Blogs - Lindeman Reports

Posted on October 23, 2023October 23, 2023 by John Lindeman

Timing Perth’s turning points

Timing Perth's turning points

Perth’s housing market is currently booming, but not all properties or locations are experiencing strong price growth. John Lindeman explains why growing buyer demand is not lifting prices in all areas and what the future holds for owners and investors.

The saying that “a rising tide lifts all ships” is commonly applied to property markets to indicate that when a boom occurs, prices will shoot up everywhere.

The facts are often rather different, and Perth’s property market offers us a good example. Even though house prices have been rising strongly for over a year, not all locations or types of property are participating in the growth wave, as this graph shows.

The data provided by our patented Housing Market Prediction Solution reveals that Perth’s unit market was the worst performer of all Western Australian markets, with median prices rising by just two percent in the last twelve months.

Houses in Western Australia’s regional house markets increased in value by just 3%, and house values in Perth’s higher priced suburbs only rose by 4%. The star performers were Perth’s bargain priced house suburbs, where prices grew in value by around 11% over the last year.

The ratio of annual sales to current listings is the key to current performance

The reasons for this difference in performance are revealed when we compare the number of annual sales in each market to the number of current listings. The graph shows that annual sales in Perth’s bargain priced suburbs have been outpacing listings by a ratio of 5:1, while the number of annual unit sales is about the same as the number currently listed for sale, resulting in a balanced ratio of 1:1.

Put simply, this means there are enough units being offered for sale in Perth to meet buyer demand, so there’s no pressure on prices to rise. It’s a very different story with houses in Perth’s bargain priced suburbs, where buyer demand far exceeds the supply of houses on the market. Prices in those suburbs have been rising strongly as many potential buyers compete for the small number of houses listed for sale.

The annual sales to current listings trends enable us to time the turning points

Tracking the annual sales to current listings trends enables us to make some useful estimates of imminent price performance, as this graph shows. It explains why we publicly predicted last year that Perth’s bargain priced suburbs were about to boom.

Looking ahead, we see that the ratio of sales to listings in Perth’s bargain priced house suburbs is trending upwards strongly, indicating that further growth is likely.

Compare this to Perth’s units, which have only just now returned to a balance between demand and supply as the massive overhang of units available for sale due to many years of overdevelopment has been steadily falling.

Timing the turning points enables us to make predictions

Based on these sales to listings ratios and trends, we predict that growth in Perth’s lower priced house markets will continue until at least 2025 and then start to slow down, while price growth in the city’s higher priced suburbs will begin to accelerate over the same time.

The current oversupply of units in Perth is steadily reducing, but real overall price growth will not occur until the sales to listings ratio reaches 2:1, which is not likely until 2024.

Of course, some suburbs will lead the growth charge and others will be laggers, but this analysis does provide an overview of how to make meaningful short term “timing” forecasts.

How accurate is this predictive method?

I first explained how to use the ratio of annual sales to current listings to measure market performance and make short term predictions in my book for property investors titled Mastering the Australian Housing Market, published by Wileys in 2011.

In 2016 I was awarded Australia’s only innovation patent for this forecasting method. It’s called the Housing Market Prediction Solution, which has achieved a consistent past accuracy rate of over 90% in predicting both the direction and intensity of price growth in Australia’s 15,000 suburbs and towns.

Posted on August 19, 2023August 20, 2023 by John Lindeman

Artificial intelligence and the property market

Artificial intelligence is finding its way into almost every facet of our lives. John Lindeman investigates its potential role in property market analysis and prediction.

The main purpose of artificial intelligence (AI) is to develop computer systems which are able to perform decision making tasks normally made by humans. As far as property investors are concerned, the best AI systems should reveal where we can buy for the strongest future growth or cash flow, what type of property will deliver the best results, and when the right time to sell has arrived.

There are hundreds of indicators, stats and numbers to choose from

The issue for the developers of such AI systems is determining which of the huge number of indicators and stats that are routinely quoted and relied on by property market commentators to make use of. Here are some of them:

The AI analysts and programmers have to decide which of those numbers simply don’t work, which ones do and what these numbers are actually telling us about the property market. Then they need to develop working artificial intelligence algorithms using them to make predictions. This means that the data must be recorded and checked against actual performance over long periods of time so that meaningful conclusions can be made.

Stats can be limited or general, and also short or long term

Stats which rely on current trends such as sales and listings can only estimate imminent price or rent changes, while others, such as migration and unemployment rates have a longer time window. The issue is further complicated because some stats have an effect on entire markets, while others only measure local changes.

Some stats such as interest rates and consumer confidence are called “top down” indicators because they can change buying and selling trends for whole cities or even the entire country.

Other stats, which are “bottom up” indicators such as sales and listings can be used to measure potential performance in individual suburbs.

Many experts retreat to the safety of the property market cycle

If you’re confused by all this, you are certainly not alone. Many strategists and theorists throw their hands up and claim that we can’t accurately predict future property market performance at all. They retreat to the assumed safety of relying on past performance, or the property market cycle and the property clock.

Whether artificial intelligence can make useful property market predictions does not depend entirely on what data is used and whether the predictive algorithms are accurate. The main stumbling block is that artificial intelligence can only predict where, when and what, but can’t reveal why.

Knowing the reason why changes occur is often the key to understanding the future performance of any property market. Why is buyer demand for certain types of property increasing? Why is the rental demand falling?

Even the best tested predictive algorithms and methodologies will always need to be confirmed by conducting thorough on the ground research and getting answers to the question “Why?”

Posted on June 9, 2023June 9, 2023 by John Lindeman

The truth about housing market cycles

One expert solemnly warns us about the perils of trying to time the market while another eagerly assures us that the turning point has arrived and it’s time to buy. They can’t both be right, so can we time the market or not?

Human beings hate uncertainty. It fills us with anxiety and worry, so it’s little wonder that many investors rely on indicators that tell us which way property markets are heading.

One of the most popular timing devices is the property market cycle, or property clock. We are often told about which stage of the housing market cycle we are in, or where the property clock is pointing. These tools are seen as being useful for property investors and owners because they appear to give us some certainty about the future.

They claim to predict housing price changes, but have you noticed that there’s so many of them? Property clocks range from four, six, eight, twelve or even eighteen years, and housing market cycles cover suburbs, regions, cities or the entire market. It’s no wonder they point in different directions at the same time.

The reason that these tools are inaccurate is because they operate on the flawed assumption that housing markets always move in regular and predictable cycles and in accordance with immutable laws. The problem with this is that they can’t anticipate significant but unexpected shifts in the causes of housing price changes.

Recent major economic, fiscal and social events were completely unexpected

Yet this is exactly what has occurred in the last few years. We experienced a massive pandemic, which led to unprecedented government responses such as lockdowns and border closures. We are now faced with rates of inflation not seen since the eighties, with many records being broken, such as record low unemployment, record high overseas arrivals, record low rental vacancy rates and a record number of interest rate hikes.

There is simply no way that the housing market cycle or property clock could have anticipated these significant housing demand dynamics when even the most respected and revered economists, analysts and experts failed to do so.

Failing to take unexpected changes into account leads to incorrect forecasts

This is not to say that we can’t predict the future of housing prices or time the market, but it does mean that we need to take those major changes into account when we do.

The main dynamics of property markets are population growth and movement, purchasing power and whether there’s a shortage or surplus of available properties.

Those dynamics dictate which way prices and rents will move, so we need to forget about which stage of the cycle we are about to enter, because right now, the property clock and the housing market cycle haven’t got a clue.

Posted on May 1, 2023May 1, 2023 by John Lindeman

The slingshot effect

As a property market analyst, I’m always looking for tips and tricks that can help investors find areas with growth potential before the growth actually occurs. So what if I told you that there’s a way to easily find areas that have growth potential even while prices are falling? Well there is, and it’s called the slingshot effect.

Have you noticed that when you fire a slingshot, you have to pull the payload down so that it will shoot up?

The same thing takes place in property markets when growth is about to return, because astute buyers move in and buy up the low priced bargains first, which actually pulls prices down until the cheapies are all gone.

The median price measures the middle point of all sales, so even if sales are rising, the median sale price starts to fall because the bargains get snapped up first.

This table shows you how the median (in blue) is hiding the fact that buyer demand is actually growing and prices will soon rise.

Prices start to shoot up, like a slingshot being fired, once all the cheaper listings are gone. Buyers now must compete for dearer properties, and growth quickly returns.

The slingshot effect happens whenever market conditions change, motivating potential buyers to act after many months or even years of stagnation or price falls. It occurs purely because the bargain properties get sold first, so that median prices can’t rise until they are all gone.

This graph illustrates how the slingshot effect works, showing that it took many months after interest rates dropped in 2020 before house prices boomed in 2021.

Even though the number of buyers rapidly grew during 2020, there were sufficient stocks of properties for sale to soak up the demand, and there was no significant rise in prices. By late 2020, however, the turning point was reached as the number of aspiring home buyers outpaced the number properties listed for sale and as all the cheapies were gone, prices suddenly boomed.

This time around exactly the same dynamics will unfold and clever investors can use the slingshot effect to find bargains in suburbs just before prices shoot upwards. Watch for locations where the median house price has been falling, but sales are trending up and the number of properties listed for sale is steadily declining.

For example, the median house price in the inner Brisbane suburb of Rocklea has fallen by around $100,000 since last October, but the number of sales has doubled over the same time. This doesn’t make any sense, unless you realise that it’s the slingshot effect at work, and once all the cheapies are gone, prices will boom.

To confirm that this is happening, we can see that the number of listings in Rocklea has nearly halved since last October, and that there are very few low-priced bargains left for sale. It’s only a matter of months before prices soar again.

That’s how the slingshot effect works. It enables savvy buyers to snap up bargains from vendors who are unaware that the market has changed.

Posted on April 24, 2023April 24, 2023 by John Lindeman

The sleepers set to boom

Many locations in Australia are heading for what could be their biggest property market boom ever. John Lindeman explains why this is about to occur and which of the sleepers are set to boom.

Did you know that we have only ever experienced six housing market booms since our nation began? They are shown on this graph, and they were all generational property market booms, beginning when each new generation decided to buy their first homes at the same time.

All our property market booms have been generational

You can clearly see the Federation boom in the early 1900s, the two post-war baby booms of 1919-1922 and 1947-1951, the baby boomers buying their first homes in the 1970s, the Gen X buying boom in the early 2000s and more recently, the Millennial home buying boom which started during the Covid years.

When housing booms, so does our economy

What’s even more significant for investors is that each of these housing market booms has created economic booms. This is because housing demand directly stimulates the financial, construction and business sectors, and indirectly generates around one quarter of our economic growth.

When the economy booms, so does migration

Because of our relative isolation, Australia has been able to avoid the direct impact of wars, social unrest, economic crises and other disasters experienced in other parts of the world. When such catastrophes occur elsewhere, we are seen as a peaceful and prosperous safe haven and huge numbers of migrants and refuges decide to start new lives here.

As the graph shows we are once again receiving record numbers of permanent overseas arrivals from economically and socially troubled parts of the world and this trend is likely to increase over the next few years.

These new arrivals not only generate more demand for housing, they also stimulate our economy by creating new business enterprises. There has always been a strong connection between migration, economic growth and housing market booms, but the third graph shows that we have yet to reach this point, because our international borders have only been open for a relatively short time.

Housing prices can double in a few years

In every one of the five property market booms that Australia has experienced before the last boom, housing prices more than doubled in just a few years. So all the conditions for another boom are in place – we have just experienced the Millennial home buying surge and are in the middle of a massive migrant intake.

As my three graphs indicate, we can now look forward to an economic boom kicking off, followed by the potential for property prices to double in the next few years. Even though house prices have slumped in recent months, we are still in the beginnings of a housing market boom.

As the graph shows, property prices are well ahead of where they were when the current boom started in 2020. In some cities, such as Perth and Adelaide, housing prices are currently at record highs, while the average capital city growth since March 2020 is 25 per cent.

Even though every capital city has experienced price growth over the last three years, the variations extend not just between cities, but to their suburbs as well, with some locations booming while others have experienced little to no growth at all.

Locations which suffered most will have the greatest growth potential

In years to come, the current slowdown will be just a tiny dip in a sea of price growth and investors have a unique opportunity to benefit.

This is because the locations with the greatest potential will be those which suffered most during the lockdowns and border closures.

As the dynamics of our housing markets undergo a complete reversal, those locations which experienced years of low demand with little to no price and rent growth will be sleepers set to boom.

Posted on March 27, 2023March 27, 2023 by John Lindeman

Winning and warning signs

Every investor needs to know when it’s the best time to sell and the right time to buy. Some rely on gut feel or intuition, while others may be motivated by gossip, hearsay or headlines. Rather than relying on such flawed methods, John Lindeman reveals how to find early winning signs of growth, and early warning signs of decline.

Do we buy, sell, or hold? Buying or holding on at the wrong time could lead to huge losses if prices start to tumble and buyers disappear, but it’s just as painful to sell just before a big boom occurs and prices dramatically escalate. So, we need to know whether property prices are likely to boom or bust, but where can we get the right information?

We are bombarded by a seemingly endless array of confusing and even contradictory advice about whether it’s the best time to sell.

We don’t have to read tea leaves or gaze into crystal balls to get an answer, because there are stats out there to help us make the right decision.

Sale prices only reveal the past

Some experts rely on past sales and price trends to forecast the future. After all, it seems logical that falling buyer demand indicates it’s time to get out, while rising buyer demand tells us that it’s best to hold. But, past sales and price information is already months old before it’s published, and market conditions keep changing.

Future performance is likely to be very different from what past sales and prices are showing. It’s like using your rear view mirror to see which way the road ahead is turning.

Rather than looking backwards at past sales, we need to look forwards at potential sales instead. Luckily, this data is available on-line and it’s free.

The early winning sign of growth

Potential sales are called listings, which are provided on public listing sites for all types of property and for any suburb. You can use listings data as an early winning sign, indicating that prices could rise if listings are falling. Here’s an example of how it works.

Sussex Inlet is a beautiful coastal holiday location on the New South Wales South Coast, and it was one of my selections for Your Investment Property’s Annual Top 50 for 2022.

My choice was not only assisted by its popularity as a tourist and retiree destination, but because the number of houses listed for sale had consistently fallen during the second half of 2021, indicating that strong price growth was likely to occur during 2022.

The result? Sussex Inlet was the best performing property market during 2022, experiencing a median price rise of nearly 50%. As the graph shows, price rises occurred because the number of houses listed for sale had been falling every month.

The graph also shows you that the number of houses listed for sale in Sussex Inlet then started to increase in the second half of 2022, and quickly grew higher than they had been before the price boom started.

This was a sign that prices could start to fall again, which they have in recent months.

So, you can also use listings as an early warning sign, telling you that buyer demand is slowing down, and prices may start to stagnate or even decline.

The early warning sign of decline

Although our housing markets boomed from 2020 to 2022 during the two years of the pandemic, there were some dramatic exceptions such as the Melbourne CBD unit market, where prices crashed. The graph shows how the listings trend suddenly reversed during 2020, serving as an early warning sign of price falls. Listings continued to increase all through the pandemic years, (highlighted in grey).

This was because lockdowns and border closures resulted in a near total collapse of rental demand in the Melbourne CBD rental market and many investors tried to sell at the same time.

Thankfully, the lockdowns and border closures are behind us, and the graph shows that unit listings in the Melbourne CBD are now rapidly declining.

In fact, the number of units listed for sale is trending down to the boom levels of 2016-17, and sale prices could surge as a result.

Tracking the number of houses or units for sale in a suburb or town is easy, and it’s free. When making those all-important buy, hold or sell decisions, you obviously need to rely on much more data than just the number of listings, but they do give you an early warning sign that prices are likely to decline, or an early winning sign that they have the potential to rise.

Posted on February 20, 2023February 20, 2023 by John Lindeman

One enduring legacy of the pandemic

During the COVID-19 pandemic years our government battled to keep the economy in growth despite lockdowns and border closures by creating massive amounts of new money. We are about to experience the legacy of this strategy in the form of higher interest rates, inflation and rising housing prices.

At the onset of the pandemic, most economists and analysts believed that lockdowns and border closures would send our economy into recession.

Huge fiscal stimulus packages were rolled out, designed to keep the economy ticking along until the crisis was over. The government pumped one trillion dollars of newly minted money into the economy, created by and then borrowed from the Federal Treasury at historically low interest rates.

The resulting relief schemes gave welcome financial support to workers and businesses and while much of this largesse was deemed necessary, our economy is now awash with nearly one trillion worth of dollars that didn’t exist before the pandemic.

This time it was going to be different

Printing more money has always led to higher inflation, but this time, the experts assured us, the huge amount of “quantitative easing”, (which is what economists call money printing) would not lead to inflation. The reason was because it was designed to keep the economy in growth, rather than generating more spending power.

Although we were assured it would be different this time, basic economics dictates that creating money causes more demand. Without more supply, inflation is the result. The trillion dollars of new money washing around our economy will continue to generate inflation until inflation itself slows down the level of demand.

Since its creation in 1959, the Reserve Bank’s mantra has been to control inflation, but its only tool is the cash rate, which sets benchmarks for home loan interest rates. This means that whenever inflation rises, interest rates follow. Right now, these two unwelcome newcomers are once again impacting the property market, but what is the likely outcome for housing prices over the next few years?

Inflation and housing interest rates are linked

The Reserve Bank has always used interest rates to control inflation, and the first graph shows how this has led to home loan interest rates and inflation being closely linked since the Reserve Bank was created in 1959. You can also see that interest rate movements have tended to lag behind inflation changes by at least a year.

The lag in interest rate rises shows how the Reserve Bank has reacted to changes in inflation rather than trying to anticipate them – except for the last nine rate rises. This time around, interest rate rises have coincided with increases in inflation. This could mean that the bank believes that interest rates are far too low, or it may be that the RBA expects inflation to rise more quickly than previously anticipated, or it could signify both.

The graph also demonstrates that since the nineteen seventies, home loan interest rates have always been higher than the prevailing inflation rate – except for right now. This also means that interest rates may rise further, at least until the rate of inflation reduces.

Interest rates have never had a long term impact on housing prices

This next graph shows that higher interest rates, which at times exceeded thirteen percent during the seventies and eighties, had no negative impact on house prices. In fact, even during the worst periods of high interest rates, housing prices rose annually by ten percent and more.

The reason for this apparent contradiction is that housing prices are influenced by inflation significantly more than they are by interest rates. The next graph shows the close correlation between inflation and house price movements. The reason for this is that inflation affects all households, whether they are homeowners, renters or potential buyers, but only a small percentage of households are seriously impacted by higher interest rates.

One third of our dwellings are fully owned without any mortgage, while another third are owned by investors who can claim interest costs as a tax deduction and can also recoup them from tenants by periodically increasing the rent. According to the ABS, the total value of mortgage debt is only twenty percent of the value of all residential property and only around ten percent of homeowners are recent buyers who are now paying higher interest rates than when they purchased their homes.

This explains why interest rate movements normally don’t play a large part in house price changes, but also prompts us to ask why the recent rises in interest rates have led to house price falls.

How the housing market is likely to perform over the next few years

The reason that housing prices have been falling in many locations is because the market is in a state of shock after we were assured that there would be no rate rises until this year, and were then slugged with a record number of consecutive interest rate rises.

This has led to a widespread fall in buyer confidence, even in areas where most buyers are investors, upgraders or downsizers and as such, are relatively immune from rate rises. This pessimistic outlook will quickly dissipate once interest rates stabilise in future.

In coming years, house prices are far more likely to perform in line with inflation, along with other goods, services, incomes and outgoings. As far as the property market is concerned, higher inflation will lead to higher housing prices and this will become the most enduring legacy of the pandemic.

Posted on November 15, 2022February 20, 2023 by John Lindeman

Perth’s housing market is set to boom

According to property market analyst John Lindeman, all the indicators are pointing to an imminent Perth housing market boom. A thriving economy, massive labour shortages, huge population growth forecasts, the most affordable buy prices of any State capital city, plus an acute and increasing shortage of accommodation.

Australia is such a vast and varied continent that property market booms can always be found somewhere. When market slowdowns occur as they have in most areas over the last six months, we only need to look for other markets which have the potential to boom while the others are in gloom.

Right now, Perth is the standout property market for investors, with our highly accurate and patented housing market prediction solution forecasting both positive cash flow and strong price growth for the city.

This prediction was supported by our recent on the ground research trip to Perth. We discovered a positive and vibrant city ready to boom.

Western Australia’s economy is booming

Underpinning our boom prediction is the Western Australian economy, which is going gangbusters. The State generates half of Australia’s resources export income from iron ore, petroleum, gas, gold, nickel and other minerals. With China buying one third of our exports, the Western Australian economy stands to be the biggest beneficiary of any improvement in trading relations with China, so it’s encouraging that the Australian government is actively patching up diplomatic relations with China.

There is a massive shortage of workers

The State’s growing economy has led to a massive shortage of workers, especially in Perth. The State has one of the lowest rates of unemployment at 3.4% and the highest participation rate of all our States. For the first time in recorded history, there are more advertised job vacancies in Perth than there are people looking for work. These figures indicate that the State needs more workers, and needs them urgently.

High population growth is forecast

As a result of the acute labour shortage, the State Government is actively promoting Western Australia as a destination for skilled work regional migrants (491 Visas) and has successfully lobbied to have all of the State declared a designated regional area.

This means that skilled migrants on regional 491 visas can arrive, live and work in Perth, the only capital city which has achieved this distinction. In addition, the government has waived Visa application fees, dramatically increased the list of available occupations, removed the requirement for applicants to demonstrate that they have sufficient means of support on arrival, and reduced minimum English competency levels.

A massive rental accommodation crisis is looming

Perth is already experiencing a shortage of rental vacancies, with rental vacancy rates below one percent, but according to the government’s Western Australia Tomorrow forecasts, the State is expected to receive 25,000 net overseas arrivals each year, most of whom will be renters.

According to Realestate.com.au, there are currently only 2,100 advertised rental vacancies in Perth, and just 2,800 in all of Western Australia, which includes all types of dwellings.

This indicates that a massive rental supply issue is about to hit Perth as new arrivals and others looking for accommodation will have to compete for the few available rental properties.

Perth has a huge housing supply shortage

Not only does Perth have an imminent rental supply issue, but there is a general shortage of new housing stock. Because property values have not grown in the last eight years, it is now far cheaper to buy an established house in Perth than to purchase a new build with similar features.

The rate of new builds has reduced so much, however, that the market has reached a turning point, with not enough new dwellings listed for sale to meet buyer demand. At the current rate buyer demand, Perth only has three months of stock available on the market and property buyers are being forced to compete for established dwellings, pushing prices up.

Perth’s housing market is less susceptible to interest rate hikes

With most buyers in a state of shock following seven consecutive rate rises, the impact is likely to be far less in locations where buyers need to borrow less to purchase a property. When we order capital cities by their median house prices, we see that Perth is currently ranked seventh, which is the lowest it has ever been and the first time that Adelaide’s median house price has been higher than Perth’s.

Perth’s comparatively low buy prices not only lessen the impact of higher interest rates, but they will also attract both local and interstate investors. Asking rents will soon turn Perth into the only city with positive cash flow opportunities and this will be followed by a massive lift in housing prices, as investors and home buyers compete to purchase properties.

Posted on October 17, 2022October 17, 2022 by John Lindeman

How to predict cryptocurrency performance

Many investors are tinkering with cryptocurrencies and wondering where they fit in a properly balanced portfolio. John Lindeman reveals their true place in the investment matrix, and explains how they are likely to perform in future.

Bitcoin was promoted as “digital gold” after a meteoric rise in price following its launch around fifteen years ago. Despite some spectacular crashes, cryptocurrency advocates still insist that they are a secure form of investment, being high tech, innovative, blockchain based and disruptive.

This conveniently ignores their extremely volatile recent performance. For example, Bitcoin’s price has swerved from a high of $93,385 to a low of $25,663 in the last twelve months, and this highly volatile performance gives investors no real clue to its potential performance. It is clear that cryptos do not perform like gold, savings or property, so how can investors make informed trading decisions?

Crypto investors are increasingly using the stock market as a guide

Without any reliable forecasting guide, cryptocurrency investors are reacting to market indicators such as inflation, interest rates and investor confidence in the same way that stock market investors do. This is because shares and cryptos have many features in common, such as the ease, speed and low cost of trading, plus of course, their volatility.

The result is that more cryptos are purchased when investors are buying shares, and more are sold when share investors are also selling.

So, cryptocurrencies are starting to perform as if they were pseudo shares, but there’s one crucial difference between cryptos and shares.

Shares represent real equity, not virtual keys and wallets

Shares represent equity in a company, so you are “sharing” ownership of the company itself. The better that a company performs, the more investors will compete to buy its shares. But, when you buy cryptocurrency, you don’t own anything other than a private key and a digital wallet, so the value of your investment is controlled entirely by notional demand or the lack of it.

This means that while the direction of crypto prices will generally mirror that of the stock market, the intensity of change is likely to be much greater, which is exactly what we have witnessed this year.

The graph shows that year to date falls in major crypto prices have been far more severe than those experienced by the Dow Jones or ASX.

The growing link between share prices and cryptos indicates that any stock market recovery should be accompanied by a massive rise in the price of many cryptos, but which ones? There’s no guarantee that yours will be one of them. This is why Investors should treat cryptos as a high risk boom-bust investment option, offering the same wild roller coaster rides as speculative shares which are bought on hope rather than sustainable business models.

Posted on September 19, 2022October 17, 2022 by John Lindeman

The coming cash flow bonanza

Many investors are wary of buying properties in areas with a high percentage of rentals, perceiving them as being low income, socially disadvantaged areas with high levels of unemployment and public safety issues.

But, is there really any logic to this anti-rental stigma? Such negative thinking could even lead some of us to miss out on the huge cash flow bonanza which is about to be unleashed in many of our property markets. The first thing that investors need to understand is that locations with high numbers of renters are often also the most affluent and that for many households, renting is a lifestyle choice.

Most renters are young, professional opportunity seekers

This graph shows you that wealthy countries with high per-capita incomes such as Switzerland, Hong Kong, Germany and South Korea, also have the highest percentages of renters.

In some countries such as Switzerland, the number of renting households even outnumbers those of owner-occupiers.

It’s a totally different situation in countries with low numbers of renters, such as Albania, Romania, Slovakia and Cuba which are also low income and even economically challenged.

This would seem to indicate that the higher the percentage of renters in a city, region or country, the more affluent or wealthy it is likely to be.

For example, many high income, aspirational young professionals choose to rent in inner high density suburbs such as Docklands, Southbank, Barangaroo, Fortitude Valley or Newstead because these locations offer a wealth of lifestyle, employment, education and entertainment options not available elsewhere. Not only is it cheaper for them to rent than buy, but they can live in an apartment which they could never afford to purchase anyway.

It’s critical that the numbers of the right types of renters is growing

While investing in an area which has the right type of renting households is important, it is also essential that their numbers are likely to increase, because this leads to rental shortages and rising rents.

Since February our international borders have been progressively opened to overseas arrivals, a process which was significantly increased at the recent Jobs and Skills Summit, with the announcement of 195,000 applicants to be accepted under the Work Visa process. They will be joined by thousands of Family, Student and Business Visa arrivals. The vast majority of these new arrivals will be young, aspirational opportunity seekers, and definitely the right type of renters.

But when we compare their numbers to the total advertised rental vacancies in each State and Territory for all types of dwellings it is obvious that the numbers don’t stack up.

With only 51,000 rental vacancies in Australia, we are facing a massive rental shortage unlike any seen before.

Such rental crises have been partially resolved in the past by renters reluctantly moving into boarding houses, temporary dwellings, granny flats, caravan and holiday parks, even hotels and motels, but the real solution can only be a massive increase in the supply of new rental accommodation. This turns up another issue, because the locations offering lifestyle, employment and education opportunities sought by renters are usually not the same as those preferred by developers.

As asking rents keep rising, this will generate a massive number of investors seeking high cash flow, but even then it is unlikely that the numbers of investors in inner urban locations will be sufficient to meet future rental demand and a huge cash flow bonanza is highly likely.