We'd like to remind Forumites to please avoid political debate on the Forum... Read More »
Debate House Prices
In order to help keep the Forum a useful, safe and friendly place for our users, discussions around non MoneySaving matters are no longer permitted. This includes wider debates about general house prices, the economy and politics. As a result, we have taken the decision to keep this board permanently closed, but it remains viewable for users who may find some useful information in it. Thank you for your understanding.
Housing market a 'time bomb', says investment legend
tommy75
Posts: 583 Forumite
THE Australian and British housing markets are the last two bubbles left in the wake of the financial crisis, and it is only a matter of time before they crash, warns legendary US investor and co-founder of global investment management firm GMO, Jeremy Grantham. Mr Grantham famously reported a year before the global financial crisis: "In five years, I expect that at least one major bank (broadly defined) will have failed and that up to half the hedge funds and a substantial percentage of the private equity firms in existence today will have simply ceased to exist".
He said yesterday that Australia had an unmistakable housing bubble and that prices would need to come down by 42 per cent to return to the long-term trend.
"You cannot possibly miss it," he said.
"The price of housing typically trades about 3.5 times of family income and in bubble it goes to 6 or . . . 7.5 (times).
"Australia is having one now. You are at near 7.5 times family income . . . which suggests you are twice the size that you should be."
GMO is one of the biggest investment management firms in the world, with about $106 billion in funds under management, and is considered to be an authority on asset bubbles.
Mr Grantham, who is in Australia to meet with GMO clients in Sydney and Melbourne this week, said any bubble could be an exception to the rule.
"Bubbles have quite a few things in common but housing bubbles have a spectacular thing in common, and that is every one of them is considered unique and different," he said.
As an example, he cited the British housing market bubble of 1989. At the time, he said people dismissed the bubble because there was no more rezoning, creating a land shortage and as such, they believed prices would rise forever.
"Seven years later, in 1997, they hit the lowest multiple of family income since the record books started in 1945. It's always the same old argument, they are not making any more land."
In Australia's case, Mr Grantham described the housing market as a "time bomb" just waiting for interest rates to increase and become impossible to support.
Since last October, the Reserve Bank of Australia has raised the official cash rate six times. The rate is now 4.5 per cent.
If the Australian housing market did not return to the normal multiple of family income, he said "it will be the first time in history."
"Sooner or later, the rates will go up and the game is over."
http://www.theaustralian.com.au/business/housing-market-a-time-bomb-says-investment-legend/story-e6frg8zx-1225880119320
He said yesterday that Australia had an unmistakable housing bubble and that prices would need to come down by 42 per cent to return to the long-term trend.
"You cannot possibly miss it," he said.
"The price of housing typically trades about 3.5 times of family income and in bubble it goes to 6 or . . . 7.5 (times).
"Australia is having one now. You are at near 7.5 times family income . . . which suggests you are twice the size that you should be."
GMO is one of the biggest investment management firms in the world, with about $106 billion in funds under management, and is considered to be an authority on asset bubbles.
Mr Grantham, who is in Australia to meet with GMO clients in Sydney and Melbourne this week, said any bubble could be an exception to the rule.
"Bubbles have quite a few things in common but housing bubbles have a spectacular thing in common, and that is every one of them is considered unique and different," he said.
As an example, he cited the British housing market bubble of 1989. At the time, he said people dismissed the bubble because there was no more rezoning, creating a land shortage and as such, they believed prices would rise forever.
"Seven years later, in 1997, they hit the lowest multiple of family income since the record books started in 1945. It's always the same old argument, they are not making any more land."
In Australia's case, Mr Grantham described the housing market as a "time bomb" just waiting for interest rates to increase and become impossible to support.
Since last October, the Reserve Bank of Australia has raised the official cash rate six times. The rate is now 4.5 per cent.
If the Australian housing market did not return to the normal multiple of family income, he said "it will be the first time in history."
"Sooner or later, the rates will go up and the game is over."
http://www.theaustralian.com.au/business/housing-market-a-time-bomb-says-investment-legend/story-e6frg8zx-1225880119320
0
Comments
-
Ah yes, the same legend that predicted a stock market rally the like of which the world have never seen a year ago.
20% off the FTSE recently?0 -
But which one will be first?
I say they will have a crash down under before us, we are always last with everything.
"Sooner or later, the rates will go up and the game is over."
They will go up in Oz first then the UK will follow.0 -
Blacklight wrote: »Ah yes, the same legend that predicted a stock market rally the like of which the world have never seen a year ago.
20% off the FTSE recently?
No there was a rally, he was right. Maybe you missed it.
But yes you are right the stock market is only going one way from now on and it isnt up.0 -
Also here: http://www.dailytelegraph.com.au/property/australian-housing-market-a-time-bomb/story-fn3006z3-1225880221197
Base rate is 4.5% and rising in Austrailia is it not?0 -
Strange to see the same two articles from http://www.theaustralian.com.au/busi...-1225880119320 posted on the same day.
this is being discussed (albeit with an incorrect title) over here
https://forums.moneysavingexpert.com/discussion/2575141:wall:
What we've got here is....... failure to communicate.
Some men you just can't reach.
:wall:0 -
the bubble has already started to burst round my way. id say itll ripple out from here to the rest of the country very shortly.THE Australian and British housing markets are the last two bubbles left in the wake of the financial crisis, and it is only a matter of time before they crash,0 -
Dirk_Rambo wrote: »the bubble has already started to burst round my way. id say itll ripple out from here to the rest of the country very shortly.
I get the feeling your area will never rise in prices.Dirk_Rambo wrote: »theyve already fallen by more than 28 per cent round my way. so if it hasnt happened round your way yet then its only matter of time before it does.
I take it you are in Northern Ireland? Silver prices to the same when you joined, I hope you wrote an email to MrEnglish moaning about after the £ gaining pace against the $ you are actually worse off now.;)0 -
I get the feeling your area will never rise in prices.
I take it you are in Northern Ireland? Silver prices to the same when you joined, I hope you wrote an email to MrEnglish moaning about after the £ gaining pace against the $ you are actually worse off now.;)
Dirk's from West Bromwich although he now denies it as it was proven his area is not as he claims it to be
:wall:
What we've got here is....... failure to communicate.
Some men you just can't reach.
:wall:0 -
-
speak of the devil :eek:IveSeenTheLight wrote: »Dirk's from West Bromwich although he now denies it as it was proven his area is not as he claims it to be0
This discussion has been closed.
Confirm your email address to Create Threads and Reply
Categories
- All Categories
- 350K Banking & Borrowing
- 252.7K Reduce Debt & Boost Income
- 453.1K Spending & Discounts
- 243K Work, Benefits & Business
- 619.9K Mortgages, Homes & Bills
- 176.4K Life & Family
- 255.9K Travel & Transport
- 1.5M Hobbies & Leisure
- 16.1K Discuss & Feedback
- 15.1K Coronavirus Support Boards