Bouris: Property to boom for five years

Manna from heaven for property investors on Saturday morning with Mark Bouris (part owner of mortgage house, Yellow Brick Road), predicting “hot” property markets for five years and appearing to endorse young folks going 100% long house prices on national TV.

There’s no mention of falling Chinese growth, mining investment, current account deficits, or limits to lending here. No mention of risk at all, except if you miss out and overpay later. Just the falling interest rates that result, which always cause property prices to rise!

ALWAYS, damn it!!!

David Llewellyn-Smith

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Comments

    • I don’t know is my answer.

      Which is one reason why I have doubts.

      Not to mention the capex cliff.

      Just viewed that stuff: It’s tragic. I would ignore.

      • Tiliqua scincoidesMEMBER

        I stopped reading Money Morning a while ago now. They seem to be always sprinkling a product and I got sick of their obvious bias.

        Have a look at what they were saying about gold only weeks before the recent crash.

        On another note, I was at an auction on the weekend where a property sold for around $80k over what anyone was expecting. The lack of supply in Sydney seems to be making people desperate…

      • Or maybe this time a genuine crash is going to happen. Isn’t it strange how loud are they, the housing bulls?

      • What a fabulous looking man, how do the MB team think they can compete with that kind of star power?

    • I’m sorry, I stopped reading at – “Phil says this next one will be ‘a doozy’… an event that doesn’t just emulate but eclipses the boom of 2003-2010.”

      • But what you Gent’s do not seem to realise is that if China tanks, gold goes south, dollar falls – as MB clearly shows, the POWERS that be will stimulate growth into what they know Aussies and all the new immigrants want and that is PROPERTY. Did anyone here pick after the 2008 crash that property would rise nearly 25% in two years? The same will happen again with a GFC2.

      • C.M.BurnsMEMBER

        I don’t agree Neil. GFC round 1 Australia was very much the exception in that the Govt tried and succeeded to prop up the economy through FHB grants etc (as well as other massive short-term incentives). They were only able to do this because of the mining boom and govt surplus. they had ammunition to use.|

        GFC round 2 will see Australia with an awful lot in common to everyone else. No mining boom to drive revenues; an non-export mining sector that is in far worse condition (due to the mining boom); a current and structural deficit; unemployment is already growing and there is very little ammo left in the interest-rates chamber.

        Throw in the qualitative effect that Australians are more educated now insofar as they realise that they are not totally immune to the global economy; and understand that falling interest rates are a result of bad news (and therefore a bad sign in the long term). This is evidenced by house prices falling in the last month.

        If GFC round 2 does happen. Hell, we only have to continue our current path (ie unless the global economy actually turns around and starts to seriously grow) we are all about to find out that we are exactly the same as every other developed nation. We just arrived late to the ‘party’.

      • I am hearing you C.N.Burns; but we have a stack of ammo that the rest of the western world does not have, that is our Government debt ratios compared to GDP are one of the lowest in the developing world (around 30%) compared to the 110% for UK & USA and 240% for japan, so PM Abbott will stimulate like Rudd…….probably directly into building infrastructure and housing.

      • AB – whichever banks are left standing will have to lend to keep it all going. The too big to fail banks will not be allowed to fail and QE to infinity and beyond will take place (ie continue)……after the initial log jam of no lending, all the major players (nations, states & corporations) will get the banks to release credit once again. I do not agree with this, but the whole world economy would collapse otherwise and the powers that be know this.

    • rob barrattMEMBER

      Absolutely R
      Why just the other day I shepherded by 92 year old grandmother into our local TBTF bank to sign up for a 30 year mortgage. There’s nothing wrong with a little optimism…

    • darklydrawlMEMBER

      A fair question. I always try to consider that I am wrong and someone else is correct. On the other hand, what is going to drive these price rises.

      In Sydney there seems to be supply constraints, but not so in Melbourne.

      I can understand that cheaper credit is probably having an effect here, although that idea is like giving a drunk more alcohol (or at least that is what it feels like to me).

      Even so, this economy is so strange to me. So many other indicators are seemingly poor. Just from this site alone this morning (and I do read other views as well).

      – Business Indicators to hit GDP
      – Retail sales remain soft in April
      – ANZ job ads hit new low
      – China steel PMI signals more pain
      – Manufacturing recession rolls on

      And jobs in Melbourne at least continue to dry up it seems on across many industries.

      Yet, house prices seem to be clawing back some traction.

      Confused. Yeah… You could say that. On the other had I totally believe fundamental economics 101 always wins in the end which means housing (and employment) are going to get hammered in this country. When, not if, is what the most of the data is suggesting.

      Open to other ideas….

      • A key issue that most of the commenters on Macrobusiness have forgotten about is the overall level of risk in the economy.

        20-30 years ago the perceived level of risk to the normal person (think unemployment, inflation, budget deficits, Australia’s future prospects, etc) was pretty high. By contrast, today’s economic situation is pretty solid – and it’s only because you’ve been exposed to a very robust and high performing economy for so long that the forthcoming economic scenario (manufacturing, China, jobs ads, etc) appears worrisome and ‘confusing’.

        If you ‘time-machined’ someone from 20-30 years ago to today and asked them what they thought about today’s economy I think it would be extremely favourable. And they probably wouldn’t feel all that concerned about Australia’s future prospects.

      • Kocaccm,

        Perhaps more important than the actual level of risk is the perceived level of risk.

        Central Banks have been working flat out since 2008 to counter perceptions of higher risk.

        Low interest rates mean low risk.

        Of course they have not been as successful as they hoped and near ZIRP interest rates and QE have not proved effective but that could change.

        If finally people respond to the bait and start making decisions reflective of a perception of low risk things could take off.

        At least until the Central Banks try to turn down the volume by increasing the perception of risk with higher rates.

  1. “falling Chinese growth, mining investment, current account deficits, or limits to lending”

    I m wondering how the Kiwi manage 20% growth with an economy that looks pretty much like the Australia’s one for next few years.

    and here we have plenty of smsfs ready to ditch stocks for the stable yields offered by (low leveraged) properties as the retirement get closer.

      • you re right 15% for Auckland, 10% for the whole NZ, but the trend is fast accelerating, if that continues they ll be a 20%pa pretty soon.

      • They’re lining up Macroprudential now and it will level off.

        Same will happen here in the unlikely even that Bouris right

        Go talk your book elsewhere, Dam.

      • hopefully it will level off as it s not sustainable, but the macro talk is just that talk, you know it.if that level off it will not be thanks to the reserve bank.

        thanks to these crazy prices.I ll need to help some close relatives to buy an house there, and I m not too happy about it.

        talk my book, not really, i ll be much better off if the last year conditions come back, I dont leverage much, a depression would be great for me, it s not easy to buy now ( compare to last year).99% of the posters here are/were property bears ( and wrong therefore), I dont think one or two more bullish poster change much the balance, you re safe as bears’ blog.

      • McPaddyMEMBER

        I don’t get it, dam. How have the property bears been “wrong” for the past few years? It couldn’t be a yield play, as the net yields on property are pitiful. It couldn’t be a capital gains play, as there’s been very little action in that part of the market unless you’ve been lucky enough to pick the exact bottom. It couldn’t be a liquidity play, for obvious reasons. It couldn’t be an inflation protection play, as we’ve had very little of it. So what is it? If you’ve happened to make a couple of good investments in the last few years that you’ve actually realised at a good profit (and that last point is obviously key), that’s terrific, but similar (and much better) could have been done in just about any asset class with skill, luck and hard work.

        I’m wondering if you’re like my parents’ BB friends who see a nominal gain on their capital that was locked up over a long period of time, forget transaction costs, forget maintenance costs, forget time (management) costs, forget opportunity costs, forget finance costs and trumpet their success even though they’ve lost money?

      • This is just insane, if this is sustainable, there is nothing wrong with ANY “Ponzi” scheme.

        Tell me please, what is the difference between Ponzi schemes and house prices, that makes perpetual real inflation in the latter “sustainable”?

  2. Heard from another contrarian source that there is a 14-year house price boom coming – based (as far as I can tell, since the actual report wasn’t put out) almost solely on an apparent 14-year boom and 4-year bust cycle that has occurred for over 100 years or so. Apparently, the 4-year bust is nearly over and the 14 year boom is about to start.

    And, mind you, this is a mob that has been pretty anti high house prices till now, and anti the housing ‘talk it up’ industry.

    Can’t see how this adds up in the light of the economic conditions in the current.

    Has anyone else heard of this 14 yr – boom 4 yr-bust theory?

      • Obviously he lacks enough readers and has to shock them with something very new and controversial. The only cause of housing going up in Sydney could be China buying properties here like in USA.

      • Let me guess. Kris Sayce from Money Morning?
        Contrarian or presstitute. You be the judge.

    • reusachtigeMEMBER

      “this is a mob that has been pretty anti high house prices till now” – yes, and they’ve got their calls totally wrong on housing crashing for the last few years so take this “contrarian” advice as a contrarian indicator based on their track-record when it comes to housing.

      .
      Oh, and you wouldn’t have wanted to have invested recently in their small-cap energy stock recommendations, you would have been totally caned! Like I said in another post, grain of salt with this mob, really!

      • reusachtigeMEMBER

        Everything from “that mob” is written like an infomercial. “You too could gain xxx.xxxxxx% if you follow the steps outlined in this ‘must not be missed’ publication”.

      • As a property investor I am more worried by Money Morning’s glowing endorsement of property than I would be if they had panned it.

        So far they have been the kiss of death for almost everything they have recommended since the glory days of Gas stock appreciation.

        I think that it’s a desperate grab for attention.

    • There are indeed “property cycles” of definable length.

      What has marked this last one is unprecendented inflation.

      I have accepted, reluctantly, that it is possible for a national economy to shift structurally from a low-land-rent one to a high-land-rent one due to regulations – and large capital gains can be made during this phase.

      I reluctantly accept that UK-level house prices can become a long-term norm, accompanied by very high “land rent” per square foot and shrinking house and section sizes.

      I do NOT accept that the unprecedented level of inflation that marked the one-off structural shift, can be repeated…!!!

      I also do not accept that episodes of inflation can repeat and repeat with nothing more than a “plateau” between them. There has to be “busts”, whether it is a “bust” to a normal median multiple of 3 or a NEW (high land rent) “normal” median multiple of 6.

      I do not accept that median multiples can bubble from 3 to 6, and plateau; then bubble from 6 to 9, and plateau; then bubble from 9 to 12, and plateau; and so on ad infinitum.

      This whole thing is evidence of how insane human beings can be when a mania of greed seizes them.

      I furthermore argue that the UK economy is showing us about now, the end-game of decades of cancerous growth of economic land rent. It becomes the largest single cost to the entire economy, which has to have consequences. Your economy does need to have a heart and lungs and muscles – it cannot be 90% cancer and still be an economy.

    • That’s related to “Sunspot Cycle”. Ha Ha what a joke! Probably they’re doing “Remote Viewing”?

  3. Alex Heyworth

    If by “property is going to boom” they meant “property is going to blow up” they might be right.

    The right analogy for the current bubble is probably the late 19th century Melbourne bubble. Perhaps we have not reached the blow off stage, in which case property might indeed boom short term. The risk in being involved is extremely high, however. If you can’t find a greater fool, you are the greater fool.

  4. I think Mark Bouris is a total disgrace and shame on him for giving advice without any evidence to back it up. No charts or anything. Shame on him again for advising young people to load up on debt just before the capex cliff.

    Why are so many people so obsessed about making money out of buying houses, sitting on them then flipping them to make money? Where is the productivity in this? New ideas? Inventions? Who wants to be an entrepreneur? Doesn’t it all seem pretty silly? What happened to the 3 human needs of food, shelter and water?

    • Forget about them, people are making money, lots of money and their best quality is their quantity, isn’t it? Maybe up to some stage…. who knows……

    • Its a government backed mechanism – Money gets extracted from the tax base to “investors” via negative gearing LOSSES. Not hard to see that fundamentals have nothing to do with it…

      They say you don’t fight the FED.

  5. If we are entering a 14 year bull cycle and prices double every 7 years then in 14 years prices will be four times their current level. We will have a circa $6 trillion housing market. God help our society if that happens.

    • If we had Zimbabwe-style inflation, then it might. $6 trillion won’t be much of a value if we’re be using $1000 bills to wipe our rear ends.

  6. ceteris paribus

    Shocking. And very sad.

    Everything is salesmanship. Where is the professional duty of care for our young families?

    • Yeah, the old civilisational “compact between generations”?

      This is a major sign of civilisational decadence.

    • The Patrician

      Between Bouris and Waterhouse and others, Channel 9 has prostituted its content to a level previously only seen on the home shopping channel. The Saturday morning, pre-auction timing of this spruik is pure pre-game “Waterhouse” for houses. The 9 business model has been partially blocked for gambling on sport, lets try spruiking YBR cheapdebt-fuelled gambling on house prices.
      The “advice” that property is most affordable when interest rates are lowest is deliberately misleading and potentially actionable. As Janet (where is she?) has said previously “cheap/easy mortgage debt = expensive houses

  7. And there’s the Ch 9 talking head advising not to borrow too much as rates can rise. Come on – that’s good prudential advice.

  8. No doubt part of the YBR sponsorship deals with Channel 9.

    You can always tell a great salesmen by the way they can lie (or at least misrepresent the truth) while looking totally genuine & empathetic

  9. Does anyone else feel that calling him an ‘entrepreneur’ should be offensive to real entrepreneurs?

    • Yes. When I think of an entrepeneur, usury, ponzi schemes and ferally pricing people out of a basic right isn’t what I think of.

      If there is another boom as big as the 2003-2010 one, (or 1998-2010 in Sydney), I’ll be joining the green card lottery.

      A part of me is glad I don’t have kids, are we going to hand them towns like Shanghai or something? Where a basic unit is 42 times wages or so? As a society we’re not much better than heroin dealers.

  10. Ronin8317MEMBER

    Why boom for 5 years? Because the loan period for an ‘interest only’ investment property loan is normally 5 years…

  11. I can’t resist this:

    Quadrant Magazine, April 2013

    Peter Ryan, on “The Land Boomers” by Michael Cannon
    Melbourne. University Press, 2013; revised, print-on-demand edition, 409 pages, $34.99

    It was my privilege, over almost half a century, to have followed in intimate detail the triumphant “best-seller” course of one of the most remarkable Australian books of all time: The Land Boomers, by Michael Cannon. No full understanding of the concluding decades of the Colony of Victoria, nor the subtler character even to this day of its jewelled city Melbourne, is possible without some apprehension of the land boom era, and of its appalling “bust”.

    For reasons which escape my understanding, the publisher over recent years has ceased to put copies into the bookshops – “Out of print”. More reprehensibly, the author himself seems to have been left in the dark about the intended future fate of his great work.
    No matter. The publication last month of a fresh edition, liberally illustrated and with a new Author’s Introduction makes us look ahead rather than backward, not so much a happy ending to The Land Boomers as its resurgent continuation.

    Michael Cannon tells his absorbing, often scandalous story with verve and clarity. We see the respectable middle classes hurling their money away as madly as any drunken sailor, frantic to “get rich quick” through wildly inflating land prices and “development”. We see supposedly upright and conservative bankers and other business leaders throwing caution overboard out of similar breathless greed. Some of these were themselves dupes of the delusion. All too many others were mere brigands in shiny silk top hats consciously setting forth to swindle humbler citizens of their lifetime nest eggs. The Melbourne mood was all wild optimism: “We’re all going to be millionaires! Every blessed one of us!”

    Came the bust. Proudly independent “comfortable” families dismissed their troops of long-serving retainers, and then themselves became dependent on the dreaded “paying guest” to meet their own grocers bills; ordinary workers were simply sacked in their thousands, starving with their families as they tried to beg bread on the streets, or scavenge among the scraps in Melbourne’s garbage cans. Lacking any system of organised state relief, churches, charities and citizens of good will tried to sustain them. For example, it was recorded that “200 souls were Maintained at Werribee Sewage Farm at an average cost of Sevenpence ha’penny a week”. (One forbears to inquire what they were eating.)

    The land boomers themselves seem to have included a remarkably high proportion of what poet Rabble Burns would have called the “uncommon good”: stern teetotallers, wowsers, sabbatarians, churchgoers, vestrymen, pew-renters, puritans of every Stripe. Their mortification when their bubble burst was extreme, and their efforts to suppress the story strenuous and largely successful. Victoria’s bankruptcy laws were shamelessly rigged so that outrageous defaulters could escape in secret. Honest judges were threatened with removal. Eighty years later I knew two Melbourne scholars of high achievement and blameless academic reputation who would almost blush if the land boom were mentioned; their well-known grandfathers had played an equivocal role in that boom so long ago.

    When Cannon sought help with his researches at the Public Library in 1963 that vast repository could point to no more than a single chapter in H.G. Turner’s conservative History of the Colony of Victoria published in 1904. Only that trace remained about a trauma which had rocked the colony to its foundations!

    The arrival at the State Archives of a series of wooden crates from the Crown Law Office transformed Cannon’s resources. The crates contained dust-coated original records of the Bankruptcy jurisdiction, court transcripts of evidence, old company files and indeed most of the bare facts needed to piece together the tales of horrid fascination which The Land Boomers tells.

    The feat of analysis and reconstruction of all this material would have been a challenge to any mature and hardened research scholar; it was brilliantly performed by a young man who lacked a single hour of research experience or university training.

    The outstanding quality of this “amateur” manuscript was testified by two impeccable authorities: Sir Hugh Brain, after nearly a lifetime experience in the Collins House Group of companies, a familiar with the powerful magnate William Lawrence Baillieu and the Baillieu family interests. Brain said that Michael had got the business side right, and furthermore helped him with additional rare documentation. Then Australia’s pre-eminent historian Geoffrey Blainey pronounced it to be sound and important history.

    With such distinguished support, the manuscript was swiftly adopted for publication by the Board of Management of Melbourne University Press: this despite the unease of the Vice- Chancellor, and murmurs of the risk of the Baillieu family withdrawing its support for the university library and the nascent archives department.

    The book was published in 1966 to sensational acclaim, and a fresh printing was required within days — and then promptly another one — to satisfy exuberant demand. It almost seemed as if the sedulous cover-up of the Edwardian years had bottled up latent curiosity under pressure.

    Hundreds of copies were sold to lawyers summoned to advise upper-crust families on whether they might sue for defamation, or otherwise put Cannon’s “vile book” out of circulation. Over the teacups at Darren Baillieu’s Toorak mansion, council of war was held by the family over how “The Land Boomers” might be silenced or smothered.

    Not one writ was ever issued by anyone, and for about the next forty-six years, through at least ten different impressions and various editions, The Land Boomers has continued to share with its readers its rich freight of wisdom and warning, and the entertainment of a lively, racy yarn.

    The author’s new introduction to the fresh edition enables him to do not only the usual minor corrections and tidying up, but also to deal with one new matter of substance. A Melbourne academic (encouraged by the Baillieu family) last year published a scholarly volume entitled William Lawrence Baillieu, Founder of Australia’s Greatest Business Empire. Says Cannon, the book “seems to me to worsen the case against W.L.’s boom-time activities, making his financial recovery after the crash even more astonishing”. Clearly The Land Boomers still surges with active life. To help modern minds grasp the immensity of the disaster of the 1890’s, Cannon cites the example of Benjamin Fink: when that super-boomer went bung for 1,800,000 pounds, his debts would have been worth some $300,000,000 today…….

      • Alex Heyworth

        Yes. In some areas prices did not recover their former highs until the 1960s.

    • Fascinating.

      Of course, those grotesque mal-investments and capital wasted are now the core of Victorian Melbourne.

      Sydney missed a lot of that boom and as a result its Victorian heritage is a bit shabbier and less impressive.

      A bit like London being littered with the fossils of Empire.

      Lets pass a rule

      If we are going to have an asset ponzi madness lets make sure it looks good!

      • One of the factors I love about the story, is the “don’t mention the bubble and bust in polite society” custom that seems to have prevailed for decades afterwards, and the touchiness even of the descendants of some of the deceased major players decades later, on the subject.

        Peter Ryan is a bit of an old Aussie guru, and I am glad he wrote this review and gave us the benefit of his own background knowledge.

  12. Since there are 22mil of economists in Aus,
    can you tell me if RBA goes to 0.25 quickly, will Bond yelds/mortgage rates follow, and fall below level of official inflaiton? Provided no RBA bond buying happening.

    Can they drive mortgage yield so low to cause another RE rally?

    • At least never on a Saturday.

      Any bearish nonsense is only allowed up to Wed to demonstrate balance.

      From Thur onwards all that is allowed is pure spruik and horror stories about those left behind because they haven’t already bought.

      Duck hunting season starts each Wed – quack quack quack

  13. BubbleyMEMBER

    The property market is insane. The property market is insane. The property market is insane.

    Nup, after all these years I still can’t explain the Australian property market. It avoids all the fundamentals of maths, investment and finance and still keeps going up.

    The only answer must be that it is insane.