In 2015 I wrote this blog post ‘Beware of the housing bubble bursting’ which summarised the view held by many at the time that we were in a housing bubble.
Their key points were as follows…
- House prices had grown faster than economic conditions suggested was appropriate (prices in Sydney had climbed roughly 40 percent in 3 years)
- Household debt levels were unsustainable (debt levels as a proportion of income were reportedly higher than in the US prior to the GFC)
- The above was leading to major affordability concerns
I even pointed to a Deutsche Bank survey concluding that Australian house prices at the time were overvalued by some 49%.
But here we were 10 years later, and house prices in Sydney (also in Brisbane and Adelaide) have nearly doubled.
What’s interesting is that the property market has also faced significant challenges over the past decade…
- 2016 – APRA forcing the banks to slow investment lending, resulting in higher interest rates and lower borrowing capacity
- 2017 to 2019 – Royal Commission into Misconduct in Banking, with credit decisions being scrutinised, restricting credit
- 2020 to 2021 – Global covid19 pandemic, and the threat to unemployment
- 2022 to 2023 – 13 interest rate rises, reducing borrowing capacity by a further c 35%… then the fixed rate mortgage cliff!
The observations above reinforce the famous Warren Buffett quote: “Forecasts usually tell us more about the forecaster, than of the future.”
Now I’m not suggesting that house prices in Australia will double again over the next 10 years.
But I think the takeaway here is to block out the noise.
Clients should buy real estate when it’s the right time for them (the right time, and the right property, based on their personal circumstances).
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