Barefoot Investor: Don’t expect a bloodbath in the property market
WHEN it comes to real estate, focus on what you can control: your savings, and when you buy. Common sense would tell you we’re due for a shake-out but property is a long-term (10-year-plus) investment. Buy accordingly, writes the Barefoot Investor.
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PENNY AND STEVE ASK:
We saw 60 Minutes last night, which had a story on the housing bubble.
It was quite alarmist, suggesting that property prices could plunge by up to 40 per cent!
My husband and I have been renting for the past six years (in Brisbane) and have been watching prices move further and further out of our reach. It may not be politically correct, but we are hoping like hell that prices do come crashing down.
But we have also heard this bubble talk before. What’s your view?
SUBURBS MOST AT RISK IN HOUSING CRASH
MELBOURNE PROPERTY TO DROP BY 10 PER CENT
BAREFOOT REPLIES: Hi guys, there’s an old saying in the media: “If it bleeds, it leads.”
The housing market has suffered a paper cut over the past year, down nationally by about 3 per cent (After an upward run of 37 per cent over the past five years).
However, that didn’t stop 60 Minutes going the full bloodbath.
“Bricks and Slaughter” was the title of the story.
Right from the start I sensed this story had a Jerry Springer vibe to it. The intro went like this:
“Many believe calling it a downturn is foolishly optimistic. The slump we’re currently in is … more like falling off a cliff … Finance and real estate experts predict … the value of your house could slide by as much as 40 per cent in the next year ... And if numbers like that eventuate, there’s only one certainty: our entire economy faces CATASTROPHE!”
“Je-rry! Je-rry! Je-rry!”
The story was as nuanced as two hillbilly hair-pullers scrapping over their trailer-park boyfriend.
Back to your question.
What’s my view on the story?
I think it was a beat-up designed to scare people and win ratings … not provide you with financial advice on making the biggest financial decision of your life.
So what should you do?
Don’t focus on the macro calls … the truth is that repeated studies have shown that almost no one gets them right, including 60 Minutes, which has done countless property “catastrophe” stories over the years.
Focus on what you can control: your savings, and when you buy.
Common sense would tell you that we’re due for a shake-out. After all, we’ve taken on too much debt when interest rates are at record lows.
But will that result in a catastrophe for you?
Only if you buy something that you can’t afford. Property is a long-term (10-year-plus) investment. Buy accordingly.
In any event, be careful what you wish for.
If house prices do indeed fall by 40 per cent in the next year, it will almost certainly coincide with a severe economic recession. So you may be out of a job!
As Jerry Springer advises, “Take care of yourself … and each other.”
GONE PEER-SHAPED
JARROD ASKS: With interest rates so low right now, I have been looking at other ways to earn a decent return.
In particular, I have been looking at RateSetter, which is the biggest peer-to-peer lender in Australia, apparently.
RateSetter says it has “more lenders than any other platform”, and they offer “attractive, stable returns”.
Currently they are offering a 4.8 per cent return for 12 months.
What are your thoughts?
BAREFOOT REPLIES: For those of you who don’t know, peer-to-peer lending is where you cut out the bank … and become the bank yourself!
I took a look at their PDS (product disclosure statement). The fine print is like a Stephen King novel. Here are the cliffhangers:
“Investing in the RateSetter Lending Platform is not without risk and you may lose some or all of your investment.”
“You do not determine the specific loans to which your order is matched. Your funds may be matched to the loans of borrowers of differing creditworthiness, to secured or unsecured loans, and to loans of individuals or businesses.”
Now, they do have a “Provision Fund” in the case of late payment or default.
However, “The Provision Fund is not a guarantee nor an insurance product.” And, “Should the RateSetter Lending Platform be wound up, you will have no entitlement to any residual funds in the Provision Fund.”
I think you get my point.
Yet there are other options.
Right now the RAMS Saver is offering a variable 3 per cent (as long as you save $200 a month and make no withdrawals), Teachers Mutual Bank is also offering
3 per cent on a 12-month term deposit (minimum $5000), and ME Bank pays a variable 2.85 per cent (no term, no minimum) if you move over to their Everyday Transaction Account.
Lower returns?
Sure, but each of these is backed by the Australian government deposit guarantee for amounts under $250,000. For me, that’s as risk-free as it comes.
Peer-to-peer lending is not.
If I were taking a risk, I’d rather do it by investing in good-quality shares that pay fully franked dividends.
CAPTIVE AUDIENCE
TAMMY ASKS: I am writing as I need a favour, please.
My ex-partner (my kids’ father) is currently doing time at Bathurst Correctional Centre in NSW.
Unfortunately, they won’t let me send him a copy of your book, so I have been photocopying it and mailing it in parts.
The favour I am asking is this: could you donate a book to the jail so he can read it in one sitting rather than in dribs and drabs?
BAREFOOT REPLIES: I’ve spent a lot of time in jails (teaching, that is).
Everyone deserves a second chance … and many people inside are parents.
So I’ve sent 20 copies of my first book, and 20 copies of my new book, to the jail library.
Good on you for helping your ex to help himself.
EVERY DAD LONGS TO BE A HERO TO THEIR KIDS
I AM not like most fathers.
See, most kids grow up watching their dad get into his work clobber and head off to work each day.
I, on the other hand, spend months at a time in my tracky dacks, heading upstairs now and then to tap away at a computer.
The very same computer my kids watch The Wiggles on. For all they know, I could be spending my day with Dorothy the Dinosaur.
Yet every father longs to be a hero to their kids.
So last year I decided to take my four-year-old son to a bookstore to show him my best-selling book.
The only problem?
I couldn’t find a single copy. It wasn’t on the shelves. I looked everywhere. Desperately. Not even one.
“Your book. It isn’t here, is it, Daddy?” he said, squeezing my hand.
As luck would have it, a shop assistant walked past, recognised me and said “follow me”.
She took us out to the storeroom and showed us a sign pinned to the staff noticeboard that read: “Barefoot Investor … Because of theft, NO copies will be kept on the floor.”
True story. Daddy’s book was popular … with thieves.
Recently, for the launch of my new book, my publisher asked if I could go to the printers and sign some copies.
I didn’t have to be asked twice. See, my son (now five) is obsessed with machinery.
This was my chance to show him plenty of big machines … and plenty of copies of my new book.
The day turned out to be one of the highlights of my career.
Not just because of the sight of a hundred thousand copies of my book rolling off the presses.
But because I’m incredibly proud my book was printed in Australia — and, as luck would have it, only an hour from our family farm, at McPherson’s Printing in Maryborough, country Victoria.
The workers really turned it on for my son and me (and my dad, who tagged along too — they got three generations of Papes who are fond of a good conveyor belt!).
When we returned home from our adventure, I seriously felt like Gary Ablett (junior or senior, take your pick). “It was the best day of my life, better than Christmas!” my son announced to his mother.
“So, I guess you want to be an author like your dad when you grow up, hey?”
“No, I want to be a printer!”
Tread Your Own Path!
If you have a burning money question, go to barefootinvestor.com and #askbarefoot
The Barefoot Investor for Families: The Only Kids’ Money Guide You’ll Ever Need (HarperCollins) RRP $29.99. Available Now from Dymocks, Booktopia, QBD or Amazon
Originally published as Barefoot Investor: Don’t expect a bloodbath in the property market
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