Latest / Money Grows on Trees / #268 - Is Australia’s Property Bubble About to Implode!

Transcript

#268 - Is Australia’s Property Bubble About to Implode! · Money Grows on Trees

0:00
The inflation adjusted returns on property rents
0:03
is zero. The value of property has grown astronomically,
0:08
but the real returns of rents haven't, which is like a company growing
0:12
massively, but the real profits haven't grown. When rates go
0:15
up, asset prices are discounted back at a higher value, which
0:19
makes the net present value lower. It's a mathematical exact certainty.
0:23
You can't deny it. The property boom wasn't necessarily built on the bricks.
0:26
It was built on mums joining the workforce in record numbers. And
0:29
here's why it can't be repeated. The standard mortgage go from 20 years to
0:33
30 years. Now it'll be 40. Then it might be 50. Isn't
0:36
it more like slavery? The Australian property market is well overdue
0:40
for a massive correction. It's in a bubble. I'm Lloyd James Ross, seven
0:43
figure investor and entrepreneur, and I've helped thousands of business owners and
0:47
professionals turn financial stress into success. If
0:50
you're stuck in old money habits, overwhelmed by investing or unsure where
0:53
to start, this is for you. I'll give you the mindset and
0:57
strategies to take control, grow your wealth and achieve financial
1:01
freedom. It's time to make your money work for you. Is
1:04
Australia's property bubble about to implode? Today,
1:07
we're gonna unpack the real numbers behind Aussie property, and
1:11
why the last 50 years is probably a one-off
1:14
miracle that cannot be repeated. I might be the
1:17
only bear in the Australian economy at the moment, I
1:21
get it, but after I finish this episode, I
1:24
believe you will believe me when I say that I can't see
1:27
it repeating what it's done in the last 50 years because of
1:31
these four main items we're going to run through with
1:34
you today. The first part of this episode is to
1:37
understand the golden era or what
1:40
I call the golden illusion. It's an illusion because to think it's going to repeat would
1:44
somewhat be succumbing to some recency bias to
1:48
suggest that what we just went through in the last 50 years will happen again. And I
1:51
mean like from the early 1980s up until now, so 45 to
1:55
50 years of absolute amazing property
1:59
gains. And so let's look at the golden illusion. Houses
2:04
grew or property grew in Australia, say from 70s up
2:07
to now, over the last 50 years, at around about
2:11
7.5% a year, which is unbelievably good. 7.5% a
2:15
year. Typically, bonds produce currently at
2:18
around about 4% to 4.5%. That's the risk-free rate. So anything above
2:21
that, if you look at the inflation rate of, say, core inflation
2:25
at 3%, what you're able to do with 7.5% is you're able to
2:28
beat inflation and get a reasonable return on your money. which is why
2:31
it's done so well. And it's done even better for those who've got leverage, which
2:35
is what's happened over the last 50 years. So you're getting
2:39
7.5% return on leveraged equity. So
2:44
it sounds amazing, right? But if you peel back the layers, if
2:48
you look at the last 50 years, inflation has actually been more like 5%, just
2:51
under 5%. And so if
2:54
you look at seven and a half percent minus five, the real returns on
2:59
property have been like two and a half percent. And so it's
3:02
not great. It's not great. But of course, again, what's
3:05
helped it is the leverage. So if you buy property for say, I
3:10
don't know, $500,000 as an example, and you've put $100,000 down,
3:13
you're borrowing 400K. And if the property doubles, you're
3:16
getting a massive five X return on your
3:20
$100,000 equity. So it's producing, massive equity
3:24
returns or returns on cash for
3:27
deposits, which has obviously created some wealth in this country, right?
3:31
A lot of wealth in this country. But here's the thing. Over
3:35
the course of that time, rents have grown
3:38
almost in lockstep with inflation. And I look at
3:42
our own place where we rent, and yes, I'm a renter. I'm a proud peasant
3:46
renter. I call myself a peasant. And when I get telemarketed,
3:51
they say to me, hello, can I please speak to the property owner? I say, I'm
3:55
sorry, I've got to stop you there. I'm a peasant. They say, what? I
3:58
say, I'm a peasant. They go, what do you mean? I'm a renter. They just giggle. And they get off the
4:01
phone pretty quick, because they want to sell to mortgage owners. All right. Our
4:08
rent, so we've been living in the same place for, we're now in our 13th year.
4:11
Same property, same rental, beautiful apartment on the river, it's nice,
4:15
great location. We've been there for 13 years because we can't find
4:18
anywhere really better to live. It's really good. And so, we live
4:21
in this apartment. Now, we were paying x rent for
4:26
it 13 years ago. And it actually applied the inflation rate
4:29
onto that and it got it up to almost, not quite, but almost
4:33
to today's rent. So what I realized was, We're actually paying, pound
4:36
for pound, when you factor in inflation, we're paying the exact, almost,
4:40
not quite, the same rent as what we were to begin with.
4:45
Fascinating, isn't it? So the real yield to
4:48
our owner, our landlord, is actually identical when you factor
4:51
in inflation. So I actually did that on our own property in
4:54
the last 13 years. So if you look at that, then it's a little
4:58
bit like, well, if the inflation
5:01
adjusted returns on property rents is
5:06
zero, which is what it is. then it's
5:09
like a company that is producing profits, but inflation
5:13
is rising at the same time as the profits. So by and
5:16
large, 13, 14, 15, 50 years later, the
5:19
business is actually not producing any more profits than what
5:23
it did pound for pound when you bought it. Yet
5:26
the value of the business has grown. So the value of property has grown
5:30
astronomically, but the real returns of rents
5:33
haven't. which is like a company growing massively,
5:37
but the real profits haven't grown. And when you find that in a
5:41
business, say in the stock market, a company that's growing massively, but
5:44
without any growth in profits, like Palantir, you
5:48
will find that it will come to a reckoning and
5:52
the value will fall back down to a reasonable value. So it's
5:55
like a PE ratio in stocks. the
5:58
price to earnings ratio in stocks where in property it'd be rent to
6:03
value of the property or rent to price. So you buy a property for 500k, it
6:06
rents for 25k a year, the P multiple is say 20. So
6:10
you're seeing this massive multiple expansion in the housing sector and
6:14
rents aren't really keeping up. What that tells me is it's driven by a
6:20
massive demand, but also the demand, where's the demand
6:23
coming from? And as you'll discover, it's coming from four
6:27
main factors driving it, that I don't believe, and
6:30
a lot of other property bears out there, my friends on X, if
6:34
you haven't followed me on X, go follow me on X, because man, every day I tweet
6:37
on there too. And I've got some friends on there that believe me as well, that we
6:41
were in this together. that we feel that the Australian property market is
6:44
well overdue for a massive correction. It's in a bubble. It's very obvious.
6:48
We don't know when, of course, but I have some friends in this fight
6:52
with me to suggest that it is. So there's four things
6:55
that drove this demand. It didn't come from nowhere. So what are the
6:58
four factors? We're going to unpack these four factors now. So get a short
7:02
pencils better than a long memory. So grab a notepad if you want to take some notes if you want to. But
7:05
this is what has driven the demand of the last 50 years, creating
7:10
this massive price rise but no rental increase pound
7:13
for pound from inflation. So the very first thing is this. The
7:17
very first or what's driven
7:21
this demand is effectively debt. It's
7:24
kind of created this rocket fuel. And what's
7:28
happened is there's been a massive increase in borrowing power.
7:32
So it's not been the fundamentals of any productive gains in
7:35
property. It's been the borrowing power of purchases over
7:39
time. And the borrowing powers come from four ingredients, right,
7:42
that I want to talk to you about. And the borrowing power effectively perfectly
7:46
matches the growth in
7:49
housing. So if housing in the last 50 years has grown by 7.5%, the
7:53
actual borrowing power has also grown by 7.5%. So
7:57
prima facie on the evidence, it seems like the demand has
8:00
come purely from borrowing. And that's
8:04
a little bit like someone who's in their house and all of a sudden you see them with a
8:07
nice car and they put a pool in and then kids are
8:11
going to this nice school and they go on these ski holidays to Aspen and you're like, whoa, they
8:14
must be doing well or they just borrowed all the money to do
8:18
it. And so that's kind of what's created this machine of house
8:21
price buying in the last 50 years. So they didn't grow
8:24
because houses got better, they grew because banks started to
8:28
lend more loosely and people were able to borrow more. So
8:32
it looks like there's an unstoppable money machine but if you open the hood and look inside, the
8:36
growth didn't come from the houses themselves, they came from the borrowing capacity. the
8:42
capacity is a once-in-a-lifetime occurrence because
8:45
of these four factors that have been compacted into each other. So you're
8:49
ready for the four factors? Let's move into the very first
8:52
factor and we'll break them down one by one. The very first factor is this one. And
8:55
I've said this on previous episodes before, but I want to just nail it. Falling
8:59
interest rates. This is the big one. Check
9:03
it out, right? In the 1970s, when Paul Volcker
9:07
had to lift rates to beat inflation from the oil embargo, when
9:10
inflation was running at like 15%, he had to lift rates to
9:15
17% to break the inflationary or break the stagflation, which he did,
9:18
thankfully, right? Would have printed the money into oblivion. So
9:21
when that happened, interest rates went to 17%. 18%. That's
9:27
why they were there. Now, when rates go up, this is an economic principle. Listen
9:30
very closely. When rates go up, asset
9:34
prices are discounted back at a higher value, which makes the net present
9:37
value lower. It's a mathematical exact certainty. It's
9:40
a mathematical formula. It's a physics thing. You can't deny
9:45
it. It's maths. And so when
9:48
you have high interest rates, you're going to have a lower net present value of the asset.
9:52
So that's why when rates were really high, asset prices
9:56
were low. That's why people were buying houses for
9:59
one times annual earnings. In the late 70s, you
10:02
were earning six grand a year as a wage and property might've been eight grand to
10:06
buy. Not the best property, but you could still get it for a reasonable price,
10:09
right? It's like being able to buy property now for a hundred grand, okay?
10:13
And so that's because rates were high, because no one wanted to borrow any money. Who
10:16
wants to borrow money at 18%? People were still doing it because the prices
10:20
of property was so low, you could still do it, okay? So that was
10:23
happening. But of course, interest
10:27
rates went from here, 18%, and over time,
10:31
they fell. They fell. They fell, and
10:35
they fell, and they fell, and they fell, and they fell. And they fell to 0% in
10:38
COVID. So for 50 years, they've
10:42
gone from 18% to 0%. And
10:45
of course, what happens to asset values when you drop rates? Asset
10:49
values rise because debt becomes cheaper. And
10:53
so you get this movement of debt money into
10:57
asset values. It's a valuation boost because of
11:00
rates. So this is what happens. Asset prices are
11:04
inversely correlated with interest rates. Fact. Talk
11:07
to any economist. Talk to Warren Buffett. He'll tell you, right?
11:13
So that's what's caused cheap money to be created, right?
11:17
It's the wind beneath the wings of every property bull market. And
11:21
the wind is now gone. I
11:24
know the RBA wants to bring the wind back. I know everyone
11:28
wants the wind to come back. That's why they're dropping rates to 3.6%. I
11:32
know. But guess what happened this week? They did it and inflation went
11:35
back up. Uh-oh. Oh, we
11:39
can't drop our rates back down to zero, man. How are we going to keep this property bubble
11:42
going? That's what's happened. By
11:51
doing that, the borrowing rate has doubled, okay?
11:55
Not because anyone's earning more rent, but because households are now
11:58
pledging, they're pledging more to the bank, right?
12:02
So that's what's happening. So the inflation, sorry,
12:05
the interest rate cutting has created this massive bubble,
12:09
right? Here's the next part. Just quickly, if
12:12
you're ready to take control of your finances but feel stuck on where to start,
12:16
I have a solution. My book, Money Buys Happiness, simplifies
12:20
investing and wealth building with practical steps to help you achieve financial
12:24
peace. Get your copy via the link in the show notes and let's get your
12:27
money working for you. Now back to the episode. The second big
12:32
factor that cannot be repeated. There's maybe one
12:35
way it can, which we'll talk about at the end, but it just came to me. I
12:40
don't see how this can be repeated. It's the income revolution. What
12:44
that means is back in the 70s, 50 years
12:48
ago, when this property boom began, when interest
12:51
rates started dropping, what we started seeing was women effectively
12:55
were moving in from just managing the household, raising
12:59
children, and more of them moved into earning
13:02
income. Women were still working, but en masse moved into the workforce. And
13:07
they started taking on full-time careers. So it went from maybe what might have been a part-time
13:10
income or no income to a full-time income. So you had two
13:14
of the couples both working. If you think about that, if the
13:18
husband was working as an example and he was making $25,000 a year, The
13:22
woman starts to work full time and all of a sudden they're making 50,000 a year. So
13:26
they double their serviceability, right? And
13:29
they increase it drastically. They may not have doubled it, but they may have got way up
13:32
there. I think the data suggests 1.6 times. So they've improved or
13:36
increased their capacity to
13:40
service loans by 60%. That
13:44
obviously means they can borrow more money. Their serviceability went way up. That
13:51
just meant that they could buy more, they could borrow more to buy a bigger house
13:55
and upgrade. It starts to bid the price of housing up. Does that make
13:58
sense? That's what happens when you borrow money. You have to
14:01
service the loan. All of a sudden, they doubled their
14:04
servicing ability. The property boom
14:08
wasn't necessarily built on the bricks. It was built on moms joining the workforce
14:11
in record numbers. And here's why it can't be repeated, because
14:15
there's not a mom and a dad and another mom. Well, in some weird households, maybe
14:18
0.001% in America, there might be, maybe in Australia, I
14:22
don't know. But generally speaking, it's the husband and
14:25
the wife, or it's a couple, right? So
14:29
you can't just add a third person, right? You
14:32
can't do that, unless you start bringing workers into the home, right, polygamy. It's
14:36
just, it's not gonna work. You can't pull the lever again. Okay,
14:41
so side by side, 1970s family versus modern family, it
14:45
shows one income versus two. So we didn't get richer
14:49
necessarily, we just added another breadwinner to the mortgage. Does
14:52
that make sense? Now, the only possible, possible
14:57
way, no I can't, potentially
15:01
if children stay at home and start working and
15:05
bring in that income to that household, then
15:09
yes, you could, but culturally, are we gonna
15:12
start living with mom and dad for the rest of our lives? Probably
15:16
not. Possible, unlikely. So
15:19
will we see another full-time income come to
15:23
the household? I would say unlikely. So can
15:26
it be repeated? No. You're not gonna see that doubling of borrowing
15:29
capacity be repeated. So what's the third one? Longer
15:34
mortgage lengths, stretching the rubber band, right? And you're
15:37
probably seeing noise of them offering potentially, maybe in the future, offering
15:41
40-year mortgages, particularly if you're only putting a 5% deposit down, okay?
15:45
So mortgages in the 70s and 80s, they were typically 20 years. Today,
15:50
they're 30 years, standard. And
15:54
some banks, you can stretch it further because what happens is people pay
15:58
down a lot, get the equity, go buy something else, reset it. They reset it.
16:01
So we're really living in perpetual mortgage world. It's
16:04
just become such a normal part of people's payments
16:08
every month that, oh, our mortgage payments is falling. Let's go
16:11
get a bigger house. Let's bid the price up again. And let's go reset our
16:15
mortgage for another 30 years. Because real estate never goes backwards, right, honey?
16:18
Right? So you're seeing the standard mortgage go
16:22
from 20 years to 30 years. Now it'll be 40. Then
16:26
it might be 50. And what you start to see is you start to then move
16:30
into a situation where it's kind of becoming more like a long term lease, right?
16:33
Where you really the bank owns the property for most of your life, okay, on
16:38
paper. So what happens when you extend the
16:41
term for a mortgage, is you reduce the
16:45
repayments, but you increase the total interest payable over
16:48
that time period. So what you might think feels
16:52
good in the short term, because yes, you can service the debt better with lower principal repayments,
16:56
but you're gonna pay a ton more interest over time. In fact... you
16:59
will pay more than the entire value of your house on
17:03
a 30 year loan term just in interest. So for
17:06
example, if you're buying a million dollar house today and
17:09
you're putting down a 5 or 10 percent deposit, which is what most
17:12
people do, 10 percent, and you're borrowing for 30 years, you're
17:16
going to pay more, not the same, you'll pay more, probably
17:21
1.25 to 1.5 times more than the value of the house. So you'll
17:24
pay 1.5 million dollars in interest and
17:27
your house was bought for a million. People are like, yeah, but my house grows. Yes, but
17:31
it's just offset the interest cost completely. So there's no actual gain.
17:35
Does that make sense? So you're
17:39
going to be paying a ton of interest. And the longer the loan terms go, so
17:42
if we push out the 50-year mortgages that aren't really realistic, you're
17:45
going to have lower repayments, but you're going to pay a fortune in interest. It's
17:49
going to feel like a lease. We didn't make housing more
17:52
affordable. We just kicked the can down the road. So that's what happened
17:55
when we extended mortgages. And I can't
17:59
see that, like what are we going to do? A hundred year mortgages? You
18:03
might see 40, but geez, like we're pushing it, aren't we? Like
18:06
how many of you really want to be in debt servitude for 40 flipping years? Maybe
18:10
some of you do. I mean, I go down the M1 every day and I see people in the
18:13
rat race working extremely hard, sacrificing their best
18:17
years of their life to get to
18:20
a point at 65 and just have their house paid off. That's their one goal in life. It's
18:24
like, oh my God. Really? That's
18:27
what I was put on earth to do is just pay the mortgage off. I mean, it's a
18:30
goal, but with 40 and 50 year mortgages, isn't it more like
18:33
slavery? So what's the fourth
18:37
factor that can't be repeated? I mean, how do we go, how do
18:40
you lift 20 to 30? How do you lift 50% again to 45 years? I
18:43
don't know if that's going to happen. Possible, possible. That's probably one of the few
18:47
that can be repeated, but geez, I hope it doesn't happen. The
18:51
fourth one. real wages growth, like
18:54
real wages growth. So actual productive gains in
18:58
the labor market. So from 1973 to today, effectively,
19:03
wages grew about 5.8% per annum on
19:06
average, nominal, which gave the banks more
19:10
confidence to lend more over time. So
19:13
it allowed people to commit to big loans, knowing
19:18
that their wages are going to rise in future, keep servicing those loans to
19:21
manage the burden, to soften the blow, right? But today,
19:25
real wage growth is weak. It's weak. Real wage
19:28
growth is weak. There's been times where like per capita GDPs flat
19:33
in Australia for the last seven quarters, almost two years. And wage
19:36
growth has been anemic. There was a very short time period there
19:40
in COVID or post COVID where the wage growth grew a
19:43
little bit because of there was under supply of
19:47
labor to the market and high demand jobs. But by and large, over
19:51
the last however many years, again, it's five, it's not much. It's
19:54
not drastic, put it that way. Today,
19:58
real wage growth is like less, it's 3.8%. It's barely keeping up
20:01
with inflation. In fact, it's probably meeting inflation. So
20:05
without strong wage growth above inflation, you
20:09
can't take on any more debt. You're not able
20:13
to because you're not getting any real growth
20:16
in your income. So as the as your debt's
20:19
kind of like being serviced by the interest rate too, you
20:23
can't out-earn the returns or the repayments of
20:26
your mortgage. So it's not like you can just go and borrow more, basically. So it
20:30
just caps the borrowing rate when our wage growth is not keeping up
20:33
with inflation. Now, I think also with AI, the onset of AI, what
20:37
may happen is certain workers may become more
20:40
productive. Whether they'll get paid more, I don't know. But what is definitely
20:44
happening is that jobs are being lost en masse. in
20:48
sectors that you would never have imagined three years
20:52
ago would have ever dropped off, like white-collar jobs. I
20:55
know people that are like, oh, yes, the white-collar jobs. I'm in
20:58
a blue-collar job. This is going to be awesome. We're going to have all the work. Yes,
21:01
but who are your clients? Who are your customers? Let's
21:06
say, for example, you have more of a blue-collar style job where you've got
21:10
a window washing business. Well, if all the white-collar jobs
21:14
are gone, whose windows are you going to wash? It has a massive impact on
21:17
everyone. So AI may bring on board the
21:21
mass extinction of jobs, not suggesting, well, I don't want
21:24
to be this fortune teller with this thing, but it's starting to
21:27
happen. It's starting to happen now. So
21:31
what will be the impact on wage growth if we're starting
21:34
to be replaced by robotics, AI, et cetera, et cetera? How's
21:38
that going to impact things? We're not going to see the same 5.8% growth
21:41
in wages like we saw in the last 50 years. So it's unlikely to
21:45
be repeated. And you're also looking at demographics. Look
21:49
at the baby boomer population, that's why they're called the boomers, from
21:52
World War II. The baby boomer generation also
21:57
produced substantial amounts of innovation, productivity,
22:01
gains, etc. And we're now having to import and
22:04
immigrate, we're actually immigrating unskilled workers. And
22:09
so how are we going to repeat this
22:13
baby boomer demographic? And also when the baby boomers
22:16
die, who's going
22:20
to get all their housing? So if you have this massive influx
22:23
of immigration for a period of time, well not immigration, from baby boomers and immigration, and
22:27
you got all this housing to service the baby boomers and all the nursing facilities and
22:30
everything, all the old age, and that comes off the ball, the millennials
22:34
can't quite replace the baby boomer generation. It's a little
22:37
bit less. But what's going to happen to
22:40
their houses? It's what's happening now. So
22:44
you're getting a lot of these big houses and
22:48
we don't have the birth rate to replace the
22:51
number of houses we have. So we may experience,
22:55
and this may happen, this is probably also why they're loving this immigration at
22:58
the minute. What may happen is in Japan with
23:02
the population fall, housing is super affordable because
23:05
they build all these houses for people that are no longer there because they die. That
23:10
could happen, right? We're not going to
23:13
see the natural birth rate in Australia like
23:16
we did after the war. This is not going to happen again. So that's
23:20
also something that can't be repeated in the short term. So
23:24
we've got an empty fuel tank. So what now? What's happened?
23:28
All these four factors have created this Goldilocks, this
23:32
golden era in property. And of course, you get the baby boomers saying,
23:35
you're going to buy a property? It's going up and up and up. They are
23:38
a byproduct of the last of those four factors in the last 50 years, they
23:42
are. To suggest it can repeat like that is
23:45
very, very, very unlikely. And a lot of them aren't giving
23:48
you that advice from data, they're just giving that advice because that's what happened to them. It's
23:52
a little bit of survivorship bias in that too. So what
23:56
we have to plan and understand is what's going to happen in the next 50 years
24:01
for those who are going to be around, right? What's
24:04
going to happen? Now that the fuel tank is empty, we've got interest
24:07
rates are now normalized. You're not going to get record rates down to 0% again. If you are,
24:11
I think it's going to create stagflation. It's going to be a problem. They're going to raise them again. It's just not going
24:14
to happen. The second thing is you're not going to see moms
24:18
join the workforce again because they're already in the workforce. Couples have to go to work
24:21
together at the same time just to afford daycare. You're not going to
24:24
see mortgage terms potentially grow
24:28
by 50% again. Unlikely. Maybe 40 years. Maybe. And
24:32
you're certainly not going to see wage growth like we
24:36
have because of the onset of technology and so forth and
24:39
demand for jobs. So if we can't repeat that and
24:42
we have an empty fuel tank, what now? What now?
24:47
What's going to happen? Unless we add a third breadwinner
24:52
and we put a granny flat on the property and put someone in there, which by
24:55
the way, people are probably doing now. They're like, hey, how do I get a granny flat
24:59
and put a third worker in there so I can get some income? Yes? Smart
25:03
people are playing that game because it's just so expensive to service a
25:06
loan now or to buy a property. They need to do that. So
25:09
unless we add that, we're in trouble. So what's going to happen next? Where
25:14
do we go from here? Government policy doesn't
25:17
seem like it's going to help because they just drop rates down, sorry,
25:21
deposits down to 5%. It's going to increase the demand again.
25:25
And if rates drop even further, maybe again, they're going to
25:29
keep creating this massive bubble. And so what I
25:32
anticipate is if we can't repeat the past 50 years, And
25:36
we have an undersupply of housing in the country and we have immigration. What
25:40
we may see is unsustainable price
25:44
growth that's going to definitely collapse. Or
25:47
we may see a flat line for many years where housing goes sideways.
25:52
It doesn't have to collapse, but it could just go sideways. And
25:55
if you're someone who's ever held an asset for 20 years and it's gone sideways, that's
25:59
painful, right? Because of your expectations of it going up previously.
26:04
So it may not crash, but returns will be tethered to fundamentals.
26:07
So rents and wages. So it may just creep up, but
26:11
I can't see it going to be at this like seven to 10% compounded
26:15
growth rate. Like it's a birthright. Okay. Again,
26:21
immigration policy, foreign buyers, maybe some supply shortages
26:24
that are happening at the minute. They're going to perhaps. help
26:28
it, but they're not going to be able to repeat what's happened, okay? It's
26:31
just unlikely, right? To think that
26:35
you're going to bet that what's happened in the last 50 years,
26:39
the property miracle is repeatable, I can't see
26:42
it. It's a little bit like trying to think that the dot-com bubble is going to happen again, and
26:45
you can buy all these companies with no earnings and just going up and
26:49
maths. So a house is not
26:52
magic, it's a financial asset as we've discussed, and
26:56
the math will always win. I know it doesn't look like it,
27:00
and Ben Graham, who's Warren Buffett's mentor, or
27:04
was his mentor before he passed away, he said that in
27:07
the short term, the market is a voting machine.
27:12
But in the long term, it's a weighing machine. So right now you're
27:15
seeing people vote with their feet with the demand, people buy all these houses, that's
27:18
a voting machine. It's not based on fundamentals. And long term,
27:21
it's a weighing machine, the math will always win. So,
27:26
is it time to rethink how you approach your wealth? Well, it
27:30
definitely doesn't mean, and people have asked me this, do I sell my house? It doesn't mean you
27:33
go out and liquidate your house. It just means to
27:36
think or anticipate that the last 50 years
27:40
of gains is going to happen to your place is probably unlikely.
27:45
But does it mean it's going to collapse? Not necessarily. So you don't have to freak out
27:48
and go, should I sell my house? But probably understand that if you've got
27:51
capital and you're going to deploy it into real estate, to think that it can repeat
27:55
what it did is just unlikely. That's all. It doesn't mean you're also going
27:58
to get nothing. It just means it's going to grow a lot less, I would think. And
28:01
so you've got to start exploring ways to
28:05
grow your wealth outside property, which is where
28:08
I've basically created our wealth. I don't own a
28:11
single property. I'm unmortgaged. I'm
28:15
unmortgaged. I have no property. We have no property, but
28:18
we have wealth. We have time freedom. We have cashflow.
28:23
We have security. We do. There
28:26
is a way. Okay. And I'm
28:30
excited to talk to you about those on the upcoming episodes of how to build wealth
28:33
without property. All right, but go check out other episodes. That's it for this
28:37
one. Hit the subscribe button. Come and give me a comment. Leave me
28:40
a comment. Come fight me in the comments or come and support me in the
28:43
comments. I don't mind. I'm open to anything, but I love your interaction.
28:46
Thanks so much for tuning into this. And those who do leave comments and interact and
28:50
hit the subscribe button and our subscribers, thank you so much for paying
28:53
attention. I hope this has been super informative, but also at the same time, somewhat
28:57
engaging, entertaining, and helped you think about property going forward.
29:00
See you in the next episode. Thanks for listening to Money Grows on Trees. If you
29:03
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29:13
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