Tuesday, 18 July 2017

Shoe shiner story and a house of cards

In the last couple of days, as well as having a look at financial page headlines, and reading articles, I have been updating myself on property market sentiment.  One of the easiest ways to see how market sentiment is going is to read posts on property investment pages.  Another is more obviously to talk to people and attend open homes, and look at property with a local real estate agent you trust and/ or someone who is well established through good and bad property markets.  Additionally staying up to date on sale prices, sales volume for a suburb and rental demand paint a picture of market sentiment.

My current understanding of the present sentiment is that it is showing intense in patches and distress in others.  I do think the market sentiment is beginning to go negative and some key suburbs with traditionally depressed prices are beginning to discount.  It's hit and miss though, some popular suburbs are discounting more than traditionally lower socio economic suburbs that are increasing a little.  The mania where everyone thinks they can be an investor and make money with real estate reminds me of the famous story of the shoe shiner, the stock market and the great depression.  It makes fascinating reading:
http://archive.fortune.com/magazines/fortune/fortune_archive/1996/04/15/211503/index.htm

I can not believe how many people walk into property "investing" (or more accurately spending money) with no understanding of housing, legal issues, potential pit falls.  The sheer numbers of people that want to put their house and home on the line is gobsmacking.  There is not sense of fear, or risk, and at the moment unless buying a house I would not touch renting with a barge pole.  Even buying a home to live in is fraught with risk and tax obligations.

The lack of fear, and knowledge is one thing, but the inability of many of these people to make decisions for themselves and their so called business is mind boggling.  If you can not make a decision, and you do not understand the pros and cons of a decision, I think investing in anything is sheer insanity. 

Dare I point out the obvious, taking out a loan for a second house, is not investing.  Taking out a mortgage is not exciting.  Taking out a mortgage is a debt, not an investment.  Until you make a profit on a house, or anything else, there's nothing to be excited about.  Also you earn nothing because the valuer or metric online says your house is worth 50K more this year.   You only make money from a house when it's in your hot little hands.  You might as well award yourself 50K monopoly money and get excited about that!

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