https://youtu.be/cSvRvXzLNJs

We’re already in the second half of 2023, and time seems to speed up as we get older. It’s interesting how quickly it feels like time passes now compared to when we were kids and it seemed to move so slowly. Before we know it, Christmas will be here again.

Despite interest rates going up, house prices are rising. The property market is in uncharted territory. Even with the recent rate hike in June, buyers are still very active in the market, and prices continue to rise. I did some reading to satisfy my curiosity and wanted to share what I’ve learned.

Although there have been 12 rate hikes since May 2022, most major banks predict that there will be two more in the coming months. Even with these increases, most Australians expect house prices to keep rising in the next year. This is likely due to a record number of people moving to Australia, a shortage of available homes, and wages beginning to grow. In simple terms, it comes down to supply and demand. As the population increases and fewer new homes are being built, there are still enough buyers who want to and can afford to purchase homes at higher prices, leading to price growth.

Let’s talk about inflation. We hear this word a lot in the media, but its’ importance may not be clear to everyone, including myself until recently. I believe it’s something we should teach in school because it affects our lives as adults. I came across a simple video that explained inflation, and I’ll try to share that knowledge.

Basically, inflation happens when there’s more money in the economy than there are things to spend it on. When loans are cheap and easy to get, people tend to borrow money and buy things, even if they don’t really need them. As more people buy the same items, prices increase because suppliers can’t keep up with the demand. This results in stores having to raise their prices to accommodate for this and basically, that is a summary of inflation.

Now, let’s talk about recessions. The media has been talking a lot about the possibility of a recession, but many of us don’t fully understand what it means and how it impacts society. Technically, a recession is when a country experiences two consecutive quarters of negative economic growth. But what does that really mean?
In many cases when interest rates rise or inflation occurs, people become cautious about spending money and want to save instead. The shops that had previously raised their prices, now can’t sell anything and therefore have to lower their prices to stay afloat which then results in them having to cut costs by laying people off work and sending the unemployment rates up.

Can we predict if a recession is coming? No one can say for sure, not even the major banks. It’s all just a forecast, essentially a guess. Since the COVID-19 pandemic started, everything has been hard or nearly impossible to predict.

Should you consider selling your home? My advice to clients and friends is not to rely too much on media predictions, as they often change. Instead, focus on your personal situation and seek professional financial advice. Currently, the housing market is very strong with some homes selling at or closer to peak prices from a year ago. This represents a remarkable 10-12% recovery in a short period. What we do know for sure is that there’s a significant decrease in homes available for sale, and there are many eager buyers. That’s why house prices are rising, with multiple offers and bidding wars happening for many properties.

If you’re an investor considering cashing out your investment, perhaps for retirement, this could also be a prime opportunity. If your personal circumstances require a bigger or smaller home, certainly as long as you’re buying and selling in the same market, there’s never a right or wrong time.  However, I advise many clients to hold onto their property if they’re financially comfortable, as real estate is often the easiest and most common way Australians build wealth.

I saw the above chart so made my own with the data I could find representing the Brisbane Median House prices and the home loan interest rates, which we can see the house prices are not related to interest rates.

Australian’s obsession with property, and the fact that around only 30% of mortgages are effected by interest rates show the relationship is negligible.

Feel free to reach out if you have any further questions or need more advice. I hope this has been helpful to you.

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