It amazes me how so many people are convinced that this folly which took a decade or longer to create will just suddenly be fixed in two to three years. Time is the greatest scavenger and it will make a meal of the impatient, every time.
Now here's an article well worth reading, and even though it's not about property, it sure points to the macro factors that will influence property (amongst others) for many years to come:
Ish, I tend to think you guys are too on the negative side, but this article is interesting (& alarming). I do hope the powers that be come up with ways to stop the downward spiral, could get ugly
That article is one of the milder, least alarmist ones I've read for a while ,outside the MSM anyway, but it still leaves a lot out. It's all true, except in the 1st Great Depression they still had seas of cheap oil, no impending climate problems, and four billion or so fewer mouths to feed. Take a good look at the economy, this is the healthiest you'll ever see it until we completely rebuild our urban and energy systems and a lot else besides.
A hell of alot of people are hedging their bets at the property market going through the floor and prices dropping 50% or so. Well, dream on!
There has never been a bertter time to make money in property than at this point in time.
i admit prices are down which has lead me to up my investment in property. I scour the auction pages daily looking for that bargain and this has paid off handsomely with my latest property aquisitions giving me in excess of 12% NETT rental per annum.
The only reason most people are negative about property and are professing its demise as a asset is because they cannot afford to buy. Nobody but nobody who can afford to buy will sit idly by and rent until the market recovers.
So please spare us with this drivel and articles that seem to surface. I bet you the writer of these doomsday articles are owners of property and would gladly buy more if they had the cash.
Blogs like these are written by people who are angry at themselves for not making wise property investments ages ago. Instead they sit there and rent and then pass judgement on those who wish to purchase property.
"The only reason most people are negative about property and are professing its demise as a asset is because they cannot afford to buy"
Of course when "most" people cannot afford to buy something the price stays high? I might only have matric economics but I seem to recall the general rule says prices will drop when no-one can afford to buy a particular item/property. Help me out here bro.
Hey Anon, "this has paid off handsomely with my latest property aquisitions giving me in excess of 12% NETT rental per annum"...
Only 12% pa? and where exactly? I suppose it's that penthouse in the 'One and Nuthin'
Eejit, I do 112% in 5 minutes on FX trades
You got to pick your investments just like you pick your trades. Sure, property is a good investment, and most of the bloggers here know that. But why plug your money into an 'investment' that's going to go down before it goes up?
You go on and sink your devalueing cash into property. I'll buy it from you when the price is right.
"Blogs like these are written by people who are angry at themselves for not making wise property investments ages ago"... right on bro, you hit the nail, you are a sure sage of wisdom.
No Anon, not angry that I didn't buy earlier, angry at the greed of the whole property industry that turned buying a home to live in into a giant bubble scheme that is now imploding and wrecking everything in it's path.
A Tale of Two Depressions - A nice little story in which analogies are drawn between two unrelated events. A little bit like comparing the 1st and 2nd world war ... and then going on to predict how and when WW2 would end. Absolute nonsense! No one could predict where the world would be now.
Anyway, I agree that houses, in general, for owner-occupiers have been largely overpriced. But how would buyers know? Could they really be blamed?
The biggest damage was not done by pricing, it was done by people overstreching leverage and loosing grip. If people 'who lost their homes/all their equity' were just to continue paying their monthly instalments when rates were hiked in 06/07, then the damage would be minimal. Remember that the economic downturn was not caused by the SA housing bubble. It was a combination of several events creating the perfect storm. And the interest rate hikes, NCA, and credit crunch did not help either.
Greed does not occut in the property industry so per se. And becoming angry at greedy homeowners, bankers, developers and salespeople is a little bit like saying plastic surgeons are all in it for making a quick buck from the rich and vain.
Remember that many people, especially those who neared retirement and who have diligently stayed in the market by conservatively paying off a house, have seen some excellent and well earned appreciation.
Peter, I had to laugh at your two analogies because they're both so profoundly ill-chosen.
1) If you'd looked at World War 1 to find an expected end to World War 2 you would have seen that a) those who declare war in the US lose, b) whoever controls France wins, c) whoever controls the air wins, and d) don't f*ck with the Russian winter. The moment the US entered WW2 Germany was stuffed. Air superiority for the Allies in 1943 and 1944 meant that the end was inevitably soon. And when Hitler turned east, he was stuffed. So yes, it was easy to predict the end of WW2 by looking at WW1. Why else where Stalin and the West dividing up Europe as early as 1943?
2) I dated a plastic surgeon for two years and met a large number of plastics people in this country, and I can say with absolute authority that 80 percent are SOLELY interested in making a quick buck from the rich and vain. The other 20 percent are the heroes who fix burnt kids and reconstruct faces, but they are far outnumbered by the snakes in suits.
Finally, I have to call you on your assertion that "many people, especially those who neared retirement and who have diligently stayed in the market by conservatively paying off a house, have seen some excellent and well earned appreciation."
As a white South African in my early 30s I have nothing but contempt for those nearing retirement and their "well earned" appreciation. The baby boomers rigged the system to favour them, and to hell with future generations, but in this country they were too smug and in-bred to use financial instruments: they had to use apartheid. I don't care how hard you worked or how diligently you saved: if you are in your 50s or 60s today, white, and lived in SA your whole life, your wealth is built ENTIRELY on the near slave wages of apartheid.
My generation is making its own way, dealing with the blowback from your policies, with none of the safety nets you had. Property is out of reach to my age cohort, because the Baby Boomers have decided they are entitled to more than my generation is.
I've heard too many 50-70 year olds tell me that young people must work for what they want. That's bullshit. Young peoeple are working far harder than their parents ever worked, for much less, and we don't have a white government giving us sheltered employment and 40% home loan subsidies.
So forgive me if I snort at your "well earned appreciation".
You are missing the point. A Tale of Two Depressions hypothesise that the outcome of an unrelated event of similar economic and social description will end in the same way, because history repeats itself - and nothing could be further from the truth.
Secondly, the article boasts prediction and economic theories as truth - like speculating where the world is in a business cycle, crazy.
Sorry to hear about your ex, the company you kept, and how you think you got a raw deal working hard and all. My opinion on people who saved for well-earned comforts stand.
I understand your frustration with SA's past. But is has no relevance to my comments on the causes for the property market's situation.
The same comments will go for you when, and if, you acquire property as a tool to save towards something
@ Peter so you are saying that history does not repeat itself, Economies are not cyclical and we have nothing to learn by analising past events? and drawing some insight from these analysis? Wether the analysis is right only time can tell but if you want to discredit some ones argument, you need to pull it apart bit by bit and not with some glib statement.
Strange thing this vibe between the rich and the poor. Don't despise the rich, don't concern yourself with them - you will miss your own opportunities that way.
I am sure that you will take a highly paid job from any baby boomer. And don't forget, it is the 30-something industrialists and developers of this world who has the locust mentality, who consume and pollute our world. So careful with the mud, buddy.
No I am not saying any of the things you mention - unglib enough? Please don't put words in my mouth.
Read my comments again any you will see why I do not agree with the article or with Joe's faith in it. Rather tell me what the 'some insights' are that you draw from the analysis, won't you. Because I just cannot see 1920s scenario.
Young Saffer I disagree with most of what you say.
Blaming the past does little to help you with your future!
I am in my 30's which means my work life has been 95% post 1994. So I've had no "help" or "protection" from apartheid. And I am doing very well for myself (and no, I don't come from a wealthy family either; my parents were, at best, middle class and money was tight).
As for Anon, who said, "The only reason most people are negative about property and are professing its demise as a asset is because they cannot afford to buy."
Wrong, wrong, wrong. I am working in Toronto and earning dollars. I could easily buy a R2 million home in CT now, but I won't. Not because I can't afford to buy, but because I believe prices will fall or at least stay flat. Time value of money rule tells me not to buy in CT right now.
Peter, I am always amused how the rich tell the less rich to ignore them - "don't concern yourself with them" were your words. I recently worked with a bloke worth $200-million who went to such lengths to tell me "It's not about the money" that it started getting embarrassing.
It's in your best interests for the masses not to notice you, isn't it? Of COURSE you would urge people to look away and mind their own business, in case they start wondering why your labour is worth a hundred times what theirs is worth.
As for working for "any baby boomer", sorry, in this case I don't live in a glass house so I can throw stones. I have been self-employed for 10 of my 11 years in my industry - quit after I realised what a racket management was and how it's all just a pathetic boys' club for overpaid slackers. So my comments stand.
As for your odd assertion that it is the 30-somethings destroying the world, er, surely you jest? Yes there are youngsters doing the dirty here and there, but are you seriously suggesting that the boardrooms at Haliburton or at Enron or Goldman-Sachs are full of 30-year-olds instead of packed with 50-somethings? Was Bernie Madoff framed by a cabal of 20-somethings? So again, the mud stays, buddy.
Anon, I dumped her because she turned out to be a psychopath. I can give you her number if you like. She's extremely hot, very rich, and self-medicates three times a day. Oh, and thanks for making my point about Old South African attitudes - your "little snot" jibe was priceless, straight out of a Broederbond meeting circa 1955.
This open thread is great entertainment. Sadly, I do have to agree with Young Saffer in some respects. It also irritates me when my parents generation (+-60 year's old) make comments and give advice based on their experience from how tough it was back then. The way it looks to me is that any half wit white person could get a secure job, buy a house, have a live in domestic worker to help with cleaning, cooking and looking after kids. Oh - and don't forget the 4 weeks of holiday a year, Mon to Fri 8am to 5pm work week, and no overtime.
Perhaps it's not quite this simple, but it doesn't sound that hard to me. As for Jules, please save the "I'm living in Toronto and have R2 mil ....". Man, we've all heard it before.
Why are prices still so high when demand is, supposedly, low? Banks and government are finalizing an agreement to make credit for real estate readily available.
Apart from some exceptional examples, good, modern houses in safe areas are still very expensive and prices do not adhere to the supply-demand theory.
Property has indeed been good to many in the past, especially since 2000.
So, even if there were 'wonderful times' for the minority in this country - what does that have to do with your current financial situation, property or the economic mess? Are the 'democratic' countries better off? Have no poor? Show me the utopian country that you would like to use as reference, and I will show you recent and current atrocities performed there every day.
There are children of rich whites sitting on the street and there are children of poor blacks making it big time out there. But in time another elite minority will rise, maybe based on race, maybe not. But if luck doesn't come your way, then your children will also blame the rich minority...
And there will always be a minority, in any country. Even after many revolutions, civil wars and time gone past.
It is not possible for an economy, even one as small as SA, to forsake what the world does. Unless it goes the route of Zim or DRC, but then nothing can save it.
So barring the worst, including some freak disease or alien invasion, this old economy of ours will tick on, jos will come back for those that want 'secure' salaries, business opportunity exist for every single person, houses will be built and the people living in them will make babies, will houses, schools, office space and factories.
Desite the poverty in SA, there is massive buying power in this country. And with a liitle bit of credit tweaking, everyone will once again carry on living, with property become the most coveted aspiration for the poor and the young.
That's got nothingt to do with apartheid, that's just you!
If you think the 50 year olds didn't work very hard, then tell me who got man on the moon, who got the internet up and running, who invented air travel, nuclear energy, cellphone technology and compueter tehcnology?
Not the 30 year olds! the 50 year olds, broertjie!
Now tell us, what is YOUR generation doing for the next generation?
Twittering? Facebooking? Whining about wanting a BMW?
I must agree with Young Saffer. Oldies like anon should have the decency to be ashamed of how much they f*cked up the world. My pops applied for one job in his entire life, over half a century ago. In the 10-12 years I've been in the workforce I've had over 40 employers, almost all on a freelance, zero benefits basis. All totalled up I've spent years uneployed as well. Home ownership for those in my peer group is a joke. Maybe all the youngsters should head for Oz and leave their selfish elders here to burn when the poor decide they've had enough.
Erm commercial aviation, nuclear power and space travel, etc are a bit older than you think. Unless you're speaking about the 50 year olds of 1930/40/50/60/70
Everyone tends to build on the efforts of those who have gone before them.
I think young Saffer's frustration might stem from economic policy that allowed asset prices to become inflated. This obviously helps those who already own such assets but not those looking to buy them.
This can get to a situation where new entrants to the market are priced out. This seems to be what has happened, in the UK, US, SA, etc.
This is of course self correcting in that prices have to fall or at least stagnate in nominal terms (while falling in real terms).
Unfortunately when the bubble starts to deflate as it has then sentiment becomes negative. How long can the world stay in recession before people become necessarily more cautious on a large scale?
When people are being cautious they tend not to commit themselves to large amounts of debt. If property is no longer perceived as a good investment then people won't buy it. This will tend to force the yield up as house prices deflate / stagnate and rents slowly rise.
We're still not at that point. We also won't permanently stay at that point if we reach it. The market tends to get momentum in certain directions - even if it takes a long time to get there. See above for sentiment which takes time to build in either direction.
With regards to the linked article the single most important thing to notice is the difference in response to the two economic crises.
Compared to the great depression this time there is a much greater willingness to push money into the economy through increased government expenditure and loosened monetary policy.
This is the appropriate response even if it is going to fuel inflation. Rather that than a deflationary spiral which tends to be very sticky to get out of - e.g. the Japanese experience.
This will of course support *nominal* house prices.
LS Shows maturity when you try and turn the heat down on the simmering war of the white middle class generations. Just wondering if anyone remembers the movie Logan's Run? Been thinking about that film a lot lately.
"people who have diligently stayed in the market by conservatively paying off a house, have seen some excellent and well earned appreciation"
First off, a house should keep pace with inflation - that's it - it shouldn't provide "well earned appreciation". That is exactly where it all went wrong - the whole mindset of turning home owning into a money making investment.
The government encouraged it because the excessive spending from equity withdrawals made their economies look good and it boosted tax revenues. The banks encouraged it because it increased the bonuses. The estate agents loved it because of the juicy 7% commissions and the easy sales. The property developers loved it because they could sell property before even building it. The speculators, Buy to leters, and the flippers loved it because it was such easy money. The public loved it because they got rich for doing nothing but owning a house.
Everyone loved it - until the bubble burst and it was payback time, and all that easy wealth had to be returned.
Governments fell, countries fell, banks fell, property companies collapsed, those who spent the easy money and couldn't pay it back have gone bankrupt, two thirds of estate agents have gone, tax revenues are hit bad, stocks have collapsed, jobs have vanished, and depressions may well be heading to a country near you very soon.
That "well earned appreciation" was excessive bubble money, and well ahead of the usual inflation returns. So it has to be paid back ... by falling houses prices.
And until it does, people who want to buy a house for the old fashioned traditional reason of wishing to own the place they live, now have to twiddle their thumbs for many years whilst prices return to where they should be.
And hopefully, as we wait, the turmoil doesn't cause the global financial system to implode or world war three to break out.
So spare us the "well earned" crap Peter. It was stolen money ... stolen from the next generation of home buyers.
If this blog represents the way that thinking AND educated S Africans feel towards the economy, then we are going to be in a world of hurt once the bubble really bursts. Its easy to see there are strong class and generation polarizations in this bunch. What nobody realizes is that probably 99% of these posts are from whites. It just goes to show how ignorant the whites are of the needs and wants of the black/coloured population. It also goes to show who the black elite are catering to, besides themselves of course. They don't want the economy to crumble just yet...but when it is finally inevitable and we are looking down the barrel of doom and Zuma is in office...there will be a very chaotic change of the haves and have nots.
The economy is falling apart. Yes, some calculated sharks are making money because there are always suckers. Yes, the baby boomers messed up SA, and the ENTIRE global economy. But, remember that South Africa has the most volatile race issues of the world, and that the white/black dynamic parallels the rich/poor one. The economic collapse will result in social unrest, leading to revolt, leading to chaos. War.
You South Africans are so LITERAL about everything!
You can't see the woods for the trees!
Wake UP, snot noses!
The bubble is bursting, worldwide, not just in SA - the snot nosed thirty-somethings are going to have a LOT more to whine about when this recession REALLY gets going
CJ Ok, You ask me to 'tell us', but do not pose a question and then go on to make some statements – that are false. So let me then respond to your issues with ‘those people who have diligently stayed in the market by conservatively paying off a house’ and the rest. 'First off, a house should keep pace with inflation - that's it' - Now why on earth would you make a silly statement like this - like it true? And why shouldn't it provide well earned appreciation, like another means of saving?! Goodness, I can buy next year’s dried tomatoes as investment and that is all fine… have you seen what dried tomatoes think of ‘keeping pace with inflation’. And don’t you know that inflation is a tweaked stat that means nothing except for the abstract and non-existent ‘median’. You despise estate agent’s commission, yet are paying commission in a multitude of other areas in your own life - and if you don't, your suppliers do - no problem. Your end-of-the-world quotes are unintelligible, because it does not address the issue of real estate that. Rather you choose to focus on events over 5 years or so and then with one sweep disregard properties value as savings tool over hundreds. 'And until it does, people who want to buy a house for the old fashioned traditional reason of wishing to own the place they live, now have to twiddle their thumbs for many years whilst prices return to where they should be.' - This is true and sad. It shows how bad greed is, you’ve mentioned it. But is does not negate the place of property or the fact that paying hard earned dough towards an appreciating property with an amortising bond renders a well-deserved saving. As far as your fears for WWIII - well if you want to lose sleep, go for it. If you had the nerve to buy a house 10 or 15 years ago, and did the trouble to ensure that you regularly paid your instalments, then you too would have had a well-deserved saving, stolen from no man.
Peter, buddy, how do 25-year-olds slot into this great free-market fantasy of yours? I know you would tell them, "If you had the nerve to buy a house 10 or 15 years ago, and did the trouble to ensure that you regularly paid your instalments, then you too would have had a well-deserved saving, stolen from no man."
Er, okay. But 25-year-olds couldn't buy a house 10 or 15 years ago. And since then you middle-aged specuvestors with your self-righteous Baby Boomer entitlement attitude have speculated the price into the stratosphere.
Good luck explaining to the 25-year-olds why they should become wage slaves paying off an "asset" that you bought for 50% less just a few years earlier.
The kids are waiting. They outnumber you. They will outlive you. And they resent the hell out of you for robbing them of their birthright. Enjoy your property while you can, because there's a generation of lean, hungry, pissed-off kids coming through who have got used to renting, think property is over-rated, and will be only too glad to screw you when they are in government.
Sadly, this is exactly the type of cupped-hands attitude that will get you, and many in every generation in the past and will in the future, to sit out the next round of opportunity. Always has, always will.
I suggest that you don't bargain too much on your birth right - didnt help me one bit. Rather try to get my point about property. Get yourself some and save in it. Now is a good time, later might be better, might not. You also need a bit of luck, so good luck.
You think I am a cossetted whiner, part of the self esteem generation, someone who wants far more than he deserves and who has no perspective on the complex issues that you have mastered through age and experience. You wish I would stop complaining and start working, make something of myself the way you did.
I think you are part of a generation that is in smug denial, completely insulated from any sense of modern reality, and quite convinced that your considerable wealth is the product of your hard work rather than the result of a corrupt political system you did nothing to overthrow. I don't think you can tell the difference between complaining and critiquing, mainly because you grew up in a society that frowned on both and therefore allowed you to continue profiting from the masses without ever having to interrogate your methods. I also don't think you tell the difference between cupped hands and raised fists. At some point you will have to learn the distinction, but for now don't worry. We'll let you know when you need to start worrying. We'll send you a telegram.
You say that 'This can get to a situation where new entrants to the market are priced out' and you refer to 'asset prices'. You mean house prices, or living cost?
I agree that there will be a self-correction on the part of mad prices and consumers' willingness to pay it. But I feel that the 'out pricing' is often because of people's lifestyle, rather than their assets. Keeping up with the Joneses has become more acute.
Your kids will say the same about your generation. Go to work now so there's something for them, lest they become as grumpy as you. No glory in starting from scratch.
Young Saffer, You are a “cosseted whiner”. You talk to everybody on this blog as if they took something from you. The corrupt political system you are referring to has been gone for over a decade now. This is your age to make a difference. How is complaining about the wrongs of the past going to change your situation? Go out, and fix all the wrongs of today. That might save future generations the bitterness you are experiencing. I am in between 30 and 40. I live the good life I have worked for; no one ever did me any favors. The most successful people I know are the ones that worked the hardest. True wealth is built by more than one generation. I suggest you start to build your children’s future. I hope they will appreciate what you have done. (I do not think you have what it takes) Go on use the only thing you have got going for you (your sharp tongue) and stick it to us
The poster "Brilliant" stated: ...As for Jules, please save the "I'm living in Toronto and have R2 mil ....". Man, we've all heard it before...
I'm kind of confused on what point you are making. All I was trying to say is that people sitting on the sidelines are not all broke and unable to afford to buy.
Remember that several posters on this blog seem to imply that people who support the bubble theory simply can't afford to buy. That's not true. Period.
Some people, like me, are choosing to wait because I believe prices are too high. I am returning to CT in a few years' time. If I think prices are going to keep climbing then I would buy in CT right now and rent the place out.
But I will wait because I think it's the right thing to do. Time will tell if I was right or wrong.
While I don't totally share the views of "young saffer" I will agree that what he says does highlight the foundation of the bubble: that too many entry level first time buyers are PRICED OUT OF THE MARKET.
Younger people are facing much more expensive housing costs compared to previous generations when you compare prices to annual income.
Having said that, blaming the past does nothing to solve the future. I chose to move overseas for a few years to earn dollars. It has been a sacrifice but in a few years' time I can return to CT and buy a decent home.
I know this might sound like a dumb question, but why is it so important to own a home? One can always rent. Is buying a house a better investment than other investments like buying shares on the stock market or retirement annuities?
Actually young saffer is spot on. Boomers can go read some Generational Theory to familiarize themselves with the concepts he is talking about. Try Strauss and Howe...The Fourth Turning.
I was referring to house prices when I said asset prices (although this also held true for stock market prices I'm using past tense because stock markets fell hard and fast).
As time passes fresh batches of people enter the economy however the wages the earn are not going to increase / decrease to the cost of a house. This makes it possible for first time buyers to get priced out of the market if property has a good run for a number of years e.g. 30% a year for three years.
The converse also holds true, i.e. if property prices stagnate while wages increase then affordability for first time buyers improves.
There are obviously other factors which modify the affordability e.g. cost of borrowing, easy of qualifying, number of new entrants, etc.
The cyclical nature of the economy starts to make sense when viewed in this manner.
First time buyers are obviously needed because of people leaving the market (upgrading, dying, etc).
As for general inflation of goods and services - that prices the poor out of survival. I.e. they are pushed into poverty / below the breadline eventually. Their incomes tend not to be able to keep pace with inflation. I.e. they are price takers when it comes to determining their wages. So the poorer segments of society are definitely battling despite not having caused the situation.
Please stop blaming the "Boomers" for the current world situation. You must remember that they did the best they can with the knowledge they had then. It is very easy to judge 50 year old mistakes with today’s wisdom. Our current consumption will leave very little for future generations. We are the future boomers.
It does raise another two questions with me. Is the antagonism towards these temporary, but very over-priced assets also cyclical and generally prevalent at this stage of a cycle?
Someone once did interesting research on an area in Amsterdam - they discovered that in real terms (ie removing inflation) property has in that area sold for the SAME price over the last 400 years.
Shiller's US real graph over 100 years also shows it is pretty flat, with the main outliers being the big dip during the 2 world wars and the recent boom period which has had the graph shooting upwards off the page. The market has always returned to the norm. And presently it is doing what it has always done.
Housing keeps place with inflation or maybe slightly ahead of it. If it doesn't then people will no longer be able to buy houses.
In the last ten years wages have increased 100% with inflation, yet houses have increased 400%. If the ratio of annual wage to house price was 3.3 back then, then it would be today 6.6 for the same salary earner and house. If this continues for another 50 years then your same house would take 200 years salary to buy (remember 10 yrs ago it only took 3.3 years)
Likewise, if we went back 50 years before the boom and assumed that the same multiplication factors had been happening in the market during all that time, then back in 1950 your house would have cost you only 2 weeks salary!
That's why houses go up with inflation. If they move faster or slower at some stage then that aberration will be reversed in the near future so that the norms can be returned.
So in effect, if you bought a house 15 years ago, the percentage of your salary needed to buy it should have been exactly the same as it would be when you buy today.
It shouldn't matter when you buy. Yet it does because of the bubble greed of the last decade distorted the market much higher than it should be.
Your 1m house 10 years ago should be worth 2m today thanks to 100% inflation. Instead it is 4m. It either has to lose that 2m or the price must remain flat whilst inflation increases another 100% over the next 10 years - in which case the 4m would now be the correct price because salaries would have have doubled over those years - so the 3.3 salary ratio once again returns.
Thanks, I think you make some good points. I'm no expert, but I enjoy following property prices and what is available on the market.
Looking at what you say, I have to wonder if there is more chance that house prices will remain flat until inflation catches up. Although sellers are becoming more realistic about what they can achieve, I cannot see prices dropping more than +-30%. I get the feeling that most people will rather try their utmost to hold onto their property rather than sell for a much lower price.
You are making sense, even though initially is sounded absurd to me. But I am not totally convinced and let me tell you why. Not everything keeps pace with inflation. It would not be possible to get a house market where the houses are costing 50% less than their replacement (building) cost. Secondly, and maybe more importantly, the monetary system that we operate in is based on credit, and it is the cost of credit that largely (not completely) determines asset (living cost) prices.
The more and more I think about it, I believe that prices will soften slightly and then it will be flat for several years while incomes increase to close the gap.
Jules and CJ, one question. My tracking of properties suggests that people will hold out instead of dropping prices (no reductions noted for months), but here's the thing: weren't there thousands of specuvestors who bought at the height of the bubble who desperately need prices to rise in order to stay solvent?
If there is this group of increasingly squeezed owners, could foreclosures start tipping the balance from a holding pattern towards a more dramatic downward price spiral?
Some people may be prepared to wait ten years to sell. Many sellers, however, are desperate sellers - I think a recent FNB survey had it as 40% of sellers are desperate - these guys can't afford to wait. So they will be the ones driving the prices down.
And of course, just because your house isn't on the market, doesn't stop it's price from falling in step with those houses that are being sold for lower prices.
If I told you that your R4m house would be falling to R2m in the near future, guaranteed, there would be a stampede to sell. Offer 20% discount and sell for 3.2m, wait a few years and buy it back for R2m. It would be a clever move.
Of course, people are hesitating because they don't think it is going to happen. So that's the big question. If you think our prices could fall 50 or 60% like they have in other parts of the world, then the first people to bail out are actually the clever ones. Those that hesitate are the real losers as they will end up selling near the bottom and get no benefits.
At some stage, I suspect the penny is going to drop and sellers will realise that the cavalry are not coming to rescue them - that is when there could be a hectic rush for the exits.
I'm no psychologist so I won't answer your question directly but here is some background:
The psychological mood is also cyclical. Hence business confidence indexes, consumer confidence indexes, etc are considered as important sources of economic data.
Remember that this goes both ways - there is also exuberance when the (housing, stock, etc) market is running / booming. At least for those who are in that market - those not in it are not going to be so positive about that.
I was getting worried when everyone was an expert on property investing a couple of years back. Even my landlord was telling me it was a good time to buy. That would of course have lost her a tenant...
She was also telling me that it wouldn't be possible to get a house in London for under a million pounds in a couple of years...
I couldn't for the life of me see how property would be a good investment then. Prices at a high level after having having increased at a large rate for a few years and yields correspondingly low...
Remember how angry people were when the oil price went through 100$ / barrel like it was nothing and kept on rising. Oil speculation did that. One of things that certainly helped tip the world into recession.
Greed and fear are certainly powerful motivators / inhibitors to purchasing decisions.
What the people who comprise the marketplace consider to be acceptable prices is influenced / determined by a number of factors.
Supply and demand. E.g. if the economy is shedding jobs then this causes a decrease in demand. No salary means no bond repayments...
If lots of new houses are sitting on the market for a long time then supply is too high (for the going price).
Lowering or raising prices allows the market to clear i.e. buyers can buy and sellers can sell. Goods / assets remaining unsold means that the price is not at equilibrium (prices too high). If goods / assets are not available at a given price then prices need to rise.
Yield on property. If you are in the buy to let market then you must really be thinking if you should have a devaluing asset on your hands with a low income yield. Of course if you can pick up a house on the cheap and get a decent rental on it then your yield will be good. Investors can chose to not invest in property or divest from and rather invest in another asset class.
Interest rates - determine what is an acceptable yield for property, stocks, etc. It also feeds into the demand for housing side of the equation by enabling people to borrow more.
Sentiment - if most people think prices will decrease then they're probably going to want to pay less than the asking price or wait until the price has fallen.
Keep an eye on interest rates, economic growth, house price to wage ratio, general sentiment.
Looking at long term averages for these figures should be helpful in determining if prices are over or under valued and how much support there is for whichever state it currently is in.
Even at house prices where to be at normal values (i.e. close to long term averages) you would still have to look at things like economic growth, general sentiment to determine if more people are going to put money into the property market than take it out.
I know I'm a couple of weeks behind here but thought I'd pop in this morning and see whats being said on the CTPB screens.
Anonymous says: "If you think the 50 year olds didn't work very hard, then tell me who got man on the moon, who got the internet up and running, who invented air travel, nuclear energy, cellphone technology and compueter tehcnology?
Not the 30 year olds! the 50 year olds, broertjie!
Now tell us, what is YOUR generation doing for the next generation?
Twittering? Facebooking? Whining about wanting a BMW?"
Thanks, Anonymous, YOUR generation invented the internet, the platform on which twitter and facebook operated. And the moon landing...tell me why did they pull the plug on the entire programme after 1969? It was pretty pointless wasn't it? Why are politicians now running around trying to get countries like Iran not to develop nuclear technologies? Unfortunately your generation 'worked' on things, which on an overall basis has been a net negative for society. Whining about owning a BMW? Do you work for the government? Ridiculous comment. That's the only place I'd expect such comments to emanate from.
I'll tell you what the youth of today will be doing for the next generation: They will rebuild the world economy based on sound economic principles.
63 comments:
It amazes me how so many people are convinced that this folly which took a decade or longer to create will just suddenly be fixed in two to three years. Time is the greatest scavenger and it will make a meal of the impatient, every time.
Now here's an article well worth reading, and even though it's not about property, it sure points to the macro factors that will influence property (amongst others) for many years to come:
A Tale of Two Depressions
Ish, I tend to think you guys are too on the negative side, but this article is interesting (& alarming). I do hope the powers that be come up with ways to stop the downward spiral, could get ugly
ha-ha @ anonymous
That article is one of the milder, least alarmist ones I've read for a while ,outside the MSM anyway, but it still leaves a lot out. It's all true, except in the 1st Great Depression they still had seas of cheap oil, no impending climate problems, and four billion or so fewer mouths to feed.
Take a good look at the economy, this is the healthiest you'll ever see it until we completely rebuild our urban and energy systems and a lot else besides.
A hell of alot of people are hedging their bets at the property market going through the floor and prices dropping 50% or so. Well, dream on!
There has never been a bertter time to make money in property than at this point in time.
i admit prices are down which has lead me to up my investment in property. I scour the auction pages daily looking for that bargain and this has paid off handsomely with my latest property aquisitions giving me in excess of 12% NETT rental per annum.
The only reason most people are negative about property and are professing its demise as a asset is because they cannot afford to buy. Nobody but nobody who can afford to buy will sit idly by and rent until the market recovers.
So please spare us with this drivel and articles that seem to surface. I bet you the writer of these doomsday articles are owners of property and would gladly buy more if they had the cash.
Blogs like these are written by people who are angry at themselves for not making wise property investments ages ago. Instead they sit there and rent and then pass judgement on those who wish to purchase property.
"The only reason most people are negative about property and are professing its demise as a asset is because they cannot afford to buy"
Of course when "most" people cannot afford to buy something the price stays high? I might only have matric economics but I seem to recall the general rule says prices will drop when no-one can afford to buy a particular item/property. Help me out here bro.
Hey Anon, "this has paid off handsomely with my latest property aquisitions giving me in excess of 12% NETT rental per annum"...
Only 12% pa? and where exactly? I suppose it's that penthouse in the 'One and Nuthin'
Eejit, I do 112% in 5 minutes on FX trades
You got to pick your investments just like you pick your trades. Sure, property is a good investment, and most of the bloggers here know that. But why plug your money into an 'investment' that's going to go down before it goes up?
You go on and sink your devalueing cash into property. I'll buy it from you when the price is right.
"Blogs like these are written by people who are angry at themselves for not making wise property investments ages ago"... right on bro, you hit the nail, you are a sure sage of wisdom.
No Anon, not angry that I didn't buy earlier, angry at the greed of the whole property industry that turned buying a home to live in into a giant bubble scheme that is now imploding and wrecking everything in it's path.
A Tale of Two Depressions - A nice little story in which analogies are drawn between two unrelated events. A little bit like comparing the 1st and 2nd world war ... and then going on to predict how and when WW2 would end. Absolute nonsense! No one could predict where the world would be now.
Anyway, I agree that houses, in general, for owner-occupiers have been largely overpriced. But how would buyers know? Could they really be blamed?
The biggest damage was not done by pricing, it was done by people overstreching leverage and loosing grip. If people 'who lost their homes/all their equity' were just to continue paying their monthly instalments when rates were hiked in 06/07, then the damage would be minimal. Remember that the economic downturn was not caused by the SA housing bubble. It was a combination of several events creating the perfect storm. And the interest rate hikes, NCA, and credit crunch did not help either.
Greed does not occut in the property industry so per se. And becoming angry at greedy homeowners, bankers, developers and salespeople is a little bit like saying plastic surgeons are all in it for making a quick buck from the rich and vain.
Remember that many people, especially those who neared retirement and who have diligently stayed in the market by conservatively paying off a house, have seen some excellent and well earned appreciation.
Peter, I had to laugh at your two analogies because they're both so profoundly ill-chosen.
1) If you'd looked at World War 1 to find an expected end to World War 2 you would have seen that a) those who declare war in the US lose, b) whoever controls France wins, c) whoever controls the air wins, and d) don't f*ck with the Russian winter. The moment the US entered WW2 Germany was stuffed. Air superiority for the Allies in 1943 and 1944 meant that the end was inevitably soon. And when Hitler turned east, he was stuffed. So yes, it was easy to predict the end of WW2 by looking at WW1. Why else where Stalin and the West dividing up Europe as early as 1943?
2) I dated a plastic surgeon for two years and met a large number of plastics people in this country, and I can say with absolute authority that 80 percent are SOLELY interested in making a quick buck from the rich and vain. The other 20 percent are the heroes who fix burnt kids and reconstruct faces, but they are far outnumbered by the snakes in suits.
Finally, I have to call you on your assertion that "many people, especially those who neared retirement and who have diligently stayed in the market by conservatively paying off a house, have seen some excellent and well earned appreciation."
As a white South African in my early 30s I have nothing but contempt for those nearing retirement and their "well earned" appreciation. The baby boomers rigged the system to favour them, and to hell with future generations, but in this country they were too smug and in-bred to use financial instruments: they had to use apartheid. I don't care how hard you worked or how diligently you saved: if you are in your 50s or 60s today, white, and lived in SA your whole life, your wealth is built ENTIRELY on the near slave wages of apartheid.
My generation is making its own way, dealing with the blowback from your policies, with none of the safety nets you had. Property is out of reach to my age cohort, because the Baby Boomers have decided they are entitled to more than my generation is.
I've heard too many 50-70 year olds tell me that young people must work for what they want. That's bullshit. Young peoeple are working far harder than their parents ever worked, for much less, and we don't have a white government giving us sheltered employment and 40% home loan subsidies.
So forgive me if I snort at your "well earned appreciation".
Young Saffer,
You are missing the point. A Tale of Two Depressions hypothesise that the outcome of an unrelated event of similar economic and social description will end in the same way, because history repeats itself - and nothing could be further from the truth.
Secondly, the article boasts prediction and economic theories as truth - like speculating where the world is in a business cycle, crazy.
Sorry to hear about your ex, the company you kept, and how you think you got a raw deal working hard and all. My opinion on people who saved for well-earned comforts stand.
I understand your frustration with SA's past. But is has no relevance to my comments on the causes for the property market's situation.
The same comments will go for you when, and if, you acquire property as a tool to save towards something
@ Peter
so you are saying that history does not repeat itself, Economies are not cyclical and we have nothing to learn by analising past events? and drawing some insight from these analysis? Wether the analysis is right only time can tell but if you want to discredit some ones argument, you need to pull it apart bit by bit and not with some glib statement.
Young Saffer,
Strange thing this vibe between the rich and the poor. Don't despise the rich, don't concern yourself with them - you will miss your own opportunities that way.
I am sure that you will take a highly paid job from any baby boomer. And don't forget, it is the 30-something industrialists and developers of this world who has the locust mentality, who consume and pollute our world. So careful with the mud, buddy.
BB flames
No I am not saying any of the things you mention - unglib enough? Please don't put words in my mouth.
Read my comments again any you will see why I do not agree with the article or with Joe's faith in it. Rather tell me what the 'some insights' are that you draw from the analysis, won't you. Because I just cannot see 1920s scenario.
Young Saffer,
Maybe your plastic surgeon dumped you 'cause you talk too much.
Careful what you say in the company of grownups you litttle snot
Young Saffer I disagree with most of what you say.
Blaming the past does little to help you with your future!
I am in my 30's which means my work life has been 95% post 1994. So I've had no "help" or "protection" from apartheid. And I am doing very well for myself (and no, I don't come from a wealthy family either; my parents were, at best, middle class and money was tight).
As for Anon, who said, "The only reason most people are negative about property and are professing its demise as a asset is because they cannot afford to buy."
Wrong, wrong, wrong. I am working in Toronto and earning dollars. I could easily buy a R2 million home in CT now, but I won't. Not because I can't afford to buy, but because I believe prices will fall or at least stay flat. Time value of money rule tells me not to buy in CT right now.
Peter, I am always amused how the rich tell the less rich to ignore them - "don't concern yourself with them" were your words. I recently worked with a bloke worth $200-million who went to such lengths to tell me "It's not about the money" that it started getting embarrassing.
It's in your best interests for the masses not to notice you, isn't it? Of COURSE you would urge people to look away and mind their own business, in case they start wondering why your labour is worth a hundred times what theirs is worth.
As for working for "any baby boomer", sorry, in this case I don't live in a glass house so I can throw stones. I have been self-employed for 10 of my 11 years in my industry - quit after I realised what a racket management was and how it's all just a pathetic boys' club for overpaid slackers. So my comments stand.
As for your odd assertion that it is the 30-somethings destroying the world, er, surely you jest? Yes there are youngsters doing the dirty here and there, but are you seriously suggesting that the boardrooms at Haliburton or at Enron or Goldman-Sachs are full of 30-year-olds instead of packed with 50-somethings? Was Bernie Madoff framed by a cabal of 20-somethings? So again, the mud stays, buddy.
Anon, I dumped her because she turned out to be a psychopath. I can give you her number if you like. She's extremely hot, very rich, and self-medicates three times a day. Oh, and thanks for making my point about Old South African attitudes - your "little snot" jibe was priceless, straight out of a Broederbond meeting circa 1955.
This open thread is great entertainment. Sadly, I do have to agree with Young Saffer in some respects. It also irritates me when my parents generation (+-60 year's old) make comments and give advice based on their experience from how tough it was back then. The way it looks to me is that any half wit white person could get a secure job, buy a house, have a live in domestic worker to help with cleaning, cooking and looking after kids. Oh - and don't forget the 4 weeks of holiday a year, Mon to Fri 8am to 5pm work week, and no overtime.
Perhaps it's not quite this simple, but it doesn't sound that hard to me. As for Jules, please save the "I'm living in Toronto and have R2 mil ....". Man, we've all heard it before.
Today is so much better. We take the half-wits and put them in parliament.
Good Question,
Why are prices still so high when demand is, supposedly, low? Banks and government are finalizing an agreement to make credit for real estate readily available.
Apart from some exceptional examples, good, modern houses in safe areas are still very expensive and prices do not adhere to the supply-demand theory.
Property has indeed been good to many in the past, especially since 2000.
Brilliant & Young Saffer,
So, even if there were 'wonderful times' for the minority in this country - what does that have to do with your current financial situation, property or the economic mess? Are the 'democratic' countries better off? Have no poor? Show me the utopian country that you would like to use as reference, and I will show you recent and current atrocities performed there every day.
There are children of rich whites sitting on the street and there are children of poor blacks making it big time out there. But in time another elite minority will rise, maybe based on race, maybe not. But if luck doesn't come your way, then your children will also blame the rich minority...
And there will always be a minority, in any country. Even after many revolutions, civil wars and time gone past.
It is not possible for an economy, even one as small as SA, to forsake what the world does. Unless it goes the route of Zim or DRC, but then nothing can save it.
So barring the worst, including some freak disease or alien invasion, this old economy of ours will tick on, jos will come back for those that want 'secure' salaries, business opportunity exist for every single person, houses will be built and the people living in them will make babies, will houses, schools, office space and factories.
Desite the poverty in SA, there is massive buying power in this country. And with a liitle bit of credit tweaking, everyone will once again carry on living, with property become the most coveted aspiration for the poor and the young.
Buy property say I.
Saffer!
You ARE a "snot", or at least acting like one!
That's got nothingt to do with apartheid, that's just you!
If you think the 50 year olds didn't work very hard, then tell me who got man on the moon, who got the internet up and running, who invented air travel, nuclear energy, cellphone technology and compueter tehcnology?
Not the 30 year olds! the 50 year olds, broertjie!
Now tell us, what is YOUR generation doing for the next generation?
Twittering? Facebooking? Whining about wanting a BMW?
So GFY, you little snot!
I must agree with Young Saffer. Oldies like anon should have the decency to be ashamed of how much they f*cked up the world.
My pops applied for one job in his entire life, over half a century ago. In the 10-12 years I've been in the workforce I've had over 40 employers, almost all on a freelance, zero benefits basis. All totalled up I've spent years uneployed as well. Home ownership for those in my peer group is a joke.
Maybe all the youngsters should head for Oz and leave their selfish elders here to burn when the poor decide they've had enough.
Oh, Ja and taking credit for putting a man on the moon is a bit rich anon!
Erm commercial aviation, nuclear power and space travel, etc are a bit older than you think. Unless you're speaking about the 50 year olds of 1930/40/50/60/70
Everyone tends to build on the efforts of those who have gone before them.
I think young Saffer's frustration might stem from economic policy that allowed asset prices to become inflated. This obviously helps those who already own such assets but not those looking to buy them.
This can get to a situation where new entrants to the market are priced out. This seems to be what has happened, in the UK, US, SA, etc.
This is of course self correcting in that prices have to fall or at least stagnate in nominal terms (while falling in real terms).
Unfortunately when the bubble starts to deflate as it has then sentiment becomes negative. How long can the world stay in recession before people become necessarily more cautious on a large scale?
When people are being cautious they tend not to commit themselves to large amounts of debt. If property is no longer perceived as a good investment then people won't buy it. This will tend to force the yield up as house prices deflate / stagnate and rents slowly rise.
We're still not at that point. We also won't permanently stay at that point if we reach it. The market tends to get momentum in certain directions - even if it takes a long time to get there. See above for sentiment which takes time to build in either direction.
LS
With regards to the linked article the single most important thing to notice is the difference in response to the two economic crises.
Compared to the great depression this time there is a much greater willingness to push money into the economy through increased government expenditure and loosened monetary policy.
This is the appropriate response even if it is going to fuel inflation. Rather that than a deflationary spiral which tends to be very sticky to get out of - e.g. the Japanese experience.
This will of course support *nominal* house prices.
LS
LS
Shows maturity when you try and turn the heat down on the simmering war of the white middle class generations.
Just wondering if anyone remembers the movie Logan's Run? Been thinking about that film a lot lately.
Peter tells us
"people who have diligently stayed in the market by conservatively paying off a house, have seen some excellent and well earned appreciation"
First off, a house should keep pace with inflation - that's it - it shouldn't provide "well earned appreciation". That is exactly where it all went wrong - the whole mindset of turning home owning into a money making investment.
The government encouraged it because the excessive spending from equity withdrawals made their economies look good and it boosted tax revenues. The banks encouraged it because it increased the bonuses. The estate agents loved it because of the juicy 7% commissions and the easy sales. The property developers loved it because they could sell property before even building it. The speculators, Buy to leters, and the flippers loved it because it was such easy money. The public loved it because they got rich for doing nothing but owning a house.
Everyone loved it - until the bubble burst and it was payback time, and all that easy wealth had to be returned.
Governments fell, countries fell, banks fell, property companies collapsed, those who spent the easy money and couldn't pay it back have gone bankrupt, two thirds of estate agents have gone, tax revenues are hit bad, stocks have collapsed, jobs have vanished, and depressions may well be heading to a country near you very soon.
That "well earned appreciation" was excessive bubble money, and well ahead of the usual inflation returns. So it has to be paid back ... by falling houses prices.
And until it does, people who want to buy a house for the old fashioned traditional reason of wishing to own the place they live, now have to twiddle their thumbs for many years whilst prices return to where they should be.
And hopefully, as we wait, the turmoil doesn't cause the global financial system to implode or world war three to break out.
So spare us the "well earned" crap Peter. It was stolen money ... stolen from the next generation of home buyers.
If this blog represents the way that thinking AND educated S Africans feel towards the economy, then we are going to be in a world of hurt once the bubble really bursts. Its easy to see there are strong class and generation polarizations in this bunch. What nobody realizes is that probably 99% of these posts are from whites. It just goes to show how ignorant the whites are of the needs and wants of the black/coloured population. It also goes to show who the black elite are catering to, besides themselves of course. They don't want the economy to crumble just yet...but when it is finally inevitable and we are looking down the barrel of doom and Zuma is in office...there will be a very chaotic change of the haves and have nots.
The economy is falling apart. Yes, some calculated sharks are making money because there are always suckers. Yes, the baby boomers messed up SA, and the ENTIRE global economy. But, remember that South Africa has the most volatile race issues of the world, and that the white/black dynamic parallels the rich/poor one. The economic collapse will result in social unrest, leading to revolt, leading to chaos. War.
You South Africans are so LITERAL about everything!
You can't see the woods for the trees!
Wake UP, snot noses!
The bubble is bursting, worldwide, not just in SA - the snot nosed thirty-somethings are going to have a LOT more to whine about when this recession REALLY gets going
CJ Ok,
You ask me to 'tell us', but do not pose a question and then go on to make some statements – that are false. So let me then respond to your issues with ‘those people who have diligently stayed in the market by conservatively paying off a house’ and the rest.
'First off, a house should keep pace with inflation - that's it' - Now why on earth would you make a silly statement like this - like it true? And why shouldn't it provide well earned appreciation, like another means of saving?! Goodness, I can buy next year’s dried tomatoes as investment and that is all fine… have you seen what dried tomatoes think of ‘keeping pace with inflation’. And don’t you know that inflation is a tweaked stat that means nothing except for the abstract and non-existent ‘median’.
You despise estate agent’s commission, yet are paying commission in a multitude of other areas in your own life - and if you don't, your suppliers do - no problem.
Your end-of-the-world quotes are unintelligible, because it does not address the issue of real estate that. Rather you choose to focus on events over 5 years or so and then with one sweep disregard properties value as savings tool over hundreds.
'And until it does, people who want to buy a house for the old fashioned traditional reason of wishing to own the place they live, now have to twiddle their thumbs for many years whilst prices return to where they should be.' - This is true and sad. It shows how bad greed is, you’ve mentioned it. But is does not negate the place of property or the fact that paying hard earned dough towards an appreciating property with an amortising bond renders a well-deserved saving.
As far as your fears for WWIII - well if you want to lose sleep, go for it.
If you had the nerve to buy a house 10 or 15 years ago, and did the trouble to ensure that you regularly paid your instalments, then you too would have had a well-deserved saving, stolen from no man.
Peter, buddy, how do 25-year-olds slot into this great free-market fantasy of yours? I know you would tell them, "If you had the nerve to buy a house 10 or 15 years ago, and did the trouble to ensure that you regularly paid your instalments, then you too would have had a well-deserved saving, stolen from no man."
Er, okay. But 25-year-olds couldn't buy a house 10 or 15 years ago. And since then you middle-aged specuvestors with your self-righteous Baby Boomer entitlement attitude have speculated the price into the stratosphere.
Good luck explaining to the 25-year-olds why they should become wage slaves paying off an "asset" that you bought for 50% less just a few years earlier.
The kids are waiting. They outnumber you. They will outlive you. And they resent the hell out of you for robbing them of their birthright. Enjoy your property while you can, because there's a generation of lean, hungry, pissed-off kids coming through who have got used to renting, think property is over-rated, and will be only too glad to screw you when they are in government.
Young Saffer,
Sadly, this is exactly the type of cupped-hands attitude that will get you, and many in every generation in the past and will in the future, to sit out the next round of opportunity. Always has, always will.
I suggest that you don't bargain too much on your birth right - didnt help me one bit. Rather try to get my point about property. Get yourself some and save in it. Now is a good time, later might be better, might not. You also need a bit of luck, so good luck.
Renting is not bad - I quite like it.
Peter, we're clearly not going to agree.
You think I am a cossetted whiner, part of the self esteem generation, someone who wants far more than he deserves and who has no perspective on the complex issues that you have mastered through age and experience. You wish I would stop complaining and start working, make something of myself the way you did.
I think you are part of a generation that is in smug denial, completely insulated from any sense of modern reality, and quite convinced that your considerable wealth is the product of your hard work rather than the result of a corrupt political system you did nothing to overthrow. I don't think you can tell the difference between complaining and critiquing, mainly because you grew up in a society that frowned on both and therefore allowed you to continue profiting from the masses without ever having to interrogate your methods. I also don't think you tell the difference between cupped hands and raised fists. At some point you will have to learn the distinction, but for now don't worry. We'll let you know when you need to start worrying. We'll send you a telegram.
LS,
You say that 'This can get to a situation where new entrants to the market are priced out' and you refer to 'asset prices'. You mean house prices, or living cost?
I agree that there will be a self-correction on the part of mad prices and consumers' willingness to pay it. But I feel that the 'out pricing' is often because of people's lifestyle, rather than their assets. Keeping up with the Joneses has become more acute.
Young Saffer,
Your kids will say the same about your generation. Go to work now so there's something for them, lest they become as grumpy as you. No glory in starting from scratch.
Young Saffer,
You are a “cosseted whiner”. You talk to everybody on this blog as if they took something from you. The corrupt political system you are referring to has been gone for over a decade now.
This is your age to make a difference. How is complaining about the wrongs of the past going to change your situation? Go out, and fix all the wrongs of today. That might save future generations the bitterness you are experiencing.
I am in between 30 and 40. I live the good life I have worked for; no one ever did me any favors. The most successful people I know are the ones that worked the hardest. True wealth is built by more than one generation. I suggest you start to build your children’s future. I hope they will appreciate what you have done. (I do not think you have what it takes)
Go on use the only thing you have got going for you (your sharp tongue) and stick it to us
The poster "Brilliant" stated:
...As for Jules, please save the "I'm living in Toronto and have R2 mil ....". Man, we've all heard it before...
I'm kind of confused on what point you are making. All I was trying to say is that people sitting on the sidelines are not all broke and unable to afford to buy.
Remember that several posters on this blog seem to imply that people who support the bubble theory simply can't afford to buy. That's not true. Period.
Some people, like me, are choosing to wait because I believe prices are too high. I am returning to CT in a few years' time. If I think prices are going to keep climbing then I would buy in CT right now and rent the place out.
But I will wait because I think it's the right thing to do. Time will tell if I was right or wrong.
Reading these posts made my week! Hilarious!!!
While I don't totally share the views of "young saffer" I will agree that what he says does highlight the foundation of the bubble: that too many entry level first time buyers are PRICED OUT OF THE MARKET.
Younger people are facing much more expensive housing costs compared to previous generations when you compare prices to annual income.
Having said that, blaming the past does nothing to solve the future. I chose to move overseas for a few years to earn dollars. It has been a sacrifice but in a few years' time I can return to CT and buy a decent home.
I know this might sound like a dumb question, but why is it so important to own a home? One can always rent. Is buying a house a better investment than other investments like buying shares on the stock market or retirement annuities?
Baby Boomers Your Financial & Economic Winter is Coming, The Fourth Turning
http://www.marketoracle.co.uk/Article11989.html
Actually young saffer is spot on. Boomers can go read some Generational Theory to familiarize themselves with the concepts he is talking about. Try Strauss and Howe...The Fourth Turning.
Boomers your crisis has arrived...
http://www.financialsense.com/editorials/quinn/2009/0210.html
Just in case anyone missed it from a couple of weeks back...
The Great American Bubble Machine
http://www.rollingstone.com/politics/story/28816321/the_great_american_bubble_machine/print
Peter,
I was referring to house prices when I said asset prices (although this also held true for stock market prices I'm using past tense because stock markets fell hard and fast).
As time passes fresh batches of people enter the economy however the wages the earn are not going to increase / decrease to the cost of a house. This makes it possible for first time buyers to get priced out of the market if property has a good run for a number of years e.g. 30% a year for three years.
The converse also holds true, i.e. if property prices stagnate while wages increase then affordability for first time buyers improves.
There are obviously other factors which modify the affordability e.g. cost of borrowing, easy of qualifying, number of new entrants, etc.
The cyclical nature of the economy starts to make sense when viewed in this manner.
First time buyers are obviously needed because of people leaving the market (upgrading, dying, etc).
As for general inflation of goods and services - that prices the poor out of survival. I.e. they are pushed into poverty / below the breadline eventually. Their incomes tend not to be able to keep pace with inflation. I.e. they are price takers when it comes to determining their wages. So the poorer segments of society are definitely battling despite not having caused the situation.
LS
Please stop blaming the "Boomers" for the current world situation. You must remember that they did the best they can with the knowledge they had then. It is very easy to judge 50 year old mistakes with today’s wisdom. Our current consumption will leave very little for future generations. We are the future boomers.
LS,
Much appreciated!
It does raise another two questions with me. Is the antagonism towards these temporary, but very over-priced assets also cyclical and generally prevalent at this stage of a cycle?
And secondly, how would you say are acceptable prices again determined - i.e. what triggers general acceptance of going rates?
propxchanja, ad,
Mmmm, the chickens are restless ...
@ Peter
Someone once did interesting research on an area in Amsterdam - they discovered that in real terms (ie removing inflation) property has in that area sold for the SAME price over the last 400 years.
Shiller's US real graph over 100 years also shows it is pretty flat, with the main outliers being the big dip during the 2 world wars and the recent boom period which has had the graph shooting upwards off the page. The market has always returned to the norm. And presently it is doing what it has always done.
Housing keeps place with inflation or maybe slightly ahead of it. If it doesn't then people will no longer be able to buy houses.
In the last ten years wages have increased 100% with inflation, yet houses have increased 400%. If the ratio of annual wage to house price was 3.3 back then, then it would be today 6.6 for the same salary earner and house. If this continues for another 50 years then your same house would take 200 years salary to buy (remember 10 yrs ago it only took 3.3 years)
Likewise, if we went back 50 years before the boom and assumed that the same multiplication factors had been happening in the market during all that time, then back in 1950 your house would have cost you only 2 weeks salary!
That's why houses go up with inflation. If they move faster or slower at some stage then that aberration will be reversed in the near future so that the norms can be returned.
More on house inflation
So in effect, if you bought a house 15 years ago, the percentage of your salary needed to buy it should have been exactly the same as it would be when you buy today.
It shouldn't matter when you buy. Yet it does because of the bubble greed of the last decade distorted the market much higher than it should be.
Your 1m house 10 years ago should be worth 2m today thanks to 100% inflation. Instead it is 4m. It either has to lose that 2m or the price must remain flat whilst inflation increases another 100% over the next 10 years - in which case the 4m would now be the correct price because salaries would have have doubled over those years - so the 3.3 salary ratio once again returns.
@CJ
Thanks, I think you make some good points. I'm no expert, but I enjoy following property prices and what is available on the market.
Looking at what you say, I have to wonder if there is more chance that house prices will remain flat until inflation catches up. Although sellers are becoming more realistic about what they can achieve, I cannot see prices dropping more than +-30%. I get the feeling that most people will rather try their utmost to hold onto their property rather than sell for a much lower price.
Well, that's my attitude anyway
CJ Says,
You are making sense, even though initially is sounded absurd to me. But I am not totally convinced and let me tell you why. Not everything keeps pace with inflation. It would not be possible to get a house market where the houses are costing 50% less than their replacement (building) cost. Secondly, and maybe more importantly, the monetary system that we operate in is based on credit, and it is the cost of credit that largely (not completely) determines asset (living cost) prices.
CJ your analysis is 100% spot on. Well said!
The more and more I think about it, I believe that prices will soften slightly and then it will be flat for several years while incomes increase to close the gap.
Jules and CJ, one question. My tracking of properties suggests that people will hold out instead of dropping prices (no reductions noted for months), but here's the thing: weren't there thousands of specuvestors who bought at the height of the bubble who desperately need prices to rise in order to stay solvent?
If there is this group of increasingly squeezed owners, could foreclosures start tipping the balance from a holding pattern towards a more dramatic downward price spiral?
bean counter, the answer is yes. the shite has yet to hit the fan.
Some people may be prepared to wait ten years to sell. Many sellers, however, are desperate sellers - I think a recent FNB survey had it as 40% of sellers are desperate - these guys can't afford to wait. So they will be the ones driving the prices down.
And of course, just because your house isn't on the market, doesn't stop it's price from falling in step with those houses that are being sold for lower prices.
If I told you that your R4m house would be falling to R2m in the near future, guaranteed, there would be a stampede to sell. Offer 20% discount and sell for 3.2m, wait a few years and buy it back for R2m. It would be a clever move.
Of course, people are hesitating because they don't think it is going to happen. So that's the big question. If you think our prices could fall 50 or 60% like they have in other parts of the world, then the first people to bail out are actually the clever ones. Those that hesitate are the real losers as they will end up selling near the bottom and get no benefits.
At some stage, I suspect the penny is going to drop and sellers will realise that the cavalry are not coming to rescue them - that is when there could be a hectic rush for the exits.
Peter,
I'm no psychologist so I won't answer your question directly but here is some background:
The psychological mood is also cyclical. Hence business confidence indexes, consumer confidence indexes, etc are considered as important sources of economic data.
Remember that this goes both ways - there is also exuberance when the (housing, stock, etc) market is running / booming. At least for those who are in that market - those not in it are not going to be so positive about that.
I was getting worried when everyone was an expert on property investing a couple of years back. Even my landlord was telling me it was a good time to buy. That would of course have lost her a tenant...
She was also telling me that it wouldn't be possible to get a house in London for under a million pounds in a couple of years...
I couldn't for the life of me see how property would be a good investment then. Prices at a high level after having having increased at a large rate for a few years and yields correspondingly low...
Remember how angry people were when the oil price went through 100$ / barrel like it was nothing and kept on rising. Oil speculation did that. One of things that certainly helped tip the world into recession.
Greed and fear are certainly powerful motivators / inhibitors to purchasing decisions.
LS
Peter,
What the people who comprise the marketplace consider to be acceptable prices is influenced / determined by a number of factors.
Supply and demand. E.g. if the economy is shedding jobs then this causes a decrease in demand. No salary means no bond repayments...
If lots of new houses are sitting on the market for a long time then supply is too high (for the going price).
Lowering or raising prices allows the market to clear i.e. buyers can buy and sellers can sell. Goods / assets remaining unsold means that the price is not at equilibrium (prices too high). If goods / assets are not available at a given price then prices need to rise.
Yield on property. If you are in the buy to let market then you must really be thinking if you should have a devaluing asset on your hands with a low income yield. Of course if you can pick up a house on the cheap and get a decent rental on it then your yield will be good. Investors can chose to not invest in property or divest from and rather invest in another asset class.
Interest rates - determine what is an acceptable yield for property, stocks, etc. It also feeds into the demand for housing side of the equation by enabling people to borrow more.
Sentiment - if most people think prices will decrease then they're probably going to want to pay less than the asking price or wait until the price has fallen.
Keep an eye on interest rates, economic growth, house price to wage ratio, general sentiment.
Looking at long term averages for these figures should be helpful in determining if prices are over or under valued and how much support there is for whichever state it currently is in.
Even at house prices where to be at normal values (i.e. close to long term averages) you would still have to look at things like economic growth, general sentiment to determine if more people are going to put money into the property market than take it out.
LS
LS,
Thank you very much!
I know I'm a couple of weeks behind here but thought I'd pop in this morning and see whats being said on the CTPB screens.
Anonymous says: "If you think the 50 year olds didn't work very hard, then tell me who got man on the moon, who got the internet up and running, who invented air travel, nuclear energy, cellphone technology and compueter tehcnology?
Not the 30 year olds! the 50 year olds, broertjie!
Now tell us, what is YOUR generation doing for the next generation?
Twittering? Facebooking? Whining about wanting a BMW?"
Thanks, Anonymous, YOUR generation invented the internet, the platform on which twitter and facebook operated. And the moon landing...tell me why did they pull the plug on the entire programme after 1969? It was pretty pointless wasn't it? Why are politicians now running around trying to get countries like Iran not to develop nuclear technologies? Unfortunately your generation 'worked' on things, which on an overall basis has been a net negative for society. Whining about owning a BMW? Do you work for the government? Ridiculous comment. That's the only place I'd expect such comments to emanate from.
I'll tell you what the youth of today will be doing for the next generation: They will rebuild the world economy based on sound economic principles.
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