How to Achieve Financial Freedom

This is one of the most inspirational articles I've read and sadly, it is never taught in schools.

The 4 Steps to Financial Independence

April 23, 2014 by Michael Yardney Leave a Comment

About Michael Yardney
Michael is a director of Metropole Property Strategists who create wealth for their clients through independent, unbiased property advice and advocacy. He has been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au

With our property markets booming in many parts of Australia and the media reminding us that some properties are increasing in value by over $1,000 a week a whole new generation of Australians are choosing to invest in property to develop a degree of financial freedom and get themselves out of the rat race. 
Some will make it; but many won’t.
So let’s look at what financial independence really means and then I’ll explain what I think it takes to get there.

The 5 Levels of Wealth

I’ve found that as we take our investment journey we work our way through the following 5 Levels of Wealth.
We all start at on the bottom rung and we all hope to make it to the top of the ladder. But as I said, few do, so let’s first discover where you sit:

Level 0 – Financial instability

Since most Australians live from pay cheque to pay cheque, they’re what I’d call Financially Unstable.
If they lose their job or have an emergency such as an illness or their car breaks down, they have no money reserves to cope.
How can they handle the unexpected burdens that life dishes out if they have no spare financial capacity?
Often their only way out is to borrow more and get further into debt, but this only creates more financial hardship.

Level 1 – Financial Stability

This is the next rung up the ladder and to achieve this most basic level of wealth:

1. You’ve accumulated sufficient liquid assets (savings or money in a line of credit) to cover your current living expenses for a minimum of 6 months.
2. You have private medical insurance and some life insurance to protect you and your family’s lifestyle should you become ill, disabled, unable to work or if worst comes to worst – suddenly die.
When you attain financial stability, you have the comfort of knowing that should any unexpected challenges come your way, your family’s lifestyle will not be unduly compromised. You’ll have adequate time to look for new sources of income to put you back on track.

Level 2 – Financial Security

As this level you’ve accumulated sufficient assets, such as a substantial property portfolio, to generate enough passive income to cover your most basic expenses. These would include;

• Your home mortgage and all home related expenses.
• All your tax payments and the interest payments on your loans and debts.
• Your car expenses.
• Your grocery bills and minimal living expenses.
• Insurance premiums including medical, life, disability and your house.

When you reach this level you can stop working and maintain a simple, basic lifestyle.
But you want more than this don’t you?

Level 3 – Financial Freedom

You’re financially free when you have accumulated sufficient assets to generate enough passive income to pay for the lifestyle you desire, not necessarily your current lifestyle, and all of your expenses, without ever having to work again.
You’re now a successful investor, which doesn’t mean you won’t go to work again, but you can make the choice whether you keep working or not, or how much you work or what you do with your life.

Level 4 – Financial Abundance

A small group of sophisticated investors achieve Financial Abundance. That’s when their portfolio works overtime.
They’re free of financial pressures and have so much surplus income that after paying for their lifestyle, all of their expenses and contributions to the community (often through charity work or donations), their asset base continues to grow.
They’ve achieved this by owning a well-balanced, diversified share portfolio or a sound substantial property portfolio that grows in value and “spits out cash.”

Climbing to the top of the investment ladder

So how do you climb the rungs to the top of the property investment ladder and achieve financial abundance?
Here are 4 steps you can take:

1. Decide you want to become wealthy.

Most Australians dream of financial independence and want to be wealthy, but they never really make a firm commitment.
The problem is, if you don’t truly commit, life seems to get in the way and you get sidetracked.
So choose the date you’re going to be financially free, then put it in writing, make a firm commitment to yourself and tell others so you have no excuses.

2. Invest in your financial education.

If you’re a beginning investor focus on increasing your financial education – you’ll need to become financially fluent.
To fast track your success keep reading books, going to seminars, watching DVD’s and learning from people who’ve already achieved what you want to achieve.
If you’re a more experienced investor, your priority should be to actively grow your asset base sufficiently to allow you to become financially free. To do this it’s likely you’re going to need to do different things than you did to get to the level you are.
You’ll not only need to learn new more sophisticated investment strategies, but it’s likely you’ll need to surround yourselves with a different level of advisors and consultants.

3. Don’t wait until you know it all to get started, because if you do, you’ll never take the first step.

One of the things I learned early in the piece is the paradox of knowledge: The more you learn, the more you realise you don’t know.
Many people say: “If only I knew it all, I’d be safe.” But it doesn’t work that way.
As you learn new information you’ll uncover a whole lot of things you didn’t even know that you didn’t know. There will always be more to learn.
So how do you know when you know enough to start investing?
It’s when you have the courage and conviction to take action, knowing that you’ll never know it all, but that you’ll learn more along the way – educating yourself as you move up the investment ladder.

4. Surround yourself with like-minded people.

Despite what you read about in magazines, there’s really no such thing as a “self made millionaire”.
What I’ve found is that the small group of investors who become financially independent have done so in part by surrounding themselves with a smart team of advisors and professionals as well as other like-minded individuals.
They get a mentor to see their blind spots and guide them and at the same time they associate with others who have similar aims and aspirations.
If found that when you stop associating with people who are negative and point out all the things that can go wrong, and instead surround yourself with people who are positive this will spur you forward and you’ll reach your financial goals much quicker.

The lovely thing about money and wealth is that it really doesn’t discriminate.

Money doesn’t care who you are or even who you think you are, what your parents did or where you come from.
Each day starts with a clean slate, so you have the same rights and opportunities as everyone else to become wealthy.
So start making your way up the investment ladder towards financial freedom today.

 

Why I Ventured Into Australian and UK Properties: Currency + Capital Gains!

If you have been following my blog since 2011, you will know that I made several investments in London residential apartments in 2012 and early 2013. They have since risen by around 24% - 30%. On top of that, when I bought them, GBPSGD was around 1.91. It is now 2.10. On top of capital gains, I made a currency gain of 10%. When I started investing, the price to income ratio for London properties was around 11.8x. It is now 14.8x. It is still relatively cheap compared to Singapore's 23x. I believe GBPSGD will eventually rise to 2.25 when BOE starts to hike rates in early 2015. By 2016, I expect GBPSGD to reach 2.50. This is a further 19% currency gain.

I recently ventured into Brisbane and Melbourne. Again, part of the reason is that I believe AUDSGD will recover from 1.18. In my post yesterday, I talked about the recovery of the global mining sector. AUDSGD could break 1.20 by end 2014, and reach 1.25 by end 2015. This is a 6% forex gain over SGD. If the mining supercycle continues into 2016, AUDSGD could reach 1.30. I doubt it can go much higher than that.

Brisbane's price to income ratio is a very respectable 6x, while Melbourne's is close to 8x. Australian properties, despite what the press might have you believe, is NOT in a bubble. But in London, it is RED HOT, almost near bubble territory. The only other cities that I believe have major upside are European cities of Dublin, Madrid, Lisbon and Barcelona, as well as most American cities.

You should hedge your currency bets if you're a Singaporean by changing your SGD to GBP or AUD if you have further payments to make. Otherwise, if you're receiving your income in GBP or AUD, keep it that way.

It is also time to fix your mortgage rates for as long as you can. If you have a dual currency loan, you should keep it in SGD for the lower rates, that is IF YOU HAVE A HIGHER RISK APPETITE and A STRONG VIEW THAT SGD WILL WEAKEN AGAINST AUD and GBP. Getting your currency forecasts wrong could result in MARGIN CALL and it can be very unpleasant.

You should also know that long term, GBPSGD tends to fluctuate wildly. But mostly, the GBPSGD is trending down, with lower highs and lower lows. By 2017, we could see GBPSGD touching 1.75 if there is another global recession. For AUDSGD, it fluctuates between 1.34 to 1.00. These are very wild swings but the AUDSGD should not depreciate like GBPSGD over the long term.

It is precisely the wild swings in FX that you should be careful when borrowing in different currencies.

Stock Markets Rattled By Ukraine Conflict, China's Data

STOCKS

I check most macro, monetary, earnings and valuation indicators once a week. I mentioned quite early this year that we should sell in May and go away. I believe 2014 will be a year of greater volatility for stocks. We could finally see SOME EMERGING MARKET stock indices outperform the west.

My observations this week are:

1. Earnings growth in a number of markets on aggregate are slowing down. This does not bode well for the global recovery. I always believed that from 2000-2007, emerging markets' growth have been driven by the west's debt laden spending spree. Now that the west is slowly deleveraging, emerging markets' biggest engine of growth has stalled. China's poor export data did not surprise me.

2. PE multiples have been stretched precisely because of low interest rates and QE. Once QE ends, PE multiples could fall back to median levels.

3. Europe's stock recovery seems to have sputtered. I would take some profits off the table for Europe. They seem to have entered a deflationary phase and if ECB does not ease further, this dysfunctional family could face another correction.

4. The US remains the sole global power seeing sustainable growth. Earnings growth has moderated but it is still on the high single digits.

5. The CHINESE HANG SENG index (HSCEI) seems to enter the BUY zone now. It is the only stock market firmly in this zone. The yield curve has normalized again. Inflation is falling. Earnings are recovering slowly. Valuations is one of the cheapest among the major economies, save for Russia. On closer inspection, the cyclical sectors like insurance, and SOME industrial companies seem to be of good value. I don't think the Chinese market will rise strongly because the country is still over reliant on the construction sector and any stimulus is likely be small

6. The banking sector in the US and Europe, mining, and technology sectors are still strong buys. Valuations for banks are still extremely cheap as the real estate sector in the US and Europe recovers.

Overall, I don't see a recession until perhaps 2017. So stocks could rise until 2016. However, I expect a lot more volatility from now on, with VIX rising past 15 more regularly. Once interest rates in the west start to rise in 2015, valuations should rate lower, unless earnings growth picks up strongly. It is a BIG IF.

Bottom line: 6-7% capital gains per year for US stocks from now till 2016. Potentially 7-10% for emerging market stocks per annum but it could drop lower before we see the bottom. Cyclicals to outperform other sectors from here on.

BONDS

the US 10 year yield fell to 2.67% recently. So much for the yield curve steepening theory due to tapering. I'm very surprised to see Cheong Kong 5.125% perpetuals rising to 96-97. It is time to take some profit off all the perps without interest rate resets,  as well as long dated bonds.

Move to short dated high yield bonds. I still see opportunities in CNH, USD and SGD space. If you still own bond funds with a straddle strategy or majority in investment grade bonds, it's time to redeem.

NZ is on the interest rate tightening cycle. It's really time to take profit off NZD fixed rate bonds. I've been saying this since Jan 2014. Australia will be the next country to hike rates, probably in six months' time. Take profit from your long dated AUD bonds and move to FRNs. The AUDSGD may appreciate because my premise is the mining sector in selective areas, e.g copper , energy is recovering. Coal is still in the dumps.

Caveat: every portfolio is different so you should consult your adviser before making decisions. 

Land Prices in Singapore, KL and JB to rise

Over the next 10 years, I expect Freehold land prices to appreciate faster than market. To me, market means the overall housing market, including private condos, terraces, semi-detached, bungalows, and public housing. My predicted appreciation for each property asset class in the next 10 years are as follows:

1. Overall housing market: 4% p.a.
2. HDB, if you bought from the govt at subsidized rates: 6% p.a.
3. HDB, if you bought from the resale market without subsidies: 4% p.a.
4. ECs, if you bought from the govt: 5% p.a.
5. 99yr Condos: 2% p.a.
6. Freehold condos: 4% p.a. Govt land sales are only 99 yrs. Rare factor in play.
7. FH terraces: 3% p.a. Land values have already risen at a premium to FH condos' strata on a psf basis. Rarity factored in.
8. FH semi-detached: 4% p.a. Land values is also at a premium to FH condos' strata.
9. FH bungalows: 5% p.a.

Landed or condos? I'd rather buy a condo in a good location, near good schools, MRT, amenities like cafes, restaurants, shopping centres than a house with no amenities.

GCB land is going for around SGD1300 - 1400 psf. I believe it will appreciate by 5% p.a. for the next 10 years.

Prime bungalow land in KL is going for RM 500 - 600 psf for the same size, i.e. > 24k sf. Singapore's land prices is 6.4x of KL's. I believe the gap will eventually narrow to 3.5x, which is the income gap between Singapore and KL. If I assume prime bungalow land will be SGD2,200 psf in 2024, and the gap will narrow to 3.5x by then, KL's land will be RM1,635 psf. This translates to 11.5% p.a. This price appreciation will definitely beat Malaysia or Singapore stocks, or any other type of property asset class.

For Leisure Farm in Iskandar, if you assume that by 2024, it will be 30% cheaper than KL's because land will still be more abundant in Iskandar even by 2024, and income in Iskandar will still lag behind KL, then it will eventually settle at RM1,258 psf. It is currently at RM160 psf now for 24,000 sf. This translates into 22.9% per annum of return unleveraged!

Even if I assume that Leisure Farm's discount to prime KL will be 50%, it will still reach RM818 psf by 2024. That means 

Why London Property Rally Still Has Legs....

http://www.homesandproperty.co.uk/property-news/new-homes/mayor-boris-johnson-backs-new-riverside-schemes-ease-new-homes-shortage?ito=1610&utm_source=eshomesandproperty&utm_medium=email09042014

If I were selfish, I would prefer that the councils never approve high density apartments, so that my properties will go up in Px.

The biggest problems with uk housing are:

1. Economic growth is not well spread out. For the whole of uk, only London and maybe Aberdeen are growing rapidly in GDP. London's population is growing at 100k per year. They need 40k of new homes plus another 20k to make up for previous decades of under building. The uk govt needs to spread the growth around so that not everyone will go to London to get a high paying job.

2. But the councils are too slow and stringent in their approvals. There's an obsession with "keeping with the character", hating high rise towers.... This has to change. London dwellings are already in the pits in west London. For £500k you can only afford a tiny 500 sf apartment masquerading as a two bed apartments. All bedrooms should allow you to walk around a double bed, plus a closet. The kitchen must be big enough to do your daily cooking without knocking over something on the stove. http://matusikmissive.com.au/2014/04/09/6837/

3. Completed new homes are in the region of 25k in 2013. This is still far short of there required 60k. It will take many years of political will to override councils' slowness. The Britons need to get used to living in high density apartments, more compact houses with balconies instead of gardens, just like the Australians do. I suspect by 2018, London will complete close to 40k, still well short of the required 60k for 5 years to make up for previous shortfalls. By 2020, supply demand will be in equilibrium.

4. But London's housing boom will not last forever. Price to income already hit 15x, vs brisbane 6x, melbourne 7x, Sydney 8x, New York 10x, Houston 5x, Los Angeles 6x. But still cheaper than Singapore's 22x, shanghai's 36x, manila 26x. London is already the most expensive and unaffordable city in the Western Hemisphere, beaten only by higher growth Asian cities.

5. Between 2014-2018, London's house price will continue to rise unabated, but at a slower rate of 5-8% pa. Between 2018-2020, it will slow down to 1-3% or even fall slightly due the equilibrium.

6. Rental growth will be slow, at between 1-2% from 2014-16, because help to buy scheme will push many first time home buyers to buy east London like docklands, woolwich, Stratford, and the far flung west like ealing, acton, slough.... But from 2017 onwards, rental growth would revert to 3-5% pa because the help to buy scheme would end and price to income could be over 18x, making it politically unsustainable. The level of home ownership in London will fall further to record lows, pushing most young people to rent.

8. Other investments by the uk govt could alleviate the housing shortage, such as high speed rail from birmingham to London, so that more could commute to work in London.

9. London's rule of law is strong, it will continue to be the top choice for international investors. Asian cities suffer from lack of transparency (except Singapore and hk), reckless approvals with aggressive population forecasts, unsure land title ship .... In Asia,the developers are often the ones who make the most money selling new projects, and they cause the property index to rise. But the secondary market is illiquid and most investors find the difference between new builds and resale as huge as 70%.

Conclusion

The housing situation in London dire. It is already the most expensive place in the Western Hemisphere, due to decades of under supply, stubbornness of the councils to approve infill sites quickly. This must change. Economic growth must be spread more evenly to manchester, Birmingham, Liverpool, Glasgow and Cardiff. A case in point is that birmingham, despite its tag as the second largest city in uk, did not grow in population at all, while London grew at 100k per year.

For this reason, I actually think London's house price growth has legs until at least 2018. It will not be pleasant for those who are looking to climb on board the property ladder. Dwelling sizes will shrink, houses meant for a 3 bedroom single family home will be sliced and diced into 3 tiny squats with 2 tiny bedrooms each. The council should look into this.

West London will grow much faster than the east because there is no supply, whereas the east is inundated with new builds mostly sold to Asian investors. The new builds are of good sizes and actually very well built compared to many of there crumbling homes in the west. But I believe the oversupply will cause east London to underperform for the next 5 years.

The cross rail completion will actually help west London instead of the east, because you can now live in ealing, slough and get to the cbd in 20 mins instead of one hour. But you need to by resale apartments in the west, not new builds.

Singaporeans like swimming pools and gyms in the condo facilities. But such facilities in London and New York mean very high service charges or HOA, that higher rents cannot fully offset, resulting in much lower net yields. Labour costs and maintenance is much higher in the west than in Singapore.

London Docklands Limehouse Basin Grand Union Canal 4 four blocks apartment development. High density projects with unlimited supply.

Tree lined houses in west London. Low density projects with very limited supply.

 

 

Sales person vs adviser

Another great article from Michael Yardney's blog.

Many people, especially Asians and particularly Singaporeans, think that they are doing themselves a service by attending free seminars. Well in life, nothing is free mate. You pay for what you get.do not do the following:

1. Pay several thousands to join a property club, only to learn nothing but get sold products with high hidden margins. 

2. In general, don't buy properties from exhibitions. There are exceptions and I've had good experiences dealing with Colliers for GMV. the agent himself ( Jonathan Lim) was a property investor in London  so I trusted His judgement.

3. Do not buy off plan projects in general. They are usually found in places that are regenerating. However, the local authorities may plant a new tube station or shopping centre there, but it usually comes with even greater supply than demand can absorb. Once your apartment is completed, you will find it difficult to rent or sell it when everyone else will put their projects out for rent / sale. 

Do the following:

1. Ask your financial adviser how they are paid. This determines the quality of advice. I'd rather pay 2% for good advice than nothing upfront but sold something that is inferior! with high hidden commissions.

2. Do buy your off plan properties or from exhibitions at the right point of the cycle, like London in 2009-2012. Brisbane now, or Sydney in 2012/13. Similarly be greedy when others are fearful when it comes to stocks. Buy at cheap PE or low price to book.

3. Do compare what you buy with the surrounding area. Do not compare a Philippine property and say it is cheap compared to Singapore. Always ask if locals can afford to buy it from you.

4. Trust someone who walks the talk, or eats what he cooks. They have a proven formula and chances are they are financially free and successful. Worship the ground they walk on. But make sure they have integrity. Not all successful people are kind and honest. 

Property Investors: How to tell the difference between a salesperson and an advisor- Damian Collins

April 9, 2014 by Damian Collins Leave a Comment

About Damian Collins

Damian is managing director of Momentum Wealth, a Perth based property investment consultancy firm. A successful property investor in his own right, Damian formed Momentum Wealth to assist time poor investors in building their portfolios and applies his many years of experience to help clients accelerate their wealth creation. Visit Visit www.momentumwealth.com.au

One of the things all property investors need to understand relates to who you should trust for advice and, specifically, the difference between a salesperson and an advisor.

For anyone considering investing in property, there can be a lot of information to take in, and it’s not just about property.

One of the things all property investors need to understand relates to who you should trust for advice and, specifically, the difference between a salesperson and an advisor.

You would think that this is an easy distinction to make, but not so.

Many salespeople wrongly present themselves as “advisors” and go to great lengths to convince you of this. They do this to build trust, knowing that you would probably rather buy from someone you trust.

So how do you tell the difference? Here are some key things to look out for.

The ready-made solution

There are many skilled and honest salespeople out there, and many of them may genuinely want to help you. The problem lies in the fact that salespeople often have a solution already in mind before they even know what you might need.

Salespeople may appear as though they are representing you, the buyer, but in fact they are working for a seller or property developer. How many times have you heard a salesperson recommend a competitor’s product or steer you towards an option that doesn’t result in a sale? And you can’t really expect any different because it’s their job to sell.

Advisors will generally provide a consultation before recommending any course of action, carefully listening to your needs before considering a variety of options. A true advisor won’t be swayed one way or another but rather focus on what is best for you.

It’s their duty

Salespeople are trained to overcome objections, win trust and ultimately get the deal done. Advisors, on the other hand, are trained to asses a client’s circumstances and offer the best alternatives in the area of their expertise, whether it is property investment or taxation.

Advisors generally have a legal duty to do what is best for their clients. But it’s important you always know whether or not you are actually ‘the client’. Many buyers take the advice of selling agents, for instance, even though these agents must represent the interests of their sellers.

Follow the money trail

If you’re unsure whether someone is a salesperson or an advisor, just ask them how they get paid.

Generally, people who are paid by the seller are sales people, whereas those who charge a fee for their service are more likely to be advisors.

Buyers’ agents typically get paid when you buy, but their fee is fully disclosed at the start in a very transparent manner, which can’t be said for many salespeople cloaking themselves as advisors.

Conclusion

Whenever seeking advice or guidance on buying property, it’s important to be acutely aware of the differences between an advisor and a salesperson.

While you are free to hear anyone’s advice, you should always put the advice into the correct context and consider whether the advice has been tainted by any specific motivations. Your ‘advisor’ may end up just being a salesperson in disguise.

Real Estate Opportunities in Australia

Australia is quite unlike London. London needs 40k new homes per year nett but managed to build only 30k every year. Brisbane is in equilibrium. Melbourne slight oversupply in CBD. Sydney under supply but it has risen by 20-30% already...

The problem with London is at some point, something is going to give way and I suspect the councils will be very liberal in approving tall residential towers in the east and central from 2014 onwards. They may reach an equilibrium in 2018, but by then home prices would have risen by 20-40%. 

The trick to invest in brisbane or Sydney is to catch it at the bottom of the cycle, which brisbane is now, get a gross yield of 5.5% to 6%, achieve positive gearing and wait. Population growth is faster in the four capital cities vs London. London's average population growth is around 1.2% pa while melbourne's is 2.1%, Sydney 2%, brisbane 1.8%. At such growth rate, any excess supply is easily mopped up.

Historically, brisbane's house price appreciation is around 7% per year, from 1980 until 2014, with very little volatility, almost like a blue chip stock. 

Advantages of Australian capital cities over London:

1. Lower price to income ratios of 6-8x vs London's 15x. You can buy a house in a capital city for AUD1m, with land of around 4000 sf, just 15 km from cbd. In London, houses of such size costs double to triple at equidistance from cbd.

2. Faster population growth of 2% vs London's 1.2%

3. NO INHERITANCE TAX. This attracts lots of PRC and rich Asians. Inheritance tax in the uk is 40%

4. Long run, AUDSGD is likely to remain the same or appreciate due to its strong commodity sector. In the uk, we've seen the GBPSGD hit 3 in 2007 before falling to 2.1 now.

5

Disadvantages if australian capital cities vs LONDON 

1. Supply demand is in equilibrium in most Oz cities whereas London is still in shortage until 2018. Political pressure however is mounting on the London mayor and councils to approve more towers / high density projects.

2. Borrowing costs are around 4-5% in Australia vs 2-3.5% in uk. If you are not careful, you could hit negative gearing in Australia. 

3. The biggest negative for foreigners buying homes in Australia is that you have to buy them off plan and sell to locals. This can be partially mitigated if you choose your projects carefully, medium to low density projects in mature areas, not regeneration areas with acres of empty land.... 

Going forward, if you buy a well chosen project in brisbane / melbourne, you should achieve similar returns net of taxes as in London. 

Despite what they say, Australia is as affordable as a decade ago

April 6, 2014 by Michael Yardney Leave a Comment

About Michael Yardney
Michael is a director of Metropole Property Strategists who create wealth for their clients through independent, unbiased property advice and advocacy. He has been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au

In his recent commentary on Switzer Commsec chief Economist Craig James explained why he believes despite all the media hype that Australian homes are still affordable. He said:
The Rismark housing affordability measure indicates that home prices stood at 4 times household disposable income in the December quarter – a figure broadly unchanged on a decade ago.
Over the past decade disposable income per household has risen around 70 per cent while the average home price has lifted around 67 per cent.

What do the figures show and what does it all mean?
Gen Y has no reason to blame parents or grandparents – home affordability hasn’t really budged in the past decade. Home prices may be up, but so are disposable incomes.
Now when you are measuring home prices, you want the best information available.
And that is the data from the RP Data/Rismark Home Value index.
And if you want to measure income, there is no better source that the Australian Bureau of Statistics.

Put the two together and you should have the most accurate measure of home affordability.
The latest figures for the December quarter reveal that the median price of a home, in data taken from all regions across Australia, was $450,000.
The ABS national accounts estimate of disposable income was $1007.5 billion. The estimate of the number of households across Australia (from the Housing Industry of Australia) was 9,002,348. And the estimate of disposable income per household was $111,919.
Put the data together and Rismark calculates that the median home price was around 4.0 times disposable income in the December quarter.
That result for housing affordability was up from 3.9 times income in the September quarter 2013 and recent low of 3.7 times income in June quarter 2012 – the latter result being equal to the best result in three years and just above the best (most affordable) result in a decade.
Over the past year the median home price rose by 5.9 per cent, outpacing the 1.7 per cent lift in income per household. But interestingly over the past decade, the average income per household has risen by 70.6 per cent, outpacing a 66.7 per cent lift in home prices.
What does it mean? Simply, Australians have got richer over time. And, in fact, over the past decade, incomes have grown slightly faster than home prices. But broadly over the decade little
has changed in terms of home affordability – it has gone sideways.
Certainly homes are less affordable than 20 years ago, but that is not because income growth has been sluggish, but because wealthier Australians, utilising lower interest rates, and benefitting from more affordable basic necessities like food, clothing and transport, have channelled extra dollars into the family home. Homes are bigger and of higher quality than 20 years ago.
The latest data supports the Reserve Bank view that recent increases in home prices are not of undue concern.
But, clearly home buyers and investors must still make rational purchasing decisions.

State of the Stock Markets In April 2014

I mentioned in my post in early 2014 that I expect a steep correction of > 10% for developed markets (US and EU), and in the second half of 2014, Asia ex Japan / Emerging Markets could recover. Below is the hyperlink.

http://musingsonwallstreet.blogspot.sg/2014/01/thisis-something-that-i-do-for-my-own.html

I also mentioned on Feb 2014 that the mining sector could have bottomed. I bought the  First State Global Resource fund and it has since risen by 8.25%.

http://musingsonwallstreet.blogspot.sg/2014/02/why-i-believe-mining-sector-has-finally.html

I've also mentioned that European equities will be in a bull run. I bought Aberdeen European Opportunities in around Aug 2013 and it has since risen by over 10%.

http://musingsonwallstreet.blogspot.sg/2013/08/european-stocks-in-bull-asian-asean.html

Overall, I avoided Asia ex Japan or Emerging Market equities because I believe the US tapering will cause a liquidity crunch, causing short term rates to rise. In some countries, like Russia, Indonesia and India, their yield curves could invert.

Be Careful As You Approach Middle of 2014

There is no need to panic sell everything in preparation for May. Most stock markets are still in the NEUTRAL territory.

Markets to BUY:

1. For the first time, stocks in the Hang Seng China Enterprise look ripe for the picking. They are cheap again ironically as the Chinese economy is slowing down. The yield curve is still flat, credit markets are deteriorating. But the Chinese economy should not implode as the government is wealthy enough to prevent a systemic disaster.

2. Cyclicals like mining, technology and US banks are still a BUY. Most consumer durables, utilities, pharmaceuticals etc are already expensive so it is time for cyclicals to outperform.

3. Dollar cost into European banks as ECB is considering QE. The recovery of real estate should reduce NPLs and increase book values of banks.

Markets to SELL:

Most Emerging Markets are still a SELL. Thailand, Indonesia, Philippines and global real estate are on shaky ground. Global real estate is dragged down by Asian real estate developers that are facing bubbly conditions.

If you are well into profitable positions in Global, US, European stocks, do consider selling half and keeping cash.