Apr 18 2022 34 mins 44
Last year was an extraordinary year for many homeowners and investors when their property values went up more than they owned in everyday regular income. Clearly, the market’s changing. When the property market’s booming, everyone’s an investment genius. But when the property market’s different, I think it’s really important to listen to those who’ve got a perspective – who’ve lived and invested through many different cycles. That’s why I’m talking to property researcher John Lindeman today. John believes that property values are going to keep rising. I know that’s contrary to what some of the big bank economists are suggesting, so it will be interesting to hear his thoughts. In his recent report, John’s gone back to 1901 to look at the statistics. He isn’t just somebody thinking about property and telling you what’s going to happen – he’s done careful research to see what happens to property values when interest rates rise. At the end of today’s show, I hope you’ll have more clarity about what’s ahead for today’s property markets. Why property prices will keep rising Last year around 98% of locations around Australia recorded rising property values with many properties rising in value by more than 20%. Interestingly the Australian Bureau of Statistics said that the value of Australia’s property portfolio skyrocketed to $9.9 trillion in 2021, driven by a record-shattering 23.7 percent annual rise in property prices. The collective wealth of homeowners increased by $2 trillion in just one year alone – a sum 30 percent larger than the annual output of the entire Australian economy. The growth in property wealth in the past two years is higher than all the gains over the decade before COVID-19 (2010-2019) combined. Some bank economists are predicting that house prices will fall this year or in 2023 as interest rates increase, but property market analyst John Lindeman explains why property prices will continue to rise. Economists are concerned that the Reserve Bank will soon raise interest rates to slow down inflation because inflation is very hard to reign in once it takes hold. They believe that higher interest rates will make housing less affordable, and that lower buyer demand will then push prices down. It seems to make sense that higher borrowing costs will reduce buyer demand and therefore prices will fall. But it’s hard to test this theory because interest rates have gradually declined since 1990 when the standard variable home loan rate was all the way up to 13.5%. For over 30 years property prices have grown and interest rates have fallen. There certainly is a strong correlation between falling interest rates and rising property prices, but does this mean that the reverse is also true? How can we be sure that if interest rates rise, property prices will fall? In the last 30 years, property prices did not fall when interest rates rose One-third of our housing is fully owned, with mortgages having been paid off and no remaining debt. The owners are mostly older couples living in empty nests and when they sell, it will be to downsize. So, interest rate rises are of no concern to them. Another third of our housing stock is owned by investors who can claim the cost of housing finance interest against all their other income. This means that interest rate rises reduce the amount of income tax they pay. They can also raise asking rents on their properties to recoup the cost of any interest rate rises. Only one-third of our residential properties have mortgages that are being paid off by owner-occupiers. Most of them purchased their homes many years ago when rates were much higher than they are now. Their financial situations have improved since then and they have probably paid down some of their debt, so a rise in interest rates is manageable Only first home buyers are badly impacted when interest rates rise Some highly leveraged recent first-time buyers in new outer suburban f [...]
