Pete Wargent blogspot

Co-founder & CEO of AllenWargent property advisory, offices in Brisbane (Riverside) & Sydney (Martin Place) - clients include hedge funds, resi funds, & private investors.

4 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.

"Unfortunately so much commentary is self-serving or sensationalist. Pete Wargent shines through with his clear, sober & dispassionate analysis of the housing market, which is so valuable. Pete drills into the facts & unlocks the details that others gloss over in their rush to get a headline. On housing Pete is a must read, must follow - he is one of the better property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

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"I've been investing for over 40 years & read nearly every investment book ever written yet I still learned new concepts in his books. Pete Wargent is one of Australia's finest young financial commentators." - Michael Yardney, Australia's leading property expert, Amazon #1 best-selling author.

"The most knowledgeable person on Aussie real estate markets - Pete's work is great, loads of good data and charts, the most comprehensive analyst I follow in Australia. If you follow Australia, follow Pete Wargent" - Jonathan Tepper, Variant Perception, Global Macroeconomic Research, and author of the New York Times bestsellers 'End Game' and 'Code Red'.

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Monday, 19 August 2013

A negative spin on property?

MSM piles in

The mainstream media have latched on to the auction frenzy and have called that a property boom is at hand in the eastern states. Meanwhile, more serious economists such as Bassanese at the AFR "remain bullish house prices", while experienced property market analyst Michael Matusik notes that Australia's eastern states could see proce growth of up to 25% over the next 3 years. Over at Business Spectator, Robert Gottliebsen forecasts that Australia is heading for "the mother of all dwelling booms" caused by an imbalance between supply and demand.

That's a fair amount of positive sentiment doing the rounds.

It's no doubt confusing for new entrants to the property market, because on the flip side there continue to be negative angles reported too.

There's an old saying in investment circles (which is claimed as their own by a few people) that says: "a speculative bubble is a bull market which you don't have a position in."

There's much more than a grain of truth in that. The overwhelming majority of those barracking the property market dynamics are either renters (who doubtless want prices to crash so that they can participate in the market themselves) or people making an easy dollar from selling stories on the existence of a bubble. This all makes logical sense and 'twas always thus: property price rises naturally seem unfair to those not participating in the upside, and that will never change.

There are several negative angles which get churned over.

One is that owning property is somehow vaguely unethical. Such articles can usually be identified by not-so-subtle name-calling with words like "amateur speculators", "unsophisticated landlords", "rent-seekers" and the old favourite "specufestors", being lightly sprinkled in. Ideally, the words "greed" and "foreign buyers" should also feature. As a renter myself, I'm very glad that we have landlords to house us - a modern capitalist system would never work in any other way.

Articles continue to portray landlords as evil, making people homeless on a whim or turfing them out at the drop of a hat in a frivolous game of "eviction popcorn":

"Young first-time buyers such as Naomi Jacobs in Newcastle finds herself more in a property nightmare than a property dream. "I'd love to buy a little house now," she told me. She wants to have a family, and as the family gets bigger so she'd want a bigger house. That is the dream. Naomi is a science graduate, a science graduate with a job. But she can't get a mortgage. She blames the buy-to-letters. "The smaller flats that first-time buyers would want are ideal for them to rent out," she sighs. "But that's the way it is these days. It's slightly cruel when you think about it."

On the face of it, this sounds 'bad' and we are invited to be up in arms at the unfairness of it all, the angle being that an employed graduate can't get a mortgage. But there's no explanation of why she can't get a mortgage. Usually, that would only be because no deposit has been saved by the potential borrower. So is this an argument for a return to 100% mortgages then? Which, by the way, are the exact same products which also get blamed for speculative activity and booming prices.

It's a neverending negative loop, of course.

The market commentary where I am at the moment in England, has seamlessly shifted from a "devastating property  market crash" to "a new property market bubble" in just a couple of short months. Literally only a few weeks ago there were cautionary tales that many remain in "negative equity after the crash" (this is indeed true in parts of the country) yet as prices are recovering strongly on a national basis it is already also being termed as a bubble. It's apparently a crash and a bubble at the same time.

With the mass proliferation of online commentary, I suppose that this is a trend which won't go away.

Prices are going up - this is bad because it must be a bubble. Prices could be falling so the whole world is doomed. Someone is in negative equity, so only fools would buy property. Interest rates are falling , this will cause a bubble. And now they're rising, it's unaffordable. Some people work in finance - this is also bad...

You only really have two choices when it comes to property: to complain about how unfair the world is or to do something about improving your own situation. If that sounds unsympathetic, it's not mean to - it wasn't so many years ago that I was 21 myself and as I entered the full-time workforce all the talk was of unfair and unsustainable London house prices.

Two speeds

In my opinion, parts of the UK probably are likely heading for rapid property price appreciation, because after half a decade of stunted activity the supply of dwellings is essentially stuck and will not be able to meet demand. Dwelling construction is at its lowest level in nearly a century, while interest rates are stuck at rock bottom and the population is growing rapidly in the south-east of England - migration and a baby boom have led Britain to have the fastest growing population in the EU. Over time, we'll probably see longer mortgage periods of 30-40 years and higher prices.

But property markets in certain other parts of the country are struggling and will likely continue to do so. That's why I've only ever advocated investing in south-east England. and London.

The media reports of an Australian property boom should also be viewed with caution. It's illogical to talk about one property market. Even within cities and suburbs, some property types will appreciate strongly in value over the next decade, while some buyers will pay too much for the 'wrong type' of property and remain forever convinced that owning property is a dud idea.

It has to be said, for all the talk of a 'boom', Australian property price growth over the last few years has been relatively muted in plenty of areas, which after all, is the best long-term outcome for Australia - prices growing perhaps slightly slower than household incomes, effectively leading to a gradual improvement in affordability over time.

Some people will always do well out of property. Others will always get it wrong. Caveat emptor - buyer beware.