I have been thinking about investment bubbles for the last few days.
If you read most of my articles, you will know that I recently admitted that I returned to watch all Berkshire Hathaway AGM videos on YouTube. It is fascinating to hear the thoughts of Warren Buffett and Charlie Munger from the past on the events that have emerged since then.
Warren Buffett was not foreseeing Armageddon, but he pointed out the residential real estate bubble and it can take a long time for the problems to come to the surface. And even if a bubble does not explode, the symptoms of a bubble are not resolved like debt.
This is not a piece that suggests that Australian house prices are in a total bubble and this Commonwealth Bank of Australia (ASX: CBA) & Westpac Banking Corp. (ASX: WBC) must be careful because Australia is doomed.
But I think it is worth thinking about how much a family budget is going to pay a very large loan only for the average house price with a 20% deposit, which seems difficult to allow the average family to afford. No wonder retail sales, wages and inflation are so low if the average Australian has little money to spend.
There is nothing to suggest that Australian house prices will drop beyond the 10% reduction that has already taken place. But there is still a good chance that good growth will not return soon, which is why I wonder if investing in shares like National Australia Bank Ltd (ASX: NAB), Australian and New Zealand banking group (ASX: ANZ) e Nick Scali Limited (ASX: NCK) is a good idea. Although there is no accident along the way, high debt is still a problem.
Very low interest rates make it difficult to invest, but I would prefer to invest in companies such as MFF Capital Investments Ltd (ASX: MFF) e Rural funds group (ASX: RFF) instead of those strongly linked to the strength or economic weakness of Australia.
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Motley Fool collaborator Tristan Harrison owns shares in Magellan Flagship Fund Ltd and RURALFUNDS STAPLED. Motley Fool Australia owns shares and recommended RURALFUNDS STAPLED. Motley Fool Australia owns shares in National Australia Bank Limited. We Fools may not all have the same opinions, but we are all convinced that, considering a wide range of insights, we have become better investors. The Motley Fool has a disclosure policy. This article contains only general investment recommendations (with AFSL 400691). Authorized by Scott Phillips.
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