Join our investing community

Shares or Property- Economic Clock

Discussion in 'General Investing Discussion' started by Peter Terry, 6th Jul, 2008.

  1. Peter Terry

    Peter Terry Member

    Joined:
    19th Jun, 2006
    Posts:
    6
    Location:
    Newcastle
    Hi to all fellow investors !!

    Im after opinion on a go forward direction.
    Which market ? Im just a bit confused !!

    Looking at the economic clock 1 market should follow the other. So with the interest rates high and market dead on the property side of things and the sharemarket crashing to massive lows for years just what part of the cycle are we in or heading for at the moment. Im just not sure where the money should flow to drive markets. They say that history repeats but is the current status quo one of those "yeh buts" ( Tech wreck senario's ). Where to now ?

    Cheers

    Pete
     
  2. Billv

    Billv Getting there

    Joined:
    15th Jul, 2007
    Posts:
    1,796
    Location:
    Sydney, NSW
    Pete

    I think the economic clock is confused this time around.
    We would need either 2 pointers (1 for shares + 1 for property) to show the position of our current economic cycle.
    What makes it also harder is the fact that this time around we have multiple property markets.

    I believe shares haven't bottomed yet.
    Properties aren't the flavour of the month either so I think that the patience of people with high holding costs will be tested this year.

    Cheers
     
  3. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,623
    Location:
    Sydney, Australia
    I agree with BV ... the property market has become very fragmented, mostly due to localised "external" influences (external to the normal economic cycles) - particularly in the resources states of Qld, WA and SA.

    Even within each city, the market is behaving very differently - with some areas seeing record prices still being set for properties, while in others, prices have dropped significantly.

    The share market is also reacting to external forces (credit crunch, oil prices), much more than it is to our local economic conditions.

    Once the external forces in property and in the sharemarket revert to more normal levels, the economic clock will get back into synch again.
     
  4. Peter Terry

    Peter Terry Member

    Joined:
    19th Jun, 2006
    Posts:
    6
    Location:
    Newcastle
    Economic clock

    Thanks guys,

    It not an exact science is it !!
    Im just feeling the squeeze at the moment in both fields and tryin to work out which area to liquidate out of slightly.

    Any other comments on this thread would be much appreciated.

    Cheers

    Pete
     
  5. willy1111

    willy1111 Well-Known Member

    Joined:
    5th Jul, 2006
    Posts:
    54
    Location:
    Melbourne
    There are 3 cycles:

    Property
    Shares
    Cash

    I'd have to say we are in the cash cycle at the moment and could well be for the next year or more.
     
  6. Billv

    Billv Getting there

    Joined:
    15th Jul, 2007
    Posts:
    1,796
    Location:
    Sydney, NSW
    Well it depends on your particular situation and your long term plans.
    If it was me I'd liquidate the shares particularly as the selling and buying costs are low and also because I can still possibly buy them back for less.
    Also, if I did sell at a loss, I am locking in those losses and can use them to offset future capital gains.
    I'd probably hold on to the properties and when the share markets start to switch to recovery mode I'd use the equity in the properties to buy shares.
    On the other hand, by then the interest rates should be easing off a bit and I'd be tempted to buy more properties.
    Cheers
     
  7. eddyl

    eddyl Well-Known Member

    Joined:
    9th May, 2008
    Posts:
    48
    Location:
    Sydney
    What in what order does the pattern of Property, shares and cash cycle?

    Cheers,
    Eddy
     
  8. willy1111

    willy1111 Well-Known Member

    Joined:
    5th Jul, 2006
    Posts:
    54
    Location:
    Melbourne
    In that order.

    East coast property peaked out about Dec 03, the sharemarket run started Mar 03, peaked out Nov 07, currently in cash cycle (althrough rates have been rising for some time), some are expecting rates to start coming down next year.

    I've only been around for 1 cycle so not sure how accurate it is. I remember watching an old Peter Spann DVD which he made in 98 and he was talking about the cycles. He said they generally last 4-7 yrs, and back in 98 he was talking about how some property suburbs were just starting to take off.

    He has also been expecting the cash cycle to come around soon. Although I think it may have come a little earlier than he expected.

    There is a bit in the media about property forecasters expecting some growth in the coming years as population increases are expected to create demand.
     
  9. crc_error

    crc_error The Rule of 72

    Joined:
    1st May, 2007
    Posts:
    1,367
    Location:
    Melbourne, VIC
    I think he was saying the cash cycle should come around 2009-2010.. then late last year he revised his view delaying it to 2012... which seems he got wrong..

    With the looming housing shortage, I would say we are coming into the property cycle out of the cash cycle soon.

    So start to buy up those houses again!!
     
  10. Billv

    Billv Getting there

    Joined:
    15th Jul, 2007
    Posts:
    1,796
    Location:
    Sydney, NSW
    CRC

    With the current housing shortage I'd say that rents will continue to increase
    and this is good for us investors but this doesn't mean that property prices will go up.
    Property prices are already quite high and the cost of money is very high as well.

    We have very high holding costs and we are also threatened with even higher interest rates so from the investor's point of view, property is not looking attractive.

    I think that unless the governments offer incentives for people to buy properties we will be in the cash cycle for a long while.

    IMHO
     
  11. crc_error

    crc_error The Rule of 72

    Joined:
    1st May, 2007
    Posts:
    1,367
    Location:
    Melbourne, VIC
    Bill, thats true.. housing may not grow in capital however yield will improve making the overall return better.. but yes, depending on the cash costs etc will determine how long the cash cycle will last.. problem is housing information lags, so it may be 12 months into the property cycle before we realize what is happening...
     
  12. D&K

    D&K Well-Known Member

    Joined:
    14th Nov, 2005
    Posts:
    206
    Location:
    Canberra
    Agree with CRC. Property is in different stages of the cycle in different places, even within regions, even though it all looks pretty low at the moment. The demand is building in most locations and this is pushing the yields up (after a long time of not rising with costs I might add), plus the spare capacity (shared rental and kids not leaving home) is being used up.

    Once we get the first interest rate drop, I think we'll have the leading areas starting their upswing and, as CRC says, we'll get the news at least six months later. I suspect some will start to bet on the interest rate drop before it happens.

    Sydney usually leads and inner Sydney is definately looking like a lot of pent up demand waiting to go. But this time inner Perth may just be taking a breather and could lead the cycle. But I figure we've still got a year to go to find some bargins.

    Interestingly, in the past the "smart money" (obviously not me because I read about it later) gets out of the stock market before it goes down, and then goes into property. That doesn't seem to be as prevalent this time as last. Perhaps it was too quick and they missed it this time?

    If we say that property is in different parts of the cycle in different places, should we now be talking about sectors of the ASX in the same way?

    Dave
     
  13. Tropo

    Tropo Well-Known Member

    Joined:
    17th Aug, 2005
    Posts:
    3,396
    Location:
    NSW
    "Interestingly, in the past the "smart money" (obviously not me because I read about it later) gets out of the stock market before it goes down, and then goes into property."


    It remainds me the end of a dot.com boom.
    Agents in Melbourne were selling 4 mil properties like hot cakes.;)
     
  14. Peter Terry

    Peter Terry Member

    Joined:
    19th Jun, 2006
    Posts:
    6
    Location:
    Newcastle
    Economic clock

    Hi Guys,

    Just want to thank everyone for their contributions to this thread as it has opened my eyes to some different lines of thought for me and I think it has been an excellent debate of opinion on just where we are and where we are going. If the thread does run out I will enjoy going back over the posts with a cuppa contemplating my next strategic move.
    Thanks again guys and please continue your posts as Im sure we all will benefit.

    Cheers

    Pete
     
  15. Peter Terry

    Peter Terry Member

    Joined:
    19th Jun, 2006
    Posts:
    6
    Location:
    Newcastle
    Economic clock

    Hi Dave,

    Thanks for your thoughts and it is a very interesting and relevent point to me of Sharemarket sectors working in cycles. I have experienced a situation of thinking that by just being in the market with Blue chips over the past couple of years it would be a licence to print money only to see not much action on the growth side.
    Maybe I should have concentrated on sectors ( Financials, Resources ). As with property moving in cycles Syd, Mel, Bris, Perth, Adelaide I wonder if there is any cycle structure to the share market or is it just based on the economy which is anyones guess.

    Cheers

    Pete
     
  16. tropic

    tropic Well-Known Member

    Joined:
    13th Sep, 2006
    Posts:
    131
    Location:
    WA
    If you follow the economic clock, share market will go up first before property. So in theory we should watch the share market and swicth after you make money in your shares to property. Or the technical term that some expert use underweight shares overweight property.
    I think the consensus is sit and watch for the time being. If the economy is getting worst even rent can go lower bringing the yield even further down.
     
  17. Tropo

    Tropo Well-Known Member

    Joined:
    17th Aug, 2005
    Posts:
    3,396
    Location:
    NSW
    "Maybe I should have concentrated on sectors ( Financials, Resources )..."


    I would suggest that you should concentrate on charts. ;)
     
  18. Billv

    Billv Getting there

    Joined:
    15th Jul, 2007
    Posts:
    1,796
    Location:
    Sydney, NSW
    How would rents come down when the rental market is very tight?

    Even if unemployment goes up people need to live somewhere
    and no landlord will be decreasing rents just because some tenants are out of work.

    IMHO
     
  19. ashwright

    ashwright Well-Known Member

    Joined:
    30th Nov, 2007
    Posts:
    116
    Location:
    Brisbane, Qld
    If times are tough and your current tenant leaves because he can't pay the rent. Then you can't find anyone else to rent at that price, because they also can not afford it. Then you would need to lower the rent to get someone into the property.

    It probably depends which market you are in though, I would think higher rents would be affected first because people will move to areas where the rents are lower if they cant not afford to pay the rent.
     
  20. Chris C

    Chris C Well-Known Member

    Joined:
    2nd Apr, 2008
    Posts:
    1,327
    Location:
    Brisbane, QLD
    It seems everyone is throwing their two cents around about what they see happening, so I thought I'd throw my crystal ball predictions out there as well...

    I see the stock market being the place everyone starts pouring their cash reserves into, and I see the stock market recovering to at least above 5500+ by November 08 after hitting bottom sometime in August and I wouldn't be surprised if it is back over 6500 by September 09!

    :D

    You may be asking where my dillusion stems from, well the way I see it is presently there are just way too many undervalued stocks out there... I mean you only have to look at the major banks to see at current prices you are getting a dividend yield of 6-9%pa, fully franked, that in itself is a reasonable ROI, not to mention that there a plethora of companies whose fundamentals haven't changed in the last 12 months and in some cases have improved, yet they have seen anywhere from 20 - 40% price corrections... eventually logic will kick in and investors will return to the market, hopefully just as quickly as they left - assuming they are still in the black...

    :D

    On the flip side Australian property hasn't had any significant correction, and whilst we might have some factors preventing a sharp correction in property prices I think they are still going to go a little backwards over the next 12 months (3-5% depending on region) and that's not even to mention that rental returns, as a result of property prices being overpriced, look weak when put next to many blue chip shares, with good growth properties being lucky to pull 5% pa.

    Hell if you were looking to invest in property I'm starting to think that LPTs are the way to go considering you can buy most of them for about a third of their price they were a year ago and most of them have dividend yields of 15%+ though they have obviously forecast reduced earnings/dividends for next year... but it makes you think if those guys can't turn a profit in the current property climate what makes mum and dad property investor more likely to succeed?

    So the way I see it is in a couple of months when things settle a little more investors are going to be faced with the decision of either buying cheap strong growth shares with great dividend yields or overpriced property with low rental returns and limited prospects for growth in the next 24 months...

    My personal plans are to organise finance (70% LVR margin loan) and start dollar cost averaging my entry into the All Ords over the next 6 months.

    Then once the stock market has well and truly bounced back (24 months time) I'm sure the property market will be starting to see some good growth again with all the fat cats starting their profit taking from all the gains they made as a result of investing their life savings back into the stock market in mid July 08 so they can afford to overpay for their luxury apartments in inner city suburbs... which in turn will start forcing property prices up and give the media something to advertise to sell newspapers, but by this time rental returns will have been forced up to a point where even property investors will be able to appreciate that their is some value in investing in property consider the RBA decided to give up on hiking interest rates to offset international inflationary pressure.

    So by mid 2010 the Australian public can once again believe that by owning their own home they are fulfilling the Australian dream and securing their financial freedom, because after all nothing is as safe as houses and there are no such thing as a housing price bubble when it comes to the Australian property market!

    :cool:

    Sorry got a bit ranty towards the end... what can I say... my quality of posts goes down after 1am...