Australian Real Estate Bubble?

Discussion in 'Property Market Economics' started by Norak Bastiat, 27th Oct, 2007.

Join Australia's most dynamic and respected property investment community
  1. coopranos

    coopranos Well-Known Member

    Joined:
    3rd Jul, 2015
    Posts:
    468
    Location:
    Perth
    cy·cle - Show Spelled Pronunciation[sahy-kuhl] Pronunciation Key - Show IPA Pronunciation noun, verb, -cled, -cling.
    –noun
    1. any complete round or series of occurrences that repeats or is repeated.
    2. a round of years or a recurring period of time, esp. one in which certain events or phenomena repeat themselves in the same order and at the same intervals.

    Yeah you are right, its not a cycle. It hardly matches the definition. And by hardly matches I mean perfectly matches.
    So it goes from the world will collapse, to real estate in Australia will get destroyed and wont recover its current prices for 15 years to the ABS is wrong to I told my friends all this in Copenhagen and I turned out to be right eventually after the market had many years of big growth (although a 16% drop is hardly the end of the world, particularly when it was going up by that amount for years beforehand) to the market doesnt run in cycles.

    Dont know why I always get caught up in these stupid arguments with brick walls, I even saw it coming as well.
     
  2. 02bsure

    02bsure Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    135
    Location:
    cologne
    FYI - pretty sure I got my figure for second home ownership from this oecd report but haven't the time to wade through it again.

    http://tinyurl.com/27agou
     
    Last edited by a moderator: 13th Nov, 2007
  3. BillV

    BillV Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    1,555
    Location:
    Sydney
    02bsure

    Thank you for the links
    btw what's your occupation?
    Also, you've mentioned earlier about credit issues and the AUD falling as money is taken away from Oz and converted to Yen.
    Any idea why this is happening when our interest rates are high and are likely to get even higher?

    Cheers
     
    Last edited by a moderator: 13th Nov, 2007
  4. 02bsure

    02bsure Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    135
    Location:
    cologne
    The dynamics of the carry trade are quite simple. You borrow from a low interest rate currency and loan it in a high interest rate currency. That works fine until there are seismic changes in the exchange rates between the two currencies. When the currency from which you've borrowed starts to strengthen and the currency you're loaning in weaken then you have a perfect storm situation where any gains can quickly be squeezed out and replaced with a loss situation. Of course you can hedge with a currency derivative but that costs and eats into the gains. You could also partially hedge to protect against a certain number of points movement which is cheaper but has limited
    protection.

    Higher interest rates in Australia should make holding AUD more attractive but that is a secondary consideration after firstly examining the likely direction and stability of the currencies involved.

    Right now the AUD and Yen are heading in opposite directions and well outside the bounds that
    a prudent risk manager would carry without hedging further or folding the existing transaction.

    There will be a delay before the effects of this are seen in the local Australian credit markets but if the squeeze continues its likely credit will begin to dry up or become more expensive in Australia.

    Credit is the key. When the credit spigot is turned off so will be speculation in all markets.



    Have a read of this ...especially note the comments at the end (recognise and similarities ...its the same situation the world over).

    Credit Crunch Leads To Record Levels Of Bankruptcy (from The Argus)

    (sorry - I don't want to give more details about my circumstances).
     
  5. smeggett

    smeggett Member

    Joined:
    1st Jul, 2015
    Posts:
    12
    Location:
    SA
    I always thought that the yen carry trade was more involved with the US$ and was used by the US and japanese central banks to prop up the US$ and keep the USD/yen exchange rate artificially low. This trick was also used to pump money into the US markets to prop them up.... Bernanke's helicopter money drop!

    As the USD has been falling the Japanese have become more reluctant to pump dollars into the US economy, hence the unwinding of the carry trade.

    At least that's what I've picked up reading tidbits around the traps....

    Also, O2bsure are you of the opinion that this is merely the beginning of a credit crunch we are seeing, or rather a case of credit revulsion, which will take far longer to recover from than a simple crunch?

    Cheers,

    smeggett
     
  6. 02bsure

    02bsure Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    135
    Location:
    cologne
    Thats the frightening part. We're at the very start of the credit debacle.

    The first large mortgage reset month (where folks are coming off their insanely low 2/3yr teaser rates) in the US was September. For every month from now and for the next 18 months approx 25-50 billion dollars worth of mortgages (most of which are sub prime or Alt-A) will reset to current market rates. I think you can imagine what the defaults are going to look like when
    so many financially illiterate people see their rates jump from 2% to 6.5% etc.

    Credit will evaporate. Risk pricing will be re-assessed.
     
  7. BillV

    BillV Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    1,555
    Location:
    Sydney
    02bsure

    You haven't mentioned losses due to the subprime loans and any correction in world stock markets.
    Are they not significant and won't they play a role in determining the value of property in Oz?

    I am thinking that a stock market correction will stop some of the property speculation because many property investors who have invested heavily into stocks they will get margin calls and in their search for cash they will be forced to offload some of their properties.

    Cheers
     
  8. crc_error

    crc_error The Rule of 72

    Joined:
    1st Jul, 2015
    Posts:
    1,267
    Location:
    Melbourne, VIC
    and they care?
     
  9. 02bsure

    02bsure Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    135
    Location:
    cologne

    Bill, the magnitude of this financial tsunami is unprecedented. The fallout is likely to crush all asset classes even precious metals.

    BBC NEWS | Business | Carnage on Wall Street as loans go bad

    Thats why I'm almost of the belief that absolute cash in very conservative banks or plain old treasuries is not a bad idea.

    Of course, perhaps this is the very reason for the coming correction; to force people back into buying treasuries.
     
  10. Chris.R_WA

    Chris.R_WA Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    88
    Location:
    Perth, WA
    O2,

    You might want to check out the GHPC forum, you'd love it there!!

    Chris
     
  11. Andrew1__

    Andrew1__ New Member

    Joined:
    1st Jul, 2015
    Posts:
    2
    Location:
    Sydney