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Source – Australian Financial Review.
Well, duh! I mean, what have I been saying in these very pages for over FOUR years now?
However, I’m not interested in trying to show off. I’m quite grateful I found this article, and happy about the timing of it.
Because this article acts as a validation of sorts. Inside what’s written is a litany of succinct points and apparent conclusions about just how home prices have remained so resilient.
And, of course, why they keep rising.
What’s important for you, however, is this. If you apply the lens of the 18.6-year Real Estate Cycle to this type of article, you’ll interpret it in a way almost every other reader will not.
And by the end of this newsletter, I hope you’ll understand just why that simple fact is so critical to changing your view of the world.
So, this article is based upon a world house index report (excl. China). It showed that, for instance, Australian house prices were 5% higher than they were12 months before. American house prices did even better: a 6.5% increase compared to 12 months earlier.
It also uncovered areas where higher interest rates and nominal inflation have been a drag upon land price rises, noting that New Zealand and Canada experienced a 20% fall in prices adjusted for inflation.
From the article. Bolded text is my own.
Yet it is surprising that things have not been more difficult still. Since a trough in 2021, the rate on a typical 30-year mortgage in America has risen by about four percentage points. Rules of thumb derived from the academic literature indicated that nominal house prices would fall by 30-50 per cent.
In fact, they have hardly fallen at all in nominal terms. In real terms (i.e. adjusted for inflation) global house prices are down by 6 per cent from their peak – but that puts them in line with their pre-pandemic trend. The downturn also claims the crown as the shortest ever, lasting just a few months.
Firstly, you need to choose your poison. If you want to view things via either real or nominal terms, you need to be consistent. Why? Well, almost all homes are bought using a mortgage.
If you are using real or nominal terms to determine the rise or fall of land prices, then you must do the same with the loan secured against it. Not long ago, real interest rates (interest rates minus rate of inflation) were below zero! So, there’s that.
But back to the paragraph above. Did ‘academic literature’ prove prescient? Did we see 30-50% fall in values since 2021? Of course not. But who precisely is behind such ‘academic literature’? Read – economists.
You should know by now how to treat their thinking in regards the land markets, yes? Therefore, you should not be surprised that they were wrong by an enormous margin too!
However, the part about the shortest ever downturn is quite revealing. Yes, the downturn (2020 covid lockdowns and subsequent recession) was only a few months in total. Note the consensus at the time though was for a deep and systemic depression to occur.
This downturn, however, was in fact a key turning point of the current real estate cycle. The PSE team even have a specific name for it: the mid-cycle downturn or recession.
In one stroke, it underlines the futility of economists’ forecasts and why they remain so consistently and hopelessly wrong about the outcome of said forecasts.
Let me tell you something astonishing.
I’ve spoken to several current PSE members who used their knowledge of the cycle and it’s timing to not panic during the 2020 recession and instead recognize the truth about what was happening.
They saw it as a unique and once in a decade opportunity to buy property at a severe discount!
Reconcile those actions with the words written from the quoted article above.
It’s one thing to read about surging house prices globally well after the fact.
It’s quite another to be one of the few who captured 100% of those same gains for themselves.
And if you aren’t one of them, then you need to keep reading.
Unless something drastic changes…
Now here’s the other huge assumption that, to be fair, almost all similar articles I’ve read over the last few years make.
And that’s the apparent link between interest rates and land prices. In particular, rising interest rates result in falling land prices.
It is patent nonsense. And not long ago, PSE proved it too. An eBook we produced which covered the last 11 period of US Federal Reserve’s interest rate rise campaigns (since the Second World War) showed that not once did US house prices fall during any of those 11 studied periods.
Something far larger and more important is the cause.
And yet this flawed narrative prevails. This article does touch upon this fallacy on the margins and does a good job of overturning it to some extent. I’d wager they didn’t realize this though!
After making mention that high rates will eventually cause a crash in property markets (more a symptom rather than the cause) there was comment about the US mortgage delinquency rate currently sitting at 1.7%, way below the double-digit rate experienced in the same country during the 2008 crisis.
Which incidentally is something the Eurozone and Australia are seeing too.
So, we can make another educated point here; high interest rates are both not resulting in falling home prices but also not inhibiting mortgage applications.
From the article:
“…applications for new mortgages remain reasonably strong across much of the world, even if they have fallen from pandemic highs.
The National Association of Realtors, an American lobby group, finds surprisingly little evidence that higher rates are dissuading people from buying a first house or moving into a new one. According to its recent research, only 8 per cent of people said that “getting a mortgage” was one of the “most difficult steps” of the home-buying process, marginally up from 7 per cent in 2021.”
Let me spell it out, one more time, so we are crystal clear.
Land prices globally are rising, regardless of interest rate policy, because the history of the 18.6-year Real Estate Cycle says it is time for this to occur. The societal gains (post covid lockdowns) have been absorbed by the land because it’s the natural law of economic rent.
Prospective homebuyers must borrow more to buy today; therefore, they are borrowing more.
Which brings us to a point I’ve made multiple times this year to you, at least.
Should history repeat, what will change from today on will be your ability to both qualify and service these massive mortgages will improve, even though the size of the loan will continue to increase.
And it’s this final point which this article proves is precisely what’s occurring.
Longer mortgages are helping many to spread out repayments, sacrificing wellbeing in the future to reduce mortgage payments today. The Canadian government recently announced it would extend the payback period on some state-backed loans from 25 to 30 years.
According to Centrix, a credit-reporting agency, 6.4 per cent of New Zealand mortgages originated last year will last for more than three decades, compared with 2.3 per cent in 2020. The Bank of England recently noted that in Britain “the trend towards longer-term mortgages had continued” such that for 40 per cent of new mortgages “borrowers would be past the current state pension age at the end of their mortgage term”.
That is a long way away though, all that matters is the ability to get that foot firmly planted on the property ladder now.
As I said, for me, even though it’s years after the fact, this article provides tangible proof that the mainstream is finally starting to get it. What’s more important for me, is that “you” get it. You can see that waiting for validation from sources like AFR leaves you years behind the eight ball, yes?
I know for a fact those who ignored academic literature in 2020 are now amongst the winners enjoying this globally synced rise in land values. Don’t you deserve to place yourself ahead of the news, like these investors did?
Have you asked yourself – “if the media are this far behind events, what aren’t they telling me today that I need to know?”
It truly leaves you with one option – becoming our latest Boom Bust Bulletin (BBB) member. Costs less than a takeaway cup of coffee a day, for just US$4 a month – incredible value!
It’s time for you to learn the history and inherent timing of the 18.6-year Real Estate Cycle. With this knowledge, you can uncover the economy’s ‘hidden order’ and successfully navigate your way through these final, most volatile, years of the current cycle.
Don’t become bombarded with noise, instead surround yourself with the lessons of over 200 years of history. And position you and your family to win.
The final part of this article shows just how far the mainstream is still behind the curve. Bolded text is my own.
Do not be surprised, therefore, if house prices continue to rise. Some central banks have already started to cut interest rates as inflation declines; America’s Federal Reserve will follow before the year is out.
Across the rich world, wage growth remains in good shape. Falling inflation will give mortgage holders breathing room. And any increase in demand for housing will run up against constrained supply.
Unless something drastic changes, the world’s biggest asset class is about to get bigger still.
Should history be repeated, inflation will not fall, in fact it will remain high and will eventually increase again. It’s my knowledge of the cycle that provides me with that assurance.
But this; Unless something drastic changes – dear reader, let me tell you something. That change IS coming.
In fact, it is just around the corner, a couple of dozen months away.
So, you can fall for the rhetoric.
Or you can prepare. You know what I want you to do.
Sign up now.
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