Harry Dent, the American financial newsletter writer who wrote “The Great Crash Ahead – How to Prosper in the Debt Crisis of 2010-2012”, is in Australia and saying that our real estate bubble is set to burst. He thinks there’ll be another worldwide economic downturn in 2012, and this will cause Australian real estate values to fall back to where they were 10 years ago.
“People in places like Sydney or Tokyo or Miami say, ‘Hey, real estate can never go down here, we’re a great place, everyone wants to move here, there’s not much land for development’, and what I say is that is exactly the kind of place that bubbles.”
“Outside Hong Kong and Shanghai, Australia is the most expensive real estate market in the world compared to income.”
– The Age, “‘Tsunami’ to hit Australian real estate”
- Harry Dent
So who is Harry Dent?
“The basis of Dent’s research is the highly predictable nature of consumer spending based on a family’s formation pattern: minimal spending as young adults, increased spending while rearing children, peaking their spending as their children leave home, and then slowing spending during the last 15 years of working life (48-63) while saving more and preparing for retirement.
In the late 1980s, Dent forecast that the Japanese economy, then the darling of the world, would soon enter a slowdown that would last more than a decade. In the early 1990s, he predicted that the DOW would reach 10k. Both of these predictions were met with much skepticism, and yet both eventually came to pass.
In Japan, Dent was using their peak of 45-50 year olds (1990–1994) as the beginning of a long slowdown. In the US, he used, and continues to use, the peak year for 48-year-olds, 2009, as the top of a long term growth pattern.
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Dent popularized the baby boomer spending wave theory. According to him, after baby-boomers’ children leave home, they begin paying down debt and saving for retirement, which means spending less. That means that the stock-market should peak sometime between 2007 and 2009. This is based on his observation that spending peaks at around age 50 for individuals, the average age for a family’s children to leave home.”
Does Harry Dent get it wrong?
Yes. Here’s some criticism from the same Wikipedia entry:
“Dent has been criticized also by many economists for being downright wrong in several of his predictions. In fact, www.maxfunds.com, a financial reporting site awarded him the The “Ultimate Charlatan” Award. They write:
“The worst investing advice usually arrives near the top and bottom of stock market cycles. Demographic trends guru Harry S. Dent is making the rounds again, and touting his latest book, The Great Depression Ahead: How to Prosper in the Crash Following the Greatest Boom in History ….” In his 2006 work, Dent predicted,
“The Dow hitting 40,000 by the end of the decade, the NASDAQ[‘s] advancing at least ten times from its October 2001 lows to around 13,500, and potentially as high as 20,000 by 2009 … The Great Boom[‘s] resurging into its final and strongest stage in 2007, and even more fully in 2008, lasting until late 2009 to early 2010.”
Of course, those who read The Roaring 2000s, Dent’s 1999 masterpiece, should soon be buying each of us a turkey with all the fixin’s. According to the book, only a year remains before the Dow breaks 40,000 and the Nasdaq hits 20,000, at which time we’ll simply amplify our fortunes by shorting stocks in the coming depression. We can’t underestimate how big this final move up will be before the depression kicks in, since The Dow and Nasdaq are currently quite a bit lower than they were back in 1999 when The Roaring 2000s was published.”
So what does this mean for Australian real estate?
Well, it’s hard to tell if Dent will be right or wrong. We should definitely not see his prediction as necessarily right as then it simply becomes a self-fulfilling prophecy. He has been very wrong before, and he may well be wrong again. I have a couple of questions for Harry Dent to consider:
Has he looked in detail at the Australian property market?
What does he know about property prices here, and the difference between our mortgage market and the USA?
I suspect he doesn’t know a whole lot about real estate in Australia, but is just looking at the global figures and throwing Australian real estate in with everything else. That doesn’t mean he’s wrong – Australian property prices may continue to decrease, but I wouldn’t accept Harry Dent’s explanation just because he said so.