Bulls, banks turn pathetic

Yesterday Michael Yardney the director of Metropole Property Investment Strategists penned a property piece in Smart Company that began:

I’ve decided that I’m not going to participate in the property downturn and I would like you to join me.

By now you are probably sick of hearing about the economic wows of the world and how Australia’s economy has now hit some speed bumps. Many of the messages we are getting tend to scare us, while at the same time completely ignoring the solutions on which we need to focus on to move forward.

Instead, today I’m going to share with you four keys to succeed in any economy.

Mr Yardney proceeds on a power of positive thinking sermon that should have him supporting Anthony Robbins in the near future.

And it’s no wonder that Mr Yardnay wants you to think positive. Housing investment over the last decade has slowly evolved into a model based purely on negative gearing and capital gains. This has worked very well for many people and has been a successful model for wealth creation for an entire generation. But that model required every growing private sector debt. Without it house prices could not have continued to grow and investors could not have worn the costs of the loss making venture that renting houses has become. Without positive thinking, with endless people buying houses from one another, the entire model simply doesn’t work.

If you think about it though, in normal times, it doesn’t make a whole lot of sense to pay a dividend to an investment in the hope that it’s price will increase. And, normal times are now returning.

Recently house prices have been falling around the country because the rate of growth in credit issuance towards housing has slowed. No amount of positive thinking or burying your head in the sand changes that fact. The question of whether now is the right time to purchase property is to ask if you think in the short-to-medium term there is likely to be a return to growth in credit that can once again support that old, rather odd, model. A quick glance at the household finances chart in the recent RBA chart pack shows that for only the second time in the last 20 years debt to household income is now falling.

The only other time this has occurred since 1990 was during the GFC when Australia last witnessed falls in housing prices. Although some people like to report that housing bounced back because it is cyclical, the facts are that it actually took a massive stimulus package from the government and stimulatory interest rates from the RBA to reverse the trend. Yet ironically while informing his readers that rich people are getting richer Mr Yardney  also states:

Let’s face it, unless you do it yourself, no rescue plan is being prepared for you. The Government is not coming to bail you out, like some governments have done to their banks or certain large companies.

If that is the case then along with yesterday’s CPI news it seems that interest rates are not going to fall any time soon. This means that the rate of growth in credit issuance is likely to continue on its downward trend. If this does occur then prices will continue to fall.

Yesterday’s CPI rate is likely to play a major factor in housing market for the short-to-medium term and there is the potential that Australia is about to enter a period of stagflation. Even if you think all of this news is “doomy”, thinking positively and pretending Corollas are Mercedes isn’t going to change the facts. What investors in any asset should be doing at all the times is assessing the risks to their portfolio by being open minded in their assessments. Right now there are significant downside risks for housing and to simply pretend otherwise could well be personal economic suicide.

In an attempt to make it seem that unless you aren’t rushing out to buy a property right now, then you aren’t ever going to build wealth Mr Yardney states:

Currently, some property investors are becoming wealthier than ever because they own the right type of assets and are taking advantage of some of the best deals available in their lifetimes. While others are just sitting it out hoping that it’s going to work out.

It is undoubtedly true that some property investors are becoming wealthier right now. This ignores the fact that there are also undoubtedly many property investors losing money right now. But the fact that some are getting wealthier has nothing to do with the housing market at present. It has to do with the fact that these people were either lucky enough or smart enough to have purchased houses when the economic environment was right to do so. It may also be because the “right type of assets” Mr Yardney is referring to in that particular paragraph isn’t actually housing. He finishes with:

So join me and many other successful property investors and become someone who sees opportunities where others see problems. Become someone who seeks growth when others expect collapse. And become someone who sees success when others see failure. I’m not going to participate in the downturn

Without a some sudden positive change in the economy that leads to an upwards movement in the rate of credit issuance the housing downturn will continue independent of whether Mr Yardney thinks he is a participant. If he owns property as an investment then whether he likes it or not he will be joining in. He can take his own advice and ignore  “doomy” macroeconomic data that effects the fundamental driver for housing prices if he wishes. But to tell other people to do so under the guise of wise financial advice is simply pulling out the foghorn again.

Mr Yardney, however, is not the only one turning to whacky pathos in defense of housing at the moment. When I got home from work this afternoon I found that the CBA had dropped the below promotional items in my letter box.  What a shame I’m not a first home buyer who desperately needs a wall to put up a poster.

And yes, that really is a stick of blue-tack.

 

 

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Comments

  1. Posters are lame and painting sucks. Got anything else Commbank? I’d rather eat that blu tack than live your version of “freedom”.

  2. I stopped putting posters on my walls with Blu-Tack when I was around 16. Have CBA resorted to lending money to kids with a paper round to buy houses?

    It’s going from bad to hardly believable!

  3. It always amazes me how nieve and intellectualy shallow people like Yardney are.

    He is a poster boy for the mum & dad ‘property investor’.

    When dwellings in aggregate decline 5% because credit creation declines, then the national aggregate ‘It’s equity mate’ declines $200 billion and the ‘It’s equity mate’ declines 6.5% DUE TO AGGREGATE DEBT LEVERAGE.

    Roughly the SAME amount as the TOTAL national mineral exports at the peak terms of trade.

    That directly affects 70% of the population and Yardney is one of them.

    Where does Yardney think all the ‘It’s equity mate’ come from?

  4. It would be interesting to see how the housing market would have fared from 1990 (or 1992) until now — I knew builders who had to sell houses for less than cost, then — without credit creation, government stimulii, negative gearing and lax lending standards. We are indeed living in an age of economic socialism, when sovereign democratic states take on the role of distorting the time value of money in favour of certain groups, and managing the rest of the mess with welfarism. One cannot keep consuming the future today, but our fearless leaders seem to think you can.

  5. 2-3 local estate agents are very pusshy in dropping sales results once a week into my letterbox. It is usually a photocopy on nice white paper. I am pleased to receive their sales lealfets as the back of the flyers are useful for jotting down ideas related to current work, future projects, shopping lists etc.

    Housing spruikers and their financiers should be made to offer sales flyers with this dual purpose.

  6. The Yardney’s article looks to me like early teenager vision of the world where “When you want something, all the universe conspires in helping you to achieve it.”
    Late teenagers are already aware that world is not quite like this. Is Mr Yardney 13 or 14?

  7. Yardney says…

    At the same time a small group of people are taking action. That’s why the rich and financially fluent are getting richer. Nobody has ever got rich by doing nothing.

    Warren Buffet said… “Leverage is the only way a smart guy can go broke.”

    Yardney said…

    Currently, some property investors are becoming wealthier than ever because they own the right type of assets and are taking advantage of some of the best deals available in their lifetimes. While others are just sitting it out hoping that it’s going to work out.

    Which side are you on?

    It’s time to increase your financial literacy by immersing yourself in the tools and knowledge to help you move forward. It’s time to take responsibility and regain control.

    Let’s face it, unless you do it yourself, no rescue plan is being prepared for you. The Government is not coming to bail you out, like some governments have done to their banks or certain large companies.

    I say… ‘Earnings, Earnings, Earnings’

    Why do people ‘believe’ that buying an asset with 1.5 – 2.5% after all costs (including depreciation) & tax, earnings, will make them rich???

    The net pretax yield on Melbourne housing is lower than the US 10-year treasury rate!!!

    Borrowing at 7.25% to aquire an asset with a 2.14% net yield after all costs (including depreciation)…

    Wake up Australia!

    Yardney is right about a couple of things, ‘increase your financial literacy’ ‘own the right type of assets’

    In aggregate 70% of the population do not have financial literacy are in the wrong asset.

    • “Currently, some property investors are becoming wealthier than ever because they own the right type of assets and are taking advantage of some of the best deals available in their lifetimes.’

      I can’t interpret this in any way that makes it correct. Surely the best deals in anyone’s lifetime were when property prices were lower?

      Like five years ago, ten years ago, twenty years ago…right back until the day they were born (with a few short-lived exceptions like 2008).

      After all, if property prices always go up in the long-term, deals were (be definition) always better in the long-term past.

    • Good points Peter, although I would suggest that the only thing with more concerning long term prospects than Australian housing stock may just turn out to be US treasury bonds!

  8. “If you think about it though, in normal times, it doesn’t make a whole lot of sense to pay a dividend to an investment in the hope that it’s price will increase. ”

    Genius! I never thought of it that way, but it’s exactly right. Who in their right mind can claim to be an investor if they are paying a dividend TO their investment??

  9. This is the usual daily dose of intellectualy barren rubbish…

    http://www.news.com.au/money/property/australians-still-nurture-home-ownership-dream-despite-massive-hike-in-house-values/story-e6frfmd0-1226103146725

    “A study by the National Centre for Social and Economic Modelling says house prices will have to remain flat for another 10 years, coupled with income growth, for houses to be affordable again.”

    NOPE

    The price could fall and become affordable very quickly.

  10. Spell checker

    “in the hope that it’s price will increase”

    Whenever you’re about to type the contraction “it’s”, ask yourself if you’re wanting to say “it is”. If you’re not, then don’t use the apostrophe.

    It’s not really so difficult.

    • Grammar police

      The reason behind this – if anyone’s interested (probably not) – is that the posessive “its” follows the same form as “his” and “hers”. The masculine and feminine posessive pronouns don’t take an apostrophe, so neither does the neuter.

      And I think the reason this seems to flummox so many people is that possessive nouns otherwise do take an apostrophe.

      I post in the hope that an explanation might make the rule seem less arbitrary (and therefore more likely to be remembered). I do realise the site is not really about grammar.

          • Yep – I never did grammar at school and no doubt my grammar is mangled – but I’m in ‘the I don’t care’ category and I don’t judge others by their grammar either.

          • Agree with HnH…grammar is becoming increasinly irrelevant in the age of blogging and text messaging.

            The idea of formality is a joke to my generation. Its about speed, accuracy and original though.

            So you sticklers can waste time picking up people’s gramatical errors, I will spend my time improving my understanding of the world

        • I judge. It isn’t that hard to get it right. I also cringe when I am told that a house is in a “sort after suburb”.

          If your job is to market something (whether online or not) then part of the job description is to proof read, spell check, and generally ensure that the presentation does make the buyer laugh so hard they foret to buy.

          Comment wise- lack of grammar awareness just makes me discount the opinion a little, on a varying scale depending on the number of issues.

      • Fabian Aldersey

        Obviously some people care – they’ve taken the time to point it out.

        One I’ve seen a few times recently is the use of “throws” instead of “throes”.

        Sure, we can all work out what is meant, but at watt point do wii say sumthing?

    • I apologise for my on going abuse of the english language.

      I blame it on the rubbish education system, my own lack of interest in the written word as a child and the fact that I tend to write these things somewhere around midnight.

      I will try harder in the future and also will be writing a terse e-mail to my editor to lift his game 🙂

    • Another rubbish infomercial! They should at least have the decency to place the word “ADVERTISEMENT” in bold type at the top of the page instead of passing this woft off as journalism.

      Besides, I’m not taking property advice from anybody incapable of discerning the difference between the words “wows” and “woes.” Using “wows” suggests that the world is having a whale of a time at present, which is obviously not the case.

      As “one of Australia’s leading experts in wealth creation through property”, I find it telling that the best he has to offer as a go forward position is to deny reality…makes me think that his original strategy of buy big, leverage up, deduct everything and hang on for the ride was not exactly wisdom of the ages.

      By this definition anybody blessed with dumb luck could well be considered an expert!

  11. Yardney must’ve closed on another IP just before the CPI numbers came out. His “personal power” spruiking sounds particularly hysterical.

  12. Sandgroper Sceptic

    Actually this is a good sign. If that is the best the property bulls can muster then we are probably entering the acceptance phase. Yardney will probably stay in Denial for a few months or years longer.

  13. What can I say?,but, Mr Yardney,you need to quit your job,and get into stand up comedy.Your funny!!!

  14. Some property investors probably do own the right kind of assets that are making them wealthier. These would be respectable houses purchased 10-15 years ago or more, paid off and generating rental returns. These are the only property investors still getting wealthier AFAICS. It’s impossible to get into the “game” now as it’s a losing proposition with no capital growth in sight.

    • An excellent reminder!

      Approximately a third of Australians actually own their own homes (i.e paid off), another third are paying them off (i.e. bank owns them) and another third are renting (i.e. lessor is paying it off and bank owns them).

      So, the banks own 2/3 of all Australian homes. Rejoice :).

    • Which is why it’s not too hard to forgive the debt if we get into a debt deflation funk.

      Nationalise the banks. Wipe out the debt (and shareholders and foreign holders of debt, and the AUD).

      Chop the banks up into smaller, defined structures (i.e business only, commercial/trading only, building society only) and privatise.

      Start again. In theory.

  15. Does this guy think he can will the populus into making him some more money via some crappy pep talk?!

  16. “Housing investment over the last decade has slowly evolved into a model based purely on negative gearing and capital gains. This has worked very well for many people and has been a successful model for wealth creation for an entire generation”

    That wealth is only there on paper and that generation hasn’t crossed the finish line yet…

    They’re all holding on to their properties to fund their retirement, perhaps only to find out prices will either have crashed by then or will crash by then simply because of the influx of properties onto the market.

    Does that make me feel happy? No, it doesn’t. It’s sad to see people having to scramble to find investment opportunities just because there’s no decent pension scheme.

  17. “I’ve decided that I’m not going to participate in the property downturn and I would like you to join me.”

    This incredulous ostrich style head in the sand mentality is a classic example of the defence mechanism psychotic denial. If I close my eyes it won’t happen!

  18. It just occurred to me that MY is giving a motivational speech – it’s the half-time coach’s pep talk when the team is a couple of goals down, the interchange bench is out of action with injuries and you’re up against a completely unpredictable opponent.

    In spite of his insistence that I am my own greatest asset, I somehow don’t think I’ll be asking the coach to put me back in the game anytime soon!

    • anyone thats played rugby league or union: you are getting hammered, they score another try and your in the in-goal…

      “come on guys its nil all”

  19. Interesting how we see the same thing and have a different view.

    Some people see what’s happening around the world and feel a victim and blame others.

    What I read in this is “you” are in control of your own destiny – be the pilot of your life not a passenger.

    yes it’s a bit of a pep talk, but I like to feel I have some say in what’s happening to me – how I think and how I handle what’s happening in the world