Crash, Correction, or a Boom Still to Come?

In today’s Money Morning…beautiful scenery to distract us from our fears…coming back to cold, harsh reality…is it possible to be certain about the Aussie market?…knowing what others don’t…and more…

I’m back, after a three week hiatus in Europe.

Every year representatives from our sister publishers around the world gather to discuss how we can provide you with better services. This year I joined them. The conference was productive. And the setting — Bill Bonner’s chateau near the village of Courtomer in Normandy — was stunning.

And if I happened to take the opportunity for a couple weeks of holiday in the European sun, why not? How much could possibly go wrong in Australia while I was away?

Well, maybe a lot.

The moment that everyone in Australia has been waiting for may have come. While I was taking selfies in front of sections of the Berlin Wall, it finally happened. Sky-high house prices in Sydney fell by 1.3% and 1.7% in Melbourne, according to CoreLogic.

Is this it? The crash that so many economists, pundits and journalists have long, almost gleefully, warned of?

Perhaps. But before you leap out of your chair and rush off to short the big four banks, haven’t we been here before? Sure, it’s something we haven’t seen for a good while. But is this the first time that a chorus of voices have warned that the sky is falling in on the Aussie housing market?

Of course not. And yet here we are, still waiting.

Even in Europe, we couldn’t avoid the subject of Aussie housing.

You would think that at a publishing conference, full of ambitious young people from a dozen countries, we could have found plenty of other things to discuss. Especially when that conference is held in the chateau pictured below.

Not a bad spot for a week’s work

But it was as inevitable as the brilliant French sunset. In a conversation with our Irish and Brazilian compatriots, we couldn’t avoid the housing market.

We hit the usual high notes. Record low interest rates for years. Rising foreign ownership, and whether it drives more construction or just dries up the market. Stagnant wages in real terms, while prices have risen for decades. The growing gap between unaffordable prices in the cities, where there are jobs and opportunities, and the country…where there aren’t.

And it seemed that, the more I and my fellow Australians tried to explain the complexities of Australia’s housing market — why it had boomed, possible reasons for the correction in May, where it may be headed next — the less clear it all became.

Perhaps there just wasn’t the time to go into the depth that the subject deserved. Maybe it was the wine, which flowed rather freely in the evenings. Maybe it was the multilingual nature of the conversation, as the Swiss and Indians joined us at the table, and pauses for translation became more frequent. It was tough to mind too much, what with the good food and company, and Australia half a world away.

But now that I’m back these concerns are again quite real. Australians can’t afford to ignore our real estate market.

Leave aside the fact that everyone, whether a homeowner, mortgage-payer or renter, needs to live in something. But even looking beyond where you actually live, pretty much every Australian still has a stake in the housing market. Because we all have a stake in the stock market. Our superannuation system means that you really can’t ignore stocks.

You already know that the big banks make up a huge section of the market. Their combined market cap has the power to push the ASX up or down, however the rest of the economy is doing.

So how can we stand to be so uncertain about what’s happening in the housing market? Prices climb and climb, occasionally wobbling. When they do, we all hold our breath to see what happens next. Investors hoping fervently that they’ll keep rising. Aspiring buyers hoping fervently that they’ll crash. All of us captive to a market that we can’t predict, or even fully understand.

Well, not all of us. At least one of us has seen it all before. And he isn’t concerned.

Phil Anderson is our resident specialist in economic cycles, particularly the real estate cycle. He argues that history can teach us exactly where the market is headed next. And he’s got centuries of data to back him up.

With Australia’s fate so intrinsically tied up in real estate, can you really afford not to hear what he has to say? Phil believes he’s pinpointed exactly how long Australia’s real estate market can continue to defy gravity.

And when it will stop.

You can see Phil’s latest research in his new video here. Be warned, Phil gives the subject the full treatment it deserves. Expect to settle in for an hour if you want to fully understand what he has to say. It’s worth it. So get comfy in your chair, and click here.

Phil brought some of that insight to Money Morning on Monday. To read his insights on how Australia can gain from China’s drive towards renewable energy and India’s growing construction boom, click here.

On Tuesday Terence Duffy, from Phil’s research team, took a bold position. What if everything you think you know about the market is wrong? Are you confident enough in your positions to consider the possibility that they’re all founded on sand? If so, take a look at Terence’s article here.

And in Wednesday’s article, Terence took a look at one of Phil’s more explosive predictions from past years. A prediction that he got dead right. And which feeds directly into Phil’s analysis of the real estate cycle. You can read Terence’s article here. And click here for Phil’s latest report, with more on the system he’s used to see so many crucial events coming.

On Thursday Sam brought you a few of his own insights from the conference at Courtomer, on how he hopes to bring you a better Money Morning in the future. But the primary focus of his article was on one of Melbourne’s big new infrastructure projects. Will this $5.5 billion project live up to its hype? Or even to its cost? Sam argues no. Not just because of overly optimistic promises and inevitable cost blowouts. But also because new technology already taking hold in our society will quickly make it obsolete. You can read how in Thursday’s Money Morning, here.

And on Friday Sam tackled the news of Donald Trump’s withdrawal of the United States from the Paris Climate Accord. Can this inflammatory move really create more jobs in the US? Is Trump genuinely pulling out, angling for a better deal, or just blindly seeking to destroy anything connected to his predecessor’s name?

It may all just be empty political theatre. But Sam argues that you shouldn’t worry too much about things beyond your control. Instead, focus in on what you can do, for yourself and your own investments. And when you take that closer look, you can’t miss the incredible opportunities in markets today. For more on those, you can read Sam’s article here.

That was it from your Money Morning team this week. If you haven’t already, remember to check out Phil’s latest research on the real estate cycke this weekend, here. And we’ll see you next week!


Tyler Jefferson,
Editor, Money Weekend

Tyler Jefferson joined Port Phillip Publishing in 2012. With a background in publishing, he started out as part of the team working behind the scenes with your Editors to bring you Money Morning each day.

When he joined, Tyler was Port Phillip Publishing’s 12th employee. Today that number has grown to over 50, as more and more readers turn to Money Morning as their source for independent financial analysis and ideas.

Today as Managing Editor, Tyler still edits the articles you read each day. Along with that, he occasionally contributes to Money Morning with his own irreverent take on the most interesting news and opportunities for you.

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