What is happening in our economy … How are financial markets doing … And a story on “Think and Plan before buying your Home”
Thanks to all of you for accepting our invitation, for accessing our blog, and for your participation and feedback. Your positive feedback inspires me to explore new ideas and topics. We look forward to more of your active participation.
You have read our understanding of the meaning of “Money” and a brief history of its evolution over time – August 2012 Blog – “What is Money” – http://tinyurl.com/lshbsjs
You have read our thoughts on how the concept of money has been distorted and manipulated, over time, and the unsatisfactory “Paper Based Fiat Money” we currently have (Various Blogs – Nov 2012 to April 2013)
You have read our discussion on the most important asset we are likely to buy in our lifetime – “Our Home” – And some thoughts on how to go about decision making – July 2012 Blog – “Is it the right time to buy property?” – http://tinyurl.com/n9x3yqq
You have noted our thoughts on the subtle difference between “Price and Value” of any asset, especially your family home – November 2012 Blog – “What is the Value of My Property?” – http://tinyurl.com/lxu33n8
You are now familiar with the young couple Shaun & Sarah, who share and benefit from our stories and thoughts – December 2012 Blog – http://tinyurl.com/ljl4lke
You have read our thoughts on ‘what to look for’ when buying a property – August 2013 Blog – “True costs of owning your home” – http://tinyurl.com/l7v6ckn
This month’s blog is a response to conversations I am having with clients who are getting impatient while searching for property. But first ….
The Big Picture
Global Overview: We outlined a major concern re; creation, printing and oversupply of ‘Fiat Money’ into global financial markets; we explained how this is affecting us directly – Global impact, National consequences, and damage to your hip pocket – July 2013 Blog – http://tinyurl.com/m3z736t
We do not see any substantive positive change from the July 2013 outlook.
Even a hint, from the US central bank (the FED), of just thinking of reducing the monthly 85 Billion US Dollars (how many zero’s in a billion, anyone?) being “created out of thin air” and dumped into financial markets (to prop up collapsing bond markets), let alone stopping it, was enough to send panic spasms all over the world.
Asian and sub-continent currencies (national paper money prices compared to USD) dropped 10-30%.
Our (Australian) Dollar has fluctuated around 6-8%.
Putting it in a simpler way; it is near impossible to de-addict global financial markets from this “drug” called “Money created out of thin air”.
And one of the ways this has been possible is to keep “official” interest rates artificially low.
US short term lending rate (FED rate) is a mind boggling 0.25%.
Australian short term lending rate, currently 2.5%, is the lowest in decades.
You may be enjoying lower home loan rates for now (5-6%).
But this may have created gross distortion of the ‘risk and return’ balance.
Topic of the month: Think and Plan before buying your Home
Scenario: Let us say you have savings of $100,000; you want secure investment option with minimum risk. Few years ago you may have got a decent return with minimum or no risk to your capital, say 6-8%. Nowadays you get 3-5%; you are not happy; you are now forced to consider other investment options with higher risks.
If you think it is bad enough here consider what is happening to savers in the US. They are looking at 0.5% to 1.5% returns on ‘safe, minimum risk’ investments.
But how does all this relate to the property market?
Good question; have you heard of property market bubbles?
When a lot of people, from all over the world, are not happy with how things are going with their economy; with how their currency value is ‘dropping’; with their governments hounding them, trying to extract more from them, in the name of welfare of the people; with not getting good returns from safe, ‘low risk’ investments; with having to lower their lifestyles or start spending their hard earned savings; and having waited for 2-3 years, or more, to enter the property market.
A lot of people may start looking at ‘Bricks and Mortar’, property, as a safe, ‘risk free’ investment.
And the best option they see is residential property – Homes, units, villas, etc. as investments.
And they would like to ‘diversify’, keep some of their hard earned money from the clutches of their governments.
And you understand how ‘supply and demand’ works; lot more buyers bidding for limited supply of ‘products’.
And remember, many of them are doing it out of concern, or even panic; they may have big sums of money to spend, or ‘park’ safely; they may not consider ‘todays fair value’; they may want to ‘get it’ at any price, hoping its value will go up in the ‘future’.
And remember, there is no one single ‘property market’; there are national markets (different countries), States, Cities, Towns, Villages, Suburbs; each has its own complex dynamics; reasons for different prices for similar properties; even different streets in the same suburb have big variation in prices.
Read our June 2012 blog – http://tinyurl.com/n9x3yqq – for a detailed analysis on this subject.
Are you saying we are in a property bubble?
Yes, we are seeing some irrational behaviour, in some parts of residential property markets, in some suburbs of major cities and towns.
Are you saying current prices do not justify fair value?
‘Beauty is in the eye of beholder’; we have tried to explain, in detail, relationship between supply, demand, price, value, and buyer behaviour in Nov 2012 blog – http://tinyurl.com/lxu33n8
So what should we do? When is the right time? How do we decide?
Good questions; each of our individual circumstances are unique; there is no one ‘simple’ solution;
We have listed some points to keep in mind while buying property;
Property is a long-term investment, not a way to make a quick buck; there is high cost of entry (purchase costs), high cost of ownership (loan interest, fees, maintenance, utilities, government costs, etc.), and cost of disposal (selling agent charges, tax, moving and relocation, etc.)
Property is a ‘lumpy’ and ‘illiquid’ investment; you cannot buy or sell a window, door, garage or room.
First ask yourself; are we ready to enter this market; is our relationship, health, employment, income, etc. stable.
Then ask yourself; are we managing our income and spending wisely; are we saving; how much do we have in funds;
Then ask yourself; do we have a goal; do we have a plan to get there; how much money do we need to buy property; how do we go about it;
Then, find a professional Finance / Credit Adviser; make sure you are comfortable working with them; explain your current situation; discuss your plans and goals; ask a lot of questions; ask for possibilities and options; think carefully and decide an option that suits you, not the lender, bank or broker.
Then, and only then, ask your Credit Adviser to help you get finance approval.
Then, ask your Credit Adviser to assist you; with information; tools; analysis; scenarios; so that you can make informed choices on where to buy, what to buy, how much to pay, how much to borrow, etc.
Then, ask your Credit Adviser to assist you; with information; tools; to help you setup your finance/loans in the best way; to help you manage it efficiently.
Bottom Line: There is no such thing as “finding a bargain”; or, “timing the market”;
You buy property only when you are ready and capable; you stick to your plan and budget; you choose wisely; you look after your property and hold on to it long-term; and you manage debt wisely.
I will leave the forum open to you now.
What are your thoughts on all of this?
What is your experience?
Come, join the discussion, and share your ideas and experiences.
I look forward to your opinion, counter argument, response, constructive criticism, feedback, etc.
Looking forward to hearing from you