This Get Rich Quick Scheme Is Over

About Latest Posts Bruce JacksonBruce co-founded The Motley Fool UK in 1997. Now back in his native Australia, Bruce is …

a woman

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The sirens are sounding, louder and louder…

No, we're not talking about the imminent start of the football season…we're talking property. Yet more on the sad and worrying state of the housing market a little further down…

But first, a look at our favoured asset class, the share market.

Whilst Wall Street dances merrily on, over the past 12 months, the S&P/ASX 200 has gone precisely nowhere. Capital returns for the broad Australian market have been a big fat 0%.

Thank goodness for dividends, but they are a story for another day.

So what's an ordinary investor to do? Give up on the stock market and turn to currency trading?

Forex trader alert

Not so fast, although if you are a mathematical genius and have a handle on what moves currencies and why, you may have a one in 50 chance of outwitting the investment bankers who make a fortune on the forex market. Good luck.

[If you are trading the forex market, and have made money, or even lost money, we'd love to hear from you. Email us at [email protected]]

Back to the share market…

The Australian Financial Review, recently said…

"The S&P/ASX 200 Index price-earnings ratio of 12.5 times 12-month forward earnings is currently below its long-term average of just below 15 times.

UBS estimates the price-earnings ratio needs to increase to 13.5 to 14 times, which is still below average…"

Hang on in there

I'm no mathematician, but I reckon UBS are effectively saying the Australian share market could rise by between 8% and 12%.

All of which suggests the best bet for bored share market investors is to "hang on in there".

But we're only human. We get bored when nothing happens. Twelve months of zero returns is about as boring as it can get.


Ho hum…

Get rich quick

The trouble is, we're wired for action. Instead of biding our time, reinvesting our generous dividends, and waiting for things to liven up, we start searching for get-rich-quick schemes.

Some might involve searching for a tiny West Australian mining company promising to be the next big iron ore producer.

Or some might be as seemingly innocuous as taking out a large margin loan to juice your returns.

As an aside, again, I'm no mathematician, but 0% of $10,000 seems to me to be about the same as 0% of $200,000.

For the past 20 odd years, and particularly so over the past 10 years, the property market has been the great Australian gravy train. A virtually guaranteed get-rich-quick scheme.

But the wheels are coming off.

Look out below

"Gold Coast sinking in units glut", screams the front page of the Australian Financial Review.

Skip to page three of the same newspaper, and we see "First-home buyers missing in property action," where we learn the proportion of Australians buying new homes has fallen to its lowest level in seven years.

A new home, costing between $300,000 and $500,000, is simply unaffordable for most first home buyers.

What's all this mean for property prices?

Firstly, look out below on the Gold Coast. That should be old news to followers of our Global Gains team, who spotted the ugly side of Australian real estate for themselves in this video and this one too.

This could get ugly

As for the rest of the country, the signs aren't looking good.

First home buyers aren't holding the housing market up – they can't afford a house, plain and simple.

And when property speculators investors realise capital growth is a thing of the past, they aren't going to put up with rental yields of 3%.

You don't need to be a rocket scientist to work out where the property market might be headed next.


It must be said, we don't wish for a collapse in the property market.

A rapid, panicked sell off would be good for nothing. Unemployment would spike. The share market would be hammered.

The slow deflation of a housing bubble that clearly has gone too far is the best long-term result for most people, and definitely for the Australian economy.

I mean to say, what good would it do to anyone should house prices keep rising by 10% per annum? It might keep builders, plumbers and electricians in work, but courtesy of the mining boom, there's no shortage of work for them in this lucky country.

A big fat zero

So let property prices deflate. Let them do so in an orderly fashion. And in the meantime, let the commodity boom continue for a few more years, mostly to cushion the blow.

As to the chances of this happening, I'd out them at about the same as the return of the S&P/ASX 200 over the past 12 months – a big fat 0%.

Oh well, one can dream…

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