I came across this article today and I thought I’d share.
There’s a bit of talk now about interest rates rising and the property market falling, whereas this article by John Lindeman predicts the exact opposite.
I’ve interviewed John on my podcast before (see here). He’s a property market analyst and quantitative researcher. He has been studying the Australian housing market for over 40 years and he is the author of Mastering the Australian Housing Market which is arguably the seminal text for property investors in Australia.
The key takeaways:
- It makes sense that higher borrowing costs will reduce buyer demand, causing property prices to fall, however it’s hard to test this theory since rates have generally declined over the past 30 years
- However there’s limited evidence to suggest rising interest rates cause Australian house prices to fall
- The simple reason is that most Australian property owners are immune from or resilient to the impact of interest rate rises
- Approximately one third of Australian houses are fully owned with no debt, and another third is owned by investors who receive more tax relief when rates rise, and who can also pass higher costs onto tenants
- For the remaining third of properties owned by owner occupiers with debt, many have small loan amounts outstanding and therefore higher interest rates are unlikely going to motivate them or force them to sell up their homes
- Properties and locations dominated by highly leveraged first home buyers are most at risk of rising interest rates, however this is only a small portion of the property market (first home buyers only comprise around one tenth of all home owners)
- The aim of increasing interest rates is to curb inflation, not weaken house prices
- For over one hundred years Australian house prices have always moved in sync with the rate of inflation
- According to John if inflation goes up this year or next, so too will property prices
The full article can be found here.
It’s a refreshing (some might say comforting) perspective.
Predicting house price growth is terribly difficult. Most economists got it terribly wrong in 2020 with their predictions for property Armageddon.
Best wishes and stay safe.
Regards,
Dan
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