Mar 5, 2018
We are heading for the biggest crash in Australian
history according to Harry Dent.
Crypto currencies are about to fall, the stock
markets will crash and home values in the big cities are
about to halve.
Is this really true?
Today, I speak to Harry Dent to find out
what he really thinks.
I also speak to Dr. Andrew
Wilson, and give you my thoughts on what’s
ahead.
Harry Dent Says Australia’s Property Bubble Will
Burst:
Here are some of the things Harry Dent said:
- What’s ahead is a global crisis of the developed world -leading
to a worse depression than the Great Depression of the 1930's.
- Bubbles cause an economic reset, but once that’s
over the markets can boom again.
- The economies of many countries in the world are slowing.
- Demographics will tell you when the different generations are
going to spend money and when the slow down
- China has the worst bubble in the world. They are also
Australia’s biggest trading partner.
- Australia’s real estate prices are the second highest (compared
to income) in the world.
- We have created an artificial bubble because so much money has
been injected into the system by governments.
- Bubbles build predictably, what’s harder to predict is when the
bubble is going to burst.
- Stock bubbles crash twice as fast as they build.
- When bubbles burst they burst by 70, 80, or 90%. Half of this
comes in the first 2 ½ months.
- Bitcoin has been leading the stock market crash by about two
months.
- Businesses are better off leasing rather than owning their
premises, unless it’s a totally strategic move to own the
business.
- You should take some equity from your real estate and short the
stock market to hedge against downturns.
- A typical real estate bubble is six years up and then six years
down because people don’t sell immediately when the bubble
crashes.
- Values aren’t going to crash as hard in Australia as in
other countries.
- Things that will cause the bubble to burst include when US real
estate starts to go down and bitcoin crashes.
- The high-end property markets are what seem to be cracking this
time around.
- The most overpriced markets in the US are San Francisco and Los
Angeles.
- Once the bubble bursts, Australia is best positioned of all the
developed countries to recover because of its proximity toAsia
- Harry’s new book has a whole new bubble model that looks at
more than demographics.
Michael’s Take on What Is Going On:
- Investopedia defines it as:“A
run-up in housing prices fuelled by demand, speculation and the
belief that recent history is an infallible forecast of the future.
Housing bubbles usually start with an increase in demand in the
face of limited supply which takes a relatively long period of time
to replenish and increase. Speculators enter the market, believing
that profits can be made through short-term buying and selling.
This further drives demand. At some point, demand decreases or
stagnates at the same time supply increases, resulting in a sharp
drop in prices - and the bubble bursts.”
For mine, bubbles are also accompanied by easing of lending
criteria so that loans are easily obtained leading to rapid rises
in housing credit, with many people who can’t really afford to take
on loans speculating and overcommitting themselves.
- Do we have some of the features of a bubble at the moment?
Yes.
- Are we in a bubble? The answer is
no.
- Property values are not about to collapse.
- Rising house prices on their own do not cause a bubble. The
rise has to be followed with an increase in, speculation, borrowing
and leveraging. This makes the market fragile and unstable.
- If anything, our banking system has become more stable than it
has been for decades. With increased regulations by APRA and the
RBA
- We’re heading into this stage of the property cycle in the best
shape that we’ve been in in a long time.
- Most Australian economist do not believe that the Australian
market is headed for a crash.
- For the markets to crash, we need desperate sellers who are
willing to give their property away for nothing, with no one there
to buy them.
- We need one or more of these things to occur for a property
crash to happen:
- A major depression,
- Massive unemployment,
- Exceedingly high interest rates, and
- Too many properties available.
Dr Andrew Wilson Bursts Dent’s Bubble:
Here's what Andrew had to say:
- Housing prices are NOT going to drop 40% in value.
- We probably shouldn’t even be responding to these outrageous
predictions.
- It’s very unlikely that we’ll see any house prices lowering in
Melbourne and Sydney this year. Demand remains strong in both of
these markets.
- New household formation is about 1,500 per week in
Sydney. This translates into the need for 75,000 new
dwellings each year.
- Also 8% fewer homes were approved for building this year in
Sydney.
- The key catalyst for the housing market are interest rates.
Currently, they are going nowhere.
- We have the near lowest income growth that we’ve ever had.
Without income growth and low interest rates there is no capacity
to push prices higher.
- A challenge for policymakers is that middle and low
income workers expenses are rising faster than their incomes.
- High debt and low interest rates has constrained property price
growth.
- It’s been over seven years since Australia has had an increase
in interest rates.
- Interest rates should remain flat for at least
another year.
- We have a resilient robust market. The banks are much healthier
now than they were two years ago or when we had the GFC.
Links and resources:
Quotes:
“As an investor, I believe it’s important to listen to others
rather than to just move forward with confirmation
bias.” Michael Yardney
“Debt bubbles cause financial asset bubbles and at some point we
have to have a reset.” Harry Dent
“We’re going to see a consolidation of price growth in all of
the capital city markets. This is a product of flat interest
rates.” Dr. Andrew Wilson
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