It's Different This Time - Part Ii - Oestrogen

[boom_and_bust]

Hi,

While I am rock solid, assuredly convinced of an impending correction, I do search all sides of the debate. I've lived and traded through two before and this one feels no different at all from the 'gut' level. But, here are a few of the lastest, academics counter arguments I've digested recently. Two in collaboration with a UK economic academic (John Smullen) available through the capco institute (you may have to register but it is free) and a third on the Australian housing market by an Australian governmant policy body. It is a good research on possible factors that are historically unique to the current bubble. Demographics is strongly sited as one but chillingly, there is identifiaction of concerted government policy to shift personal debt and pension funding issues onto the individual in deliberate support of the bubble, the housing market being the primary route. (Very frightening if true - government interference has almost always lead to catastrophie in markets, historically). I personally think the demographics will shift the argument the other way in the long term (who will buy larger houses when the demographics are heading towards lower or no families for lower generations and falling populations, which in turn have always led to lower economic growth and wealth). It is not bear-friendly although I notice the get out clauses in all the 'soft-landing analysis' - that a sharp correction could occur at any time. The UK is also cited as the riskiest housing market in Europe. 'Bear' in mind, it is very rare that anyone predics the exact timing of corrections with any great regularity or consistency. If they could, there would likely never be boom and bust cycles!

Residential Property – What Role in Individual Wealth and Investment?

http://www.capco.com/uploadedFiles/Members...5/j15_art19.pdf

Conclusion and further research

The theme of this paper is that the risks of domestic house

purchase are low relative to other types of investment available

to the individual. As such, property plays and will continue

to play a vital role in the wealth of individuals. People are

interested in avoiding losses and domestic house investments

have lower incidences of losses than other types of investment.

We considered the Western European housing markets

and identified the U.K. as the country in which houses were

most likely to fall in price. Subsequently, we compared its current

situation to that of when house prices last fell. The over-all economic

conditions and the individual peculiarities of the

market indicate that a sustained major fall in nominal house

prices in the U.K. is highly unlikely. However economic history

suggests one should never say never, and we are haunted

by the ghost of Irving Fisher, the greatest U.S. economist of

his generation who was quoted by the New York Times on 22nd

October, 1929 in a headline ‘Fisher Says Prices of Stocks are

Low’.

A further conclusion is the need for better information on

over and undervaluation of residential property. Given the

depth of analysis and interpretation of other markets that

form the components of wealth, such as equities and pensions,

the property market is often mere guesswork.

The European residential property market: A series of structural anomalies

http://www.capco.com/uploadedFiles/Members.../j14_art_12.pdf

Further research

This is an initial paper in a project to increase understanding

of housing markets in Europe from the perspective of regulators,

businesses that provide services to the market, and

house purchasers. The two main themes of the research will

be, understanding the nature of the different European markets

and the dynamics of their market behavior. Its context is

the increasing importance of housing in the finances of individuals.

The demographic crisis facing Europe in terms of an

aging population will mean that governments devolve the

risks of ageing to private individuals and thus their welfare will

depend more heavily on the behavior of their major asset

housing.

After the House Price Boom: Is this the end of the Australian dream?

http://www.cis.org.au/Policy/autumn05/polaut05-1.htm

Conclusion

The latest housing boom has left new and recent buyers stretched and vulnerable. There is not a lot that government can do about this, for the key factors in the boom have been the shift to low interest rates and changing demographics, and both of these are beyond the control of our politicians. But governments have had some influence on house prices as a result of their tax, spending and regulatory activities, and there is a strong case for reviewing policies in these areas.

The argument for abolishing the First Home Owner Grant seems compelling. There is also a pressing need to increase the release of new development land, and to change the system for financing new infrastructure. Tax changes too are warranted. In particular, negative gearing could be ended in return for a radical reduction in marginal income tax rates and a long-overdue simplification of the personal tax system.

Capital gains arising from home ownership are a major vehicle of wealth accumulation for ordinary people, but they should not be underpinned by governments at the expense of those still trying to gain access to owner-occupation.

Edited January 8, 2006 by boom_and_bust

[Yankee]

and if you do feel insulted by reading the posts. get over it. its only a forum.

its all pointless. you will still have to die at some point.

Are you talking to me? I never said I was insulted by any comments here. I'm just annoyed by some of them.

That's okay, though. Most of the time, I just ignore them.

And I can't stay annoyed at the Chuz for long. If I recall correctly, he's made a couple very endearing comments about his mother. Men who are kind to their mothers also tend to be kind to their wives. (There's a stereotype for you.) If I had another daughter, I'd send her his way.