Episode 18

Porsches, Paintings and Property Prices: Alternative investments and what they can mean for property and the economy

Alternative investments and what they can mean for property and the economy

  • Classical Car Index
    • The CommSec Luxury Vehicles Index lists the following as luxury vehicle makers: Audi, Aston Martin, BMW, Bentley, Ferrari, Hummer, Jaguar, Lamborghini, Lexus, Lotus, Maserati, Maybach, Mercedes-Benz, Morgan, McLaren, Porsche and Rolls Royce
  • Wine index – Liquid assets
  • Art or Luxury Property

 

Characteristics

  1. Almost like an asset backed security – No income, gains come from the increase in price of the good that backs it
  2. Capital growth focused rather than income
    • Pretty volatile – Based around demands

 

Luxury Investment Index

  1. Subjective pricing – Good example of ‘elastic’ and ‘inelastic’ demand
    • Imagine Demand supply cure
      • Demand slopes down, supply up
      • Demand – very vertical = Inelastic (remember through I being vertical)
    • Inelastic – necessities, price changes don’t affect demand
    • Elastic – horizontal – responsive to changes in demand, change in price, due to close substitutes
  2. Financial crisis – luxury declines – elastic good
    • Small change in quantity demanded, big change in price

 

So… what does this have to do with property?

  1. In economics no relationship is perfect – but they can be related. Lead-lag relationship
    • Historically: slowdown in sales of luxury vehicles = a slowdown of upper-end property prices.
    • This infiltrates the broader market.
  2. Luxury vehicle sales are still good – growth of sales is coming down from high levels

 

All about consumer confidence

  1. Confidence is demand: more confidence, more demand
  2. This is why there is a relationship in most assets that work off supply and demand –
    • Types of assets that are risky = Drop when confidence drops
    • People sell so the price drops
  3. Confidence (demanded) affected by many factors, a few factors:
    • Affordability – Wage growth
      • Plus, low inflation – 3% wage growth with 0% inflation better than 12% with 15%
      • Car affordability has never been better – Lower car costs, wages increasing
    • Anticipated environment – Prices continue to go up
  4. Confidence – Self-fulfilling prophecy – If people think that the economy is doomed, they run!

 

Components of the index – Micro and Macro

  1. Estimates of family finances compared with a year ago – up from 12.9 to 15.2
    • Looking back – own personal finances
  2. Estimates on family finances over the next year – down from 29.3 to 29.00
    • Looking forward
  3. Economic conditions over the next 12 months – up from 13.7 to 15.3
  4. Economic conditions over the next 5 years – down from 15.2 to 14.6
  5. Good time to buy a major household item – rose from 38.6 to 43.3

 

The current state 

  1. ANZ – Consumer sentiment – Rose 1.2% to 123.5 – Highest in 4 years (long run average = 112.9)
  2. WBC – Consumer confidence – Rose 3.9% to 106 

 

What will impact the future confidence and overall economy

  1. Wage growth – 2% wage growth required some adjustment after years of 3-4% per cent annual wage growth. But more people are realising that prices are growing at a slower rate than wages or are even going backward.
  2. Affordability – interest rates – Current borrowing to finance expensive goods is low
  3. External factors – market crashes in shares/business
    • Individual demand dried up
    • Leads to companies not earning as much (people are buying)
    • Leads to companies having to cut costs (affects supply potentially)
    • Leads to further demand drying up as people lose jobs
      • Incomes go down (or are expected to)
    • All of it has a similar pattern and is a chain of events.
    • Everything working together leads to an increase
    • Everything working against one another out of fear leads to an inevitable decrease

 

The take away

  1. Not designed to profit off – relationships aren’t perfect
    • Correlation doesn’t equal causation!
  2. When luxury car sales are in retreat – higher probability that home prices aren’t far behind.
  3. This episode was to give a better understanding about how the economy works
  4. Economy is a collective of millions of people
    • Bacteria – Growth
    • Microcosm where one good can show a trend for the overall health of the economy

 

Thanks for listening!

How do we reduce poverty?

Welcome to Finance and Fury, the Furious Friday edition. This week is a flow on from last week’s episode talking about the basics of supply-side economics. But, it’s going to be applied to a question we got from Nick. What is a solution for society that would...

Is rent-to-own a good idea if you are trying to get into the property market?

Welcome to Finance and Fury, the Say What Wednesday edition   Hi Louis, My wife and I a looking for ways to buy a home, given some credit history and income stability challenges. I was hoping to get your thoughts on Rent-to-own arrangements. I really enjoy your...

Furious Friday: What is the future of the Australian Economy?

Hi Guys, and Welcome to Finance and Fury, the Furious Friday edition. Today we are discussing the future of our economy. What is the future of the Australian Economy? Welcome Today’s episode is on the future of the Australian economy. In today’s episode we will cover...

How to create a rising share market?

  Welcome to FInance and Fury, the Furious Friday Edition.  Following the series of the Lucky Country – You don’t need to have listened to the last few FF eps for this one – rare event – but will be talking about a few related factors, like GDP growth, Interest...

Will property prices keep declining due to higher mortgage arrears?

Hey guys and welcome to Finance and Fury! Today we’re joined again by Jayden to talk about whether property prices will keep declining due to higher mortgage arrears. The RBA’s cookie cutter approach to rates will continue to try and help reduce chances of mortgage...

Making money from shares; ratios, prices and what to look for

Episode 4 Making money from shares; ratios, prices and what to look for. Welcome to Finance & Fury! ...Is it better to actually make money or take money? Today we'll be discussing whether it's better to actually cooperate with companies or compete with them, and...

Goals for the New Year

Welcome to Finance and Fury Welcome to the new year, depending on when you listen it may be new year’s eve or the new year  Hope you are in for a good night, or not recovering from one. Starting off with a question; looking back on the year, are you in a better...

How to be wealthy; Germs, Monopoly, and Competition Vs Cooperation

Episode 2 How to be wealthy; Germs, Monopoly, and Competition Vs Cooperation. Hey guys, and welcome to Finance and Fury. Today the misunderstanding we're going to be tackling is how to be wealthy. There seems to be a lot of “rich-hating” going on around at the moment,...

The pros and cons of purchasing property overseas

Episode 36 The pros and cons of purchasing property overseas Welcome to Finance & Fury. Today we’re back talking again about property…and more specifically, buying property overseas. Some Australians have given up on the dream of buying property in Australia due...

Say What Wednesday: Makin’ coin flippin’ houses

Welcome to Finance & Fury’s Say What Wednesday Today’s question is from Lucas, “Hey guess, just wondering if you think that flipping houses is a good strategy? Can you really make a living flipping houses?” Good question! Flipping houses has become very popular...

Pin It on Pinterest

Share This