Will Property’s Past Haunt its Future?

Graeme Salt Broker 2 Leave a Comment

“History doesn’t repeat itself – but it rhymes” – Mark Twain.

The property market is turning – but what is it turning to?  Are we close to a property collapse?

Below I have reviewed comments from some experts who have been through more than one property cycle.

Over the past 20 years, nationally, this chart from Corelogic shows the property market has had its share of ups and downs.  Nationally, there have been more ups than downs – although the Gold Coast and mining towns have had their own specific collapses over the years.

Due to tighter lending restrictions, the Sydney market is going sideways and it is likely that Melbourne will follow suit in a few months.

But, in general, the economy is picking up; employment is rising; and slowly, wages are rising.  This augurs well for the property market; the more people are in jobs and earning more the more they can make those loan repayments.

And, on the other side of the equation is the other reason why homes will remain affordable.  Few economists are predicting rapid interest rate rises.   Below is a summary of what some bank economists are predicting.  Even when they say that rates will rise, they say they will rise slowly.

Westpac 2020
RBC Capital Markets End of 2018
Capital Economics Late 2018
ANZ Mid 2018
AMP Capital 2019
UBS End of 2018

Inflation is one of the biggest determinants of interest rate rises; even though the economy is strengthening, Capital Economics has said that “underlying inflation will stay below the 2-3 per cent target rate until 2020.”   This is the main reason why interest rates will remain lower for longer.

Once upon a time Central Banks tried to put a lid on inflation, now they are trying to put a rocket under it to kick-start the economy and the main way they are doing this is by keep rates lower for longer.

The boom periods may well now be behind us.  But just as has happened for the past decades, in general, property will hold up.

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