Safehaven | Real Estate Australia - Update

September 18, 2006

Real Estate Australia - Update
by Greg Silberman

Article originally submitted to subscribers on 7th September 2006...

The Aussie Real Estate (RE) market has been the Global leader since 2000. That is, it was the first to really accelerate higher, the first to stagnate and the first to fall (albeit marginally).

What with RE a HOT topic in the US right now, it would be appropriate to give an update on the Aussie Residential RE market in anticipation that what happens there ultimately happens in the US.

The upper end of the market i.e. $2M+ is still extremely hot.
The $500k - $1.5M is also fairly buoyant. Not much price action but lots of Volume.
Markets where buyers are employed in Financial Services and/or resources have held up well or even surged ahead (notable are Darwin & Perth which are both Resource hotspots).
Markets not underpinned by these demographics have stagnated or risen marginally.
Low-income markets that are most susceptible to rising Oil prices and higher interest rates have been DECIMATED!

In my view those Strong Spots may shortly join the Fallers!
Why?

It is becoming widely accepted that the US economy is slowing. Not least of which is evidenced by the Near Collapse of Home Building Stocks. Housing has generally been accepted as the economic engine behind the US if not the entire World.
The Fed obviously thinks the economy should soften now that they have Paused on further Rate Hikes.
And offcourse Long Dated Bonds have been surging higher as Weaker growth is being discounted into the Market.

Slower growth will ultimately mean Less Demand for Commodities (except for Gold which is counter-cyclical) and an inverted Yield Curve should slow the demand for Credit. Both of which will affect incomes in the demographics of those stronger RE Market segments. And by extension home prices in those brackets.

A Crash or a Global Slowdown?

Ahhh, the Million Dollar question.

With an economy unable Structurally to Slowdown (unemployment + debt = catastrophe). A Stock Market priced for perfection. And a geo-political powder keg ready to ignite (European Armada in the Mediterranean anticipating military clash with Iran). I personally think the chances of avoiding a Panic are Slim to None.

[In defence of a soft landing, the Aussie RE bubble popped in 2003 and has so far been a very orderly deflation - if the correlation holds than the US may at worst stagnate for the next 5 years.]

I am Sceptical and sure we will see Panic conditions emerge before the Fed begins slashing rates. At that time Asset Prices and Debt will deflate too quickly for Lower Rates to have any effect.

I'll hold to my original position and predict the US will escalate it's Global War on Terror as the only solution to accelerate Economic growth.

A Panic and Crash beginning 4th Quarter 06 and Gold to Da Moon!

More commentary and stock picks follow for subscribers...

Greg Silberman CA(SA), CFA
www.goldandoilstocks.com

Profession: Research Analyst and Newsletter Editor
Company: Ritterband Investment Management LLC

Career Brief: Greg qualified as the youngest Chartered Accountant and Chartered Financial Analyst (CFA) in South Africa in 1998 at 25 years old. After completing his traineeship with Grant Thornton he moved to London where he worked for JP Morgan Chase in their Fixed Income Swaps Division. Sick of the grey skies and cold weather Greg relocated to Atlanta, Georgia where he spent the next 4 years freelancing as a management consultant. His targeted clients were fast growing mid size US based companies and he worked across many industries including credit cards, health insurance and energy trading. Greg has recently returned from Sydney Australia where he spent the last 2½ years working in Equity Derivative Structuring for Perpetual investments a major Australian Asset Management Company.

Greg has a passion for the markets and has been writing Greg's market newsletter for 2-years. A newsletter focused on metal and energy stocks and recently non-resource small caps listed in the US and Internationally.

This article is intended solely for information purposes. The opinions are those of the author only. Please conduct further research and consult your financial advisor before making any investment/trading decision. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.