Creative Commons License photo credit: RR and Camera

At the peak of his career Elvis Presley was so popular audiences would sit and clap at the end of the night, demanding encore after encore.  They couldn’t get enough.  The only way to end the demands and disperse the crowd was for him to leave and to announce: “Mr Presley has left the stadium.”

A similar state exists in the Australian housing market.

Home owners have enjoyed stellar growth in prices – and want MORE, MORE, MORE!  They refuse to move.  They clap and whistle at an empty stage.

Among them are 1.3 million negatively geared property investors in Australia. Most enjoy only average incomes and are seeking a tax effective way to build a nest egg for their retirement.

They are blissfully unaware canny investors have already sold up.  The wise have unloaded their poorest properties – the ones that need upgrading or are hard to let – and paid down their mortgages.  They are ready for the slump with no debt and a quality property portfolio.

They will buy again later, when excellent properties are available at very low prices and finance is easy.

These investors have seen the wealth destruction in the USA and Europe. They thank the government for delaying the slump in Australia. And they quietly exit.

Prices may rise a little more, but the really big gains have already been made and will not be repeated.

Property is still sought by ‘Greater Fool’ investors, who believe prices can only go up or think they are quick-witted enough to sell into a falling market.  Canny investors simply do not expose themselves to such unnecessary risk.

In the US, one in five mortgaged properties are expected to default and be sold up.

Some here argue high immigration and household formation will support these sky-high valuations.  If that is so, why haven’t rents moved up to meet this stupendous demand?

So, to all those property bulls sitting in the stalls, clapping and cheering, I say: “Mr Presley has left the stadium.”