person thought they would be helping agents out. I have said for a long time now that agents do not need a new housing boom because the bust would make the years following it so dark that we would see massive office closures across the country.

There has been nothing from any of the major political parties leading up to the election that will help agents or consumers. The problem with housing, is that too many people have too much of an interest in prices rising. Governments – local, state and federal, banks and to a lesser extent agents.

Today I was alerted to an article written on July the 9th from the U.S. and I can tell you that much of what this contains rings true for Australia and New Zealand.

“Today’s home prices can best be described as a recession in the making, but are most often referred to as a bubble. Prices have grown so much in the last decade that they are now completely disconnected from the fundamentals that have historically ruled the real estate market. Today’s prices are not sustainable and the graphs and analysis below demonstrate why.”

I think this makes fascinating reading and I think you should take the opportunity to read it. Not all is relevant but one thing that is – is the growing disconnect between home prices and average incomes.

This is why I think massive changes need to be made in the way we deal with property prices and investment!

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  • Glenn
    Posted August 22, 2007 at 11:06 am 0Likes

    You read a lot over your muesli!!! At least you did not spit it across the screen this time..

  • Paul D
    Posted August 22, 2007 at 12:46 pm 0Likes

    I was in discussions the other day with a young (x -gen) industrial agent. I commented that I thought he was asking too much for the land, and that the fundamentals were not right, because after you pay for the land, build the building and try to find a tenant – the tenant would not pay an economic return on the property, because they simply would not be able to afford the rent that was needed to provide any sort of return. I was amazed as his off-handed comment, that these days, that was not the way to calculate a return. His opinion was that you aim to sell to an owner occupier, because they didn’t care about a return. The worst thing was, that he was SERIOUS.

    Another case in point was a seaside block of units, in a managed hotel complex. I pointed out to the sales lady that the asking price represented approx $8,000 per m2. and for that kind of money, you could buy a strata office in the centre of the Sydney CBD, and have practically 100% occupancy at nearly double the rent, and she didn’t have a clue what my point was. The main problem is that sales people have seen prices increasing for so long (in some cases their entire careers) that they just assume that it will continue at that pace forever.

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