Monday, November 03, 2003

Warnings to no avail: Million ready to brave the housing bubble: "Nearly a million Australians say they will defy talk of a dangerous housing bubble and plunge into a residential property investment in the next year."

"More than 45 per cent of all new home borrowing is going to investors and the Reserve has warned that the apartment market favoured by investors is in danger of a shakeout. It has also pointed out that gross rental yields have plunged to a 40-year low of about 3.5 per cent. After expenses, the average return on a rental property is estimated to be about 2.5 per cent."

According to the George/Hoyt/Harrison 18yr cycle theory, the peak of the boom won't be until 2007. So there is plenty of time for the boom and bust to work up to being a real beauty. In extreme conditions rises of 100% in land values in the last year are possible. Everyone knows, or should know, that it can't last, but the gambling instinct kicks in. The price of land is fictional, in the sense that it can be detached from the real use of land, and inflate to almost any number, but what is not fictional is the debt people and banks carry, and the seeming necessity to service those debts. In other words, land value inflates happily, but reduces only under severe duress.

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