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!

The number of homes being put up for auction across Australia has plummeted as falling property prices and fewer cashed-up buyers shake the confidence of owners looking for the right time to sell

Episode 25 The number of homes being put up for auction across Australia has plummeted as falling property prices and fewer cashed-up buyers shake the confidence of owners looking for the right time to sell The decline of auction rates and confidence in the market...

Understanding foreign currency

Episode 31 Understanding foreign currency Welcome to Finance and Fury. Before I start I want to say a massive ‘Thank you’ to our listeners. We cracked 150k downloads in the first 6 months which is phenomenal. Also, thank you to everyone who has taken up the course – I...

Say ‘What’ Wednesdays: Is it time to jump ship? Should you sell your bank shares?

Say 'What' Wednesday Is it time to jump ship? Should you sell your bank shares? Today’s question comes from Jake. He asks “should I sell my bank shares, given the recent fall out from the royal banking commission?” IMPORTANT: This episode comes with a general advice...

How much is the economy of regional Australia worth?

Say What Wednesdays How much is the economy of regional Australia worth? Australia's regional workers and their contribution to the economy: Welcome to this week’s ‘Say What Wednesday’ episode! Our question today comes from Anna …who was actually listening to our...

[Financial] New Year’s Resolutions: how to get ahead in your finances and be in a better position this time next year

Episode 16 [Financial] New Year's Resolutions: how to get ahead in your finances and be in a better position this time next year Welcome to the New Financial year – looking back on the year, are you in a better or worse financial position than you were this time last...

Bonds; How do they work, when do they increase in value and how do they fit into your portfolio?

Episode 20 Bonds; How do they work, when do they increase in value and how do they fit into your portfolio? Today’s episode stems from the question last week from William about investment bonds (an investment vehicle, kinda like a life insurance product). Today...

(Intro Series) The wrap up party

Intro - Episode 6 The wrap up party Hey guys! Welcome to the wrap up party for this little intro series Well done if you’ve made it to this point listening. I know a lot of it could have come across pretty confusing …and don’t worry I was quite confused myself by this...

Say What Wednesday: Welcome to the Wild West

Say What Wednesdays Welcome to the Wild West Welcome to Say What Wednesday This week we’re going to answer some of the burning questions that have been on a lot of peoples’ minds around the banking royal commission…and rather than repeat everything you’ve been hearing...

Furious Fridays: The Holocaust, famine in the Ukraine, and how we just keep repeating the same mistakes, Rick and Morty style

Furious Fridays The Holocaust, famine in the Ukraine, and how we just keep repeating the same mistakes, Rick and Morty style Welcome to Finance and Fury, Furious Friday Have a think about how much you know about history? Are you familiar with the big events, like WW1...

Buying Property inside an SMSF: Tips and traps, what works and what doesn’t

Say What Wednesday Buying Property inside an SMSF: Tips and traps, what works and what doesn't Welcome to Finance and Fury, 'Say What Wednesdays' where each week we answer your questions. This week's question is from Sandeep: “Hi, Can you please talk about how to...

Pin It on Pinterest

Share This