Sometimes you just have to admit when you’re wrong. It’s not easy, and it’s not fun, but that’s just the way it is. Sir John Templeton’s advice has outlived its usefulness. The old rules no longer apply. I’m sorry, Sir John, but this time it IS different. VERY different
For too long, we at The Motley Fool have been wary of the housing market. Sure, valuations are touching all-time highs – hitting multiples of income never before seen – but that’s just a single data point. Yes, almost 25% of owner-occupier mortgages are now interest-only, but house prices just NEVER go down.
We’ve seen the error of our ways. We’re sick of being cautious and we’ve decided to re-evaluate the housing market and our predictions. Put simply, the housing market is a runaway train, and property prices are set to SOAR.
We also used to be wary of predicting interest rates. But not now. Mark our words — interest rates are set to PLUMMET.
Yes, I know this is a particularly big change for The Motley Fool. We used to focus on the long term, and eschewed specific predictions, especially for arbitrary timeframes.
That was then.
Today, we can officially and proudly announce, we’re changing our ways. The ‘big boys’ of the finance game have always provided a prediction when asked, and we’re sick of missing out. It’s just no fun when you can’t give a specific market forecast, interest rate forecast or housing forecast – so we’re throwing our ‘long term’ view out the window.
Now, our forecast for 2014 is clear and unequivocal. We predict, that by October 13th 2014, the Australian official cash rate will be 0.1%.
Not only that, we predict house prices will double (at least), peaking not long after, by October 15th 2014.
The rationale is so clear as to be self-evident, but let’s go over it, for the record.
Chinese boom — or bust — is a winner
We don’t like to shock, but China is going to collapse. The Chinese government has built so many roads to nowhere, empty shopping centres and Microsoft Surface tablets that nobody wants, that they simply can’t keep up the pace. And once the country is full of freeways, infrastructure investment will grind to a halt. There goes mining and the Australian economy.
We might be wrong, and China might boom. In that case, interest rates will need to go to zero to help the Australian economy compete with a surging China. Heads it’s zero, tails… it’s still zero. As the meerkat says, “simples!”.
As for house prices, we think that’s just as clear. When the economy is poor, property prices rise.
Just ask Ron Weigh from Property Landlords and Magnets. You can also see it clearly from this chart…
When the economy is great, house prices rise. The last three decades is clear evidence of same. And even when mortgage repayments hit 100% of income, the banks will find a way to lend 110% of income.
They’ll capitalise the interest, securitise it, parcel it up and sell it to the spiritual descendants of Darren Lehman’s Brothers. The problems will be someone else’s, and prices are free to go through the roof. We’re not being caught on that one any more, and we’re throwing our usual caution to the wind. You read it here first: house prices will double (or possibly triple) by year end.
The trend is your friend
How can we be so sure? We just extrapolate. The trend is your friend, friend. When it comes to housing, you can ignore the historically low rates, historically high valuations, the growth in household income over the last 30 years thanks to the addition of second incomes and the artificially constrained supply. Fundamentals no longer matter when it comes to housing. There’s little left to do but jump on the house price train and wait for the riches to pour in.
So much so, that – and I shouldn’t be telling you this, so keep it to yourself – The Motley Fool is actively considering changing our business model. Sure, shares have historically beaten all other asset classes, but housing is where it’s at. We’re looking at a new service – Motley Fool Housing (more on this below) – which will allow investors to borrow 120% of the price of a townhouse in Paddington, Toorak or New Farm, and be guaranteed 10% per annum in rental returns, plus the very real prospect (our lawyers make us say ‘potential’, but nudge, nudge, wink, wink) of a doubling in prices every year or so.
There’s no potential in looking for undervalued investments any more. That’s way too 2008. There’s light at the end of this tunnel, and we’re certain – well almost – that it’s not a train coming the other way.
Sir John Templeton said “The four most dangerous words in investing are ‘it’s different this time’”. Warren Buffett said “Be fearful when others are greedy”. Gordon Gekko said “Greed… for want of a better word… is good”. I think you’ll agree that it’s pretty clear which one of these men is right. We don’t usually make this offer, but if you want to get in on the ground floor of Motley Fool Housing, you can click here! to register your interest