Read Phil's comments on the market cycle in Money Morning
Stop Asking About a Housing Crash
Cat, meet pigeons, meet oil, meet water, meet elephant, meet room. Meet Phil Anderson.
Back in March we dropped a stink bomb in your inbox. We tendered the following:
‘If you’re waiting for the Australian property market to cool down before you buy a house…what if you’re waiting for something that isn’t going to happen?‘
This was – indeed, still is – the contention of leading economic forecaster and friend Philip J Anderson.
If you’re a long-time reader you’ll know that Phil fired this controversial idea into the PPP-sphere for the first time back in 2009 at our Australia in the Red show in Melbourne.
It wasn’t what delegates expected to hear.
And yet…they lapped it up. Phil was mobbed in the foyer at drinks. He never made it back into the auditorium for the second half of the show. Sceptical readers, waiting dutifully for Australian housing to begin its inevitable death-spiral, suddenly wanted to know when they should buy.
Our views on the credit bubble were, with respect, wrong, Phil told us, to our faces. Suddenly, we weren’t the alpha-contrarians in the room anymore.
Banks will create ‘as much credit as is needed’ to support high property prices in a boom. It’s all to do with economic cycles. And right now, we’re in the buying phase of an 18-year cycle: 14 years up, four down, Phil told (and still tells) our readers.
We kept in touch with Phil because we like him. We like him because he deals in facts. He’s not a spruiker. He’s not employed by the government / real estate / banking complex. He’s independent. He has no professional interest in house prices going up OR down.
Mostly he’s a voracious accumulator of economic facts and data. He’s an analyst. He looks for patterns. He extrapolates. And he reports. In fact, he talks all over the world about economic cycles and how to interpret them, how to forecast using them, and how to make money from them. He has done for more than 20 years, boom or bust.
And he does so dispassionately, despite being passionate about his research. That’s why we’re drawn to Phil, even though his views are diametrically opposed to those held by most of our editors. He doesn’t care if you believe him or not. He doesn’t care if we believe him or not.
Because we know his research comes from a place of honesty and conviction, we’re more than happy to publish it. In fact, we’re super-excited to publish it, even though we copped it big time when we launched Phil’s Remembering the Future project back in the first week of June.
To remind myself of the stink we caused, I somewhat reluctantly revisited the DR Inbox at arm’s length last week. Here’s a small sample of the printable invective still lurking in there …
‘I reckon you’ve lost the plot and taken a bribe from the real estate industry…‘
‘Sending out rubbish makes you look a fool…‘
‘Quite frankly if I changed my opinion on this market as you have I would be considered unstable as a professional.‘
Some of the unprintable emails stripped the paint from our walls here at HQ. But just to clarify: yes, I did know both of my parents. No, I never realised you could do that with a horse.
But let’s look forward, dear reader. Has the argument for higher house prices moved on since we booted the hornets’ nest?
I wanted to find out. So I called Phil up last week and asked him some of the questions I figured you’d want answering about Aussie housing, about economic cycles, and about what you can expect from the property market in 2014.
Here’s what he told me…
SIMON MUNTON: What do you see happening in the Australian property market in 2014?
PHIL ANDERSON: Steady gains / sideways moves, but those will remain location specific, to do with anything happening with mining infrastructure, the building of roads, rail or ports anywhere, as is always the case. Brisbane looks to be the best buyer’s market.
SIMON: What do you see happening in the US property market in 2014?
PHIL: continued recovery, but 2014 will be more of a year of consolidating gains rather than country-wide increases in prices. The US stock market is likely to make a retracement in 2014 of the prior five years’ gains; this may make a few people nervous but is a normal part of market behaviour
SIMON: Why should investors believe in the 18-year real estate cycle?
PHIL: Some years the economy does well, some years it doesn’t. 200 years of US history clearly shows US real estate to be cyclical; this cycle has averaged 18 years (never shorter than 17 years, never longer than 20). The cause of this cycle is still with us, so future booms and busts are as assured as the sun rising each morning
SIMON: Why have we seen a renewed appetite for buying residential property in Australian capital cities this year?
People are making money; they have to put their money somewhere and the Australian tax office is very generous (skewed) towards investing in property.
SIMON: Has the ability to invest in property within SMSF had a positive impact on Australian property prices, or is that not really a factor in rising prices?
PHIL: I don’t know enough about that topic – probably yes.
SIMON How much credit can banks create to support a property boom? How much is too much?
PHIL: Banks can create as much credit as there is demand. Whilst unemployment stays reasonably low, it is hard to see such demand decreasing. Banks are totally dependent on rising property prices to support further lending
SIMON: Will I have to borrow money on 30 or 40 year mortgage terms just to buy a house In Australia?
PHIL: This may become a reality after 2019. Most mortgages, however, are paid off by Australians well before this time, for various reasons.
SIMON: What effect does foreign investment in Australian housing have on residential property prices?
PHIL: this is clearly distorting markets, especially inner city housing and flats, and anything built new. This situation is going to worsen in the next decade. Get used to it. Governments now, worldwide, have become totally dependent on rising house prices and all the taxes associated with property. Real estate itself has now become a world-wide game, with international payment easy, travel to visit the place very easy, and the world’s wealthiest 10% generating income like never before.
SIMON: What would you say to someone who told you: ‘I’m waiting for the housing market crash before I buy property?‘
PHIL: This reminds me of the four women at the table, each discussing their idea of the perfect man and waiting for him to show up. Like that’s ever going to happen. Queue the next shot, 35 years later and the four women have turned into skeletons…
SIMON: Could there be an Australian house price crash in 2014?
PHIL: Anything is possible. The cycles, however, indicate this to be unlikely. Rising productivity, increased technology developments and massive energy price reductions coming out of the US make this exceedingly unlikely. Even asking the question itself, which a number of people have been doing for years now – since the last one in 2008 – make it unlikely. When people STOP asking the question, this is when it will happen.
So there you have it dear reader. If you’re waiting forhouse prices to drop before you buy a place, you know what to do:
Stop asking about a property market crash!
Enjoy the holidays.