US housing bubble burst predicted within 18 months

[Springbok]

Property News by Erwin Rode

Rode & Associates CEO Erwin Rode says that a major decline in US house prices will in a flash reduce US consumers’ wealth, which would be devastating for consumer confidence and, hence, spending. As this would ultimately filter through to companies’ earnings, the US, and international stock markets in general, will take a knock in anticipation thereof.

A weakening JSE would, of course, adversely affect local wealth, confidence, and expectations, which would also have ramifications for consumers’ propensity to consume, and hence growth. Slower US growth would also result in a deceleration in the Indian and Chinese economies, which would push commodity prices lower; this would be especially harmful to commodity-exporting countries such as South Africa.

[ottg]

Interesting reading. In my opinion a bubble burst can only be caused by a very serious event such as earth quakes, war etc. There are usually enough early indicators when a market is swinging. In general, all indications are that the JSE bull market of the past three years has come to an end. This is good news for the investor because cheaper prices will be coming soon. However, there are different opinions about the SA market. Regarding the real estate situation as the graph shows, has turned already - interest rates are raising and prices will stabilize.

A market correction does not mean a bubble burst but usually a stabilization of prices for a few years. In some areas, as the article at the link suggests, the focus will rather swift to lower priced houses again. As you know this is the normal cycle of events, South Africa with a huge housing shortage and a strong emerging black middle-class which only start to understand the benefits of home-ownership will ensure that the real estate market stays active for correctly priced houses for years to come. Yes, equity growth will be lower due to supply and demand.

http://www.fin24.co.za/articles/property/d...18-1795_2041113

As the saying goes “when the American market sneeze the rest of the world coughs” however the ripple effect is usually 6-months for RSA. But there are ways to reduce your risk. For example when the exchange rate worsens, you select rand hedge shares. When the interest rates peak you switch into bonds and sell when the rates are low. (Huge profits)

The JSE Industrials shows a decline since May 06 but then a new bull run since Aug 06. The predictions (in red) shows a decline from now till Feb 07 and a new bull run from March 07. Why, because of the heavy spending on infrastructure for 2010.