The Best (and Worst) Way to Bet on Falling Australian House Prices

There was one big surprise from the Port Phillip Publishing ‘After America’ investment symposium. It was the lack of questions about the Australian housing market.

We felt sure we’d get a grilling on it.

But we didn’t.

In a way, that’s good. We think it means investors have moved on from wondering if the Aussie housing market will crash, to thinking about how long the crash will last.

In our view, it’s going to last a long, long time. And that means there’s still plenty of time for you to take a punt as Australian housing enters a multi-year (perhaps even multi-decade) bear market.

So, what’s the best way to profit? Simple. You bet against the sector most leveraged to Australian house prices

The Worst Property Investment You Could Make

But first, there is something you should avoid. And that’s the ASX Property Index.

According to the Australian Securities Exchange (ASX):

“The indices have been specifically designed to track daily value changes in the Australian residential property market and are constructed using the latest possible property sales information thereby avoiding the 6 to 8 week reporting lags present in other property indices.”

At the moment, the index isn’t tradeable. But there’s no doubt the ultimate aim of the ASX is to develop a tradeable instrument.

The problem we have with the index is that it’s only derived from house prices. It isn’t an index of actual house prices. By that we mean it’s subject to the mathematical formulas used to create the prices rather than actual trading in the housing stock.

Sure, it takes into account property sales. The trouble is, it uses fancy formulas to work out the price of other houses.

To our way of thinking, that leaves too much of the pricing process in the hands of boffins rather than investors.

Add to that the ASX’s poor record of creating new trading products and… well, let’s put it straight: there are other, better ways of betting on or against the Australian housing market.

The best of them is the Australian banking sector…

Lower Profits and Lower Returns

Today the Australian Financial Review (AFR) takes note of what we’ve said for years. The AFR writes:

“Investors in bank stocks have been warned that the ‘glory days’ of the big four profiting from windfall gains by playing the financial markets are over.”

Trust the mainstream press to arrive late on the scene. Just as they’re only now warning about falling Australian house prices – something we warned you about when it was useful… over three years ago!

The banks are leveraged so much to the Australian housing market, it’s just not funny. The only reason the banks have clocked up big profits is because they helped fuel rising house prices. The higher prices went, the bigger mortgages became.

But as anyone with even a basic idea of leverage will tell you, it’s a double-edged sword. When the market is going in your favour, leverage provides a nice boost. But when the market goes against you… the leverage goes against you too.

As the Age reported yesterday:

“Property information group RP Data said that 6.4 per cent of homes were valued at less than their purchase price in the December 2011 quarter, rising from 4.9 per cent of the market in the September quarter.”

And that’s not the worst of it. Because it doesn’t include properties valued marginally higher than the debt. That’s important because with interest rates at 7%, borrowers need house prices to rise at least that much in order to be ahead of the game.

So if you include interest costs, we’ll guess you can double the number of households that are in negative equity.

And as anyone with even a basic idea of the banking system will tell you, negative equity and falling Australian house prices is bad news for Australian banks. Because it means a borrower needs smaller loans to buy a house… and that means less income for the banks.

And that means lower profits and lower returns for investors.

That’s what makes it a good idea to sell the banking sector now. Despite the fact Australian bank stocks have already taken a beating over the past two years…


Source: CMC Markets Stockbroking

To some degree, investors have priced in lower bank profits. Proof of that is in the high dividend yields. Investors are saying they don’t believe the banks can keep racking up profits and increasing dividends.

The Surest Way to Invest in “Aussie Property”

But as we see it, the big Aussie banks haven’t seen the worst of it yet. The longer the Australian housing market stagnates, the more disillusioned property investors will become.

And with negative rental yields and no capital growth, that makes housing a terrible, terrible investment. Look for Australian house prices and Aussie bank share prices to head even lower this year.

Sell or short sell ANZ Bank Ltd [ASX: ANZ], Commonwealth Bank [ASX: CBA], National Australia Bank Ltd [ASX: NAB], and Westpac Ltd [ASX: WBC].

But manage your position and risk carefully. This market is very volatile. So never risk or invest more than you can afford to lose.


Related Articles

The Conference of the Year “After America” DVD

Money Morning is Australia’s most outspoken financial news service. Your Money Morning editorial team are not afraid to tell it like it is. From calling out politicians to taking on the housing industry, our aim is to cut through the hype and BS to help you make sense of the stories that make a difference to your wealth. Whether you agree with us or not, you’ll find our common-sense, thought provoking arguments well worth a read.

Money Morning Australia is published by Port Phillip Publishing, an independent financial publisher based in Melbourne, Australia. As an Australian financial services license holder we are subject to the regulations and laws of Corporations Act and Financial Services Act.

61 responses to “The Best (and Worst) Way to Bet on Falling Australian House Prices

  1. Ah you mean this index –

    That’s the one that shows that the 5 largest Capital Cities have crashed a massive 5.17% over the last 12 months. How has silver gone again? Remind me……

    The RPData index is the one favoured by the RBA and most contributors at Macrobusiness, but if you disagree because you can’t understand complex maths then that’s fine.

    It has been demonstrated to be the index that most closely tracks home prices and it always preceeds the ABS Index (which by the way is a similar index with equally challenging maths that make allowance for renovations and other changes that occur during the life cycle of a dwelling) although it sources its data differently. At all times the indices mimick each other, so I guess you don’t trust the government ABS and RBA data either, because they show exactly the same trends, increases, and falls.

    I guess that is why you don’t believe in global warming – the science is just too hard so it’s easier to pretend it isn’t happening.

    I’m not sure whether I would class that as a strong argument though. Perhaps you should keep your inability to comprehend quietly to yourself.

  2. But a 5.17% ‘crash’ would wipe out…. 100%…. of the equity of someone who is geared at 94.83% or more ( Let’s not even think of the exit costs, if that is needed). And a 10% fall wipes out those with 90% LVR. You get the picture. And the lower prices go, the worse the maths gets!

  3. A couple of points Janet.

    Negative equity isn’t a new thing, its happened before and the homeowner who thought that his house was worth a house keeps on making payments, only those who have to sell are in trouble. High LVR loans are typically written for new borrowers who buy lower priced homes. They therefore take out lower value loans and usually have two incomes.

    It’s a furphy to suggest that the 95% LVR loans cohort is in financial trouble.

    The second point is that the average LVR on home loans is really quite low. In fact at September 2011 it was 29.5%.

    Refer Column “C”

    A drop of 5.17% is not significant unless you have to sell. Employment is a much more significant issue, as are interest rates.

  4. Peter. Why did US house prices go down? And Japanese ones? And European ones? There was a time there too when the vast majority would have believed it impossible, no? 5.17% may be insignificant if you don’t have to sell, but then, so is 90%, “if you don’t have to sell”. So why does anyone ever sell? They sell when
    a) they can’t afford the repayments or b) they’re an investor/speculator and they see no gain in holding on. With credit growth grinding to a halt, the dominant factor driving up prices for the past 15 years – bigger loans – is looking shaky. This alone should give the “investor/speculator” class pause.

  5. It’s those property owners that run into trouble that ‘infect’ the price of those that don’t need to sell, Peter. If a house sells in your street for $X, that sale price will be taken into account in all immediate future financial transactions; whether they be other sales or refinancing options.The same applies equally when prices rise, does it not? And 5.17% may not be much to many with a ‘comfortable’ equity. But even those with 80% LVR will see a revaluation of property wealth fall of 25% with a 5% nominal price reduction. That may or may not affect all sorts of lifestyle considerations.

  6. PS: That 5% nominal price fall to 25% loss in ‘wealth’ is the amount of equity loss, of course, not the new revaluation level.

  7. Yes, some people who bought property in the last few years will have negative equity. The risk you take with any investment (including shares, PM, property, fine art etc) is that the value of your investment will go down after you buy it. If you believe any “guarantee” offered by a salesman you are a mug and likely to be fleeced.
    However, people buy property for different reasons – not just as an investment but also for somewhere to live.
    I have met (and admired) people who would not sell their own patch of paradise – even if offered 50% above market value.

  8. Oh Janet – you read too much of the exhuberant bearish articles over at Macrobusiness.

    Dig out the graphs for the nineties recession. They had 11% unemployment in 93 and initially very high interest rates. Way higher than today, although we are more rate sensitive today.

    House prices did fall and there were many homes that sold for discounts, but the median didn’t change that much. The recession was broken when rates fell in about 95 or so.

    If your happily occupying a house and the nominal value falls, it doesn’t matter to you unless you need to sell – you just stay put. It’s too much hassle to sell and buy again – the transaction costs are high. People don’t panic sell en masse like equity holders, housing moves in slow motion.

    There was a recession in the eighties as well, and the same thing happened. Look it up on the ABS website – if you trust the ABS index of course. Apparently the maths are complex.

  9. I have no problem with anyone buying a house as a home, DM. Want to pay $50m to live in Vaucluse? Fill your boots! But those who buy multiple ‘investment’ properties deserve the wrath that the market is going to deliver when prices adjust downwards if they have done to in the naive belief that ‘property always goes up’. It doesn’t and in my opinion, it won’t for some considerable time.

  10. And to Peter: I’d suggest that the citizens of many other Western counties studied the statistics and history of their property markets over many different periods as well, and I doubt ANY of them expected what they have been delivered. I agree in substance with your view on unemployment being a major factor; ‘less so, interest rates ( you later comment appears at odds with the earlier one that interest rates matter given the experiences of earlier time?) but property prices are a result of the employment stability of any society. You may see ours as stable; I see it as nervous at best, and on the eastern seaboard where our houses are, precarious at worst.

  11. Janet – interest rates are critical – more so now that in previous recessions. But they are only about half of what they were in previous recessions in the modern era.

    Obviously you want prices to crash and then you expect to buy for a song – is that the plan?

    If it doesn’t happen that way what is your plan “B” because when property is cheap no-one buys and most miss out yet again.

    Bear (no pun intended) that in mind. Leith’s a nice guy but he hasn’t seen this before. It’s like a new toy for him, but it has all happened many times. So many will sit on their @rses and wait for the median to fall 25% or more, but it won’t happen like that although 25% bargains will be available for the hungry buyers. The rest will just get a little nibble off the price, and some will still pay too much.

  12. I am technically bullish on the bank stocks at least to some point and soon I see them breaking out to the upside of those trading ranges. Don’t ask me what fundamental reasons I have… maybe ask Benny and the Inkjets what’s going down. I am not a bubble denier either.

  13. PF, like many, I was caught flat footed when both the property and the equity markets boomed. I felt the property market was slightly overvalued many years ago and was waiting for a dip before looking for something that could make a reasonable return. Some of the properties I was looking at have more than doubled in value during that time.
    Unfortunately incomes have not kept up (rental income or personal exertion (wage) income).
    Families are feeling the stress.
    I would hate to be a “property millionaire” with a million dollars of debt on property “valued” at $1.1m. Although some of the clowns in the position probably still have not grasped the seriousness of the matter.

  14. PF…I,m in the market at the moment as you know and i,m having a ball listening to estate agents telling me to ” just make an offer “.
    Many people over here are beginning to panic and nearly all the ones that are cheap are investors, how do i know because most have tenants and because the estate agents are telling me so.
    Your statement that nobody buys when they are cheap is ridiculous as if you were right they would never sell.
    Sometimes mate you have to admit that you are wrong and this time you are.
    All the folk that bought silver when MM first advised are still up.
    Many people that bought property at the same time are now down.
    Remember we are talking investments not the home you live in.
    Try telling the sellers that the RP index says that they are only 5% down and they will likely punch you and if you believe your own tosh start investing.
    Put up or shut up.

  15. Drood – wrong? what are you talking about , you are proving me correct. What you have just told me is what I have been telling everyone would happen.

    You might buy well below the market value now, but most bears won’t. It’s as simple as that. Fortune favours the brave, the timid walk away with nothing.

    But the medians won’t change much – it’s OK I’ll let you off that mars bar bet if that is a financial concern for you.

  16. I’m not sure that the property market is that stuffed – I just did a little research online and picked a couple of suburbs close to me. In the first suburb there are 35 properties on the market but 11 of those are “under offer”. Another suburb (adjoining) didn’t fare so well with only 8 out of 53 properties “under offer”. That’s 19 out of 88 – I’d say that’s ok. Next question is, what are they selling for? I can’t say but if I was a seller, I wouldn’t be too despondent.
    Do your own research (it’s not that hard go to
    I’m in the Eastern suburbs of Perth and I realise the Eastern states do things differently but it would be interesting to get an idea of how things are going in different parts of Australia.

  17. drood I have consistently said three things;

    1. The median prices won’t fall far.

    2. Great buys will be available .(not necessarily taken, but available)

    3. Most bears won’t buy at the bottom, they will wait for the medians to crash, which won’t happen.

    Can I be any clearer on those issues?

    Your question might be when is the bottom ?
    Answer – that’s your problem, not mine, but if you act like a bear you will miss it.

    It’s a catch 22 situation.

  18. DM….. Please dont tell me that all your research is from Go to some home opens ( god knows they could do with more viewers , half the time I,m the only one) , I’m in the Mandurah area and its crazy here. Agents are desperate to make a sale. Why do so many have under offer? Because they haven’t made the sale price and the vendor is stalling, hoping for a better one. If you want a good indicator of how the Mandurah Marina apartment blocks are selling ( been up for sale for 2 years now ) go there at night . The place is in darkness. 2 new local developments are selling their showhomes now yet nobody’s building.

    PF….. 1. The local median is completely meaningless and fluctuates wildly. The national median is just a statistic. Most sane people know you can prove anything you like with statistics, you just have to pick the right ones. If only one house sells for a cool 5 million one week and only one for 200 the next what does that do to the local median? Only an idiot would take any notice of any median price during a slump.
    2. If a great buy is never taken , what happens to it?
    3. Bears sell otherwise they’re not bears.
    Local medians ( suburbs ) crash all the time. Take a look at Halls Head. One week a couple of canal palaces sell the next a couple of units = a local median crash. Oh hang on though thats not the median because the estate agent says you should really include the middle of Sydney as well. You are just caught up in your own tripe , sorry i meant hype.

    Like i said you cant read. I,m not looking for the bottom, I,m not an investor, I,M LOOKING TO BUY NOW.

    Your website says you are a financial adviser.

  19. Drood –

    1. I’m not talking about the local suburban medians, I use national medians or capital city medians – they don’t vary wildly. Our bet was always on the national RPData median. Do you know what a median price is? It’s not an average. Look up the definition.

    2. If a great buying opportunity is never taken it usually increases in value. Eventually it could become a great selling opportunity.

    3. Bears all eventually buy – I’m not caught up in any hype at all. Most miss their opportunities.

    Nowhere does it say that I’m a financial adviser on my website, and nor do I claim to be. If you’re a buyer who wants to buy now, then that is your decision. All the best with that decision.

    Have a cup of tea and lie down for a while. You’ll feel better for it.

  20. Here’s a question for the Bulls ( personally, I believe the price of anything rising is bearish! But, hey, that’s just because I don’t have a debt to service, I suppose). Q: Did you see the current ‘plateauing’ of the property market back in 2007? Because I can’t recall many Real Estate professional calling for a stalling of the property market or, shudder, a fall back then. And if you didn’t see it happening then, why do you think you are more right, now, than those of us who DID see the future; sold up and are sitting with bank balances stuffed with cash, waiting for what will still be many, many years to come to decide where to apply that cash reserve. In my opinion, you are as blinded by your beliefs in past performance repeating, now, as you were then.

  21. Oh and here’s a thought:
    Those of us who expect the property market to fall, and are wrong, will have to pay nominally more to buy back in if we wish, right? Let’s say property goes up 20% and that little home we wanted for $5m goes to $6m. How much more cash do I need to buy it?…. $100,000….Not the $1m revalued price, but just the extra 10% more that I’ll need to top-up a deposit. The rest can be debt.
    But if that same property goes from $5m down by the same amount to $$4m, that’s $1m of lost equity for the owner; lost deposit , lost cash if the owner sells, that was available for all sorts of life style or financing needs.
    Property rises are often just a loss of opportunity. Property price falls, on the other hand, are often a loss of real cash; real deposit money; real lifestyle choices.
    In today’s world is it better to lose an opportunity, or lose your cash?

  22. Oh Janet – did you sell property in 2007 in the expectation of buying back after a crash. I hope that was on the Gold Coast and not Sydney or Melbourne.

  23. Well PF, I guess we are going to need another stimulus package for property because its been flat to falling for a while now.

    Only the US, EU bubble crashed, Japans bubble deflated slowly (and still is) over the last 2 decades. So is that the future for our property market without stimulus?

  24. GB – I don’t think that property will do much for at least two years, and more likely 3 to 5 years. It’ll be pretty flat with good buys here and there for the quick buyers.

    I think that the biggest falls from now on will be in Melbourne, and not much of a change in other areas.

  25. Sorry – I didn’t mention stimulus. I think that the RBA will be very happy to see a little fizzle in the property market, but they will reduce rates if they see signs of a crash – other than that I don’t see any reason to stimulate.

    However we have national elections coming onto the horizon and so politicians being loose cannons may dream up some ideas to buy the votes that they need to win. Neither side are above buying votes. Home owners form 70% of adult voters so that are a large demographic and they will give some support to handouts directed towards them. I still don’t see a need to stimulate, but then I’m not dependant on the Australian voters to win a seat in parliament – what do you think might happen?

    If they dream up a popular idea to lift house sales in the USA it could get popular support here, so watch the elections in the USA – it could give us an indication.

  26. I think that the biggest falls from now on will be in Melbourne, and not much of a change in other areas.

    I must be hallucinating then.

  27. If your not talking to us about your finance, then you are talking to the wrong people.

    Sorry PF your’e a fanancial discusser not an adviser.

  28. Drood I was talking about the median house prices. Of course there will be bargains seen all over the nation.

    The median price is not the bargain price, it is the price of the middle house sold within a dataset in a given timeframe. That’s why the suburban median bounce around – I would disregard them if I were you. Just take not of the national, state, or capital city medians. The smaller the dataset the less reliable ot becomes.

    If you are so sure that you will get a steal then what are you doing trying to point score on this forum, get out there and look for your bargain, but make sure you don’t miss out because many bears will.

    Actually drood I’m a finance broker with an ASIC Credit licence. I’m not licenced to give financial advice but I can have a general conversation about the economy just as anyone else can. I’m licenced to give advice regarding suitable loans and finance options, but I can’t advise people to buy anything specific, and nor do I wish to give specific advice on what home someone should buy or what business they should buy – those decisions are theirs to make. I rarely even see the house that they are buying, so how could I advise them. They may be buying a dog, or it could be the buy of the century.

  29. PF leave poor Drood alone and stop giving him a hard time.

    Poor Drood, thought gold had increase 20% in two years in Australian dollars.

    Loss of interest yeild of 6% and commissions Drood has lost money in two years.

    Drood your feel better after a cup of tea and think in US dollars.

    If you buy in the USA Drood real house bargains are to be had!

  30. I just rented an awesome apartment with my girlfriend. Its 2 minutes from everything, including my work and gym.

    My mates who just bought had to settle to live in a dogbox 20 minutes from everything.

    They are miserable. They are anxious. They are heavily in debt and praying rates go down so that maybe they can go out for dinner once this month.

    PF – if prices dont go anywhere for 5 years (as you have said yuo think will occur)…why would I not continue to rent, save and buy in a few years where prices will be the same?

    Oh by the way, I moved place because my landlord sold up. HE and nearly every landlord I know that bought more than 5 years ago are bailing out of the market as soon as possible.

    There is no doubt the penny has dropped for the savvy out there.

    I love going to BBQs now…they all gather around and ask me how bad this will get. The difference between now and 2-3 years ago is that they listen to EVERY WORD. They now hate reading spruiking articles that lie to them about the prospects of property prices rising.

    I may overstated how quickly things would crash…but prices will now begin a steep decline, bottoming some time in 2016 in my opinion.

    By then i will have a good 30% for my dream home.

    Thanks Money Morning for helping me stick to my guns.

  31. TRB….Please tell me when i thought gold had increased 20% in two years in Australian dollars and if you can’t please stop telling lies.
    I dont want to destroy any little fantasies you may gratify yourself with but on 3/2/09 i bought gold from the Perth mint at $1458AU per ounce. Today that same ounce will cost you $1631AU.
    If you get out your little mermaid calculator you might just figure something out on your own.
    I sold my property in 2006 ( at the top of the market) and i will buy sometime this year.
    Now TRB and PF please tell us what amazing investments you two made.

  32. @ Peter Fraser: Nope! It was…Christchurch ( well, my last holding, anyway. I switched from Aussie property in 2001 – (no stamp duty, capital gains or land tax in NZ – it’s all profit!). How ‘lucky’ was I. Not only was 2007 a good time to sell NZ property ( I waited until Jan 2008, to be honest!), but I had the bonus of missing out on the earthquake carry on. Property – you just never know what’s around the corner, do you Peter. Or what winds or rain are in the sky or fire is in the bush or…. well, you get the picture. Safe as bricks and mortar.

  33. PF – things are looking bad again all over the world. There has to be a stimulus package somewhere. China just lowered is reserve requirement to pump more credit into the market, it wont be long before the ECB prints money because now Spain is likely to default and US elections guarantee some sort of stimulus. This may prop up property in OZ but the last round of this didn’t help us much so Australia is going to have to lower rates or bring in another FHOG.

    As for property going nowhere for 3-5 years then any good financial advisor would tell people not to invest for 3-5 years. An investment of $500,000 into property today being worth $500,000 in 3-5 years, not accounting for inflation, is not a good investment strategy. You might as well have cash and earn a bit of interest.

    However, property prices have fallen over the last year. I cant be bothered researching the figure but lets assume it fell 4%. Over 3-5 years thats 12% – 20% drop. So investing $500,000 now could mean you lose between $60,000 and $100,000 on the investment over that time frame. So property is bad investment for a while and the stats are showing us that people think so too.

    Therefore there must be stimulus…

  34. Quite right, GB. Re my post above you….I was $1000+ per WEEK better off by selling up in 2008 and renting ( I still do today), even though deposit interest rates have halved in that time, I’m hundreds of thousands of dollars better of from having sold than having stayed an owner. Sure I live in a ‘lesser’ place now ( but more appropriate to what I do, and far better quality than what I would get if I were to buy for the same repayment amounts that equal rent), but isn’t that what it’s all about? Picking when and what to sell, and when and if to buy? Now is not the time to buy antipodean property. “Everyone” else’s has fallen’; ours will too.

  35. lol Janet, but this time its different 🙂

    I just thought of a comparison to stocks. Property is like buying a stock that pays a dividend of $1 a share, but instead of getting $1 for every share you own, you pay the company a dollar for every share you own

    Negative cash flows make no sense if capital gains on your investment are falling – there’s no offset to balance your loss

  36. You did say Drood that gold has increase 20% in two years.

    If you want I can dig it up, but that is not the type of blogger I am.

    Life too short to abused.

    I can’t be bother with lies.

    Interest yield of 6% a year.

    $1458 X 12% over two years = $175.00


    Add commissions to sell,security and insurance.

    You are looking at a loss Drood not a 20% profit!

  37. drood – it’s only a mars bar???

    PuntPal – great to see you again. Alls well I hope. Winning in the comp?

    GB – well you have just told me that China is stimulating. I thought that you meant Australia. Mate I’m hardly a glabal expert.

    TRB – I was soft on drood, I thought that I was giving him information that he could use, but apparently not. Surely you have seen the bottom in the share market when almost no one is buying – only the brave – it’s the same with property, but exaccerbated because lenders pull back and the bears who could have bought now can’t get loans.

    Google that in the USA – it’s happening right now, the UK as well.

    When the market is showing upward trends in housing, all the best bargains have gone – it’s not the stock market where reaction times are short.

  38. TRB – gold was $1250 2 years ago in AUD and was $1660 three weeks ago

    if you buy at the perth mint you pay something like $60 and ounce – no security or insurance

  39. PF, china just dumped a whole of credit in their rural areas so that could mean a kick to our iron ore exports, this is like an indirect stimulus package for australia so the property market could hold up

    Australia has not stimulated yet but the stats are saying they are going to have to because all indicators are falling

  40. OK Drood.

    I made a mistake it was not two years but one year just under 20% increase!

    Article title “After America: Threats and Opportunities”
    March 16 at 3.55pm.

    I quote Drood comment 2:

    “Gold is still up just under 20% over the last year”
    “MM was right about gold and you were wrong”

    Drood I was right CASH has been a better investment over two years if you take into account the interest yeild of 6% a year, no commissions,insurance or security costs.

    Real hassle to change from gold to cash when you want to buy a bargain asset quickly.

    Comment two

  41. GB – China has also lowered their banks reserve requirements, but higher lending hasn’t kicked in yet, so they are stimulating, and they have lots of room to stimulate.

    There has been talk of us having to print to lower our dollar, which is killing manufacturing and tourism, but really I just don’t know what they will do. Swan did mumble something lately about countering “Dutch Disease”.

  42. It is all about timing.

    If you had paid attention to both The Daily Reckoning and Money Morning more than 10 years ago when Gold was selling for peanuts then you will be looking pretty good right now, regardless of what currency you bought in.

    Hang on for a bit longer, once this housing crash goes totally mainstream and takes our Australian economy down with it, and the AUD on the world stage plummets, your Gold when valued against said AUD is going to really shine.

    Same can be said for silver, which has shown an even better return for your investment dollars.

    However we all now know that both gold and silver are going to crash while the OZ property market rises from the ashes and heads back to its glory days.

    Choose you poison wisely.

  43. ‘Real hassle to change from gold to cash when you want to buy a bargain asset quickly’

    Absolute nonsense. Click of a mouse button and it can be sold in seconds. If you have physical then just stroll along to you local bullion dealer, they will appreciate the custom, and pay you immediately.

    No hassle at all.

  44. PF – everyone but Australia thinks we have a property bubble, printing money could confirm it. I’m thinking along the lines that we are printing money to lower the AUD to save jobs and we need to save jobs to protect the property market. interesting… i never read what he (swanny) said

  45. Big bubbles plenty of hassle.

    What about rip off selling commissions fees?

    What about walking down the street to your local gold dealer with $200,000 worth of gold bars in your brief case?

    Real security issues if you have the real stuff?

    Cash less hassle no commissions,no security issues everything these days can be done by computer or bank cheque.

    Try that with gold buying and selling if you have the real stuff at home.

  46. TRB , There is a huge difference between one year and two years.
    I hope you had a great time, surfing through all those posts to find you were not telling the truth.
    An apology would be nice, but frankly you,ve got the wrong guy.
    You need someone who gives a shit.

    BBNT , Dont waste your breath with the itchy and scratchy duo, they haven,t a clue.

  47. GB could you please show me on a gold chart where in the last two years the gold price in Australian dollars has been as low as $1250 a ounce?

    Drood is a real cheer leader of gold best he could buy at was over $1400 a ounce at the Perth mint in 2009?

    If I see no gold chart from you GB then I know you have made a mistake?

  48. So let me get this straight you want a apology for saying gold has increase by 20% in Australian dollars this year?

    Drood if you believe your made 20% profit this year in gold and believe it then your right I really feel sorry for you.

    It’s time to head underground with my mining lamp to do some real wealth digging……..

  49. TRB

    I have sold physical on more than one occassion.

    It is not a hassle. Actually it is a lot of fun once you realise the profit you have made.

    If you have held your PM investment long enough then such things as fees/commissions bear very little relevance. It also depends on who you choose to transact with.

    Your argument makes absolutely no sense.

    You keep your hassle free cash that keeps losing value. I will keep my problematic PM’s, even though the return over the last 10 years leaves you pile of paper money looking like a curly pile of dog crap.

    Unlike this country that keeps all its eggs in the China Basket I like to diversify. It is times like these that warrant some hard asset insurance.

  50. “It is all about timing.

    If you had paid attention to both The Daily Reckoning and Money Morning more than 10 years ago when Gold was selling for peanuts then you will be looking pretty good right now, regardless of what currency you bought in. ” end quote.

    Ha ha! Lets not cherry pick please.

    And if you lived in melbourne (like the author) and bought into their property crash reports at the time you missed out big time. It is still WAY up from those ‘reports’. Jumping up and down over 6% is laughable. What percentage as a wh0le of the housing market is in negative equity exactly?

    And if you bought into metal relatively recently on their recommendation (i did) you also got screwed big time… thanks for the wisdom.

    Back when QE was more publicly announced MM was bragging about the stock gains “up 167% etc”. At that point there was so much speculation in those sectors you could have thrown a dart at a printout of potentials. The entire sectors pretty much made money, not just their tips

    It is all about timing, no doubt.

    The experience i have had with them personally has been bad timing. Others, may be the other way round. Who knows.

    You do not see a large number of people post on these boards relative to the size of the free mailing list.. maybe the authors should ask themselves about that percentage and why that is.

    I recall a recent article that predicted rates would go up (they didn’t) and how it would ad to payments significantly equaling destruction, but there was no mention of rates going down and what that would do to affordability.The price of money must only matter when you want property to fall for some strange reason. Real objective thinking right there.

    Will property fall significantly?

    I don’t know and neither do the people at mm.

    The rba doesn’t seem too fussed and they have a hell of a lot more information in front of them..

  51. PF@52 , Why? do i have to be? I could say “are you always so patronizing.”

    TRB, As i have stated before, you are entitled to your opinion but you are not entitled to your facts.If you want people to be nice to you then stop the infantile lies, misquotes and ridicule of other people.
    In the post you quote i was talking about the price of gold and so were you. The price of gold is generally quoted in $US and what i said was true.
    You also based a whole infantile post @32 on something i never said.
    You then go on to say “Loss of interest yeild of 6% and commissions Drood has lost money in two years.”
    Another complete fabrication as the gold incurs no extra cost.

    Yet again you said “So let me get this straight you want a apology for saying gold has increase by 20% in Australian dollars this year?”

    I never said that.

    However, you did say this “It’s time to head underground with my mining lamp ” and i agree with you 100% on that statement. You should crawl down there as soon as possible.

  52. Drood just came up from underground for a nice cup of tea and break.

    I suggest you have a nice cup of tea and a nice little sleep.

    You want to be pedantic then let’s stick to the facts this is a Australian MM site so all investments are in Australian dollars.

    Try paying MM Australian subscription fees in US dollars if you don’t believe me.

    So being pedantic again your investment loss is 18% interest yeild over three years.

    You purchase gold on the 3/2/09 over 3 years ago
    at $1458 X 18% = 262

    Cash at 6% over 3 years is a better investment.

    $1458 + $262 = $1720 cash

    Gold today $1631-$50 (selling/buying commissions insurance,security costs approx) = $1581

    Holding cash better off by $139.00 per ounce after three years.

    Any good business person looks for yeild many good examples rental returns or dividend paying stocks.

    Something you gold bugs never get, do not underestimate yeild in a flat gold market .

  53. TRB…. Who reads the articles for you?
    I said and i say again. Another complete fabrication as the gold incurs no extra cost. Not one cent , nada, zilch. Get it?

  54. “That’s important because with interest rates at 7%, borrowers need house prices to rise at least that much in order to be ahead of the game” Rubbish. What do people live rent-free nowadays!? When I bought in 2008, my rent was $700 less per month than it was paying my mortgate (which I think was almost 8%), that meant that even if house prices stagnated, I was down $8400 for the year. Of a house worth 530K, that’s about a 1.5% capital gain required to be better off. Now the rent where I was living has gone up about 25%, and since then so has my capital value of my home. If I had have rented through that period, I would be MUCH worse off. That’s fact. I think a LONG term perspective needs to be adopted. In the long term will our population increase? In the long term will our cities get larger? In the long term will wages increase? If in 5 years you have been better off renting than buying sensibly now I’ll eat my hat.

  55. Kris, it seems the stats from rp data regarding negative equity may have been skewed.

    A member of another forum contacted rp data regarding their definition of negative equity. If i may paste his post on their response:


    “Got an official definition from RP Data.

    They term it when the house is valued less than the purchase price – except it took them 67 words to actually say it.

    I’m a bear, but this definition is wrong. So I figure they’ve devised their own definition so they could produce another report to get their name in the media.” end quote

    I would assume that many of the 6.4% were purchased recently given what has happened within the market and the loans were taken out with a genuine deposit or with the aid of an absurd government grant providing equity.

    I question the true number of negative equity positions, but assume it would not be very high given the majority of the australian population did not purchase property recently. Many have owned for years and many rent.

    RP datas ‘definition’ of negative equity is not something new, it almost always happens at the end of any given property cycle.

    We personally purchased in melbourne in 2003 and were in negative territory for several years. We sold the same home in 2010 for double the 2003 purchase price.

    Markets often overshoot both ways as im sure you are aware.


Leave a Reply

Your email address will not be published. Required fields are marked *

Money Morning Australia