Safer Than Houses?

For years, there’s been no more reliable investment class in Australia than residential property in our major cities. But increasingly, it looks like 2017 could be the year that changes.

In new research released this week, Credit Suisse has found that the boom times seem to be over for real estate in Australia’s hottest market.

Over the past few months, the Sydney housing market has not only cooled down, but has arguably turned cold.

Over the past year, Chinese capital flows have fallen considerably, in part reflecting the impact of stricter capital controls.

This fall foreshadows weakness in NSW housing demand in the year ahead.

It’s tough to know exactly how large an effect Chinese buying has on Australia’s real estate markets. But Credit Suisse did find that Chinese capital flows have predicted about three quarters of NSW property transfers since 2010.

That’s not to say that Chinese buyers are snapping up three quarters of properties sold. Instead, it’s more likely that local buyers are chasing the momentum of foreign buyers. Bidding up property to any price on the assumption that someone — foreign or local — will always be around to buy it at an even higher price, when they’re ready to sell.

But that assumption, that there will always be a ‘greater fool’, could be very dangerous. If the market begins to hint that the gains won’t continue forever, it could quickly turn into panic selling as those people try to get out.

A collapse in housing prices could very easily spill over into the wider economy. Large numbers of Australians are sitting on huge paper gains, locked up in their houses. Those profits aren’t real, obviously, as long as they’re holding that property. It’s just a theoretical asset value. But if feels like being richer, and that feeds into spending habits — the fabled ‘wealth effect’ at work.

If the wealth effect can work positively, spurring us to spend more when the paper value of our assets rise, surely it can be just as powerful in reverse. Even homeowners who had no immediate plans to sell may reign in their budgets if the value of their home falls hard enough.

That kind of drying up of spending can quickly act like sand thrown into the market’s gears, grinding it to a halt.

It’s a harsh picture. And it may be difficult to imagine from here, at the peak of a booming housing market and a strong stock market. But it’s often when things look their best that you should be looking for a dose of caution.

If the big performers of the last five years, housing and the stock market, were to stumble, where should an investor look for alternatives?

This week in Money Morning, your editor Ryan Dinse looked at an ‘outsider’ story that’s breaking through to the mainstream. He believes that this could be where the next decade’s biggest gains could come from. Read on for more. 

This week in Money Morning

It’s incredible just how wide-ranging the applications for blockchain could be. By now you’ve read plenty about how it could revolutionise the financial world. And Ryan has explained how blockchain tech could be used to vastly open up the sharing of medical information, without violating privacy. That could be a massive boon both for personalised medicine and medical research.

But what about chicken farming? Is that something you imagined that the blockchain would disrupt and improve?

To read Ryan’s explanation of how the blockchain could mean a new world in premium agriculture and in food safety, and what that means for investors, check out Monday’s Money Morning here.

Ryan went out on a limb Tuesday when he criticised one of the world’s best known, and most imitated, investors. But he argues that Warren Buffett’s recent dismissal of bitcoin isn’t just wrong. It represents the old-style finance world’s inability to adjust to the financial revolution cryptocurrency brings. Ryan argues that the bubble destined to burst isn’t in bitcoin, but in ‘Buffett style’ capitalism. And that cryptocurrencies represent a truer form of the free market at work. To read why, you can find Tuesday’s article here.

As automation eliminates more and more jobs, arguments rage over the eventual consequences. Will it enrich us all? Or doom almost everyone to crushing poverty, while a select few reap all the benefits?

History tells us that the job losses from advances in productivity are usually temporary. New options are quickly created, and the disruption eventually proves to be better for everyone. But a long-term lift in standards of living is cold comfort if you lose your job today. In Wednesday’s Money Morning, Ryan looks at how you can hedge your bets on the rise of automation, to benefit however it turns out. Click here to read the article.

On Thursday Ryan asked why oil has been left behind, when almost every other asset and market is booming. Traditionally oil is strongly correlated with the wider market. Which only makes sense; when industry is booming, there’s more demand for oil. When it’s slowing down, there’s less. But as Ryan explained, though this correlation is normal, there are exceptions. And on previous occasions where oil and the rest of the market split, it led to a huge opportunity for investors. Are we seeing the same thing again? Click here to read Ryan’s answer in Thursday’s Money Morning.

Then on Friday Ryan looked at a famed Wall Street story that proves that investors are made, not born. With the right tools and learning, even people brand new to the market achieved incredible results. Ryan looked at how they did it, and the rules you can apply to your own trading. Click here to read Friday’s story.

And to find out more about Ryan’s latest investment research, and the new asset he believes could beat the stock market and real estate both next year, click here.

Until next week,

Tyler Jefferson,
Editor, Money Weekend

Tyler Jefferson joined Fat Tail Investment Research 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 Fat Tail Investment Research’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.

Money Morning Australia