Just a temporary capitulation of confusion!

Just a temporary capitulation of confusion!

I caught up with a client/subscriber on Wednesday morning (not mourning) at Bathers Pavilion for a coffee, to discuss the Mosman market. The economic doom and gloom was certainly not reflected by the number of local residents doing exactly the same. Despite the rumour that Mosman is about to witness a tsunami of mortgagee- in- possession sales, we decided that this simply would not happen and we have definitely not seen any distressed sales. This may well have something to do with the reality that when banks take possession, they are then faced with huge GST bills on the sales. What we are seeing today is plenty of “old” Mosman money ready to pounce on the “new” money should it stumble and fall.

With interest, I read an online flyer by Alan Kohler from his Eureka Report www.eurekareport.com.au which said “The investing world is waiting to see if Warren Buffet’s $5 billion investment in Goldman Sachs marks the bottom. Has the Oracle of Omaha done it again? Or has he bought too early? If any person can shift a market, he can. As he famously said “be fearful when others are greedy, and greedy when others are fearful”. A perfect summation of our Mosman property market is that it’s showing signs of uncertainty. We (most of us anyway) have seen this before and in all probability we will see it again, but the “new” have yet to be initiated. Remember these speed bumps?

A significant point was the announcement this week that hedge funds had their wings clipped with the banning of short selling shares – just the transparency the stock markets need to renew much needed confidence levels. Contradictory to previous trains of thought that the share market ran in the opposite direction of the property market it is clear that today, they are running parallel. Whilst it is challenging to pick financial and property market troughs, I keep going back to another famous Warren Buffet quote “Only when the tide goes out do you discover who’s been swimming naked.”

Residential real estate has always been viewed as a long term hold although having said that, the spotlight in Australia remains very much on household credit. These borrowing binges are now facing the test of time and although the tide is certainly out, businesses are still performing well by continually turning profits. More importantly our banks remain strong.

The Housing Industry Association (HIA) reported this week that again the toxic cocktail of high interest rates mixed with a lack of properties saw new home sales fall in August by 1.3 per cent; this follows a 7.2 per cent decline the previous month. With the residential rental rate around Sydney remaining unchanged in August at 1.2 per cent, the shortfall of 45,000 dwellings this year just highlights the problem, especially as a record 199,064 people immigrated to Australia over the year to March – the largest annual rise in our nation’s history.

With many jumping to conclusions that interest rates are on the way down, it should be noted that with the global credit crisis, the cost of money remains expensive and it remains highly unlikely that banks will pass on Reserve Bank of Australia cash rate reductions.

Plenty of de ja vu in our economy at the moment where importantly, memories of the “recession we had to have” see the “old’ money in a very strong position. The “new” will no doubt learn as the “old” did fifteen years ago – otherwise known as a life lesson. Cash is King and Mosman (both local and internationally) has plenty of Kings. Just that the “new” are now working overtime to ensure that they are not remembered as the Court Jesters! The absence of the once prized Aston Martin, is a stark reminder that today, we have a property market based on the benefit of hindsight! Cheers ^__^

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