Monday, April 10, 2017

Following On

I feel compelled to point out the obvious, which is to say, my last post was in part facetious. And one part cynical, and just one part earnest.

Although open to the possibility to the questions asked having answers, I'm quietly confident they don't. Or perhaps loudly confident, as many people remind me that I've been talking about the irrationality of the property market for years. The truth is probably closer to over a decade.

However for most of the last decade, if asked 'when is the bubble going to burst?' I would have responded with very high fidelity something like this 'I don't know, the problem with an irrational market is that if there is no reason for prices to be as high as they are, there's no reason for it not to continue.'

It would require some catalyst, like China's economy tanking and sending a shock through the Australian markets employment wise. China's growth has been slowing for years though, but it isn't tanking. Frankly I don't care about the trigger and I never have.

What do I care about?

Go down to any intersection in the Melbourne CBD, and you will in fairly short order witness the following - 1. A person jaywalks, in a pedestrian crossing against the lights. 2. Another batch of jaywalkers follows behind them. 3. A car enters the intersection and honks their horn at the second batch of jaywalkers, at which point they look up and hurry out of the way.

I would almost gauruntee that it would happen, but Good Friday is coming up where the Melbourne CBD is populated almost solely by confused Asians walking past closed businesses. So there are no doubt exceptions.

But considering that 1-3 sequence, you can see that for all the shit president Trump takes for blundering into lies uncovered by the most casual of fact checking, it's that assuming what we want to believe is true is a very common human foible. Most people are shitty jaywalkers, and a shitty jaywalker isn't somebody who gets hit by a car and killed, it is somebody who effects traffic by crossing the street. Fuck, there are people who are shitty pedestrian crossing button pushers.

That second wave of jaywalkers though, that happen on a daily, perhaps hourly basis (I've never been that bored or academic) to get honked at by a car that they didn't see even though it's exactly where one would expect it to be, are beneath shitty. What error did they make? They observed the first jaywalker and based their decisions on what happened to them. They didn't look at the traffic. The first jaywalker may have, they may have just been lucky. It doesn't matter.

I just want people to learn how to jaywalk. It's simple, look in the direction that traffic comes from.

I imagine with home buying, jaywalking gets more complicated. There's FOMO, and incredible pressure to do as the herd does. That's why it's not even impressive if you answer 1 of my questions about real estate. It's only impressive if you can do all five.

The Australian Housing Bubble may not burst in my life-time. I'm happy to hedge against that position, I would describe based on this ad:

That we are entering a new era, where banks have tapped out people's incomes to afford housing, and we now need creative solutions, like getting a loan with a 'mate'.

The RBA appears to be acknowledging the housing bubble, along with the OECD and APRA. The RBA wanting an orderly 'correction' to housing prices.

I believe arresting an asset bubble without it bursting to be somewhat of a holy-grail, a unicorn. Because it assumes the reason people are buying property at these inflated prices, is not because they want the prices to keep inflating. It assumes that once people stop buying, the game isn't over.

The CBA's ad, implicitely confesses that mortgages are onerous. They are attempting to address the belief that 53% of their sample doesn't think they can afford the mortgages? What does that mean? They can't sacrifice the income required to repay a mortgage at these prices even if they believe that capital gains will continue. Half the herd, has apparently already dropped out of the stampede, and the CBA is promising creative ways to get you charging headlong in again.

It smells desperate to me. But that's just me.

And the world is crazy, as a friend pointed out to me last friday, that hipsters complain about not being able to afford housing anymore, while eating a $25 smashed avocado breakfast at a cafe.

But upon reflection, the state of the union is this. A lot of people are finding that if they give up on home ownership, they have enough disposable income to live a life of largess. Which given that it might be triple the cost to own a home as to rent it, is not really that surprising.

I don't know what comes next. I don't know how it works. The more I studied economics, the more I felt confident that economists know less than the people on the ground.

If you saw the movie adaptation of the Big Short, you may remember that one of the opening lines was 'this is the story about a small group of people who did something nobody else thought to do: they checked'

I'm pretty confident most people don't check. They don't look for oncoming traffic, nor take that extra step of looking both ways. Like Bertrand Russell's Christmas Chicken, what they check is that the farmer gives them grain every day, right up until Christmas when the Chicken gets cooked.

I'm told people just go to auctions, that's their fact checking, and they see bidders bidding up prices and extrapolate all of reality from there. They notice Chinese people and concoct stories of Chinese billionaire's stashing their cash in the ground.

But can money be poured into the ground? We dig coal and iron ore up from out of the ground, ship it off across the ocean and then take the proceeds and 'invest' it in land that doesn't have coal or iron ore underneath it. And that Coal and Iron Ore is gone.

But I'm beating up, and I have come to not respect atheists that beat up on believers. Having said that, I see it as no contradiction when I pick sides. And when confronted with the mysteries of the universe, I respect the side that says 'I don't know, and I don't know anybody that does know' more than the side that says 'I do know' or 'I know a guy that knows all there is to know and he told me that all I have to worry about is doing right by him.'

Thus, for the people that engaged in my Questions (they only really tackled q1) it bolstered my confidence that none of the questions have compelling answers that describe the way the world sits right now. I won't take the gamble others so confidently make, but I respect the gambler that knows they are gambling. I don't respect somebody who feels like they are being 'smart'.

Yes the market may never crash, prices may continue to soar forever, somehow. I'm okay with that, largely because a landlord provides no real value, I'm not ever going to be comfortable with being one no matter what it costs me financially.

Lest I become a braying property shit heel, that's all I'm intend to say on the matter, here, for the foreseeable future.

No comments: