Help me to Retire

Well what a few months it has been, it’s like the last few years of the stock market’s bull run never happened.

So how did we get here? Well heres a quick visual run down.

Hopefully most of you haven’t been hit too badly if you have been trading for yourselves, but if your anything like me your Super (401k) has taken a beating in the last year. In fact the only person I know who’s super has gone up in the last year is my father in-laws, who I advised that the market was peaking last year so he smartly moved it into cash. He reminds me of it every time I see him…  If only I followed my own advice! Unfortunetaly for him as cash rates are coming down so fast at the moment, soon that won’t be offering much either.

So what do we do?

I’ve personally been getting educated the last few months, and comparing this financial crisis to the only thing that even comes close and that is bear markets and crashes of the past.
The main thing that has stuck with me from anything I’ve read or learned in the last few months about similar times like these is that after every crash or bear market money flows into property with a lag in time.  The lag is the only thing that worries me at this time as it may be longer than in the past due to strict financial conditions.
Here in Australia we do not have the housing over supply situation that America does. We have a large shortfall that is actually increasing. This undersupply is what will support Australian house prices. It all comes down to supply and demand. Sure some areas will do worse than others and even fall in value but in general we will not see huge falls in the price of our homes.
One thing is for sure at the moment, if you have the equity and can get the finance it seems like there are some great long term property deals at the moment. It’s the first time in years I’ve looked through realestate.com.au or the paper and seen some properties that actually seem cheap.  Avoid the usual supects of off the plan and high density apartments (these will do worse than others at the moment), just look for good location (with in 10ks of a city) decent property. The buyers are few and far between at the moment and some sellers are just getting desperate or sick of being on the market and they are dropping prices or accepting much lower offers.
Another thing worth investigating is property sub division. I’m currently working on splitting a property into 3 at the moment about 7Km’s from the city. The land will apeal to first home buyers with their increased building grant up until June 30 2009. I’m also dipping into some unit renovations to see how that fares in these times. I’ll keep you informed.
The 2nd lag to consider is the lower interest rates lag. It usually takes about 3 months for interest rate cuts to take any effect, but as we are getting big ones every month at the moment I think this is holding buyers off further seeing where they will stop. I’m sure by early next year they will slow down and the new year the property market should settle and have buyers return as long as unemployement doesn’t become too much of a problem.

Other problems at the moment mainly relate to finance.  Just this week 2 of the major mortgage insurers have made low doc loans a lot less usefull by allowing only a 60% lend instead of 80%. This I beleive has effected most of the big banks. This will have me looking for money else where too in any future deals which could be costly.

The other possible major finance problem is what Bill Zheng from Investors Direct calls the perfect storm. This is basically where sometime in 2009 or 2010 the world decides that Australia is in over its head financially and will not lend us any more money. We’ve been getting deeper and deeper into debt for decades and basically it can’t go on for ever…..  See Bill’s DVD’s here for more info on this one and for what he thinks you should do to prepare. I personally hope that this doesn’t occur and is sorted out some other way…..

Any way I’ve dribbled on enough for now, good luck with your Investing!

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